Annual Report & Accounts 2026
14
TAXATION
The Group’s effective rate of corporation tax this year was 24.6% (2026: 26.8%). The reason that this is below the standard rate of corporation tax, and indeed the normal rate for the Group, is that at 31 January 2026 we prudently did not assume that the costs of the fit out of our offices in Chancery Lane would qualify for the annual investment allowance and as such enjoy 100% deduction in the year. During the subsequent tax work it was concluded that they did qualify, thereby reducing the charge to tax in the year. Excluding the benefit of this one-off transaction, the underlying corporation tax would have been 26%; higher than the standard rate and reflective of the level of investment which the Group makes in providing networking opportunities for our lawyers in social environments which are disallowable for corporation tax purposes.
EARNINGS PER SHARE
Basic earnings per share increased from 27.1p to 34.9p, with fully diluted EPS being 34.3p (2026: 26.6p). Adjusted basic earnings per share (calculated by making the same adjustments to earnings as have been made in calculating adjusted PBT and divided by the average shares in issue this year) increased to 37.0p (2026: 30.4p).
STATEMENT OF FINANCIAL POSITION
CASH
One of the key features of the Group’s business model is its strong cash generation. Keystone is a capital light model where the largest element of its costs, the payment of its lawyers, is on a pay when paid basis. These characteristics are clearly demonstrated in the Group’s cashflow statement. Operating cash conversion of 98.9% (2026: 94.5%) generating cash from operations of £13.5m (2026: £11.5m), and capital expenditure returned to its usual levels of £0.1m following the one-off increase in 2026 to reflect the fit out of the offices in Chancery Lane. Corporation tax paid this year (£3.7m) also reflects a return to “normal” insofar as it includes four quarterly payments. This follows the distortion to cashflow caused in 2026 as the business transitioned to meet the requirements of being classified as “super large” by HMRC. This classification means that the business has to pay 100% of the corporation tax due within the financial year and so 2026 was a transitional year in which 6 quarterly payments were made.
The newly renegotiated interest rates on cash held have ensured a step up in interest received this year (£3.2m, 2026: £2.0m) whilst interest paid remained largely in line with the prior year.
Overall, these movements have meant that the Group generated £11.6m (2026: £7.2m) pre dividend payments. This strong cash generation, together with the broader strength of the balance sheet underpinned the Group’s ability to pay dividends in the year of £11.6m, comprising £4.7m in respect of a special dividend and £6.8m in respect of ordinary dividends (2026: £5.9m ordinary dividends). This left closing cash of £9.7m (2026: £9.7m).
NET ASSETS
The strength of performance of the Group continues to ensure that we have an extremely strong balance sheet. Even after a year where we have paid out £11.6m in dividends, net assets have increased from £20.4m to £20.7m. This has been driven by strong profitability (£11.1m) and the £0.7m movement in reserves to account for the vesting of LTIP awards.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group’s principal risks and uncertainties are outlined on pages 22 and 25.
FINANCIAL REVIEW AND STRATEGIC REPORT CONTINUED
TAXATION
The Group’s effective rate of corporation tax this year was 24.6% (2026: 26.8%). The reason that this is below the standard rate of corporation tax, and indeed the normal rate for the Group, is that at 31 January 2026 we prudently did not assume that the costs of the fit out of our offices in Chancery Lane would qualify for the annual investment allowance and as such enjoy 100% deduction in the year. During the subsequent tax work it was concluded that they did qualify, thereby reducing the charge to tax in the year. Excluding the benefit of this one-off transaction, the underlying corporation tax would have been 26%; higher than the standard rate and reflective of the level of investment which the Group makes in providing networking opportunities for our lawyers in social environments which are disallowable for corporation tax purposes.
EARNINGS PER SHARE
Basic earnings per share increased from 27.1p to 34.9p, with fully diluted EPS being 34.3p (2026: 26.6p). Adjusted basic earnings per share (calculated by making the same adjustments to earnings as have been made in calculating adjusted PBT and divided by the average shares in issue this year) increased to 37.0p (2026: 30.4p).
STATEMENT OF FINANCIAL POSITION
CASH
One of the key features of the Group’s business model is its strong cash generation. Keystone is a capital light model where the largest element of its costs, the payment of its lawyers, is on a pay when paid basis. These characteristics are clearly demonstrated in the Group’s cashflow statement. Operating cash conversion of 98.9% (2026: 94.5%) generating cash from operations of £13.5m (2026: £11.5m), and capital expenditure returned to its usual levels of £0.1m following the one-off increase in 2026 to reflect the fit out of the offices in Chancery Lane. Corporation tax paid this year (£3.7m) also reflects a return to “normal” insofar as it includes four quarterly payments. This follows the distortion to cashflow caused in 2026 as the business transitioned to meet the requirements of being classified as “super large” by HMRC. This classification means that the business has to pay 100% of the corporation tax due within the financial year and so 2026 was a transitional year in which 6 quarterly payments were made.
The newly renegotiated interest rates on cash held have ensured a step up in interest received this year (£3.2m, 2026: £2.0m) whilst interest paid remained largely in line with the prior year.
Overall, these movements have meant that the Group generated £11.6m (2026: £7.2m) pre dividend payments. This strong cash generation, together with the broader strength of the balance sheet underpinned the Group’s ability to pay dividends in the year of £11.6m, comprising £4.7m in respect of a special dividend and £6.8m in respect of ordinary dividends (2026: £5.9m ordinary dividends). This left closing cash of £9.7m (2026: £9.7m).
NET ASSETS
The strength of performance of the Group continues to ensure that we have an extremely strong balance sheet. Even after a year where we have paid out £11.6m in dividends, net assets have increased from £20.4m to £20.7m. This has been driven by strong profitability (£11.1m) and the £0.7m movement in reserves to account for the vesting of LTIP awards.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group’s principal risks and uncertainties are outlined on pages 22 and 25.
FINANCIAL REVIEW AND STRATEGIC REPORT CONTINUED