Keystone Law : Financial Report (ar2025)

About this update from Keystone Law Group Plc

ANNUAL REPORT AND ACCOUNTS for the year ended 31 January 2025 Attractive business model Our model offers lawyers freedom, flexibility and autonomy whilst delivering long-term and consistent growth. Scalable We grow organically by attracting high-calibre lawyers from a large addressable market which is ripe for disruption. Supportive culture Our supportive and collaborative culture is one of the reasons why lawyers are attracted to us and remain with us. Strategic Report Business Review and Growth Strategy 02 Market Review 04 Chairman's Statement 07 Chief Executive's Review 08 Financial Review and Strategic Report 10 Environmental, Social and Governance 13 Governance The Board of Directors 16 Principal Risks and Uncertainties 17 Corporate Governance Statement 19 Report of the Audit Committee 22 Report of the Remuneration Committee 23 Directors' Report 28 Directors' Responsibilities Statement 30 Our Financials Independent Auditor's Report 31 Consolidated Statement of Comprehensive Income 37 Consolidated Statement of Financial Position 38 Company Statement of Financial Position 39 Consolidated Statement of Changes in Equity 40 Company Statement of Changes in Equity 41 Consolidated Statement of Cash Flows 42 Company Statement of Cash Flows 43 Notes to the Financial Statements 44 Revenue (1) £m 97.7 87.9 76.4 71.1 56.4 2021 2022 2023 2024 2025 FAST GROWING, PROFITABLE AND CASH GENERATIVE Lawyer Numbers 93 87 80 109 108 117 115 121 415 432 442 455 65 328 79 347 369 386 394 399 398 83 Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan 20 20 21 21 22 22 23 23 24 24 25 Principals Other Fee Earners Adjusted PBT £m 12.7 11.3 9.2 2023 2024 2025 Cash from Operations £m 11.5 10.4 9.3 2023 2024 2025 THE PREMIER PLATFORM LAW FIRM DELIVERING LONG-TERM SUSTAINABLE GROWTH BUSINESS REVIEW AND GROWTH STRATEGY KEYSTONE Keystone is an award-winning, innovative, tech-enabled, full-service law firm, providing conventional legal services through its scalable and proven business model operating in an addressable market of over £10bn. OUR MODEL Keystone has a strongly differentiated business model which offers lawyers freedom, flexibility and autonomy. We recruit high-quality, experienced lawyers from mid-market law firms. Our lawyers are self-employed and they determine how, when and where they work, being fully responsive to the clients' demands. They earn up to 75% of the fees they bill: 60% for doing the work and 15% for introducing the client. In return, Keystone offers a full suite of resources, providing them with infrastructure and support via the central office, a bespoke user-friendly proprietary IT platform, and access to an extensive network of highly experienced colleagues, as well as a programme of events and initiatives focused on helping them to maximise their potential. Keystone contracts directly with the clients for the provision of legal services. Keystone provides its lawyers with infrastructure and support via its central office, a bespoke IT platform and access to a network of colleagues and events. CLIENTS Keystone invoices the client. Keystone's lawyers are self-employed and work PRINCIPALS Lawyers are paid once payment has been received from the client. from locations of their choice. They get paid up to 75% of the value that they bill. Lawyers own the client relationships. The Keystone model offers them freedom, flexibility and autonomy. PODS Pod members are employed by Principals but must be approved by the Company to ensure high quality. The remuneration model is simple, transparent and the same for everyone. Lawyers are paid once the clients have paid for the services. This structure has two core benefits: typically, lawyers earn more money for the same work than they would in a conventional firm, and Keystone is resilient and highly cash generative. OUR CULTURE Keystone's positive culture is one of the features of the business which attracts and retains our lawyers. The supportive, inclusive and collaborative nature of our culture ensures an extremely positive environment in which to operate. We treat our lawyers like clients, and the absence of a hierarchical structure amongst our Principals offers an array of benefits - our lawyers are freed from office politics and unwanted managerial responsibilities and are able to focus exclusively on what they enjoy and do best: namely doing legal work. For many lawyers, this is life changing. We have always believed that Keystone is one of, if not the, happiest law firm in the country and the overwhelmingly positive feedback we receive from our internal annual lawyer survey continue to demonstrate that this is the case. Most importantly, the sense of fulfilment and logistical support enjoyed by our lawyers directly results in the firm delivering an outstanding level of client service. Whilst the model provides our lawyers with independence, it also provides a strong network and sense of collaboration within Keystone, which we consciously and consistently encourage and promote. We commit substantial time, effort and resources to bring our lawyers together so that they meet, know and trust each other. We recognise that internal networks offer both the professional and personal support our lawyers need to flourish. An important part of our lawyers' success is access to the extensive knowledge and experience of their colleagues. More than 30% of work at Keystone is a result of cross-referrals, demonstrating the multi-faceted requirements of clients and the inter-connectivity and collaboration that is built into the DNA of Keystone. OUR SCALABLE GROWTH STRATEGY Keystone grows organically by recruiting high-calibre, senior lawyers from across the UK legal mid-market who bring with them their client relationships and contacts. Many of these senior lawyers further scale their practice by bringing with them, or subsequently recruiting, more junior lawyers to work with them in their "Pod", thus supporting the growth and delivery of larger practices as well as better leveraging the client relationships that the senior lawyers have. For those who either do not wish to take this approach, or for whom the need for support is less substantial, junior support is also available by way of the junior lawyers employed by the central office. Over and above this, the building and maintaining of internal networks within Keystone ensures that colleagues work together seamlessly to ensure that client needs are addressed by way of a full-service law firm. Our addressable market is large (accounting for over £10bn in annual fee income) and our business model is now very widely accepted within the mainstream of the legal industry as an increasing number of lawyers seek to gain greater control over how they develop their practice, achieve an improved work-life balance, and earn more for the work they do. Keystone's model means that there are neither physical nor working capital constraints on the rate of growth or the size to which the business can grow, with most areas of law within the mid-market being addressable by our model. OUR SERVICES Keystone delivers high-calibre legal advice across the full range of legal services demanded by our clients. The Keystone model enables our lawyers to focus exclusively on the development and delivery of client legal work, ensuring that the service delivered is exemplary. Our client base, comprising predominantly SME businesses as well as high and ultra-high net worth individuals, operates across a broad range of sectors. Our growth strategy ensures that we continually extend both our client base and our service offering as new lawyers bring both the expertise and their client relationships with them to Keystone. The chart below shows the spread of revenue by matter work type for the current financial year. Litigation 17% Other 2% Family 8% Property 21% Commercial 49% Private client 5% Corporate 20% Employment 12% - t e k r a M s e c i v r e S l a g e L K U e h T MARKET REVIEW The "high street" market: this category covers the rest of the market. The "global elite" (the Magic Circle and Silver Circle firms and others that together make up the 15 largest UK firms by annual revenue): these firms focus on delivering complex legal services to the largest global businesses, generating, in aggregate, £23 billion annual fee income and employing over 38,500 qualified lawyers . THE COMPOSITION OF THE UK LEGAL SERVICES MARKET The UK Legal Services Market The UK legal market is the second largest in terms of fee income in the world, with annual fee revenue of £47.1 billion in 2023 (1) (up 7.7% year on year). The UK is the largest legal market in Europe, second only to the US worldwide, and is globally recognised as the most international due to the widespread use of English law as the framework for international commercial contracts and dispute resolution. 15 LARGEST UK LAW FIRMS £23 billion in annual revenue "MID-MARKET" LAW FIRMS Over £12 billion in annual revenue "HIGH STREET" LAW FIRMS f The "mid-market" (the largest 200 law firms in the country (including Keystone, which is ranked no. 57 (2) ), excluding the global elite): these firms account for over £12 billion annual fee income and employ more than 40,000 qualified lawyers (2) . l a u n n a n i n o i l l i b 1 . 7 4 £ s e u n e v e r e e Increasing complexity The UK market operates under three different regulatory environments, covering England and Wales (93.4% of the UK market by value), Scotland (5.1%) and Northern Ireland (1.5%) (1) . The Legal Services Act 2007 introduced pivotal reforms liberalising the market in England and Wales, which, through the creation of the Alternative Business Structure (ABS), allowed non-lawyers to own and act in management capacities within law firms. These reforms have not been adopted in Northern Ireland, nor fully adopted in Scotland. The UK market is diverse, comprising approximately 96,000 (3) solicitors acting in private practice spread across nearly 10,000 law firms (1) . The Directors believe that the overall market can be broadly divided into the three segments shown above and that the mid-market is the segment in which Keystone operates. (1) TheCityUK UK legal services 2024. (2) The Lawyer Top 200, 2024. (3) Law Society 2024. FACTORS IMPACTING ON THE MID-MARKET LAW FIRM Changes to legislative framework - The Legal Services Act 2007 allowed for changes to the delivery of legal services, resulting in both new entrants to the market and the creation of new business models which challenge the long-standing model of traditional law firms. Prior to the Legal Services Act 2007, equity partnership was the only basis on which a lawyer could access the highest level of remuneration within a law firm. Technology's impact in commoditisation of services - The development and use of technology in everyday life is now such that there is a general expectation that many services can be delivered quickly and cheaply through the use of technology. This places pricing pressure on law firms to meet clients' perception of value creation. Whilst the development of AI is still in its infancy the existence of such technology will continue, or even accelerate, this direction of travel in the coming years. This puts ongoing pressure on businesses to innovate in order to either differentiate their product or compete purely on price. Longer-term macroeconomic factors - For a prolonged period of time, law firms have experienced an ongoing challenge created by downward pricing pressures from clients as well inflationary