Keystone Law : Results for the six months ended 31 July 2024

About this update from Keystone Law Group Plc

12 September 2024 Keystone Law Group Plc ("Keystone", the "Group" or the "Company") Results for the six months ended 31 July 2024 Strong financial performance continuing to deliver sustainable growth and progressive dividends Recruitment activity remained buoyant with Keystone adding 30 new Principals across H1 2025 Keystone now expects revenue and adjusted PBT slightly ahead of current expectations for FY 2025 Keystone, the tech-enabled challenger law firm, is pleased to announce its results for the six months ended 31 July 2024 ("H1 2025" or the "Period"). Financial Highlights: Revenue growth of 8.3% to £46.5 million (H1 2024: £42.9 million*) Adjusted PBT increased by 7.2% to £6.1 million (H1 2024: £5.7 million) Adjusted PBT margin stable at 13.1% (H1 2024: 13.3%) Adjusted basic EPS of 14.6p (H1 2024: 13.6p) Cash generated from operations of £6.2 million (H1 2024: £6.3 million) with operating cash conversion of 106% (H1 2024: 113.3%); the Group remains debt-free and with net cash of £8.3m Declared interim ordinary dividend of 6.2p per share (H1 2024: 5.8p) * restated as per restatement in recent annual report and accounts Operational Highlights: Strong performance across all recruitment KPI's as the legal recruitment market remained positive: o 153 high-calibre new applicants in the Period (H1 2024: 144) o 56 offers made (H1 2024: 42) and 31 offers accepted (H1 2024: 25) o 30 new Principals joined in the Period, increasing the number of Principals to 442 (31 January 2024: 432). Total fee earners increased to 557 (31 January 2024: 549) Current refurbishment of the London office which, when complete, will provide greater workplace flexibility and enhanced lawyer experience, remains on track The calibre of candidates joining the Group demonstrates the mainstream appeal of the model and emphasises Keystone's position as market leader within our sub-sector Current Trading and Outlook: In light of the strong first half performance and the positive start to the second half of the year, the Board is confident that Keystone will deliver both revenue and adjusted PBT slightly ahead of current market expectations. James Knight, Chief Executive Officer of Keystone, commented: "Keystone's position in the market continues to strengthen and I am delighted that our ongoing operational excellence has been reflected in our financial performance. The business has delivered well across all our operational KPIs, reflecting the ongoing growth in demand for the benefits that Keystone provides." Analyst Briefing A meeting for analysts will be held virtually at 9.30am this morning. Analysts wishing to attend this event can register via email at [email protected]. Retail Investor Presentation Keystone's management team will provide a separate presentation and Q&A for investors at 1.00pm on Monday 16 September 2024. The presentation will be hosted on the Investor Meet Company digital platform, where questions can be submitted pre-event up until 9.00am on the day before the meeting, or at any time during the live presentation. To sign up to IMC, please visit: www.investormeetcompany.com/keystone-law-group-plc/register-investor For further information please contact: Keystone Law Group plc James Knight, Chief Executive Officer Ashley Miller, Finance Director www.keystonelaw.com +44 (0) 20 3319 3700 Panmure Liberum Limited (Nominated Adviser and Joint Broker) Atholl Tweedie (Corporate Finance) Rupert Dearden (Corporate Broking) www.panmureliberum.com +44 (0) 20 7886 2500 Investec Bank plc (Joint Broker) Carlton Nelson James Rudd www.investec.co.uk +44 (0) 20 7597 5970 Vigo Consulting (Financial Public Relations) Jeremy Garcia / Fiona Hetherington [email protected] +44 (0)207 390 0233 The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"). Notes to editors Keystone (AIM: KEYS), is an award-winning, UK Top 100, law firm, providing conventional legal services in a £10bn addressable market through its scalable and unique model, with three defining characteristics: Lawyers have freedom, flexibility and autonomy, and are paid up to 75% of what they bill. Lawyers determine how, when and where they work, in contrast to the conventional law firm model. Lawyers are provided full infrastructure and support via its central office team, bespoke user-friendly IT platform, an