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RNS Number : 0333L Keystone Law Group PLC 18 April 2024
18 April 2024
Keystone Law Group Plc
("Keystone", the "Group" or the "Company")
Full year results for the year ended 31 January 2024
- Strong revenue and profit growth supports the Group's progressive dividend
policy
- Recruitment conditions continued to improve during FY 2024, with Keystone
adding 51 new Principals
Keystone, the network and tech-enabled challenger law firm, is pleased to
announce its full year results for the year ended 31 January 2024 ("2024").
Financial Highlights:
· Revenue growth of 15.1% to £87.9 million (2023: £76.4 million*)
· Revenue per Principal up 10% to £212k (2023: £193k)
· Adjusted PBT of £11.3 million (2023: £9.2 million) representing
an adjusted PBT margin of 12.8% (2023: 12.1%)
· Adjusted basic EPS of 27.4p (2023: 24.2p)
· Cash generated from operations up 11.8% to £10.4 million (2023:
£9.3 million) with operating cash conversion of 96.1% (2023: 96.5%); the
Group remains debt-free
· Paid interim ordinary dividend of 5.8p per share and special
dividend of 12.5p per share
· Proposed final ordinary dividend of 12.5p per share (2023:
11.2p), bringing the total ordinary dividend per share for the year to 18.3p
(2023: 16.1p)
*restated
Operational Highlights:
· The Group experienced sustained client demand across practice
areas in 2024
· 2024 has seen a positive shift in the recruitment market, with
the "war for talent" that had characterised the previous couple of years
having subsided:
o Received 270 high-calibre new applicants in the period (2023: 232)
o 51 new Principals joined in the year, increasing the number of Principals
to 432 (2023: 398), with the vast majority of new recruits coming from top 100
law firms
o Recruitment of Pod Members continues to grow with the Group ending the
period with 102 (2023: 95)
· Total fee earners increased to 549 (2023: 507)
· The Group continued to deliver opportunities for professional
networking and community building across the year, underpinning Keystone's
differentiated corporate culture
Current Trading and Outlook:
· The Group has made a positive start to the new year with ongoing
client demand across practice areas
· We continue to attract a good flow of high-quality candidates
· The Board remains confident that this will be another successful
year, delivering results in line with current market expectations
James Knight, Chief Executive Officer of Keystone, commented:
"It has been another extremely successful year for Keystone and it has been
very gratifying to see a return to recruitment levels last experienced
pre-pandemic.
The strength of our operational and financial performance across 2024 has
enabled the Group to maintain its longstanding progressive dividend policy,
returning over £30m to shareholders since listing on AIM in 2017.
We enter the new financial year confident in the ability of the business to
continue to deliver high quality earnings and sustainable growth in the year
ahead."
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
keystonelaw@vigoconsulting.com.
Retail Investor Presentation
Keystone's management team will provide a separate presentation and Q&A
for investors at 1.00pm on Monday 22 April 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 Gordon (UK) Limited (Nominated Adviser and Joint Broker)
Dominic Morley (Corporate Finance)
Rupert Dearden (Corporate Broking)
www.panmure.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 / Aisling Fitzgerald
keystonelaw@vigoconsulting.com
+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 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.
CHAIRMAN'S STATEMENT
I am pleased to introduce Keystone Law's results for the year ended 31 January
2024.
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 15.1% to
£87.9m (2023 (restated): £76.4m), and adjusted PBT((1)) increasing to
£11.3m representing an adjusted PBT margin of 12.8% (2023 (restated): £9.2m,
12.1%) (PBT of £10.3m (2023: £8.4m) and PBT margin of 11.7% (2023: 11.0%)).
These impressive results reflect the high levels of activity among our lawyers
and the continued growth of the firm, as well as the strength of our balance
sheet in this period of higher interest rates. The cash generative nature of
the business model has meant that cash generated from operations has increased
to £10.4m (2023: £9.3m) representing an operating cash conversion of 96.1%
(2023: 96.5%).
DIVIDEND
At the half year, in light of the strength of the balance sheet and our
confidence in the future, we paid a special dividend of 12.5p per share. This
brought the total dividends paid since IPO to just under 92p((2)) per share,
or 100% of the EPS earned over the same period.
Having paid an ordinary interim dividend of 5.8p (2023: 5.2p) the Board is
proposing to pay a final ordinary dividend for the year ended 31 January 2024
of 12.5p per share (2023: 10.9p), bringing the total ordinary dividend for the
year to 18.3p (2023: 16.1p).
OUR PEOPLE and culture
Fundamental to the ongoing success of Keystone are its people and its culture.
