Final Results

Keystone Law (AIM: KEYS), the fast growing, UK Top 100, challenger law firm, today announces its final results for the year ended 31 January 2019 ('FY2019').

Financial Highlights

1 Adjusted PBT for 2019 is calculated by adding amortisation and share based payment costs back to PBT. For 2018 flotation costs and loan note interest costs have also been added back. Details of these calculations are shown in the financial review.
2 The adjustments made to profit in calculating adjusted PBT have been made to earnings in order to calculate adjusted EPS.
3 On IPO the Group stated that it intended to pay a dividend of 2/3rds PAT for the year ending 31 January 2019 with a progressive dividend policy thereafter.

Business highlights

1 Principal lawyers are the senior lawyer who own the service company ("Pod") which contracts with Keystone. The relationship between Keystone and its lawyers is governed by two agreements: a service agreement (which governs the commercial terms and is between the Pod company and Keystone) and a compliance agreement (which governs the behaviour of lawyers and is between each lawyer and Keystone). Pods can employ more than one fee earner.

James Knight, Chief Executive Officer of Keystone Law, commented: "I am happy to report that the business has performed strongly throughout our first full year as a public company and as such has delivered good growth across all the business KPIs. Revenue and profit growth have converted to cash and this means that we are in a position to pay out a dividend of 2/3rds adjusted PAT which is in line with what we said at the time of the IPO.

"The benefits offered by the Keystone business model, as well as the increasing brand recognition within the legal profession, continue to make Keystone a highly attractive proposition for high calibre lawyers seeking a different way to develop their practice. As such I strongly believe that Keystone is well-positioned to take advantage of the significant market opportunity in the UK mid-market legal services market, which we believe is ripe for disruption.

"The current year has started well and the activity of the existing lawyers, together with the strength of our recruitment pipeline, gives me great confidence that the business will deliver another year of strong performance and profit growth. I look forward to another exciting year of growth and development as we continue to pursue our strategy for success."


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Chairman's Statement

On behalf of the Board, I am pleased to introduce Keystone Law's first full year results as a quoted company.

This has been another strong year for the Group, with revenue increasing by 35% to £42.7m (2018: £31.6m) and adjusted PBT* increasing by 57% to £5.1m (2018: £3.3m) (PBT increase of 145% to £4.7m from £1.9m), whilst adjusted PBT margin has increased from 10.4% to 12.0% (PBT margin 11.1% up from 6.1%). The business has also continued to be strongly cash generative, with cash generated from operations of £4.6m (2018: £2.4m) representing an operating cash conversion of 91% (2018: 91%).


In accordance with the Group's stated dividend policy, the Board is proposing to pay a final dividend for the year ended 31 January 2019 of 6.5p per share (2018: 0.84p per share in respect of post admission period). This brings the total dividend for the year to 9.0p.

Board and Governance

This year has been our first full year operating as a Plc Board and I am happy to report that the business has moved smoothly to adopt the structures and governance requirements of a quoted business. We have also carried out our first Board effectiveness review, this was a positive exercise which highlighted no specific adverse issues and served to support points of focus for the coming year.

During the year, the London Stock Exchange announced changes to its rules, requiring all AIM quoted companies to apply a recognised corporate governance code and to explain how they do this. From the start of our period as an AIM company, as a Board, we acknowledged the importance of high standards of corporate governance and announced our intention to apply the Quoted Companies Alliance (QCA) Code. The QCA has also issued a new edition of the code this year which sets out the 10 Principles of Corporate Governance with guidance on how these should be satisfied. In our Corporate Governance Statement, we set out how these principles have been applied in our business.

*Adjusted PBT for 2019 is calculated by adding share based payment costs and amortisation to PBT (2018: calculated by adding flotation costs, amortisation and loan note interest back to PBT). Details of these calculations are shown in the Financial Review.