extensive network of high-calibre colleagues and a busy programme of networking and social events. Keystone is a full-service law firm, with 20 service areas and more than 50 industry sectors delivered by almost 450 high-calibre self- employed Principal lawyers who work from their own offices. In November 2020, Keystone was named Law Firm of the Year by The Lawyer, the first time a 'new' law firm has won the award. More information about Keystone can be found at www.keystonelaw.co.uk. CHIEF EXECUTIVE'S STATEMENT I am pleased to report that Keystone has continued to perform well, delivering strong results for the first half of this financial year ("H1 2025" or the "Period"). Revenue for the period of £46.5m was 8.3% up on H1 2024 (restated) (£42.9m), reported PBT rose to £5.5m and adjusted PBT (1) increased to £6.1m (increases of 5.3% and 7.2% on H1 2024 results of £5.3m and £5.7m respectively). Furthermore, the cash generative nature of the model meant that these profits converted to cash, with cash generated from operations of £6.2m (H1 2024: £6.3m). Conditions in the legal recruitment market have also remained positive for Keystone and we have experienced increases across all the recruitment KPIs as shown in the graph below.   Qualified New   Offers     Applicants Offers Made Accepted Starters           H1 2023 122 34 17 22 H1 2024 144 42 25 25 H1 2025 153 56 31 30 H1 2025 saw 30 new Principals join us, bringing the total number of Principals to 442 (31 January 2024: 432). As highlighted in our recent Annual Report and Accounts, Keystone now regularly attracts candidates from the leading law firms in the UK, which continued to be the case during the first half of this year. This demonstrates the mainstream acceptability and appeal of Keystone's model, as well as our position as market leader within the sub-sector, commonly referred to as the 'platform' or 'consultancy' model. The central office team has continued to deliver outstanding support to all our lawyers, both new and existing. Successfully onboarding new joiners is a key element in ensuring the long-term sustainable growth of the business, whilst providing excellent ongoing support to established Keystone lawyers is equally fundamental. It is important for us to focus as much on service delivery and lawyer retention as we do on recruitment. During the Period, the team has worked unceasingly to successfully deliver on each of these objectives. For our new lawyers, this has meant providing a bespoke, one-to-one onboarding process, focusing on understanding the individual needs and opportunities of each new Principal, providing solutions to any challenges they may have and helping them to build the professional support network which they need to maximise the opportunities which their practice offers. For our established lawyers, the team has focused on continually enhancing the lawyer experience whilst delivering support of the highest calibre across all departments. Having renewed our leases in Chancery Lane, we have been busy planning the refit of the two floors to enhance the workspace experience. The implementation phase of the project started in July and will continue through H2 2025; during which time, we will maintain service levels for our lawyers by maintaining one floor open throughout. Once completed, our lawyers and the central office team will benefit from a modern, flexible environment providing a variety of workspaces, including highly professional client meeting rooms, collaborative workspaces and areas for silent working. I would like to take this opportunity to thank my central office colleagues for their dedication and passion, which continues to drive the business forwards and has made these results possible. Dividend I am pleased to announce that the Board has declared an interim ordinary dividend of 6.2p per share. This dividend will be payable on 11 October 2024 to shareholders on the register on 20 September 2024, and the shares will go ex-dividend on 19 September 2024. Summary and outlook We are delighted with the all-round success of the H1 2025 results. We have delivered a strong performance across all KPIs of the business, continuing to build sustainable growth and increased profits whilst re-enforcing Keystone's position as a market leader. Although the UK economy continues to have its challenges and the recent change in government has introduced a new element of uncertainty to the future, we remain confident that Keystone will continue to build on this performance to deliver ongoing sustainable growth. Therefore the Board is confident that Keystone will deliver both revenue and adjusted PBT slightly ahead of current market expectations (2) . James Knight Chief Executive Officer 11 September 2024 Adjusted PBT is calculated using profit before tax and adding back amortisation and share-based payments for all periods. Management understands current market expectations to be revenue of £93.3m and adjusted PBT of £11.5m. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the period ended 31 July 2024     6 months to July 6 months to July 2023     2024 (Restated)     (Unaudited) (Unaudited)   Note £ £ Revenue   46,468,026 42,889,098 Cost of sales   (34,383,352) (31,645,054) Gross profit   12,084,674 11,244,044 Trade receivables impairment   (255,217) (584,285) Corresponding reduction in trade payables   177,885 432,370     (77,332) (151,915) Depreciation and amortisation   (447,286) (448,914) Share-based payments 2 (378,934) (250,073) Administrative expenses 2 (6,194,844) (5,591,918) Other operating income   28,710 23,698 Operating profit   5,014,988 4,824,922 Finance income   929,379 689,802 Finance costs   (400,167) (249,121) Profit before tax   5,544,200 5,265,603 Corporation tax expense   (1,492,880) (1,430,321) Profit and total comprehensive income for the period attributable to equity   4,051,320 3,835,282 holders of the Parent       Basic EPS (p) 1 12.9 12.2 Diluted EPS (p) 1 12.6 12.0 The above results were derived from continuing operations. CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 July 2024     31 July 2024 31 July 2023 31 January 2023     (Unaudited) (Unaudited) (Audited)   Note £ £ £ Assets         Non-current assets         Property, plant and equipment         - Owned assets   80,028 168,197 120,517 - Right-of-use assets   2,206,259 308,146 2,428,005 Total property, plant and equipment   2,286,287 476,343 2,548,522 Intangible assets   4,880,512 5,231,396 5,055,954 Investments   129,350 13,627 129,350     7,296,419 5,721,366 7,733,826 Current assets         Trade and other receivables 3 27,270,682 23,672,904 25,194,349 Corporation tax   29,899 - - Cash and cash equivalents   8,311,102 11,347,917 8,367,072     35,611,683 35,020,821 33,561,421 Total assets   42,907,832 40,742,187 41,295,247 Equity and liabilities         Equity         Share capital   63,186 62,797 62,963 Share premium   9,920,760 9,920,760 9,920,760 Share-based payments reserve   874,353 1,077,714 1,059,531 Retained earnings   6,562,760 7,464,355 5,896,437 Equity attributable to equity holders of the Parent   17,421,058 18,525,626 16,969,691 Non-current liabilities         Lease liabilities   1,762,833 - 2,027,866 Deferred tax liabilities   14,610 84,789 49,699 Provisions   912,071 - 907,945     2,689,514 84,789 2,985,510 Current liabilities         Trade and other payables   22,202,412 20,125,906 19,782,587 Lease liabilities   594,848 416,905 344,804 Provisions   - 207,586 - Corporation tax liability   - 1,381,375 1,242,655     22,797,260 22,131,772 21,370,046 Total liabilities   25,486,773 22,216,561 24,355,556 Total equity and liabilities   42,907,832 40,742,187 41,295,247 The interim statements were approved and authorised for issue by the Board of Directors on 11 September 2024 and were signed on its behalf by: Miller Director CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the period ended 31 July 2024     Attributable to equity holders of the Parent     Share Share Share-based       capital premium payment reserve Retained earnings Total   £ £ £ £ £ At 31 January 2023 (audited) 62,732 9,920,760 1,028,247 6,847,378 17,859,117 Profit for the period and total           comprehensive income - - - 3,835,282 3,835,282 Transactions with owners           Share-based payments vesting 65 - (200,605) 200,605 65 Share-based payments awards - - 250,072 - 250,072 Dividends paid - - - (3,418,910) (3,418,910) At 31 July 2023 (unaudited) 62,797 9,920,760 1,077,714 7,464,355 18,525,626 Profit for the period and total           comprehensive income - - - 3,814,408 3,814,408 Transactions with owners           Share-based payments vesting 166 - (378,755) 378,755 166 Share-based payments awards - - 360,572 - 360,572 Dividends paid - - - (5,761,081) (5,761,081) At 31 January 2024 (audited) 62,963 9,920,760 1,059,531 5,896,437 