cost pressures in business models which have a high proportion of fixed/semi-fixed costs, thus squeezing profits. Whilst the last few years have seen a significant surge in demand for legal services which has alleviated the pressure on revenue, it has also been a time of very substantial cost and specifically wage inflation. These upward cost pressures have now been baked into the industry and it will only take a small softening in demand for the fixed nature of these higher salaries to create significant challenges to profitability for some businesses. Increased billing targets - In order to justify the higher salaries demanded in recent years (and previously), the most common response has been to match increases in salaries with significant increases in billing targets, both in terms of hourly rates and the number of billable hours needed to meet these. This demand for greater effort from those in senior associate and junior partner roles to deliver more revenue per head as well as drive business development, whilst still retaining a high level of managerial responsibility, creates an unhealthy environment even when demand remains exceptionally strong, whilst these same pressures make it unbearable for many as demand tightens. Changes in working patterns demanded by the workforce - Initially forced on the business community by the Covid lockdowns, the general recognition by lawyers that working from home is a benefit and has no adverse impact on the ability to deliver high-calibre legal services whilst providing a significant upside to quality of life. This shift in perception by employees is not entirely mirrored by many in traditional law firm management and as such is an area of increased tensions as employers try to entice / cajole lawyers to a higher level of office presence, whilst the lawyers themselves do not perceive any value in such changes. We believe that, over time, this will continue to be an area of conflict between traditional law firm management and their employees with traditional attitudes of presenteeism and control remaining across certain sectors of management in the mid-market law firms. Reduction in appeal of equity partnership - According to a 2023 survey by LexisNexis, today's generation of legal associates aspire to an enviable salary and a good work-life balance. It is reported that, whilst 75% of associates want to remain in private practice, only 25% want to make partner in the next five years. For 71% of associates, a good work-life balance is the most important factor determining their next career move. It appears that there has been a generational shift in the aspirations of young professionals progressing their career. Aside from the change in work-life balance aspirations, the financial risk associated with partnership has also contributed to the decline in interest as the cost of buying into partnerships is high and reduced profits in conventional mid-market law firms mean that the return on equity is less attractive. Furthermore, with several high-profile law firm insolvencies in recent years and the associated equity losses and personal liabilities for the equity partners involved, partnership of a mid-market law firm is no longer necessarily regarded as a secure investment. Changes in attitude towards "New Law"- The structural and cultural evolution of recent years means that it is no longer the case that the only route for a successful lawyer to develop their career is via the traditional route to partnership within a conventional firm. The absolute acceptance of alternative legal models, whether that be through platform models, in house roles or working within lawtech, changes in attitude across the profession mean that those who pursue non-traditional routes can not only benefit from the financial or lifestyle upsides which these routes may offer, but also receive the professional recognition they aspire to from their peers within the more traditional sectors of the profession. MARKET REVIEW CONTINUED OPPORTUNITY FOR KEYSTONE LAW The Keystone model, also sometimes referred to as the platform model, is now considered, by most, in the mainstream of the UK legal mid-market as a serious option for high-calibre lawyers to practice law. Keystone itself is generally regarded as the stand-out offering in terms of those at the top end of the profession seeking to take advantage of the benefits offered by this model. The challenges faced by the traditional model and the manner in which traditional firms have responded to these challenges ensures that there is a sizeable pool of highly qualified, talented lawyers across the UK mid-market for Keystone to target and recruit from. By continuing to focus on the quality of our service delivery and the calibre of the lawyers we recruit and retain, we believe that we are well placed to continue to drive long-term sustainable growth into the future. Whilst recent years have proven that an exceedingly busy legal market negates some of the structural challenges faced by the conventional firms operating in the industry, it is our strong belief that this has only provided a temporary reprieve, whereas as the market has started to soften marginally, the well-documented wage inflation across the industry will only serve to exacerbate the pressures brought to bear on lawyers and drive more of them to seek a change for the better in the future. The cultural changes in attitude towards remote working brought on by the pandemic advanced the acceptance of the Keystone model by several years, making it possible for us to now attract lawyers from the very top of the legal profession, thus further enlarging the pool of lawyers wishing to take advantage of the opportunities offered by the Keystone model in the near-term. Whilst, the generational shift in attitude, highlighted in the LexisNexis survey 2023, towards a financially rewarding career which provides the opportunity for a good work-life balance suggests that the opportunity will continue to grow into the mid-term. The Directors believe that, as a result of these trends, the UK legal services mid-market offers significant opportunity for Keystone far into the future. COMPETITIVE LANDSCAPE With the Keystone model substantially accepted into the mainstream, a growing number of entrants to the legal industry have sought to emulate its success so that there are now more than 50 law firms structured in a similar way to Keystone, but varying in calibre, size and services being delivered. The 2024 report from Codex Edge, using Atlas Data, reported that there are now over 3,500 lawyers working in what they call "platform firms". This development is viewed by the Board as a positive evolution, as it demonstrates an ongoing trend in favour of the platform model in general and Keystone in particular. Having enjoyed first mover advantage, Keystone has established itself as the premier organisation in this new genre, leading the market in terms of size, calibre of lawyer and market position, such that for those lawyers whom we seek to recruit, Keystone is the stand-out choice. Whilst Keystone is widely considered the market leader amongst these "new law" businesses, the Directors consider that the Group's primary opportunity for growth exists across the entire mid-market, as Keystone's lawyers are predominantly recruited from the conventional firms operating in this segment of the market rather than other platform firms. CHAIRMAN'S STATEMENT I am pleased to introduce Keystone Law's results for the year ended 31 January 2025. It has been another good year for the business, with sustained client demand and a return to recruitment levels last seen pre pandemic. The Group has delivered a strong set of financial results with revenue growing 11.1% to £97.7m (2024: £87.9m), and adjusted PBT (1) increasing to £12.7m representing an adjusted PBT margin of 13.0% (2024: £11.3m, 12.8%) (PBT of £11.7m (2024: £10.3m) and PBT margin of 12% (2024: 11.7%)). These results reflect the continued strength of the broad-based demand for our services as well as the ongoing growth of the firm, as well as the higher interest rates and strength of our balance sheet in this period. The cash generative nature of the business model has meant that these profits have converted strongly to cash demonstrating the quality of earnings that Keystone delivers. DIVIDEND At this time, in recognition of the strength of the balance sheet, we are proposing to pay both a final ordinary dividend of 14.0p and a special dividend of 15p. This will bring the total value of dividends paid since IPO to just over £45m, or equivalent to just over 145p (2) per share, which is 96% of the adjusted earnings generated by the business over the same period. Having paid an ordinary interim dividend of 6.2p (2024: 5.8p), this will bring the total ordinary dividend for the year to 20.2p (2024: 18.3p). OUR PEOPLE AND CULTURE Our focus on excellence pervades all aspects of the business, creating the positive, supportive and inclusive environment in which our people are able to thrive. This creates an atmosphere in which people flourish, encouraging them to act as ambassadors for the Keystone community. We are, rightly, proud of this culture and invest heavily in it, working tirelessly to continue to build on this strong foundation to ensure its long-term sustainability. THE CENTRAL OFFICE TEAM The central office team provides the full range of support and infrastructure that our lawyers need, leaving them free to focus on the work which they enjoy: growing their practices and delivering legal advice to clients. We thank the team for their continued hard work, skill and dedication throughout the year and continue to invest across the business to ensure that we maintain the level of talent necessary to support the growth in volume and sophistication of the work our lawyers advise on. BOARD AND GOVERNANCE The Board has continued to operate within the structures and governance requirements of the Quoted Companies Alliance ("QCA") Code 2018 as set out in the corporate governance section. In November 2023, the QCA issued a revised code which is to apply to financial years starting on or after 1 April 2024. As announced last year, we have been moving to adopt the new requirements of the latest code ahead of that timeline and following last year's decision to implement annual re-election of all Directors, this year we have chosen to disclose our remuneration policy in this report. This forms part of the Group's remuneration report which, in early adoption of the 2023 QCA code, will be placed before shareholders at our coming AGM for an advisory vote. OUTLOOK I am pleased to say that 2026 has started well with good levels of activity providing us with confidence in the year ahead. Robin Williams Non-executive Chairman 30 April 2025 (1) Adjusted PBT is calculated by adding share-based payment costs and amortisation of intangible assets to PBT. Details of these calculations are shown in the Financial Review on page 11. (2) Sum of the Ordinary DPS paid for the years ended 31 January 2019 to 31 January 2025, together with the special dividends DPS paid and proposed to date. 07 CHIEF EXECUTIVE'S REVIEW INTRODUCTION AND HIGHLIGHTS I am delighted to report that Keystone has had another excellent year. The quality of our lawyers, with their extensive range of knowledge and experience, ensures the delivery of excellent legal advice to our clients, driving growth whilst enhancing the brand and reputation of the business across the legal sector. This growing reputation for first class legal work