As we continue to grow, as a Board we are mindful to ensure that the factors
which have made us successful are sustained and enhanced as we continue to
evolve the business. We dedicate significant energy in ensuring that our
culture is successful, enjoyable, inclusive and supportive and we work hard to
ensure that that this is firmly embedded in every aspect of life at Keystone.
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.
The Board has decided to adopt the new requirements regarding re-election of
Directors early and accordingly, all directors will stand for election /
re-election on an annual basis with effect for the first time at our AGM in
June 2024. We will look to implement all remaining new requirements on a
timely basis to ensure that we remain compliant with the new code as it takes
effect.
Salar Farzad joined the Board in March 2023 as Non-executive Director and,
following Simon Philips' resignation in April 2023, assumed the role of Chair
of the Audit Committee.
OUTLOOK
I am pleased to say that 2025 has started well. Our lawyers remain busy and
early recruitment activity provides us with confidence in the year ahead.
Robin Williams
Non-executive Chairman
17 April 2024
(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.
(2) Sum of the Ordinary DPS paid for the years ended 31 January
2019 to 31 January 2023, together with the special dividends DPS paid to date.
CHIEF EXECUTIVE'S REVIEW
INTRODUCTION AND HIGHLIGHTS
I am delighted to report that Keystone has delivered a strong trading
performance this year, with growth across all key performance indicators.
We have experienced sustained client demand across practice areas and this,
together with the impact of those Principals((1)) who have joined us has
continued to drive growth, increasing revenue by 15.1% to £87.9m (2023:
£76.4m (restated)), whilst adjusted PBT increased to £11.3m (2023: £9.2m)
(PBT of £10.3m (2023: £8.4m) and PBT margin of 11.7%(2023: 11.0%)). As
always, the strongly cash generative nature of our model has ensured that
these profits have converted to cash, with cash generated from operations of
£10.4m (2023: £9.3m).
In light of the strength of the balance sheet and our confidence in the
future, we paid a special dividend of 12.5p (£3.9m) together with the interim
ordinary dividend and this meant that total dividends paid in the year
amounted to £9.2m leaving closing cash of £8.4m.
The legal industry "war for talent" has also subsided somewhat this year, and,
following a challenging couple of years on the recruitment front, it has been
very gratifying to see a return to the level of recruitment we last
experienced pre pandemic and very pleasing to welcome a further 51 high
calibre Principals this year.
quality of our lawyers driving long term stakeholder value
We have always held the view that the key to driving long term stakeholder
value in Keystone is the quality of the lawyers we recruit. Focusing on
quality, and not just quantity, creates a virtuous circle, attracting lawyers
who are, or who aspire to be, at the top of the profession. To date this
approach has served us well, driving growth, reducing risk and continually
enhancing our reputation within the legal profession; ensuring that as we have
grown, we have moved up the value chain in terms of the lawyers attracted to
join us. The recognition of our model by the mainstream legal establishment
has undoubtedly been accelerated by the changes in attitude towards flexible
working practices brought about by the pandemic's lockdown. Our ability to
offer an increasingly attractive proposition to those at the top of the
profession is clearly evidenced by the fact that over a quarter of the
Principals who joined us this year (up from less than 15% in each of the two
years pre pandemic) came directly from the UK office of large US law firms or
top 25 UK law firms((2)).
Furthermore, the vast majority of Keystone lawyers continue to be recruited
from top 100 law firms which demonstrates that quality is the determining
trait when considering whether to make an offer to a candidate or not. This
continued focus on quality has been essential in building Keystone's brand and
it is extremely gratifying to see both the number of our lawyers who have been
recognised in the Legal 500 UK Solicitors 2024 ranking((3)) (172 listed) as
well as the evolution of this recognition in recent years (65 Keystone lawyers
listed in Legal 500 2019).
POSITIVE EVOLUTION IN THE RECRUITMENT MARKET
This year we have seen a positive shift in the recruitment market as the
extremely high levels of demand, which had characterised the "war for talent"
during the previous couple of years, has subsided. That said, recently
increased salaries across the industry, together with the high interest rates
and general uncertainty in the economic outlook has continued to weigh on
candidate appetite for change. Against this backdrop, the activity levels
and results achieved in the year have been highly satisfactory.
During the period we received 270 qualified applicants (2023: 232), made
offers to 103 candidates (2023: 79) with 68 candidates accepting offers((4))
(2023: 42). Whilst welcoming 51 new joiners (2023: 32) meant that we have
ended the year with 432 Principals (2023: 398). Our Principals have also
continued to drive growth through the recruitment of Pod Members, ending the
period with 102 (2023: 95), this aspect of the business model is now
completely standard with between 15% and 20% of each year's cohort of lawyers
choosing to build and run their practice in this way.
(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 2023 ranking by revenue
(3) The Legal 500 UK Solicitors 2024 rankings is the leading guide
to law firms and solicitors in the UK (Source: Legal500.com)
(4) Historically, approximately 15% of candidates who accept
offers subsequently don't join.
