Keystone Law : Interim Resultsfor the six months ended 31 July 2023

14 September 2023

Keystone Law Group Plc

('Keystone', the 'Group' or the 'Company')

Interim results for the six month period ended 31 July 2023

• Strong client demand drives excellent operational and financial performance with a 25.2% increase in adjusted PBT
• • Ongoing business confidence supports interim ordinary dividend of 5.8p and special dividend of 12.5p
  • • FY 2024 outlook comfortably ahead of current market expectations(1)

Keystone, the network and tech-enabled challenger law firm, is pleased to announce its interim results for the six months ended 31 July 2023 ("H1 2024").

Financial Highlights:

• Revenue growth of 14.9% to £42.3 million (H1 2023: £36.8 million)
• Revenue per Principal up 12.2% to £104k (H1 2023: £92.8k)
• PBT increased 29.3% to £5.3 million (H1 2023: £4.1 million)
• Adjusted PBT increased 25.2% to £5.7 million (H1 2023: £4.5 million)
• Adjusted basic EPS of 13.6p, up 22.5% (H1 2023: 11.1p)
• Strong operating cash conversion at 113.3% with cash generated from operations of £6.3 million (H1 2023: £4.9 million).
• The Group remains debt-free with net cash of £11.3m (H1 2023: £7.5m)
• Declared interim ordinary dividend of 5.8p (H1 2023: 5.2p) and special dividend of 12.5p

Operational Highlights:

• Recruitment market conditions evolved positively
• Keystone generated strong market and recruitment momentum during H1 2024: o 144 qualified high-calibre new applicants (H1 2023: 122)
  o 25 Principals joined, increasing the number of Principals to 415 (31 January 2023: 398)
  o Total fee earners increased to 523 (31 January 2023: 507)
• Ongoing investment in our people, culture and technology platform

Current Trading and Outlook:

• Activity levels and client demand remain strong
• Recruitment market conditions have moved in the Group's favour, with the Keystone model continuing to attract high-calibre talent, although economic uncertainty continues to weigh on candidate flow
• The Board is confident that the business will continue to trade well for the rest of the year and that FY 2024 results will be comfortably ahead of current market expectations(1).

James Knight, Chief Executive Officer of Keystone, commented:

"I have been delighted with the performance of the business during the first half of this year. As anticipated, recruitment market conditions have moved in our favour and Keystone's model continues to prove highly attractive to the high-calibre lawyers we pride ourselves on being able to attract and retain. I look forward to the rest of the year, confident that Keystone's core business fundamentals will continue to deliver strong results."

1. Management understands current market expectations to be revenue £78.9m and adjusted PBT £9.5m

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 [e-mail].

For further information please contact:

Keystone Law Group plc

James Knight, Chief Executive Officer Ashley Miller, Finance Director www.keystonelaw.com

[phone]

Panmure Gordon (UK) Limited (Nominated Adviser and Joint Broker)

Dominic Morley (Corporate Finance)

Rupert Dearden (Corporate Broking) www.panmure.com

[phone]

Investec Bank plc (Joint Broker)

Carlton Nelson

James Rudd www.investec.co.uk [phone]

Vigo Consulting (Financial Public Relations) Jeremy Garcia / Kate [e-mail]

[phone]

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, and network of colleagues and events.

Keystone is a full-service law firm, with 20 service areas and more than 50 industry sectors delivered by over 400 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 extremely pleased to report that Keystone Law has again delivered a strong performance during the first half of this financial year ("H1-2024" or the "period"), with revenue rising to £42.3m (14.9% up on H1-2023: £36.8m), reported PBT of £5.3m and adjusted PBT(1) of £5.7m (£4.1m and £4.5m respectively in H1-2023) and cash generated from operations of £6.3m, an increase of 27.8% (H1-2023: £4.9m).

In spite of the broader economic headwinds, client demand has remained strong across all practice areas throughout the period and this, together with rate rises implemented during last year, has driven increased revenue per Principal of £104k, up 12.2% on H1-2023.

During the period, we have seen conditions in the legal recruitment market evolve positively for Keystone. The extremely high level of demand for candidates, experienced during FY-2023, has now slightly subsided and, although the uncertain economic outlook continues to weigh on candidate movement, the results of our recruitment activity in H1-2024 have been extremely encouraging. The table below reflects these positive results:

	Qualified New		Offers
	Applicants	Offers Made	Accepted
H1 2022	136	36	28
H1 2023	122	34	17
H1 2024	144	42	25

Twenty five Principals joined us during the Period (H1-2023: 22) bringing the total number of Principals to 415 (31 January 2023: 398). These Principals, existing and new, have continued to recruit Pod members to build their practices and leverage the value of their clients. These Pod members satisfy either permanent resource needs or shorter term project-based demand providing both scalability and flexibility to our lawyers and, over time, have become an increasingly important element of the Keystone model.