is the core of our success, it is fundamental to client acquisition and retention and essential in attracting new lawyers to join Keystone, underpinning our long term, sustainable growth. This year, client demand has remained strong across practice areas and this, together with the impact of the new Principals (1) who have joined us, has delivered strong growth. Revenue has increased by 11.1% to £97.7m (2024: £87.9m), whilst adjusted PBT increased to £12.7m (2024: £11.3m) (PBT of £11.7m (2024: £10.3m) and PBT margin of 12.0% (2024: 11.7%)). Cash flow has, as always, been strong; guaranteed by the nature of our model and ensures that these profits have converted to cash, with cash generated from operations of £11.5m (2024: £10.4m). Conditions in the recruitment market have remained positive for Keystone and it has been a pleasure to welcome a further 50 excellent new Principals this year (2024: 51). ASPIRING TO EXCELLENCE UNDERPINS LONG-TERM SUSTAINABLE GROWTH By aspiring to excellence in everything we do, we continue to drive the business forwards, delivering long-term sustainable growth. This ethos permeates all decisions we make, whether that be in the recruitment of new Principals and the vetting of pod members or the standard of service delivery we expect both from our central office team to our lawyers and from our lawyers to our clients. It was in this pursuance of excellence that we decided to refit our offices in Chancery Lane this year. The successful transition to remote working by our central office teams enabled us to retain the same office footprint when renewing our leases. However, changes in working habits, both of the central office and our lawyers, meant that the design and layout of these offices no longer lived up to our exceedingly high standards. As such, we decided to take advantage of the lease renewal to rectify this situation. Working with professionals in the sector and, taking into consideration the feedback of the relevant stakeholders, we developed a new, modern design, encompassing the varied elements needed to provide a first-class working environment to match the levels of excellence delivered across Keystone. Following the successful delivery of the project, we are now able to fully satisfy the varied needs of our people, whether that be conventional desk space for quiet working, booths for confidential online meetings, areas designed for more interactive group working or relaxed social interaction, as well as highly professional client meeting rooms. I am delighted with the success of the project which I believe further enhances the appeal of Keystone to both new lawyers and central office staff aiding in the recruitment and retention of the talent we need to continue to drive the business forwards. RECRUITMENT MARKET CONDITIONS REMAIN POSITIVE Overall, recruitment market conditions have remained positive throughout 2025, with the momentum gained last year persisting through this year, in spite of the political and economic uncertainty mid-year caused by the change in government. Against this backdrop, the activity levels and results delivered have been very pleasing. 08 08 During the period we received 283 qualified applicants (2024: 270), made offers to 95 candidates (2024: 103) with 52 candidates accepting offers (2024: 68), whilst welcoming 50 new joiners (2024: 51). This meant that we have ended the year with 455 Principals (2024: 432). Our Principals have also continued to drive growth by recruiting into their pods and as such we have ended the Period with 108 pod members (2024: 102), which, together with our central office lawyers brings the total number of fee earners to 576 (2024: 549). The excellent quality of the lawyers now attracted to Keystone is a real testament to the success of our quality-focused recruitment strategy. The success of this strategy is reflected in the number of Keystone lawyers ranked in the leading legal directories, with 207 being recognised in the Legal 500 UK Solicitors 2024 rankings(2) (2023: 172 listed up from 65 in 2019). It is by continuing to focus on the calibre of our lawyers that we guarantee the long-term sustainable growth of the business, generating a virtuous circle as high-calibre candidates are attracted to join a firm with lawyers who have a similar market presence to their own. As a result of this we now regularly attract lawyers from the very top of the legal profession with over a quarter of the new Principals joining us this year coming from either the UK office of a large US law firm or a top 25 UK law firm (3) . EXCELLENCE AT THE HEART OF CENTRAL OFFICE TEAM The central office team has again had a busy and successful year, providing our lawyers with not only the platform they need to excel, but also the supportive and connected environment for them to do so. The community team has onboarded 50 new Principals this year, supporting them as they transition to their new lives at Keystone. Key to the successful integration of new Principals is the investment made in understanding the unique needs of each lawyer and, using this information to identify and connect them with suitable colleagues with whom they will work well to successfully achieve their mutual objectives. Whilst the ongoing support delivered to all our lawyers ensures that during both the highs and, in some cases, the lows of their professional lives at Keystone, they feel fully supported both technically and, quite often, emotionally as well. On the IT front, we have successfully migrated a number of our systems from the private cloud to the public cloud - Microsoft Azure. This provides enhanced resilience, security and scalability to our infrastructure. The roll out of a SIEM solution at the end of last financial year has ensured further oversight of the IT security risks, of which we remain ever vigilant. The development of AI and its delivery of real-life solutions within the business remains in its infancy, although the pace of evolution in this area is extremely rapid. As such, we continue to assess how this can best be applied across the business to deliver operational efficiencies for our lawyers as well as our central office team, combining the use of third-party products as well as bespoke development with AI agents. Across all areas of the central office team we continue to aspire to excellence in the delivery of all elements of support which we provide to our lawyers and I have been very satisfied with the successes achieved by the business this year. LOOKING AHEAD The business has made a positive start to the new financial year, with strong client demand across all practice areas and positive recruitment activity. We are confident that we will continue to deliver strong, sustainable growth and achieve results that are in line with market expectations for the coming year. James Knight Chief Executive 30 April 2025 (1) 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 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. A junior lawyer who is employed by a Pod ("Pod Member") is, to all intents and purposes, a Keystone lawyer and is presented to the outside world in much the same way as a conventional law firm would present a conventionally employed junior lawyer. Junior lawyers are interviewed and fully vetted by the recruitment team in central office to ensure that they are of the requisite quality and 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 the professional conduct of Keystone's lawyers. (2) The Lawyer Survey 2024 ranking by revenue. (3) The Legal 500 UK Solicitors 2025 rankings is the leading guide to law firms and solicitors in the UK (Source: Legal500.com). STRATEGIC REPORT KEY PERFORMANCE INDICATORS (KPIs) The following KPIs are used by the management to monitor the financial and operational performance of the Group: Revenue growth: 11.1% increase (2024: 15.1%) Adjusted PBT (3) growth: 12.8% increase (2024: 22.0%) Adjusted PBT margin (3) : 13.0% (2024: 12.8%) PBT growth: 13.4% increase (2024: 22.9%) PBT margin: 12% (2024: 11.7%) Adjusted basic EPS: 30.4p (2024: 27.4p) Operating cash conversion 94.5% (1) (2024: 96.1%) Trade receivables days: 34 (2024: 34) Qualified new applicants (2) : 283 (2024: 270) Offers made (2) : 95 (2024: 103) Offers accepted (2) : 52 (2024: 68) (1) Operating cash conversion is calculated utilising cash generated from operations and dividing it by the PBT before non-cash movements and net interest (£12,178,139 per cash flow statement 2025). (2) Non-financial KPIs are commented on with the Chief Executive's review. Recruitment data refers to numbers of potential Principals. (3) The calculation of adjusted PBT, adjusted PBT margin and adjusted EPS is shown on the next page. INCOME STATEMENT I am pleased to report revenue for the year of £97.7m, an increase of 11.1% on the prior year. As a business, we have seen broad-based client demand across practice areas this year which has been further enhanced by the additional income generated from the growth in Principal numbers (ending the period with 455 Principals and averaging 443.5 (2024: ended with 432 and averaged 415). This has enabled revenue per Principal to grow by 4.0% to £220k (2024: £212k). GROSS PROFIT The gross profit of the business has risen this year by 11.6% to £25.5m (2024: £22.8m), with gross profit margins remaining largely stable at 26.1% (2024: 26%). AMORTISATION, DEPRECIATION AND SHARE-BASED PAYMENTS Amortisation of intangibles has fallen this year as the underlying asset became fully amortised during the year, whilst the commencement of new leases in Chancery Lane resulted in a slight increase in the amortisation of right-of-use assets. Depreciation also saw a marginal decrease this year. The charge in respect of share-based payments increased from £0.6m to £0.8m. OTHER ADMINISTRATIVE EXPENSES Other administrative expenses have increased by 11.8% to £12.9m (2024: £11.6m). Staff costs increased by 15% to £5.4m (2024: £4.7m), whilst wage inflation has eased somewhat from the prior year it still remains a feature of the labour market and, as with all businesses, we need to pay a competitive rate in order to attract and retain talent within the business. This, together with the increase in headcount (69 v 2024: 63), as we have continued to invest in supporting our lawyers to the highest standards, has driven the increased costs. Other administrative costs (per note 5) increased by 9.5% to £7.5m (2024: £6.9m), with the largest contributory factors to this being investment in IT as we migrated to the public cloud and fully implemented our SIEM solution to enhance security oversight as well as professional indemnity insurance. The IT costs increased by £0.2m, whilst professional indemnity insurance costs have increased by £0.2m driven predominantly by revenue growth as well as the increase in cover from £50m to £60m. FINANCE INCOME AND COSTS Interest rates have remained high for most of this Period, only starting to fall late in the year, and as cash positive business we have benefitted from this with our net finance income rising this year to £1.1m (2024: £0.9m). 