ONGOING SUPPORT FROM THE CENTRAL OFFICE TEAM
As ever, the Central Office team has had a busy year, providing the full range
of support that our lawyers need. It has been another active year for our
community and engagement team as it has organised the regular networking and
social activities which are such a fundamental element of the ongoing success
of the business. These well-attended events deliver technical and commercial
updates as well as professional networking and community building
opportunities which ensure that our lawyers feel a real sense of belonging and
cohesion within the firm. As we continue to grow, our focus is always to
ensure that this important cultural aspect of the business scales with us.
The constantly evolving world of IT ensures that the team is always busy. As
always, IT security is a key focus for the team and ongoing investment of time
and resources is essential to ensure that our IT platform remains safe and
secure at all times. We also continue to monitor the evolution of AI, with
particular interest in how this technology will affect how we do business.
Many of the tools which we use already have some element of AI built into
them, however, this is such a fast-moving area that it is likely we will see
significant steps forward in wider adoption of AI in the years ahead.
LOOKING AHEAD
We have experienced a positive start to the new financial year with Keystone
continuing to take advantage of ongoing client demand across practice areas.
So far this year, conditions in the recruitment market remain as they were
during 2024 and we continue to attract a good flow of high-quality
candidates. All this provides us with confidence that 2025 will be another
good year during which Keystone will deliver continued sustainable growth and
strong results, in line with current market expectations.
James Knight
Chief Executive
17 April 2024
Financial Review and 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: 15.1% increase (2023: 7.4% (restated))
• Adjusted PBT growth: 22.0% increase (2023: 1.1%)
• Adjusted PBT margin((3)): 12.8% (2023: 12.1%(restated))
• PBT growth: 22.9% increase (2023: 0.3%)
• PBT margin: 11.7% (2023: 11.0%(restated))
• Adjusted basic EPS: 27.4p (2023: 24.2p)
• Operating cash conversion 96.1%((1)) (2023: 96.5%)
• Trade receivables days: 34 (2023: 36)
• Qualified new applicants((2)): 270 (2023: 232)
• Offers made((2)): 103 (2023: 79)
• Offers accepted((2)): 68 (2023: 42)
(1. ) Operating cash conversion is calculated utilising cash
generated from operations and dividing it by the PBT before non-cash movements
and net interest (£10,854,775 per cashflow statement 2024).
(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 £87.9m, an increase of 15.1%
on the prior year. As a business, we have seen sustained client demand
across practice areas this year which has been further supplemented by the
growth in Principal numbers achieved (ending the period with 432 Principals
and averaging 415 (2023: ended with 398 and averaged 396). This has enabled
revenue per Principal to grow by 10% to £212k (2023: £193k (restated) £190k
(reported))
GROSS PROFIT
The gross profit of the business has risen this year by 15.4% to £22.8m
(2023: £19.9m (restated)), with gross profit margins remaining stable at 26%.
amortisation, depreciation and share-based payments
Amortisation, both of right of use assets and intangible assets, remained
unchanged year on year with no changes to the underlying assets, whilst there
has been a marginal increase in depreciation. The charge in respect of
share-based payments increased from £0.5m to £0.6m.
other ADMINISTRATIVE EXPENSES
Other administrative expenses have increased by 16.6% to £11.6m (2023:
£9.9m). Staff costs, increased by 11% to £4.7m (2023: £4.2m), against the
backdrop of ongoing wage inflation across the economy, whilst average
headcount has increased from 59 to 63 as we have continued to invest in the
Central office team to support the ongoing development of the business. Other
administrative costs (per note 3) increased by 20.8% to £6.9m (2023: £5.7m),
with the largest contributory factors to this being recruitment fees and
professional indemnity insurance. Recruitment fees are up £0.4m, as both
the number and size of practice of those Principals joining through agencies
increasing this year, whilst professional indemnity insurance costs have
increased by £0.3m driven predominantly by revenue growth and to a lesser
extent by the ongoing hardening of the insurance market.
FINANCE INCOME AND COSTS
The last two years has seen a significant step change in the interest rate
environment, with rates having risen consistently from virtually nil at the
start of the prior year to the current level where it has remained since
August 2023. Accordingly, as a cash positive business, our net finance
income has risen significantly over the period, contributing £0.9m to profit
this year (2023: £0.1m).