16,939,691 Profit for the period and total           comprehensive income - - - 4,051,320 4,051,320 Transactions with owners           Share-based payments vesting 223 - (564,112) 564,112 223 Share-based payments awards - - 378,934 - 378,934 Dividends paid - - - 3,949,109 3,949,109 At 31 July 2024 (unaudited) 63,186 9,920,760 874,353 6,562,760 17,421,058 CONSOLIDATED STATEMENT OF CASH FLOWS For the period ended 31 July 2024         Year ended 31     6 months to July 6 months to July 2023 January 2024     2024 (Unaudited) (Unaudited) (Audited)   Note £ £ £ Cash flows from operating activities         Profit before tax   5,544,200 5,265,603 10,306,331 Adjustments to cash flows from non-cash items         Depreciation and amortisation 2 447,286 448,914 897,814 Share-based payments   378,934 250,073 610,644 Revaluation of other assets   - - (70,810) Finance income   (929,379) (689,802) (1,575,930) Finance costs   400,167 249,121 686,726     5,841,208 5,523,909 10,854,775 Working capital adjustments         (Increase) in trade and other receivables   (2,076,333) (1,066,996) (2,588,441) Increase in trade and other payables   2,419,825 1,778,548 1,435,229 Increase in provisions   4,126 24,085 724,444 Cash generated from operations   6,188,826 6,259,546 10,426,007 Interest paid on client balances   (370,980) (201,475) (615,726) Interest portion of lease liability   (29,187) (47,646) (71,468) Corporation taxes paid   (2,800,524) (805,656) (2,205,784) Cash generated from operating activities   2,988,135 5,204,769 7,533,029 Cash flows from/(used in) investing activities         Interest received   929,379 689,802 1,575,930 Purchases of property, plant and equipment   (9,609) (48,561) (68,910) Investment in other assets   - - (44,812) Net cash generated from/(used in) investing activities   919,770 641,241 1,462,208 Cash flows from financing activities         Proceeds from issue of ordinary shares   223 65 231 Lease repayments   (14,989) (231,123) (600,280) Dividends paid   (3,949,109) (3,418,910) (9,179,991) Net cash (used in) financing activities   (3,963,875) (3,649,968) (9,780,040) Net (decrease)/increase in cash and cash equivalents   (55,970) 2,196,042 (784,803) Cash at 1 February   8,367,072 9,151,875 9,151,875 Cash at 31 July   8,311,102 11,347,917 8,367,072 NOTES TO THE INTERIM REPORT 1. GENERAL INFORMATION The Company was incorporated as Keystone Law Group Limited on 13 May 2014 under the Companies Act 2006 (registration no. 09039092) and subsequently used as the vehicle to acquire Keystone Law Limited (the main trading company in the Group) and its subsidiaries on 17 October 2014. The Company was re-registered as a Public Limited Company on 10 November 2017. The Company was incorporated and is domiciled in England and Wales. The principal activity of the Group is the provision of legal services. The address of its registered office is: 48 Chancery Lane London WC2A 1JF The Interim Report is presented in Pounds Sterling, being the functional currency of the companies within the Group. ACCOUNTING POLICIES STATEMENT OF COMPLIANCE The Interim Report has been prepared in accordance with the recognition and measurement principles of UK-adopted International Accounting Standards. BASIS OF PREPARATION The Interim Report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 January 2024 have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies House 2006. The Interim Report information has been prepared in accordance with the recognition and measurement principles of UK adopted International Accounting Standards, and on the same basis, and using the same accounting policies, as used in the financial statements for the year ended 31 January 2024. The Interim Report has not been audited or reviewed, in accordance with the International Standard on Review Engagement 2410 (UK) issued by the Financial Reporting Council ("FRC"). PRIOR YEAR RESTATEMENT As reflected in the Group's Annual Report and Accounts for the year ended 31 January 2024, in January 2024, the FRC submitted a request for further information on the Group's Annual Report and Accounts for the year ended 31 January 2023. The review conducted by the FRC was based solely on the Group's published Annual Report and Accounts and does not provide assurance that the Annual Report and Accounts are correct in all material respects; the FRC's role is not to verify the information provided but to consider