Our People and Technology

Keystone is driven by its people and its technology. It is the people who work for and with us that make the business such a successful and rewarding place to work. We place great emphasis on, and dedicate much time and effort towards attracting and retaining people of the highest calibre to work with us. Our modern agile business model provides the platform for our people to excel professionally whilst benefiting from the efficiencies and flexibility afforded by modern technology. It is this combination of our structure and culture which underpins everything we do and which drives our business forwards.


This year has started well and in line with the Board's expectations.

We continue to focus on our core strategy of organic growth through the recruitment of lawyers from within the UK legal mid-market which remains a substantial opportunity for us. Although the outlook for the UK economy as a whole is somewhat uncertain at this time, we remain confident that our business model, together with the size of the market opportunity are sufficient to ensure that we will continue to deliver strong results.


Robin Williams
Non-executive Chairman

7 May 2019


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Chief Executive's Review

Introduction and Highlights

This year has been another exciting and successful year in the history of Keystone. In our first full year as a public company the business has continued to deliver strong growth across all metrics and the increased brand recognition which we sought to achieve through the admission to AIM has certainly been achieved. Financially, revenue has grown 35%, profit margins have continued to increase and cash generation has been strong. The business has continued to demonstrate its appeal to high calibre lawyers and their clients within the UK legal "mid-market". The number of lawyers who successfully completed our recruitment process has continued to grow and the calibre of lawyers accepted into the firm has remained extremely high. This year, not only has the number of Principal lawyers (senior lawyers who contract with Keystone) increased but we have also seen an increase in the demand for additional support from junior lawyers which has been met either centrally or by means of the lawyers recruiting their own juniors to further grow their practices.

We have continued to receive significant external recognition this year; featuring again, amongst other reports, in The Lawyer Magazine's list of the Top 100 UK law firms (based on revenue) and Legal Week magazine's Best Legal Advisers Report 2017-2018 (based on client feedback). These accolades are highly gratifying as they recognise the growth of the firm, the quality of the client service we deliver and the strength of our brand in the market place. Furthermore, being a public company has resulted in a considerable amount of recognition, not only in the legal press but also in the in the non-legal press which has done much to enhance the Keystone brand and promote it to a whole new audience.

Keystone's strategy and delivery against it

The strategy of the Group remains as previously communicated: to grow the business organically by attracting quality lawyers with strong client relationships and the skills to win business. The strategy is very much focused on growing within the UK legal services mid-market which is substantial and highly receptive to our business model. The level of support and infrastructure provided by Keystone, combined with the freedom, flexibility and remuneration engendered by its business model is highly attractive to UK lawyers, a circumstance that we believe will continue to develop further.

The growth and development team has had another successful year driving recruitment forwards. The number of Principal lawyers* accepting offers has increased by 6.8% to 63 this year (2018: 59). Last year, we launched a number of campaigns using a new social media channel which resulted in a significant increase in the number of new applicants received (2017: 2, 2018: 40 and 2019: 19 via this channel). However, whilst this channel has proven to be good for brand awareness, it has not been successful in generating successful applicants; with only one candidate from this source being accepted over the period. New Principal lawyer* applicants from all other channels have increased by 8% to 230 (2018: 212). The increases in both acceptances and applicants (from established channels) have been driven predominantly through additional referrals from our existing lawyers and growth in numbers from recruitment agencies. The former, being an ongoing endorsement of the level of satisfaction enjoyed by Keystone's lawyers and the latter being an indication of a growing acceptance of the Keystone model within the legal community.

This year, we have seen an increase in the number of our Principal lawyers seeking to recruit their own juniors or colleagues to work alongside them, with 15 Principals recruiting a net 20 fee earners (2018: 4 Principals recruited a net 5). Such juniors / colleagues are employed by or contract with the Principal lawyer's service company but are, to all other intents and purposes a Keystone lawyer. As such, they are fully vetted by the Central office to ensure that the quality of the services received by the clients remains of the highest calibre. As is the case for the Principal lawyers, these juniors sign a compliance agreement with Keystone and are required to comply with all rules and regulations governing Keystone's lawyers' professional conduct.  This development further demonstrates the flexible and scalable nature of our model; the Principal lawyers are able to scale their practice and benefit from the additional fees that their service companies receive, whilst Keystone benefits from the increasing size of the practices which these lawyers are able to build.