10 10 PBT, ADJUSTED PBT AND PBT MARGINS Adjusted PBT is calculated as follows: 2025 £ 2024 £ Profit before tax 11,684,999 10,306,331 Amortisation of intangible assets 248,543 350,884 Share-based payments 780,662 610,644 Adjusted PBT 12,714,204 11,267,859 Net finance income 1,111,203 889,204 Adjusted PBIT 11,603,001 10,378,655 PBT margin 12.0% 11.7% Adjusted PBIT margin 11.9% 11.8% Adjusted PBT margin 13.0% 12.8% The Board consider adjusted PBT to be a better measure of performance than PBT, as it excludes costs which are either not a result of the underlying performance of the business (as is the case for the amortisation which arose from the structuring of the 2014 private equity investment in the business) or where the cost represents neither a cash impact to the business, nor is it a reflection of the value received by the recipient (as is the case with share-based payment costs). TAXATION This year we have continued to feel the impact of the increase in the standard rate of corporation tax from 19% to 25% in April 2023. As a result of this change, the average rate of corporation tax last year was 24%, whilst, this year, the full impact of this change has taken effect with the standard rate being 25% for the whole period. The Group's effective rate of corporation tax this year was 26.8% (2024: 25.8%). The effective rate of the Group is always higher than the standard rate due to the level of investment we make in providing networking opportunities in social environments for our lawyers, which are disallowable for corporation tax purposes. EARNINGS PER SHARE Basic earnings per share increased from 24.4p to 27.1p, with fully diluted EPS being 26.6p (2024: 23.9p). 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 30.4p (2024: 27.4p). STATEMENT OF FINANCIAL POSITION CASH The strongly cash generative nature of the Group's business model, benefitting as it does from the payments to lawyers in respect of their fees only being paid once Keystone has been paid for the work delivered, has again been demonstrated by its cashflow profile, with operating cash conversion of 94.5% (2024: 96.1%), generating cash from operations of £11.5m (2024: £10.4m). Capital expenditure of £0.8m (2024: £0.07m) was higher than usual this year, reflecting the costs of the office fit out in Chancery Lane. Corporation tax payments increased to £4.4m (2024: £2.2m) as the Group became qualified as "super large" by HMRC, accelerating the quarterly payments such that all corporation tax is now payable within the year. This being a transition year, we have had to pay not only 100% of the corporation tax relating to FY2025 but also the remaining half of the tax relating to the prior year, meaning that there has been a one-off additional outflow of c.£1.5m. Sustained high interest rates throughout this year have ensured that net interest received has increased to £1.1m (2024: £0.9m) and the rent-free periods included in the new leases on Chancery Lane caused the reduction in such payments to £0.2m (2024: £0.6m). As such, cash generated by the business in the year, being net cash flow pre dividend payments, was £7.2m (2024: £8.4m). The Group paid dividends of £5.9m in respect of ordinary dividends (2024: £5.3m ordinary dividend and £3.9m special dividend). This left closing cash of £9.7m (2024: £8.4m) and no debt. NET ASSETS The Group's balance sheet is extremely strong with net assets having increased from £16.9m to £20.5m by virtue of profit for the year of £8.5m, dividends paid of £5.9m and £0.8m 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 17 and 18. SECTION 172 COMPANIES ACT STATEMENT The statements below address the reporting requirements of the Board under Section 172 of the Companies Act and the Companies (Miscellaneous Reporting) Regulations 2018. STRATEGIC REPORT CONTINUED The Directors of the Company have a duty to promote the success of the Company. A Director of the Company must act in the way they consider, in good faith, to promote the success of the Company for the benefit of its members, and in doing so have regard (amongst other matters) to: the likely consequences of any decision in the long term; the interests of the Company's employees; the need to foster the Company's operations on the community and the environment; the desirability of the Company to maintain a reputation for high standards of business conduct; and the need to act fairly between members and the Company. The Directors are committed to developing and maintaining a governance framework that is appropriate to the business and supports effective decision making coupled with robust oversight of risks and internal controls. Keystone has a very clear organic growth strategy aimed to ensure ongoing stakeholder value and all significant business decisions consider both their short and long-term impact on this strategy. Fundamental to delivering this strategy is to continue recruiting and retaining high-calibre lawyers who deliver work of the highest professional standards to our clients. Central to the success of the business is the development and maintenance of its open, welcoming and collegiate culture and we invest significant time and resources to ensure that these facets are maintained and developed for the benefit of all those involved with the Company. Keystone's primary asset is its people, be it the central office staff, the lawyers, the clients or third-party suppliers with whom we work (such as counsel, experts and other professionals). As a business, we dedicate substantial time, effort and resources in working to develop and maintain strong relationships from which all parties benefit. As a people business, the impact of business decisions on our principal stakeholders is always central to the decision-making process. The nature of the Group's business has a fundamentally low impact on the environment; we have an extremely small office footprint and the use of technology across the business further reduces the environmental impact as our lawyers have no need to commute to work. The Directors treat all members of the Group fairly and consistently, as required by both professional standards and in compliance with various pieces of legislation. We provide information to all shareholders and other third parties on an equal basis. Below are some examples of how the Directors have had regard to the matters set out in section 172 in decisions made when discharging their duties: APPROVAL OF ANNUAL BUDGET The Board has considered the financial and operational budget for the next financial year, focusing on driving continued growth of the lawyer base to underpin long-term sustainable growth. FIT OUT OF OFFICES IN CHANCERY LANE In considering the decision as to whether to refit our central office in Chancery Lane, as well as the sort of elements to include in this fit out, the Directors considered both the short-term and long-term implications of whether to do the work or not and choosing the fit out style. Consideration was given to the financial impact as well as the operational and brand impact. The considerations of all stakeholders were considered, including how the fit out would impact upon our employees, lawyers and clients both in terms of perception and actual day to day usage as well as our shareholders in terms of how the application of business resources in this way would impact on both the short-term and mid-term value of the business. PAYMENT OF SPECIAL DIVIDEND In reaching its decision to pay a special dividend this year, the Directors considered the interests of all relevant stakeholders. The Board concluded that the Group had accumulated surplus cash over and above the level needed to be conservatively held to meet ongoing working capital needs of the business, thereby satisfying its obligations to employees and creditors, and accordingly decided that such surplus should be returned to shareholders for their benefit. DIVIDEND In light of the strength of our balance sheet and our confidence in the future, the Board is proposing to pay a final ordinary dividend for the year ended 31 January 2025 of 14.0p per share (2024: 12.5p) as well as a special dividend of 15p. This brings the total ordinary dividend for the year to 20.2p per share (2024: 18.3p per share). Subject to approval at the Annual General Meeting, the final dividend will be paid on 8 July 2025 to shareholders on the register at the close of business on 13 June 2025. The cash value of dividends paid this year was £5.9m. Ashley Miller Finance Director 30 April 2025 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) ENVIRONMENTAL By its nature, the legal services sector does not have a significant environmental impact. Over and above this, the Keystone model, with its minimal property footprint and a workforce which uses technology to support remote working and avoid commuting, further reduces that impact. That said, as a Board, we believe that we have a responsibility to minimise the impact we have, where possible, to support society's response to the climate crisis. Since 2022, when we first carried out an assessment of our carbon footprint and took the decision to become certified carbon neutral, we have taken steps to reduce our carbon footprint where possible and where that was not possible to purchase carbon credits to offset those emissions. Through our Keystone Species initiative, we have supported both international and domestic projects which seek to protect the most important parts of our ecosystem. This year, through the purchase of carbon credits, we provided support to the Amazon REDD+ project aimed at preventing deforestation across 105,000 hectares of pristine rainforest in the Amazon basin. By doing this, the project is protecting some of the world's most biodiverse habitats and vital keystone species which live there. As well as protecting life on land, the project will also help rehabilitate water-based wildlife by rehabilitating degrade areas along riverbanks and combatting riverbed erosion and polluting sediment levels in the water. Through the project's vital work, local communities and groups will receive training on alternative methods of economic sustainability, including granting land tenure for sustainable farming and understanding quality agricultural production methos to help reduce poverty and hunger. On the domestic front, we have continued with our adoption of 20 British honeybee hives from Bees & Co, a certified carbon neutral honey farm. Whilst the honeybee is one of the smallest keystone species, its contribution to the ecosystem is vital, with an estimated one third of our food depending on pollination. These hives are handmade from British sustainable cedar wood and become home to over 1.5 million honeybees during the peak of summer. Our lawyers also benefit directly from this experience as a few are able to spend a day "bee keeping", bringing a real connection between our people and our environmental efforts, whilst the honey from our hives was sold at other charitable fundraising events which we ran during the year. Our aim is to continue to reduce our carbon intensity and minimise our footprint wherever possible and, to the extent it is not possible to avoid emissions, we will continue to offset the impact through the use of the carbon credit system. The table below shows the results of both this year and last year's assessment, which has been carried out independently in accordance with the methodology outlined by the GHC protocol. KEYSTONE EMISSIONS tCO 2 e (pre purchase of carbon credits) tCO 2 e 2025 2024 Scope 2 (1) 14.3 15.5 Scope 3 (2) 248.3 222.4 262.6 237.9 Scope 2 (kWh) 73,741 79,879 (1) Scope 2 represents indirect emissions generated by the purchase of electricity, heating and cooling. (2) Scope 3 represents other indirect emissions generated by our business and people whilst carrying out their jobs. 2025 2024 tCO 2 e per £m revenue 2.7 2.7 Revenue £'m 97.7 88.3 tCO 2 e per person 0.41 0.41 No. of people (1) 632 577 CARBON INTENSITY (1) No. of people is the average number of employees, Principals and Pod Members in the year. This year we have seen a slight decline in the scope 2 emissions due to the fact that during the office refit the floors were closed resulting in lower electricity consumption. Whilst overall emissions have increased, this increase is in line with both revenue and personnel growth. ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONTINUED CORPORATE CULTURE AND OUR PEOPLE A fundamental aspect of the success of Keystone is its culture. For the lawyers, the flat structure, transparent and consistent remuneration policy and absence of politics creates an extremely positive, open and encouraging environment in which they can thrive and drive forward their practices. Within the central office team, we engender a positive client-focused culture; this extends beyond the clients of the law firm to include the lawyers themselves, whom we treat as if they were clients. By engendering this supportive culture with our lawyers, we ensure that they are free to focus on client development and delivering legal services which are wholly consistent with the Group strategy. As a business, we run regular social and networking events for our lawyers; these provide ample opportunities throughout the year to assess and monitor the state of the culture amongst our lawyers, whilst the annual lawyer survey provides a further channel through which lawyers provide feedback to the management team on a range of aspects both practical and cultural. Furthermore, the Executive members of the Board work closely with the rest of the central office team, thus guiding and enhancing the positive behaviours and attitudes which underpin the corporate culture. As a law firm, Keystone is regulated by the SRA and, as such, has to comply with the SRA Code of Conduct. Central to this Code is a series of obligations placed on the Group and its lawyers to operate with integrity and uphold the rule of law. Keystone's business model drives positive behaviour. It aligns the interests of clients and lawyers, both of which are fulfilled through the Group and the support the lawyers receive and use in advising the clients. EQUALITY AND DIVERSITY We firmly believe in equality of opportunity and build our business by attracting and retaining the best talent for all roles. We have recently been recognised for the diversity of our people in the Law.com International diversity survey 2023 (1) . Our business model offers genuine flexibility to our lawyers, giving them control over the hours they work and providing the technological platform which enables them to deliver their high-quality service from the location of their choice; all of this with a remuneration structure which is uncapped and identical for all Principals. Equally, the vast majority of our central office team are able to work remotely, benefitting from the same technology advantages enjoyed by our lawyers, using the offices as needed or desired. (1) Top 5 law firms with the most female partners, top 5 law firms for LGBTQ+ representation, top 25 law firms for racial diversity and top 25 law firms for disability representation. Diversity data in 2024 was collected as part of the overall survey and no separate results were published. The table below sets out the gender of our people as at 31 January. 2025 2024 Male Female Male Female Board 4 1 4 1 Senior management 3 2 3 2 Other Central Office 25 48 14 43 Lawyers 320 256 303 246 Total 352 307 324 292 OUR PEOPLE POLICIES The Group has an extensive range of policies in place to govern behaviour and protect the rights of our people. These include, but are not limited to, the following areas: For employees, entitlements such as remuneration, pension, holiday, sickness, parental/bereavement leave and pay Internal procedures including complaints and grievances, disciplinary, whistleblowing IT and other facilities usage Anti-bribery and corruption, data usage, data protection and GDPR, anti-money laundering, anti-slavery, client confidentiality Health and safety and diversity and inclusion SRA (Solicitors Regulatory Authority) code of conduct also applies to all SHAREHOLDERS The Board places great emphasis on good communications with shareholders. The Group primarily communicates with shareholders via its annual and interim reports, which are issued following RNS announcements through the post and are also published on the Group's website. Following the issue of these, the Chief Executive and the Finance Director meet with shareholders and analysts. Further announcements may be made during the course of the year via RNS, in satisfaction of the Board's reporting obligations and in compliance with regulation and best practice. The Group's AGM also provides an opportunity for shareholders to communicate directly with the Board and shareholder participation is encouraged. Details of the Group's AGM, and the business to be transacted at it, are announced in the usual way and reproduced on the Group's website. Following the celebration of the AGM, the results of votes taken are published on our website. In addition, the Chairman is available to meet major shareholders on request to discuss governance and strategy. Reports of these meetings, and any other shareholder communications during the year, are provided to the Board. Shareholders can contact the Group Secretary by emailing [email protected] . Use the heading "Shareholder contact" to request that a matter be brought to the Board's attention or to arrange a meeting with the Chairman. WIDER STAKEHOLDER ENGAGEMENT The Board recognises the importance of the wider stakeholder groups, principally being: consultants and employees, clients and the Group's suppliers. The Group engages with each of these stakeholder groups regularly through a range of channels. CONSULTANTS AND EMPLOYEES Keystone's success is built on the calibre and commitment of its consultants (Principals and Pod Members) and employees, who share a common commitment to go above and beyond client expectation. Keystone is characterised by its open and inclusive collegiate culture with consultants feeling free to share their views about the Group with management in an unhindered manner. The senior management and central office employees engage directly with the Group's consultants daily and meet with them in a range of different formats regularly throughout the year, providing plentiful opportunity for dialogue. Furthermore, Keystone conducts a formal annual survey in which the consultants provide their feedback on the service, support and infrastructure they receive, as well as producing a quarterly internal magazine and sending out more regular bulletins by email or over Keyed In. Keystone's employees are equally central to the success of the Group and the open culture engendered within the team encourages employees to speak freely. Management is encouraged to ensure good engagement within its teams. CLIENTS Keystone's consultants have strong client relationships and, as such, normally have an open dialogue with their clients such that they receive regular feedback during the progression of each matter. Clients are also invited to give feedback directly to senior management in the Group's engagement letter, which is sent to every client at the commencement of the matter. As a regulated law firm, the services we provide are governed by the highest standards of professional practice and our internal compliance function works with our lawyers, our clients, our regulator and our ombudsman in this respect. Our service and expertise regularly win awards. A number of industry publications, including The Lawyer, Legal Week, Chambers and Partners have independently attested to Keystone's very high level of client satisfaction. SUPPLIERS Each of our Group unit heads engages directly with our suppliers in their area. We engage regularly with our key suppliers. The heads of our Group units have direct access to the Board and discuss supplier matters, both formally and informally, as and when necessary. THE BOARD OF DIRECTORS EXECUTIVE DIRECTORS JAMES KNIGHT Chief Executive Officer James founded Keystone in 2002 when he set out to create a new type of law firm. Prior to that, he had a ten-year career as a commercial solicitor in London, Hong Kong and Dubai. James now focuses on business development, marketing and other drivers of growth. ASHLEY MILLER Finance Director Ashley joined Keystone in January 2015 and is a commercially orientated finance professional with over 25 years' experience. Having trained with Price Waterhouse, Ashley has spent his career establishing and managing international finance departments for SME businesses operating across the professional services sector. NON-EXECUTIVE DIRECTORS ROBIN WILLIAMS Independent Non-executive Chairman Robin joined the Board in October 2017 as Independent Non-executive Chairman. He is a chartered accountant with over 30 years' experience with listed companies, initially as an adviser, then as a leading Executive and, latterly, as a Non-executive. He is also currently Chairman of Churchill China Plc and Non-executive Director of Headlam Plc. ISABEL NAPPER Independent Non-executive Isabel joined the Board in December 2020. She is an Independent Non-executive Director and, since April 2021, Chair of the Remuneration Committee. She is also a Non-executive Director and Chair of the Remuneration Committee of Tristel Plc. She has a range of experience having acted as Non-executive Director for both private and public companies for over 15 years. Until 2015, she practised as a lawyer specialising in intellectual property and commercial law. SALAR FARZAD Independent Non-executive Salar joined the Board in March 2023 as an Independent Non-executive Director and in April 2023 he became Chair of the Audit Committee. He is a chartered accountant with extensive commercial experience who has served as CFO for a range of organisations, including AIM Listed, private and divisions of large groups with Official Listings. He is also currently Chief Financial and Administrative Officer of Gleeds, an international commercial property consulting firm and a Non-executive Member, sitting on the Nomination and Remuneration Committees, of Trinity College London. PRINCIPAL RISKS AND UNCERTAINTIES The Corporate Governance Statement includes an overview of the Group's approach to risk management and internal controls. Set out below are the principal risks and uncertainties that the Group faces and the activities designed to mitigate these risks. The Board recognises that the nature and scope of risks can change and that there may be other risks to which the Group is exposed; therefore, the list is not intended to be exhaustive. Risk Mitigation ECONOMIC DOWNTURN UNINSURED RISKS LITIGATION, PROFESSIONAL LIABILITY AND A significant downturn in the UK economy impacting the demand for legal services. Due to the nature of a law firm and its role in providing legal advice, the Group remains susceptible to potential liability for negligence, breach of contract and other client claims. From time to time, in the ordinary course of business, Keystone receives claims of professional negligence which it notifies to its insurers. Any potential claim may be expensive to defend, divert the time and focus of management away from the Group's operations, and may result in the Group having to pay substantial monetary amounts, any of which could impact on the reputation of the Group and result in a material adverse effect on Keystone's business and overall financial condition. We deliver our services across a broad range of legal services, supporting clients across a large