PBT, ADJUSTED PBT AND PBT MARGINS
Adjusted PBT is calculated as follows:
2024 2023((1))
£ £
Profit before tax 10,306,331 8,384,677
Amortisation of intangible assets 350,884 350,884
Share based payments 610,644 502,708
Adjusted PBT 11,267,859 9,238,269
Net Finance Income 889,204 74,721
Adjusted PBIT 10,378,655 9,163,548
PBT margin((1)) 11.7% 11.0%
Adjusted PBIT margin((1)) 11.8% 12.0%
Adjusted PBT margin((1)) 12.8% 12.1%
(1) 2023 margins have been restated to reflect the prior year
restatement of revenue (see note 1)
The growth in revenue and gross profits have driven a 13% increase in adjusted
PBIT. This represents an 11.8% margin, which is slightly down on the prior
year (2023: 12.0%) as we experienced a sizeable increase in recruitment costs,
caused by more Principals with larger practices joining via recruitment
agencies. Profit before tax and adjusted profit before tax have increased by
22.9% and 22.0% respectively, with margins also stepping up as the
contribution of finance income more than compensated for the change in
adjusted PBIT margin.
TAXATION
In April 2023, the standard rate of corporation tax increased from 19% to 25%
and accordingly, the average standard rate for this financial year has been
24%. The increase in the standard rate has caused a step up in the Group's
effective tax rate to 25.8% (2023: 19.7%). The effective rate of the Group
is always higher than the standard rate due to the level of investment we make
in 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 21.5p to 24.4p, with fully diluted EPS
being 23.9p (2023: 21.2p). 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 27.4p (2023: 24.2p).
STATEMENT OF FINANCIAL POSITION
CASH
The Group's business model is strongly cash generative because its most
significant cost, the fees paid to lawyers, is only paid once Keystone has
been paid for the work it has delivered. Operating cash conversion, which had
been particularly strong in 2023, has remained strong this year at 96.1%
(2023: 96.5%), generating cash from operations of £10.4m (2023: £9.3m).
Capital expenditure was £0.07m (2023: £0.06m). Corporation tax payments
increased to £2.2m (2023: £2.0m), reflecting the increase in profits
(corporation tax is paid in quarterly instalments with half being due after
the financial year end). The change in the interest rate environment has
manifested itself in the step up in net interest received of £0.9m (2023:
£0.1m) and lease repayments of £0.6m (2023: £0.5m). As such, cash generated
by the business in the year, being net cash flow pre dividend payments, was
£8.4m (2023: £6.9m). The Group paid dividends of £9.2m, £5.3m in respect
of ordinary dividends (2023: £5.2m ordinary dividend) and £3.9m as a special
dividend, paid with the ordinary interim dividend (2023: £3.1m paid together
with the final ordinary dividend from year ended 31 January 2022). This left
closing cash of £8.4m (2023: £9.2m) and no debt.
NET ASSETS
The Group's balance sheet is extremely strong with net assets having decreased
from £17.9m to £16.9m by virtue of profit for the year of £7.6m, dividends
paid of £9.1m and £0.6m movement in reserves to account for the vesting of
LTIP awards.
DIVIDEND
In light of the strength of our balance sheet and our confidence in the
future, at the half year the Board took the decision to pay both a special
dividend of 12.5p per share (£3.9m) and an interim ordinary dividend of 5.8p
per share (2023: 5.2p). The Board is now proposing to pay a final ordinary
dividend for the year ended 31 January 2024 of 12.5p per share (2023: 10.9p).
This brings the total ordinary dividend for the year to 18.3p per share (2023:
16.1p per share). Subject to approval at the Annual General Meeting, the final
dividend will be paid on 21 June 2024 to shareholders on the register at the
close of business on 14 June 2024.
The cash value of dividends paid this year of £9.2m includes £3.9m of
special dividend.