Over and above this, we have also seen a general increase in the demand for junior lawyers; this demand continues to be met by the lawyers employed by the central office. These lawyers provide a high quality and readily accessible resource for those Principals who either do not need full time support or who simply prefer not to take on a permanently employed resource themselves.

The overall strength of the Keystone brand continues to grow and this remains an essential part of the appeal to both attracting and retaining clients and lawyers.

Ongoing Investment in IT

IT is a fundamental part of the success of the Keystone model, facilitating the modern agile way in which our lawyers work. As such ongoing improvement and development of our technology platform and solutions is a core function of the Group.

IT security is a constant focus of our team and this year we have launched two new initiatives to further enhance the protection and visibility across our IT estate. These initiatives are best in class third party solutions specifically developed to address the challenges presented in managing an agile IT infrastructure environment. The first of these is a next generation anti-virus solution which not only does everything that a conventional anti-virus would do but also uses machine learning to enhance the protection provided. The second provides enhanced visibility of the devices operating on our network, as well as providing tools which improve efficiency in rolling out new products across the estate.

Whilst the introduction of the new GDPR legislation this year presented a business opportunity for a number of our lawyers, it also placed new data regulation on the business. As part of the project to ensure compliance with this, a full data audit of the Group was carried out and appropriate steps taken to address the new requirements which the legislation placed upon the business. This project was completed ahead of the implementation of GDPR regulation.

Following the launch of the latest version of Keyed In (Keystone's proprietary software platform) last year, we have continued to focus on delivering enhanced functionality and incremental improvements. We have also delivered a new module, designed to further improve the lawyer experience during the set up and onboarding process whilst also delivering operational efficiencies and further enhancing the scalability of the onboarding process.

Central office team

I would like to take this opportunity to thank all the staff of the central office team, who have worked hard throughout the year, delivering high quality support to our lawyers and their clients in an efficient and effective manner. We have continued to invest in our people growing the team where necessary and enhancing their skills so as to ensure that we have a team with the necessary aptitudes to support the ongoing growth of the Group. Across the disciplines we continue to attract and retain people of the highest calibre who work tirelessly to help us achieve the success which we aspire to and which we have enjoyed this year.

Looking ahead

Over the last year, Keystone's business model has again demonstrated its ability to attract high quality lawyers looking to develop their practice in an alternative manner together with the flexibility and potential the structure provides for Principal lawyers to build their own teams around them.

The current year has started well and the activity of the existing lawyers, together with the strength of our recruitment pipeline, gives me great confidence that the business will deliver another year of strong performance and profit growth. I look forward to another exciting year of growth and development as we continue to pursue our strategy for success.


James Knight
Chief Executive
7 May 2019


*Principal lawyers are the senior lawyers who own the service company ("Pod") which contracts with Keystone. The relationship between Keystone and its lawyers is governed by two agreements; a service agreement (which governs the commercial terms and is between the Pod company and Keystone) and a compliance agreement (which governs the behaviour of lawyers and is between each lawyer and Keystone). Pods can employ more than one fee earner.


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Financial Review and Strategic Report

Key Performance Indicators (KPI's)

The following KPI's are used by the management to monitor the financial performance of the Group.

Revenue Growth: 35.1% increase (2018: 23.6%)
Adjusted PBT growth: 56.8% increase (2018: 43.4%)
Adjusted PBT margin: 12.0% (2018: 10.4%)
PBT growth: 145.5% increase (2018: 60.9%)
PBT margin: 11.1% (2018: 6.1%)
Operating cash conversion %: 91% (2018: 91%)
Trade debtor days: 40 (2018: 42)
Net Assets: £15.4m (2018: £12.6m)

The calculation of adjusted PBT is shown below.