The central office team has continued to deliver exceptional service to our lawyers. The ongoing investment in our IT platform and infrastructure is very much part of "business as usual" for Keystone. Our bespoke platform is the technological hub of the business; built to support our model, it provides our lawyers with first class, dynamic systems, which deliver a high-quality user experience, whilst ensuring compliance and comprehensive IT security. We have also continued to invest in the networking programmes and social events, thereby providing extensive opportunities for our lawyers to establish and build their personal and professional networks within Keystone. These events are a core element of the Group's cultural DNA, encouraging collaboration and cross-referral of work thereby creating a fertile environment for our lawyers to deliver high calibre, multi-lawyer and cross disciplinary solutions to our clients.

I would, therefore, like to take this opportunity to thank everyone at Keystone for their dedication and passion, which has made these excellent results possible.

Dividend

I am pleased to announce that the Board has declared an interim ordinary dividend of 5.8p per share as well as a special dividend of 12.5p per share. These dividends will be payable on 13 October 2023 to shareholders on the register on 22 September 2023 and the shares will go ex-dividend on 21 September 2023.

Summary and Outlook

In summary, I have been delighted with all aspects of the Group's performance during H1-2024. Our lawyers have continued to respond to demand across the legal sector driving strong revenue growth, and this, together with the interest rate evolution and our strong balance sheet, has contributed to the enhanced profits we report today.

As expected, some of the heat has come out of the legal recruitment market and this has been beneficial to our growth.

Although it is clear that the UK economy continues to face significant headwinds, to date we have not been adversely affected by these, and whilst there may be some impact on overall client demand during the second half, we remain confident that Keystone will continue to deliver strong results for the rest of this year, which will be comfortably ahead of current market expectations(2).

James Knight

Chief Executive Officer

13 September 2023

1. Adjusted PBT is calculated using profit before tax and adding back amortisation and share-based payments for all periods.
2. Management understands current market expectations to be revenue £78.9m and adjusted PBT £9.5m

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the period ended 31 July 2023

		6 Months to	6 Months to
		July 2023	July 2022
		(Unaudited)	(Unaudited)
	Note	£	£
Revenue		42,304,803	36,809,493
Cost of sales		(31,212,674)	(27,105,062)
Gross profit		11,092,129	9,704,431
Depreciation and amortisation		(448,914)	(440,937)
Share-based payments	2	(250,073)	(226,280)
Administrative expenses	2	(5,591,918)	(4,881,419)
Other operating income		23,698	25,397
Operating profit		4,824,922	4,181,192
Finance income		689,802	14,228
Finance costs		(249,121)	(48,649)
Profit before tax		5,265,603	4,146,771
Corporation tax expense		(1,430,321)	(870,401)
Profit and total comprehensive income for the period attributable to equity		3,835,282	3,276,370
holders of the Parent
Basic EPS (p)	1	12.2	10.5
Diluted EPS (p)	1	12.0	10.3

The above results were derived from continuing operations.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 July 2023

				31 January
		31 July 2023	31 July 2022	2023
		(Unaudited)	(Unaudited)	(Audited)
	Note	£	£	£
Assets
Non-current assets
Property, plant and equipment
- Owned assets		168,197	194,936	187,677
- Right-of-use assets		308,146	719,006	513,577
Total property, plant and equipment		476,343	913,942	701,254
Intangible assets		5,231,396	5,582,280	5,406,838
Other assets		13,627	13,628	13,628
		5,721,366	6,509,850	6,121,720
Current assets
Trade and other receivables	3	23,672,904	21,204,072	22,605,908
Cash and cash equivalents		11,347,917	7,457,485	9,151,875
		35,020,821	28,661,557	31,757,783
Total assets		40,742,187	35,171,407	37,879,503
Equity and liabilities
Equity
Share capital		62,797	62,548	62,732
Share premium		9,920,760	9,920,760	9,920,760
Share-based payments reserve		1,077,714	976,238	1,028,247
Retained earnings		7,464,355	4,796,659	6,847,378
Equity attributable to equity holders of the Parent		18,525,626	15,756,205	17,859,117
Non-current liabilities
Lease liabilities		-	340,607	109,484
Deferred tax liabilities		84,789	167,521	132,432
Provisions		-	127,213	183,501
		84,789	635,341	425,417
Current liabilities
Trade and other payables		20,125,906	17,402,869	18,347,358
Lease liabilities		416,905	538,544	538,544
Provisions		207,586	-	-
Corporation tax liability		1,381,375	838,448	709,067
		22,131,772	18,779,861	19,594,969
Total liabilities		22,216,561	19,415,202	20,020,386
Total equity and liabilities		40,742,187	35,171,407	37,879,503

The interim statements were approved and authorised for issue by the Board of Directors on 13 September 2023 and were signed on its behalf by:

1. Miller Director