compliance with reporting requirements. Following completion of this review, the Directors concluded that although the "pay when paid" payment terms of the lawyers' fees means that any impairment in trade receivables automatically generates a directly related adjustment to trade payables (being approximately 75% of the net value impaired); for statutory reporting purposes, these items should be considered and disclosed separately. Accordingly, in order to reflect these transactions in full compliance with para 5.5.8 of IFRS 9 and IAS 1.82(BA), the consolidated statement of comprehensive income for the year ended 31 January 2023 was restated to reflect the impairment charge separately and not as a reduction in revenue, with the corresponding adjustment to lawyer fee notes equally shown separately and not as a reduction to cost of sales; this, in turn, has led to the restatement of the corresponding values in this Interim Report for the six months ended 31 July 2023. GOING CONCERN The Interim Report has been prepared on a going concern basis as the Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has no debt, is strongly cash generative and has a strong trading performance. The Group's forecasts and projections show that the Group has sufficient resources for both current and anticipated cash requirements. ACCOUNTING DEVELOPMENTS There have been no new standards or interpretations relevant to the Group's operations applied in the Interim Report for the first time. ADJUSTED PBT Adjusted PBT is utilised as a key performance indication for the Group and is calculated as follows:   6 months to July     2024 6 months to July 2023   (Unaudited) (Unaudited)   £'000 £'000 Profit before tax 5,544 5,266 Amortisation 175 175 Share-based payments 379 250 Adjusted PBT 6,098 5,691 EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit for the period by the weighted average number of ordinary shares outstanding during the period. The weighted average number of shares in the period was 31,515,028 (H1 2024: 31,373,312) and the basic earnings per share was 12.9 p (H1 2024: 12.2p). Diluted earnings per share is calculated by dividing the same profit by the weighted average number of ordinary shares, taking into account the dilution effect from grants made under the Long Term Incentive Plan (32,041,554; H1 2024: 31,880,828). Diluted earnings per share was 12.6p (H1 2024: 12.0p). The adjusted earnings per share was 14.6 p (H1 2024: 13.6p), whilst the diluted adjusted earnings per share was 14.4 p (H1 2024: 13.4p). Adjusted earnings are stated by making the same adjustments to earnings as those made in calculating adjusted PBT. 2. EXPENSES BY NATURE   6 months to July     2024 6 months to July 2023   (Unaudited) (Unaudited) Expenses are comprised of: £ £ Depreciation - right-of-use assets 221,746 205,430 Depreciation - other 50,098 68,042 Amortisation 175,442 175,442 Staff costs 3,291,181 2,865,957 Share-based payments 378,934 250,073 Other administrative expenses 3,531,933 3,281,296   7,649,334 6,846,240 Included within staff costs above are the costs of employed fee earners who are included within cost of sale (H1 2025: £ 628,270 ; H1 2024: £555,335). 3. TRADE AND OTHER RECEIVABLES   31 July 2024 31 July 2023 31 January 2024   (Unaudited) (Unaudited) (Audited)   £ £ £ Trade receivables 17,250,579 14,721,714 15,308,230 Provision for impairment of trade receivables (4,649,750) (4,589,670) (4,812,995) Net trade receivables 12,600,828 10,132,045 10,495,235 Accrued income 11,760,727 10,706,147 11,571,696 Prepayments 1,504,815 1,733,806 1,843,276 Unbilled disbursements 1,021,297 945,286 793,825 Reimbursement asset 280,000 - 280,000 Other receivables 383,015 155,621 210,317 Total current trade and other receivables 27,270,682 23,672,904 25,194,349 Net trade receivables average age (days) (unaudited) 33 32 34 4. DIVIDENDS The Directors have declared an interim ordinary dividend of 6.2p per share (H1 2024: ordinary dividend of 5.8p per share; special dividend of 12.5p per share). The dividend will be paid on 11 October 2024 to shareholders on the register on 20 September 2024, with the shares going ex-dividend on 19 September 2024. In accordance with IAS10 "events after the balance sheet date", these dividends have not been reflected in the Interim Report. Keystone Law 48 Chancery Lane London WC2A 1JF www.keystonelaw.co.uk

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