On behalf of the Board
Ashley Miller
Finance Director
17 April 2024
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED 31 JANUARY 2024
Note 2024 2023
£ (restated*)
£
Revenue 87,930,626 76,405,908
Cost of sales (65,101,369) (56,545,943)
Gross profit 22,829,257 19,859,965
Trade receivables impairment (1,471,291) (1,145,978)
Corresponding reduction in trade payables 1,088,755 859,483
(382,536) (286,495)
Depreciation and amortisation 3 (897,814) (885,699)
Share-based payments 3 (610,644) (502,708)
Other administrative expenses 3 (11,573,319) (9,927,058)
Other operating income 52,183 51,951
Operating profit 9,417,127 8,309,956
Finance income 4 1,575,930 221,810
Financing costs 4 (686,726) (147,089)
Profit before tax 10,306,331 8,384,677
Corporation tax (2,656,641) (1,650,968)
Profit and total comprehensive income for the year attributable to equity 7,649,690 6,733,709
holders of the Parent
Basic EPS (p) 6 24.4 21.5
Diluted EPS (p) 6 23.9 21.2
*See note 2
The above results were derived from continuing operations.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 JANUARY 2024
Note 2024 2023
£ £
Assets
Non-current assets
Property, plant and equipment
Owned assets 120,517 187,677
Right-of-use assets 2,428,005 513,577
Total property, plant and equipment 2,548,522 701,254
Intangible assets 5,055,954 5,406,838
Investments 129,350 13,628
7,733,826 6,121,720
Current assets
Trade and other receivables 7 25,194,349 22,605,908
Cash and cash equivalents 8,367,072 9,151,875
33,561,421 31,757,783
Total assets 41,295,247 37,879,503
Equity and liabilities
Equity
Share capital 62,963 62,732
Share premium 9,920,760 9,920,760
Share-based payments reserve 1,059,531 1,028,247
Retained earnings 5,896,437 6,847,378
Equity attributable to equity holders of the Parent 16,939,691 17,859,117
Non-current liabilities
Lease liabilities 2,027,866 109,484
Deferred tax liabilities 49,699 132,432
Provisions 8 907,945 183,501
2,985,510 425,417
Current liabilities
Trade and other payables 9 19,782,587 18,347,358
Lease liabilities 344,804 538,544
Corporation tax liability 1,242,655 709,067
21,370,046 19,594,969
Total liabilities 24,355,556 20,020,386
Total equity and liabilities 41,295,247 37,879,503
Ashley Miller
Director
17 April 2024
Keystone Law Group Plc
Registered No. 09038082
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
YEAR ENDED 31 JANUARY 2024
Attributable to equity holders of the Parent
Share Share premium Share based payments reserve Retained earnings Total
capital
£ £ £ £
£
At 31 January 2022 62,548 9,920,760 749,958 8,150,365 18,883,631
Profit for the year and total comprehensive income - - - 6,733,709 6,733,709
Transactions with owners
Dividends paid in the year - - - (8,261,115) (8,261,115)
Share-based payments vesting 184 - (224,419) 224,419 184
Share-based payment awards - - 502,708 - 502,708
At 31 January 2023 62,732 9,920,760 1,028,247 6,847,378 17,859,117
Profit for the year and total comprehensive income - - - 7,649,690 7,649,690
Transactions with owners
Dividends paid in the year - - - (9,179,991) (9,179,991)
Share-based payments vesting 231 - (579,360) 579,360 231
Share-based payment awards - - 610,644 - 610,644
At 31 January 2024 62,963 9,920,760 1,059,531 5,896,437 16,939,691
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED 31 JANUARY 2024
Note 2024 2023
£ £
Cash flows from operating activities
Profit before tax 10,306,331 8,384,677
Adjustments
Depreciation and amortisation 3 897,814 885,699
Share-based payments 3 610,644 502,708
Revaluation of other assets (70,810) -
Finance income 4 (1,575,930) (221,810)
Financing costs 4 686,726 147,089
10,854,775 9,698,363
Working capital adjustments
Increase in trade and other receivables (2,588,441) (2,632,094)
Increase in trade and other payables 1,435,229 2,204,192
Increase in provisions 724,444 75,556
Cash generated from operations 10,426,007 9,346,017
Interest paid (615,726) (70,791)
Interest portion of lease liability (71,468) (76,298)
Corporation taxes paid (2,205,784) (1,964,281)
Cash generated from operating activities 7,533,029 7,234,647
Cash flows from/(used in) investing activities
Interest received 1,575,930 221,810
Purchases of property, plant and equipment (68,910) (64,080)
Investment in other assets (44,812) -
Net cash generated by investing activities 1,462,208 157,730
Cash flows from financing activities
Proceeds from issue of ordinary shares 231 184
Lease repayments (600,280) (462,247)
Dividends paid in year (9,179,991) (8,261,115)
Net cash used in financing activities (9,780,040) (8,723,178)
Net decrease in cash and cash equivalents (784,803) (1,330,801)
Cash at 1 February 9,151,875 10,482,676
Cash at 31 January 8,367,072 9,151,875
Notes to the Financial Statements
1. GENERAL INFORMATION
The Company was incorporated as Keystone Law Group Limited on 13 May 2014
under the Companies Act 2006 (registration no. 09038082) 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 limited by shares 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 preliminary announcement is presented in Pounds Sterling, being the
functional currency of the companies within the Group.
2. ACCOUNTING POLICIES
BASIS OF PREPARATION
The preparation of Financial Statements, in conformity with UK-adopted
International Accounting Standards requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in
the process of applying the Group's accounting policies.
prior year restatement
In January 2024, the Financial Reporting Council ("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 have concluded that
although the "pay when paid" payment terms of our 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 has been 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.