range of sectors, such that we have no dependence on any one area of law, sector of the economy or client. Furthermore, the remuneration structure of our lawyers (fully variable and pay when paid) provides a substantial cushioning effect in the event of economic volatility. Finally, an economic downturn may provide further impetus to recruitment as conventional firms, which have high fixed costs, may struggle in this environment, thereby increasing the candidate flow. We have a robust compliance and risk management team, which focuses on supporting lawyers to reduce the risk that such issues may arise and, to the extent that they do arise, we seek to mitigate any such risk by carrying professional indemnity insurance with a cap of £60 million. REGULATORY RISK AND COMPLIANCE RISKS The Group, like most businesses, is subject to a range of regulations. Failure to comply with these could have significant implications for the business ranging from reputational damage to criminal prosecution and sentencing. The business has an experienced and robust compliance and risk management team, which oversees the Group's policies and procedures, ensuring that they meet the relevant regulatory requirements. The Group uses technology to support and drive compliant behaviour and to help the team to focus on areas of potential risk. Furthermore, the team calls upon external professional advice where needed to ensure that the business meets its compliance and regulatory obligations. PERSONNEL For any business, personnel is a particularly prominent asset heavily contributing to its strength and attractiveness. The Group is heavily reliant on its lawyers to attract new clients and maintain relationships with existing clients. If the Group was to lose the services of key lawyers with high client retention rates, or cease to be able to attract new lawyers, this could significantly impair the strategy and success of the firm from both a reputational and financial standpoint. The Group invests considerable time and effort in working to attract high-quality new lawyers as well as focusing on ensuring that all lawyers feel a part of the Keystone "family". Furthermore, management continues to monitor the characteristics of the Keystone model to ensure that they remain commercially compelling and attractive to both existing and potential Keystone lawyers. PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED Risk Mitigation CONTRACTUAL ARRANGEMENTS WITH LAWYERS Keystone's lawyers are self-employed, contracting with the Group predominantly via personal service companies. The self-employed status of the Group's consultants is not only based on the contractual structure, but also on the way in which the arrangements operate in practice. There is a risk that some of the consultant lawyers may be deemed to be workers or employees and, as such, would be entitled to additional benefits including, but not limited to, paid annual leave and sick pay. If this was to occur, then in addition to the rights for workers, such lawyers would gain rights for unfair dismissal. If the consultant lawyers were deemed to be employees, then the tax treatment would be different and the Group would be liable for PAYE and national insurance contributions for such people deemed to be employees. Furthermore, if there is a change in employment law or tax law, which means that the nature of the relationship which exists between the Group and its lawyers is not one of self-employment, then the rights and obligations referred to above could also be triggered. The Group monitors the legislative landscape for any developments which could have a bearing upon this relationship. Where necessary, the Group would seek external professional advice to support it in assessing the implications of any such developments. COMPETITION Keystone competes with other legal firms that offer commercial law services in which quality of advice, service, reputation and value operate as highly competitive factors to distinguish the Group. Despite this, there remains a risk that competitor firms or a newly established firm will acquire market share. Competition remains a core risk for the Group as any loss of market share could reduce revenue, reduce margins, reduce the ability to recruit new lawyers and reduce the retention rates of current personnel, any of which could materially adversely affect the Group's business operations and overall financial condition. Keystone's growth strategy continues to be focused on attracting good quality lawyers with strong client relationships. By maintaining the calibre of lawyers attracted and retained, management believes that they will maintain and enhance their position in the market. Management also continues to review and monitor the characteristics of the Keystone model to ensure that they stay ahead of any current or future competitors. INFORMATION SYSTEMS AND SYSTEM SECURITY BREACHES IT forms an integral part of the business's operating model and, as such, any breakdown of the Group's information technology system could be significant. Also, as Keystone processes sensitive personal data, it is possible that a security breach could result in some of this data becoming public. Were this to occur, then Keystone could face liability under data protection laws and could lose the goodwill of any clients affected by such a breach. Such a breach could also create reputational damage. Hosting and support of all systems is outsourced to a large, reputable business which is dedicated to the provision of these services. It is contracted to keep all data safe, secure and backed up, and utilises a number of tools and appliances to maintain Keystone's data integrity and security. Over and above this, we continue to invest in IT security systems to reduce the risk that any breach/penetration can occur. CORPORATE GOVERNANCE STATEMENT INTRODUCTION The Directors acknowledge the importance of high standards of corporate governance and are pleased to confirm that the Group has continued to comply with the Quoted Companies Alliance Corporate Governance Code 2018 (the "QCA Code") throughout the year and that it will ensure that it is compliant with the updated QCA Code 2023 in line with its effective date (financial years starting on, or after, 1 April 2024). BOARD EFFECTIVENESS During the year, the Group has carried out an annual Board effectiveness review. This was an internal review led by the Chairman and involving all of the Directors. The format taken this year was for each Director to complete a questionnaire about the performance of the Board as a whole, commenting on the overall approach, effectiveness and any areas they felt that the Board could enhance its effectiveness. The results of this were then discussed in an open forum and considered. No specific failings in effectiveness were identified and the review served to reinforce the Board's focus on the monitoring and management of risk as well as the key drivers of growth in the business. RISK MANAGEMENT AND INTERNAL CONTROLS Risk management is a key area of focus for the Board, which is responsible for maintaining a sound system of internal controls to safeguard shareholders' investments and the Group's assets. Such a system is designed to reduce and manage the risk of failing to achieve the Group's objectives. It is designed to provide a reasonable assurance against material misstatement or loss. The Board has considered the need for an internal audit function and has concluded that, given the size and complexity of the Group, the internal control system currently in place is the most appropriate solution. The Board revisits this decision periodically. The Board is responsible for the identification and evaluation of major risks faced by the Group and for determining the appropriate course of action to manage those risks. The Group maintains a risk register which the Board considers regularly. The risk register assesses both the risks and the controls in place to prevent the risk crystallising as well as any mitigation which would exist should they materialise. A summary of the principal risks and uncertainties, together with the relevant mitigation, is set out on pages 17 and 18 of this report. The Group takes a proactive approach to risk management, which starts at the strategic level with the Group identifying areas of the law in which it will not operate. The Group then recruits to this risk profile. The recruitment process is controlled by the senior management team, who are qualified and experienced solicitors with many years' experience of recruiting consultants to Keystone. The Group focuses on attracting experienced and well-qualified lawyers with a client following from highly respected law firms, thereby reducing the risk profile of the lawyer base. As a law firm, Keystone is regulated by the Solicitors Regulatory Authority ("SRA") as well as being subject to other legal regulation governing its industry and the economy as a whole (e.g. anti-money laundering legislation, data protection rules ("GDPR") etc.). As such, the Group has a dedicated compliance function, led by the Group's Compliance Officer and appropriately qualified staff, whose role it is to ensure compliance with all such regulation as well as handling any complaints or claims received from the Group's clients. The structure of Keystone ensures that this department is wholly independent of the lawyers, whilst the "open door" collegiate culture of the Group ensures that lawyers are more than happy to seek support and guidance from the team where they identify issues of potential concern. This department reports to the Chief Executive, who is fully appraised of any regulatory matters being handled, complaints/claims made as well as the status of these, and the Board receives regular updates as to the status of any significant regulatory matter or material claims made or complaints which the CEO believes may proceed to a claim. The Group uses technology, with each new matter taken on being subjected to a risk questionnaire, as well as more traditional methods, such as file audits, to proactively monitor matters, and actively engages with consultants to assess, understand and manage any risk that should arise. The Group's standard terms of business, provided to each client at the start of each engagement, advises the clients of the Group's complaints procedure; this procedure directs the clients directly to the compliance department. Furthermore, under the terms of the compliance agreement, which each consultant enters into with the Group, the consultants are required to report all risks, complaints and regulatory matters to the compliance function. CORPORATE GOVERNANCE STATEMENT CONTINUED As the most significant risk for a law firm is associated with claims for professional negligence, one of the Group's significant contracts (and, as such, an item which requires Board sign off) is the renewal of the professional indemnity insurance. This ensures that the Board is the body which is ultimately responsible for assessing the appropriateness of the level of cover which the Group holds. The financial procedures and controls of the Group are under the stewardship of the Finance Director (see Directors' biographies on page 16). COMPOSITION OF THE BOARD, ITS SUBCOMMITTEES AND ITS MEMBERS The Board generally comprises five Directors, two Executives and three Non-executives, reflecting a blend of different experiences and backgrounds. Directors' biographies, setting out their experience, skills and independence, are shown on page 16. The Board believes that