Income Statement

I am pleased to report revenue for the year of £42.7m, an increase of 35.1% on the prior year. Revenue growth has been driven by the lawyers recruited last year contributing a full year of productivity as well as contributions from the lawyers who have been recruited during this year, with principal lawyer numbers increasing from 244 to 277. This year, the business has also benefitted from a particularly significant piece of litigation work which has generated approximately £2.2m of revenue in the year.

Gross Profit

The gross profit margin of the business has fallen slightly this year to 27.1% (2018: 27.6%). This is principally caused by two factors; the reduction in the proportion of billing done on central office owned clients which was approx. 1% of the billing this year (2018: c. 5.75%); during last year there were a number of corporate transactions on clients "owned" by the central office (where lawyers are the client "owner" they get 15% of the fees, so where central office is the "owner" the pay away to lawyers is only 60% rather than the full 75%) which contributed to the level of fee income on these clients. This decline has been largely offset by the increased contribution of the lawyers employed by central office on whom we achieve a higher percentage gross profit, who contributed 3.1% of revenue (2018: 1.9%).

Overhead Costs

Overhead costs, excluding depreciation, amortisation, share based payments and flotation costs (from 2018) have increased by 21%. This has been driven in part by the full year impact of costs associated with being a Public Company (£0.2m impact this year). Excluding this, overheads would have increased by c. 17.5%.

Adjusted PBT

Adjusted PBT is calculated as follow:

Profit before tax 4,745 1,932
Amortisation 351 351
Share based payments 43 -
Loan note interest - 390
Flotation cost - 604
Adjusted PBT 5,139 3,277

Adjusted PBT has increased by 56.8% to £5.1m (2018: £3.3m). The continued operational gearing in the business has meant that adjusted PBT margin has also risen to 12.0% (2018: 10.4%).


The effective tax rate of 19.8% is higher than the standard rate and that of the prior year (17.8%) due to the impact of certain non-recurring items in the prior year. There were three items which are non-recurring in nature in the prior year; the exceptional costs associated with the successful AIM listing; the deduction of interest on loan notes which was previously disallowed but is allowable this year as the interest has been paid and an additional R&D tax credit for the development work on Keyed In. Excluding these items, the underlying effective tax rate would have been 20.8%.

Earnings Per Share

Basic earnings per share has increased from 6.0p to 12.2p, with the dilution effect from shares granted under LTIP being negligible. Adjusted earnings per share, (calculated by making the same adjustments to earnings as has been made in calculating adjusted PBT and divided by the average shares in circulation this year) has increased by 42.5% to 13.4p (2018: 9.4p).

Statement of financial position


The Group's business model is strongly cash generative because its most significant cost, the fees paid to lawyers, are only paid once Keystone has been paid for the work they have delivered. As such, operating cash conversion for the year was 91% (2018: 91%) generating cash from operations of £4.6m (2018: £2.7m). Capital expenditure was £0.04m and corporation tax payments were £0.9m. As such, cash generated by the business in the year was £3.8m (2018: £1.9m). The Group paid dividends of £1.0m (2018: Nil), leaving closing cash of £6.3m (2018: £3.6m) and no debt.

Net Assets

The net assets of the Group have improved from £12.6m to £15.4m, with the retained earnings of £3.8m being partly offset by the dividends paid.


The Board is recommending a final dividend of 6.5p per share. This will bring the total dividend for the period to 9.0p (interim dividend paid of 2.5p per share) on the basis set out at the time of the IPO. The proposed final dividend will be payable on 12 July 2019 to shareholders on the register at the close of business on 14 June 2019. The shares will go ex-dividend on 13 June 2019.


On behalf of the Board.