As a result, the consolidated statement of comprehensive income for the year
ended 31 January 2023 has been restated as follows:
2023 Restatement 2023
£
(reported) (restated)
£
£
Revenue 75,259,930 1,145,978 76,405,908
Cost of sales (55,686,460) (859,483) (56,545,943)
Gross Profit 19,573,470 286,495 19,859,965
Trade receivables impairment - (1,145,978) (1,145,978)
Corresponding reduction in trade payables - 859,483 859,483
- (286,495) (286,495)
These restatements have Nil impact on operating profit, profit before tax,
adjusted profit before tax, earnings, net assets or cash.
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of
the parent company and entities controlled by the parent company (its
subsidiaries) made up to 31 January each year. Control is achieved when the
parent company:
• Has the power over the investee
• Is exposed, or has rights, to variable returns
from its involvement with the investee
• Has the ability to use its power to affect its
returns
The parent company reassesses whether or not it controls an investee if facts
and circumstances indicate that there are changes to one or more of the three
elements of control listed above.
When the parent company has less than a majority of the voting rights of an
investee, it considers that it has power over the investee when the voting
rights are sufficient to give it the practical ability to direct the relevant
activities of the investee unilaterally. The parent company considers all
relevant facts and circumstances in assessing whether or not the parent
company's voting rights in an investee are sufficient to give it power,
including:
• The size of the parent company's holding of voting rights
relative to the size and dispersion of holdings of the other vote
holders
• Potential voting rights held by the parent company,
other vote holders or other parties
• Rights arising from other contractual arrangements
• Any additional facts and circumstances that indicate
that the parent company has, or does not have, the current ability
to direct the relevant activities at the time that
decisions need to be made, including voting patterns at previous
shareholders' meetings
Consolidation of a subsidiary begins when the parent company obtains control
over the subsidiary and ceases when the parent company loses control of the
subsidiary. Specifically, the results of subsidiaries acquired or disposed of
during the year are included in profit or loss from the date the parent
company gains control until the date when the parent company ceases to control
the subsidiary.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with the group's
accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows
relating to transactions between the members of the group are eliminated on
consolidation.
Non-controlling interests in subsidiaries are identified separately from the
group's equity therein. Those interests of non-controlling shareholders that
are present ownership interests entitling their holders to a proportionate
share of net assets upon liquidation may initially be measured at fair value
or at the non-controlling interests' proportionate share of the fair value of
the acquiree's identifiable net assets. The choice of measurement is made on
an acquisition-by-acquisition basis. Other non-controlling interests are
initially measured at fair value.
Subsequent to acquisition, the carrying amount of non-controlling interests is
the amount of those interests at initial recognition plus the non-controlling
interests' share of subsequent changes in equity.
Profit or loss and each component of other comprehensive income are attributed
to the owners of the parent company and to the non-controlling interests.
Total comprehensive income of the subsidiaries is attributed to the owners of
the parent company and to the non-controlling interests even if this results
in the non-controlling interests having a deficit balance.
Changes in the group's interests in subsidiaries that do not result in a loss
of control are accounted for as equity transactions. The carrying amount of
the group's interests and the non-controlling interests are adjusted to
reflect the changes in their relative interests in the subsidiaries. Any
difference between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received is
recognised directly in equity and attributed to the owners of the parent
company.
When the group loses control of a subsidiary, the gain or loss on disposal
recognised in profit or loss is calculated as the difference between (i) the
aggregate of the fair value of the consideration received and the fair value
of any retained interest and (ii) the previous carrying amount of the assets
(including goodwill), less liabilities of the subsidiary and any
non-controlling interests. All amounts previously recognised in other
comprehensive income in relation to that subsidiary are accounted for as if
the group had directly disposed of the related assets or liabilities of the
subsidiary (i.e. reclassified to profit or loss or transferred to another
category of equity as required/permitted by applicable IFRS Accounting
Standards). The fair value of any investment retained in the former subsidiary
at the date when control is lost is regarded as the fair value on initial
recognition for subsequent accounting under IFRS 9 Financial Instruments when
applicable, or the cost on initial recognition of an investment in an
associate or a joint venture.
BUSINESS COMBINATIONS
Acquisitions of businesses are accounted for using the acquisition method. The
consideration transferred in a business combination is measured at fair value,
which is calculated as the sum of the acquisition-date fair values of assets
transferred by the group, liabilities incurred by the group to the former
owners of the acquiree and the equity interest issued by the group in exchange
for control of the acquiree. Acquisition-related costs are recognised in
profit or loss as incurred. At the acquisition date, the identifiable assets
acquired and the liabilities assumed are recognised at their fair value at the
acquisition date.
Goodwill is measured as the excess of the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree, and
the fair value of the acquirer's previously held equity interest in the
acquiree (if any) over the net of the acquisition-date amounts of the
identifiable assets acquired and the liabilities assumed. If, after
reassessment, the net of the acquisition-date amounts of the identifiable
assets acquired and liabilities assumed exceeds the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree and
the fair value of the acquirer's previously held interest in the acquiree (if
any), the excess is recognised immediately in profit or loss as a bargain
purchase gain.