the composition of the Board brings a desirable range of skills and experience in light of the Group's challenges and opportunities, whilst, at the same time, ensuring that no individual (or small group of individuals) can dominate the Board's decision making. The Non-executive Directors are expected to devote such time as is necessary for the proper performance of their duties. It is anticipated that this will require them to spend a minimum of 24 days a year working for the Company. The Non-executive Directors meet during the year without the Executive Directors and provide effective balance and challenge. The Executive Directors are full-time employees of the Company. The Non-executive Directors keep their skill set up to date with a combination of attendance at CPD events and experience gained from other Board roles. The Executive Directors are employed full time in the Group and this is the best way of their keeping up to date. The Group's Nominated Adviser and the Company Secretary ensure the Board is aware of any applicable regulatory changes. All Directors are able to take independent professional advice in the furtherance of their duties, if necessary, at the Group's expense. In addition, the Directors have direct access to the advice and services of the Company Secretary and Finance Director. The division of responsibilities between the Chairman and Chief Executive Officer has been agreed by the Board and is set out below. ROLES OF THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER The Chairman leads the Board ensuring its effectiveness and his role and responsibilities are clearly divided from those of the Chief Executive Officer. The Chairman: sets the Board agenda; ensures that the Directors receive accurate and timely information and that adequate time is available for discussion of all agenda items, in particular, strategic issues; makes sure that all Directors, particularly the Non-executive Directors, are able to make an effective contribution; maintains a constructive relationship between the Executive Directors and the Non-executive Directors; initiates Board and Committee effectiveness reviews and the discussion of their outcomes; has primary responsibility for leading the Board; and chairs Board meetings. The Chief Executive Officer has responsibility for all operational matters, which include the implementation of strategy and policies approved by the Board. In addition, he has responsibility for managing the business of Keystone subject to the matters reserved for the Board. He has overall responsibility for the Group's development and expenditure and delivering on the budget prepared by the Finance Director and approved by the Board. MATTERS RESERVED FOR THE BOARD The Board is responsible for reviewing, formulating and approving the Group's strategy, budgets and corporate actions and overseeing the Group's progress towards its goals. This is formally documented in a schedule of matters reserved for Board approval and includes: strategy and business plans, including annual budget; structure and capital including dividends; financial reporting and controls; internal controls on risk management and policies; significant contracts and expenditure; communication with shareholders; remuneration and employment benefits; and changes to the Board composition. BOARD DECISIONS AND ACTIVITY DURING THE YEAR The Board has a schedule of regular business comprising all the major financial and operational matters of the Group. The Board has established a number of committees, the work of which is described below. The Board has ensured that all areas for which it is responsible are addressed and reviewed during the course of the year. The Chairman, aided by the Company Secretary, is responsible for ensuring the Directors receive accurate and timely information. The Company Secretary provides minutes of each meeting and every Director is aware of the right to have any concerns minuted. In addition to the Board meetings, there is regular communication between Executive and Non-executive Directors, including, where appropriate, updates on matters requiring attention prior to the next scheduled Board meeting. It is the Board's current practice that the Non-executive Directors meet periodically, and at least annually, without the Executive Directors. BOARD MEETINGS Board meetings are held monthly and arranged by the Company Secretary. Where the subjects to be discussed call for it, the Company Secretary arranges for or prepares suitable papers, which are then circulated to the Directors in advance. Additional ad hoc meetings and committee meetings are called as necessary, for example, to approve the release of the Group's Annual Report, once it has been approved in principle in substantially the final form. At least annually, the Board will consider the Group's strategy and annual budget. There are currently no plans in place for the evolution of the corporate governance framework in line with the Group's plans for growth as the Board believes that the current structure of the Board is suitable for such growth plans in the short to medium term. However, the Board will keep this under regular review. The table below shows the Directors' attendance at scheduled meetings of the Board and its committees during the year: Board Audit Remuneration James Knight 10/11 Ashley Miller 11/11 2/2 Robin Williams 11/11 2/2 3/3 Isabel Napper 11/11 2/2 3/3 Salar Farzad 11/10 2/2 3/3 DISCLOSURE COMMITTEE The Disclosure Committee is available as needed to review how the Group should deal with price sensitive information. The purpose of the Disclosure Committee is to provide a rapid response to the potentially urgent matter of required disclosures. All Board members are members of the Disclosure Committee as is the Company Secretary. The quorum of the Disclosure Committee is one of the Chief Executive Officer, the Finance Director, or the Company Secretary and any Non-executive Director. NOMINATION COMMITTEE The Nomination Committee is available as needed to manage the process of appointing new Directors to the Board and to consider succession matters. The Committee is chaired by Robin Williams and is comprised of James Knight and the Non-executive Directors. AUDIT COMMITTEE OVERVIEW The Audit Committee is charged with the oversight of the internal financial controls and risk management systems, making recommendations to the Board on the appointment of its auditor and the audit fee, monitoring and reviewing the conduct and control of the audit work, as well as monitoring the integrity of all formal reports and announcements relating to the Group's financial performance. The Committee has unrestricted access to the Group's auditor The Audit Committee considers all proposals for non-audit services and ensures that these do not impact on the objectivity and independence of the auditor. The Audit Committee, in its meetings with the external auditor, reviews the safeguards and procedures developed by the auditor to counter threats, or perceived threats, to their objectivity and independence and assesses the effectiveness of the external audit. The Group's policy on non-audit services performed by the external auditor is to address any issues on a case by case basis. COMPOSITION AND MEETINGS The Audit Committee has three members, all of whom are independent Non-executive Directors, with one having recent and relevant financial experience with competence in accounting or auditing. The Finance Director attends the committee meetings by invitation. The members of the Audit Committee are: Salar Farzad (Chair), Isabel Napper and Robin Williams. The Audit Committee has met twice during the year, once following the annual audit of last year's accounts and once following the half year. All members of the Committee attended both meetings as did the Finance Director by invitation for part of each meeting. The auditor attended the meeting following the annual audit to provide feedback on their work. INTERNAL FINANCIAL CONTROLS AND RISK MANAGEMENT FRAMEWORK The Audit Committee is charged with oversight of the internal financial control and risk management framework in the business. This framework is intended to provide reasonable, but not absolute, assurance against material financial misstatement or loss. The Audit Committee has concluded that sound risk management and internal controls have been in operation throughout the period. FINANCIAL MANAGEMENT AND REPORTING The Committee is satisfied that the Annual Report and Financial Statements, taken as a whole, provide a fair, balanced and understandable assessment of the Group's performance, its strategy and business model, as well as its financial position as at the end of the period, and has advised the Board accordingly. In reaching these conclusions, the Committee has considered the information provided by management and discussions held with the external auditor. INTERNAL AUDIT FUNCTION Given the Group's straightforward structure and business model, the Board does not consider it necessary to have an internal audit function at this time. This position will be reviewed annually. EXTERNAL AUDIT The Committee has reviewed and agreed the scope and methodology of the work undertaken by the Group's external auditor RSM. It has considered their independence and objectivity and has agreed the terms of their engagement and their fees. RSM has been the Group's auditor since the Group's shares were admitted to AIM. A review of their independence and audit process effectiveness is performed each year before a recommendation is made to the Board to propose their reappointment at the AGM. Salar Farzad Chair, Audit Committee 22 22 REPORT OF THE REMUNERATION COMMITTEE OVERVIEW The Remuneration Committee considers the performance of the Executive Directors and makes recommendations to the Board on matters regarding their remuneration and terms of service. As part of that process, the Remuneration Committee sets the scale and structure of the Executive Directors' remuneration package, including share-based payments having regard to best practice, corporate governance and the interests of shareholders. It is also responsible for the review and management of the Group's share-based incentive scheme. The Remuneration Committee meets when required, but at least twice each year. The Committee has regard to the recommendations put forward in the QCA Code and the QCA Remuneration Committee Guide and associated guidance. The Remuneration Committee consists of three independent Non-executive Directors Isabel Napper (Chair), Robin Williams and Salar Farzad. MEETINGS During the year, the Committee met on three occasions and, on each occasion, all those who were members of the Committee at that time were present. DIRECTORS' REMUNERATION SUMMARY (AUDITED) The remuneration of the Directors is set out in the table below: Value of shares Salary received Total Salary Value of shares received Total £'000 & Fees under LTIP Pension 2025 & Fees under LTIP Pension 2024 James Knight 357 - 10 367 347 - 4 351 Ashley Miller 212 113 10 335 198 104 9 311 Robin Williams 78 - - 78 74 - - 74 Isabel Napper 47 - - 47 45 - - 45 Salar Farzad 47 - - 47 39 - - 39 Simon Philips (1) - - - - 10 - - 10 741 113 20 874 713 104 13 830 (1) Simon Philips resigned in April 2023 During the year, the share awards granted in June 2021 vested. KEY ACTIVITIES During the year, the Committee: assessed the level of performance achieved versus the performance criteria of each of the LTIP awards which vested during the year and confirmed the vesting; considered whether the