Ashley Miller
Finance Director
7 May 2019


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Year ended 31 January 2019

  Note 2019
Revenue   42,689,253 31,600,490
Cost of sales   (31,107,330) (22,891,379)
Gross profit   11,581,923 8,709,111
Depreciation and amortisation 3 (385,111) (382,266)
Flotation costs   - (603,581)
Share based payments 4 (43,205) -
Administrative expenses 3 (6,594,276) (5,448,143)
Other operating income   72,876 8,406
Operating profit   4,632,207 2,283,527
Finance income   120,463 41,368
Finance costs   (7,659) (392,462)
Profit before tax   4,745,011 1,932,433
Corporation tax expense   (937,782) (344,520)
Profit and total comprehensive income for the year attributable to owners of the Parent   3,807,229 1,587,913
Basic and diluted EPS (p) 5 12.2 6.0

The above results were derived from continuing operations.


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As at 31 January 2019

Non-current assets    
Property, plant and equipment 55,775 50,392
Intangible assets 6,810,373 7,161,258
Available-for-sale financial assets 13,628 13,628
  6,879,776 7,225,278
Current assets    
Trade and other receivables 14,510,726 11,994,713
Cash and cash equivalents 6,343,637 3,589,969
  20,854,363 15,584,682
Total assets 27,734,139 22,809,960
Equity and liabilities    
Share capital 62,548 62,548
Share premium 9,920,760 9,920,760
Share based payments reserve 43,205 -
Retained earnings 5,331,002 2,568,343
Equity attributable to equity holders of the Parent 15,357,515 12,551,651
Non-current liabilities    
Deferred tax liabilities 407,177 477,355
  407,177 477,355
Current liabilities    
Trade and other payables 11,665,043 9,646,204
Corporation tax liability 210,291 59,750
Provisions 94,113 75,000
  11,969,447 9,780,954
Total liabilities 12,376,624 10,258,309
Total equity and liabilities 27,734,139 22,809,960


A Miller

Keystone Law Group Plc
Registered No: 09038082


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Year ended 31 January 2019

      Attributable to equity holders of the Parent
  Note Share
Share based
At 31 January 2017 (restated)   471 428,123 - 1,030,005 1,458,599
Profit for the year and total comprehensive income   - - - 1,587,913 1,587,913
Bonus Share Issue    49,575 - (49,575) -
New share capital subscribed   12,502 9,492,637 - - 9,505,139
At 31 January 2018   62,548 9,920,760 - 2,568,343 12,551,651
Profit for the year and total comprehensive income   - - - 3,807,229 3,807,229
Dividends paid in the year 6 - - - (1,044,570) (1,044,570)
Share based payments 4 - - 43,205 - 43,205
At 31 January 2019   62,548 9,920,760 43,205 5,331,002 15,357,515


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Year ended 31 January 2019

  Note 2019
Cash flows from operating activities      
Profit before tax   4,745,011 1,932,433
Adjustments to cash flows from non-cash items      
Depreciation and amortisation 3 385,111 382,266
Share based payments 4 43,205 -
Finance income   (120,463) (41,368)
Finance costs   7,659 392,462
    5,060,523 2,665,793
Working capital adjustments      
Increase in trade and other receivables   (2,516,013) (2,711,087)
Increase in trade and other payables   2,018,839 2,484,063
Increase in provisions   19,113 -
Cash generated from operations   4,582,462 2,438,769
Interest paid   (7,659) (2,870)
Corporation taxes paid   (857,420) (538,049)
Cash generated from operating activities   3,717,383 1,897,850
Cash flows from investing/(used in) activities      
Interest received   120,463 41,368
Purchases of property plant and equipment   (39,609) (31,039)
Net cash generated from investing activities   80,854 10,329
Cash flows from financing activities      
Dividends paid in year 6 (1,044,570) -
Proceeds from issue of ordinary shares, net of issue costs   - 9,505,142
Repayment of other borrowings   - (8,537,617)
Net cash generated (used in)/from financing activities   (1,044,570) 967,525
Net increase in cash and cash equivalents   2,753,667 2,875,704
Cash at 1 February   3,589,970 714,266
Cash at 31 January   6,343,637 3,589,970


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Notes to the Financial Statements are available in the printable PDF version