GOING CONCERN
The Group and Company financial statements have been prepared on a going
concern basis as the Directors have a reasonable expectation that the Group
and Company have adequate resources to continue in operational existence for
the foreseeable future. The Group is cash positive, has no debt, has a model
which is strongly cash generative and has, to date, a strong trading
performance. The Group's forecasts and projections show that the Group has
sufficient resources for both current and anticipated cash requirements for a
period of at least one year from the approval of these financial statements.
ADJUSTED PROFIT BEFORE TAX ("PBT")
Adjusted PBT is utilised as a key performance indication for the Group and is
calculated as follows:
2024 2023
£ £
Profit before tax 10,306,331 8,384,677
Amortisation 350,884 350,884
Share based payments 610,644 502,708
Adjusted PBT 11,267,859 9,238,269
Management considers that the use of the alternative performance measure
above, which removes the non-cash items charged to the income statement,
provides a truer representation of the underlying performance of the Group.
3. EXPENSES BY NATURE
Expenses are comprised of:
2024 2023
£ £
Depreciation 136,070 123,955
Amortisation - intangible assets 350,884 350,884
Amortisation - right of use assets 410,860 410,860
Share based payments 610,644 502,708
Staff costs 5,834,699 5,102,472
Other administrative expenses 6,858,305 5,676,239
14,201,462 12,167,118
Included within staff costs above are the costs of employed fee earners who
are included within cost of sales (2024: £1,119,685, 2023: £851,653).
4. FINANCE INCOME AND COSTS
2024 2023
£ £
Finance income
Interest income on bank deposits 1,575,930 221,810
Finance costs
Interest on client monies held (615,258) (70,791)
Interest on leases for own use (71,468) (76,298)
Total finance costs (686,726) (147,089)
Net finance income/(costs) 889,204 74,721
5. STAFF COSTS
The aggregate payroll costs (including Directors' remuneration but excluding
share-based payment charges disclosed separately) were as follows:
2024 2023
£ £
Wages and salaries 5,049,463 4,347,674
Social security costs 573,268 579,237
Pension costs, defined contribution scheme 211,968 175,561
5,834,699 5,102,472
Included within the social security costs above is an amount of £Nil (2023:
£74,626) in respect of employer's national insurance contributions, which
will be payable in respect of shares granted under the Group's LTIP scheme.
The average number of persons employed by the Group (including Directors)
during the year, analysed by category, was as follows:
2024 2023
£ £
Fee Earners 13 12
Administration and support 63 59
Total 76 71
6. EARNINGS PER SHARE
The calculations of earnings per share are based on the following profits and
number of shares:
2024 2023
£ £
Profit attributable to owners of the Parent 7,649,690 6,733,709
Amortisation((1)) 350,884 350,844
Share based payments((1)) 610,644 502,708
Adjusted earnings 8,611,218 7,587,261
2024 2023
No of shares No of shares
Weighted average number of shares
For basic earnings per share 31,386,062 31,307,540
Dilutive effect of grants under LTIP 563,260 472,212
For diluted earnings per share 31,949,322 31,779,752
Basic earnings per share (p) 24.4 21.5
Diluted earnings per share (p) 23.9 21.2
Adjusted basic earnings per share (p) 27.4 24.2
Adjusted diluted earnings per share (p) 27.0 23.9
(1) Amounts shown are before tax
Adjusted basic earnings per share is calculated by taking adjusted basic
earnings and dividing it by undiluted average shares for the year.
7. TRADE AND OTHER RECEIVABLES
Group
2024 2023
£ £
Trade receivables 15,308,230 13,285,914
Provision for impairment of trade receivables (4,812,995) (4,114,670)
Net trade receivables 10,495,235 9,171,244
Receivables from related parties - -
Accrued income 11,571,696 10,030,078
Prepayments 1,843,276 2,271,739
Unbilled disbursements 793,825 970,078
Reimbursement asset 280,000 -
Other receivables 210,317 162,769
Total current trade and other receivables 25,194,349 22,605,908
The fair value of those trade and other receivables classified as financial
instruments are disclosed in the financial instruments note 27.
The Group's exposure to credit and market risks, including impairments and
allowances for credit losses, relating to trade and other receivables, is
disclosed in the financial risk management and impairment of financial assets
note.
Trade receivables stated above include amounts due at the end of the reporting
period for which an allowance for expected credit loss has not been recognised
as the amounts are still considered recoverable and there has been no
significant change in credit quality.