remuneration needs of the Group were met by the existing LTIP scheme or whether alternative share schemes needed to be established. This review identified that the existing scheme met the needs, except insofar as to the limit on the number of shares which could be issued under the scheme. The existing drafting contemplated the creation of alternative share schemes and, as such, allowed for 5% to be issued under the existing LTIP but a total of 10% under all schemes. As the Committee has now concluded that other schemes are not necessary the LTIP scheme rules have been amended to state that a limit of 10% will apply to this or any other share scheme. There has, therefore, been no amendment to the overall limit to the number of shares which can be issued under share schemes, instead the existing scheme has been made better fit for purpose; Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2025 23 REMUNERATION COMMITTEE CONTINUED considered which members of the senior management team should be qualifying individuals under the LTIP for the grant made during the year; reviewed the share allocation to qualifying individuals under the LTIP; and reviewed the remuneration arrangements for the Executive Directors and senior management team. LONG TERM INCENTIVE PLAN The Group operates a long-term incentive plan (the Keystone Law Long-Term Incentive Plan 2018). The main terms of the plan are as follows: the Remuneration Committee is authorised to grant performance share awards or nil-cost options to qualifying employees; awards are made subject to appropriate performance criteria; any award made is subject to a three year vesting period followed by a one year holding period (awards made prior to June 2023 were subject to a two year holding period), during which time employees may not sell the shares except insofar as necessary to pay for the tax arising from the grant; no single grant may have a value greater than 100% of the base salary of the individual to whom the grant is made; and the total number of shares which may be granted (net of any cancelled) under this, or any other, scheme may not exceed 10% of the total share capital of the Company. In June 2024, performance share awards were issued to members of the senior management and an Executive Director. In accordance with the terms of the scheme, these awards were subject to performance criteria, with 80% of the award linked to EPS growth and 20% linked to comparative total shareholder return with both elements being measured over a three year period. The Remuneration Committee considers that the targets are appropriate and are aligned with shareholder interests. Also in June 2024, following the Committee's assessment of the performance of the business against the performance criteria, 85% of the performance share awards granted in June 2021 vested. This was the result of achieving 100% of the EPS element of the award, whilst delivering a TSR which fell above the median but below the upper quartile of the comparator group meaning that 50% of this element of the award vested. In order to satisfy these awards, the business issued 111,564 ordinary shares in the capital of the Company. The fair value of the employee services received in exchange for these grants is recognised as an expense on a straight-line basis over the vesting period. The total amount to be expensed is determined by reference to the fair value of the options or shares determined at the date of grant. The awards are valued using the Monte Carlo (TSR component) and Black-Scholes (EPS component) option pricing models. Non-market based vesting conditions are included in assumptions about the number of options that are expected to become exercisable or the number of shares that the employee will ultimately receive. This estimate is revised at each balance sheet date to allow for options that are not expected to vest and the difference is credited to the consolidated statement of comprehensive income with a corresponding adjustment to reserves. The following table shows Share Awards held by Directors: 31 January 2024 Lapsed Vested Granted 31 January 2025 Ashley Miller 70,591 (2,929) (16,602) 22,085 73,145 Total 70,591 (2,929) (16,602) 22,085 73,145 DIRECTORS' INTERESTS According to the register of Directors' interests maintained under the Companies Act, the following interests in shares of the Company were held by the Directors in office at the year end: 2025 2024 James Knight 8,927,012 8,965,512 Ashley Miller 228,796 220,164 Robin Williams 11,000 11,000 Salar Farzad 2,050 2,050 2025 DIRECTORS' REMUNERATION POLICY This section sets out the Directors' Remuneration Policy of Keystone Law Group Plc, which will be put to shareholder approval at the 2025 Shareholders' Meeting. INTRODUCTION This Remuneration Policy sets out the framework for the remuneration of the Directors and senior management of the Company. The policy is designed to attract, retain and motivate individuals with the necessary skills and experience to deliver long-term shareholder value while ensuring compliance with AIM market guidelines and corporate governance principles. OBJECTIVES OF THE POLICY Align remuneration with the Company's strategy, long-term performance, and shareholder interests. Provide a clear and transparent framework for setting and disclosing remuneration. Encourage a performance-based culture with an appropriate balance between fixed and variable pay. SCOPE This policy applies to the Executive Directors, Non-Executive Directors and senior management of the Company. The table below summarises the main elements of remuneration packages for Executive Directors: Component and Purpose Operation Maximum Performance BASE SALARY To attract and retain talent BENEFITS To ensure total remuneration package is competitive Takes account of factors such as role, skills and contribution. The setting of base salaries takes into consideration factors such as external market as well as the individual's skill and contribution. Base salaries are normally reviewed annually. Benefits include private medical insurance and life insurance. No formal maximum Individual and business performance are taken into account when setting base salaries. No formal maximum. The Company reviews its benefits to remain competitive in the broader employment market DIRECTORS' REMUNERATION POLICY CONTINUED Component and Purpose Operation Maximum Performance PENSION To provide appropriate level of benefits that allow for retirement planning LONG TERM INCENTIVE PLAN ("LTIP") Incentivises long-term shareholder value creation and employee retention The Company operates a defined contribution pension scheme for all employees. Executives can opt instead to receive a salary supplement in lieu of this pension contribution. The LTIP consists of an award of the Company's shares which vest, subject to performance criteria being satisfied, after a three-year period and are then subject to a one-year holding period, during which the beneficiary is able to sell shares sufficient to pay the tax liability which arises upon vesting. Malus and claw-back provisions apply. The level of employer contribution for executive directors, expressed as a percentage of basic salary, is in line with the rate applicable to the majority of the workforce. The maximum value which may be awarded to any beneficiary is 100% of the recipient's base salary. There are three performance metrics which are applied in calculating the number of shares which will vest of any award: The Executive must remain employed at the time of vesting. 80% of the value of the award is assessed against EPS growth targets approved at the time the award is made. 20% of the value of the award is assessed by comparing the TSR delivered by the Group over the assessment period compared to the TSR of the comparator group. James Knight does not participate in the LTIP scheme as the Committee believes that the level of his shareholding already ensures alignment of his interests with those of the broader shareholder body. NON-EXECUTIVE DIRECTORS The table below summarises the main elements of remuneration packages for Non-executive Directors: Component and Purpose Operation Maximum Performance FEES Non-executive Director fees take into account external market conditions to ensure it is possible to attract and retain the necessary talent Fees are normally set with reference to factors such as market positioning. Fees take into account the level of responsibility, experience and dedication required. To acknowledge the key role of the Chair of the Board of Directors, fees are set separately for this role. No prescribed maximum. However, the Board takes account of the general increase in the market for Non-executive roles and aligns with the overall increase in Company's employee salaries. Not applicable. Non-executive Directors do not participate in variable pay arrangements. SERVICE CONTRACTS AND EXIT PAYMENTS POLICY EXECUTIVE DIRECTORS The following is a summary of the key terms of the service contracts of the Executive Directors: The service contracts are available for inspection at the Company's registered office, upon prior request. James Knight Ashley Miller Term Indefinite Indefinite Notice Period 12 months 3 months There are no express provisions in Executives' service contracts with the Company for compensation payable upon termination of those contracts, other than for payments in lieu of notice. NON-EXECUTIVE DIRECTORS Non-executive Directors (including the Chair) do not have service contracts but rather letters of appointment, the key terms of which are set out below: Chairperson NEDs Initial term 3 years 3 years Notice period 3 months 1 month Isabel Napper Chair, Remuneration Committee DIRECTORS' REPORT The Directors have pleasure in presenting their report and the financial statements of the Group for the year ended 31 January 2025. PRINCIPAL ACTIVITIES AND BUSINESS REVIEW The principal activities of the Group during the year were the provision of legal services, whilst the Company acts principally as a holding company. The results for the year and the financial position of the Group are as shown in the annexed financial statements. A review of the business and its future development is given in the Chairman's and Chief Executive's statements together with the Financial Review and Strategic Report. RESULTS AND DIVIDENDS The results for the year are set out in the consolidated income statement on page 37. The Directors propose a final ordinary dividend of 14.3p per share subject to the approval at the Annual General Meeting on 3 July 2025. LIKELY FUTURE DEVELOPMENTS Our priorities for the following financial year are disclosed in the Chief Executive's Statement on pages 08 to 09. SUBSTANTIAL SHAREHOLDINGS As far as the Directors are aware, the only notifiable holdings equal to, or in excess of, 3% of the issued ordinary share capital at 14 April 2025 were as shown in the table below: No. of Shares % Holding James Knight 8,927,012 28.26 Canaccord Genuity Wealth Management 4,029,173 12.75 Liontrust Asset Management 3,431,010 10.86 JPMorgan Chase & Co 2,104,046 6.66 Stancroft Trust 1,630,000 5.16 AssetCo Plc 1,445,260 4.57 Royal London Asset Management 1,299,131 4.11 DIRECTORS AND THEIR INTERESTS The Directors who served throughout the year, except where otherwise stated, and in place at the date of this report, are as follows: James Knight Ashley Miller Robin Williams Isabel Napper Salar Farzad The Directors' interests are included within the Report of the Remuneration Committee.

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