The provision for impairment of trade receivables (analysed below) is the
difference between the carrying value and the present value of the expected
proceeds. For all other categories of current receivables, there is no
difference between the carrying value and the expected proceeds.
2024 2024 Provision 2024 Expected Loss Rate 2023 2023 Provision 2023 Expected Loss Rate
Gross £ % Gross £ %
£ £
0 to 30 days 5,555,147 278,200 5.0 4,982,633 - -
31 to 60 days 2,361,527 236,153 10.0 2,096,401 - -
61 to 90 days 1,306,762 130,676 10.0 1,029,435 - -
91 to 120 days 752,254 206,870 27.5 781,767 2,904 0.4
4 to 6 months 396,358 216,965 54.7 367,305 131,825 35.9
6 months to 1 year 2,291,042 1,260,901 55.0 2,146,285 2,097,853 97.7
Over 1 year 2,645,140 2,483,230 93.9 1,882,088 1,882,088 100.0
15,308,230 4,812,995 31.4 13,285,914 4,114,670 31.0
The Directors consider that the carrying value of trade and other receivables
approximates to fair value.
The movement in the provision for impairment of trade receivables was as
follows:
2024 2023
£ £
Balance at 1 February 4,114,670 4,082,672
Charge for the year 1,471,291 1,145,978
Amounts written off (772,966) (1,113,980)
Balance at 31 January 4,812,995 4,114,670
Because the payment terms of the Group's lawyers is "pay when paid", the
impairment of a trade receivable balance automatically generates a directly
related adjustment to trade payables (being approximately 75% of the net value
impaired).
Accrued income has increased year on year largely in line with revenue, with
accrued income days of 48 as at 31 January 2024 (2023: 48 days).
8. PROVISIONS
Dilapidation Professional Indemnity Total
£ £ Provision
£
At 31 January 2022 107,945 - 107,945
Additional provision in the year 75,556 - 75,556
At 31 January 2023 183,501 - 183,501
Reclassified from accruals - 492,250 492,250
Additional provision in the year 44,444 410,000 454,444
Utilisation of provision - (222,250) (222,250)
At 31 January 2023 227,945 680,000 907,945
The dilapidation provision in respect of leased premises in Chancery Lane.
The professional indemnity provision represents the current best estimates of
the amounts likely to be needed to settle claims in respect of alleged
professional negligence. These estimates are subject to a high level of
uncertainty as they depend on the outcome of a range of future events and
accordingly may need to be updated as circumstances evolve. Separately, the
Group recognises expected reimbursements from professional indemnity insurance
associated with this provision within trade and other receivables (note 7).
No separate disclosure is made in relation to the detail of any such claims
as to do so would be seriously prejudicial to the position of the Group.
Note that in the prior year, the professional indemnity provision and the
reimbursement asset, the value of which were not material, were presented net
within accruals.
9. TRADE AND OTHER PAYABLES
Group
2024 2023
£ £
Trade payables 8,984,449 8,466,313
Accrued expenses 10,393,799 9,462,974
Social security and other taxes 404,339 418,071
Total trade and other payables 19,782,587 18,347,358
Included within the above accrued expenses is the liability for lawyer fees
associated with the accrued income (2024: £8,636,465; 2023: £7,435,836).
The fair value of the trade and other payables classified as financial
instruments is disclosed in the financial instruments note.
The Group's exposure to market and liquidity risks related to trade and other
payables is disclosed in the financial risk management and impairment of
financial assets note. The Group pays its trade payables on terms and as such
trade payables are not yet due at the reporting dates.
FINANCIAL LIABILITIES
0 to 6 months 7 to 12 months 1 to 5 Pay when paid Total
years
£ £
£ £
£
Trade payables 181,900 - - 8,802,549 8,984,449
Accrued expenses 1,944,230 588,104 - 7,861,465 10,393,799
Lease Liabilities 47,380 297,424 2,379,392 - 2,724,196
At 31 January 2024 2,173,510 885,528 2,379,392 16,664,014 22,102,444
0 to 6 months 7 to 12 months 1 to 5 Pay when paid Total
years
£ £
£ £
£
Trade payables 89,574 615,709 - 7,761,030 8,466,313
Accrued expenses 1,384,052 643,086 - 7,435,836 9,462,974
Lease Liabilities 269,272 269,272 109,484 - 648,028
At 31 January 2023 1,742,898 1,528,067 109,484 15,196,866 18,577,315
Financial liabilities are held at amortised cost. There is no significant
difference between the fair value and carrying value of financial instruments.
Amounts shown as pay when paid in the tables above, principally, reflect
amounts payable in respect of lawyers' fees, as well as amounts payable to
third party counsel and experts whose fees have been incurred on behalf of the
Group's clients as disbursements. Lease liabilities are shown at their
undiscounted value.
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