Chief executive’s Review
Introduction and Highlights
I am very pleased to be able to report that, in spite of the challenges faced by the COVID-19 pandemic, Keystone has had another successful and award-winning year.
The business has continued to grow, with revenue up 10.9% to £55m (2020: £49.6m) and adjusted PBT increasing by 3.6% to £6.0m (2020: £5.8m) (PBT increase of 3.4% to £5.4m). The cash generative nature of the model and thus its resilience has also been strongly demonstrated this year, with operating cash generated of £6.6m. This has given us the confidence not only to reinstate dividends in line with our stated policy but also to “catch up” the amount which would have been declared for the year ended 31 January 2020 had it not been for the outbreak of the pandemic.
Being 100% operational also meant that our recruitment activities continued unabated throughout the year and as such the number of Principals* increased from 328 to 369 and we saw the number of Pod members increase from 54 to 74, as both new and existing
lawyers chose to expand their practice in this way.
In November we won what is arguably the most prestigious award in the UK Legal Industry; The Lawyer Awards: Law Firm of the Year. It is the first time that this award has been granted to a “new law” firm and reasserts our belief that Keystone
is now very much recognised by the “establishment”. This award recognises the best in class when it comes to private practice legal services over the past 12 months. Keystone was described by the award givers as, the firm which had
“rethought the model”, which was “light years ahead of everyone on virtual working” and was “big on work life balance”.
We also won Firm of the Year 2021 in the Roll on Friday awards. This award is given to the “happiest firm” in the UK, based on a satisfaction survey run by Rollonfriday.com of lawyers and support staff in law firms across the UK. Keystone
won by some margin, with a 94% satisfaction rating across such categories as pay, career development, work / life balance and culture.
We are tremendously proud of these two awards as they go to the very heart of what Keystone is; a business which enables lawyers to deliver high quality legal services to clients whilst providing a culture which delivers support, well-being and happiness
to our people; both elements of which we believe are fundamental to the success of Keystone.
* 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 is, to all intents
and purposes, a Keystone lawyer and 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 properly interviewed and 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.
OUR RESPONSE TO COVID-19
Our response to the pandemic has focused on two things, keeping our people safe and maintaining 100% operational efficiency. The health, well-being and happiness of our people is, and always has been, at the heart of the Keystone culture and this
drove our decision to move our central office team to homeworking ahead of the first government lockdown. Having the technology stack already designed to support remote working meant that we were able to implement this decision swiftly without
impacting on the quality of support that our lawyers receive.
During the short periods through the pandemic, when the government guidance encouraged a reopening of elements of society, we enabled lawyers to use our client meeting rooms when this was necessary. Ensuring that this was done in a COVID secure
manner was a key priority and we therefore, encouraged the lawyers to only use the facilities where it was unavoidable, reduced meeting room capacity significantly and provided all the additional cleaning and other sanitary facilities necessary to
protect anyone who was on site.
Maintaining Keystone’s culture, a culture built on social interaction and cohesion has presented a new set of challenges this year. In normal times, we dedicate substantial time and energy to ensuring that our people are well connected to one another
and to the central team. This is usually achieved thanks to the number of physical events which we run, be it Continuing Professional Development events, sector / lawyer lunches, sports or cultural events. All of these bring our lawyers
together in a social environment which enables them to network both personally and professionally. It is this aspect of the Keystone experience which has been most challenged by the government response to COVID-19. In the absence of physical
events, we have had to take a more creative approach by replicating traditional networking events using online alternatives. Accordingly, we have continued to run an extensive number of events online which have evolved and varied over the period
in order to keep them fresh and attractive to our people and have even launched our very own online pub; “The Keystone Arms” which hosted around 350 Keystone lawyers at the opening night. Treating our lawyers as valued personnel
rather than commodities is one of the pillars upon which our culture is built and is essential to Keystone’s success. A myriad of thoughtful initiatives such as sending champagne for every lawyer birthday or creating special Keystone
colouring-in books to help reduce the pain of home schooling, have genuinely helped Keystone’s personnel remain upbeat and effective throughout this challenging year.
From a financial perspective, we decided that the strength of our balance sheet and the resilient nature of our business model, made it inappropriate for Keystone to take advantage of the government schemes that were put in place to support struggling
businesses. As such, we did not furlough any employees or defer any tax payments.
SCALABLE MODEL DRIVING ORGANIC GROWTH
Our clear, simple strategy for growth remains unchanged; organic growth through the recruitment of high calibre lawyers in the UK legal services market.
In furtherance of this strategy we actively encourage and support Principals to grow their own Pods by recruiting juniors to work with them. In this way, Principal lawyers are able to build larger practices, thus increasing the average revenue per
Principal, and by doing so, further leverage the value of their client relationships. To the extent that Principals need junior support but do not have a permanent need, or do not wish to build their own Pod, we also employ a number of junior
lawyers within the Central office team whose role it is to provide the necessary ad hoc support to the whole lawyer base.
Our model offers an attractive proposition for experienced lawyers as it gives them control to develop their practice on their own terms, concentrating exclusively on client development and the delivery of legal work. They enjoy the ability to work
when and where they want and they appreciate the user-friendly bespoke technology with access to over 365 experienced colleagues to service their clients. Meanwhile an efficient central office team provides them with the full range of logistical
support they need. All this comes together with the ability to earn more money for the work they do whilst enjoying an improved work / life balance and a culture which is open, friendly and collegiate whilst remaining highly professional.
In the twelve months ended 31 January 2021, the size and nature of the market remained essentially unchanged. The government restrictions on movement meant that this year all UK lawyers have had to work from home for long periods of time and whilst many
will have struggled with their firm’s technology there has been a clear structural shift in the attitude towards remote working. This change has undoubtedly served to further erode any erroneous perceptions, which some lawyers working in traditional
firms may still have held, regarding the ability of lawyers to work in this way and as such will have further extended the reach of the Keystone model. Winning “Law Firm of the Year” at the Lawyer Awards clearly demonstrates this change
and confirms that Keystone is now firmly accepted by the mainstream legal establishment.
2021 has been another strong year for recruitment with the number of qualified new applicants increasing 6% to 253 and the number of offers accepted by candidates increasing by 25% to 70. The shape of the year has been unusual insofar as the “ordinary”
triggers which drive recruitment peaks, notably the post holiday return to work, have been largely absent and it has been other events driving candidates desire for change. This was very apparent during the first lock down which created a significant
level of uncertainty across the legal industry and coincided with an uptick in the number of qualified new applicants, especially from the recruitment agencies. The second half saw further disruption as the restrictions were first relaxed through
the summer period before once again escalating, albeit in something of a patchwork manner, during the rest of the year. The uncertainty created by these changes impacted on both the overall number, but also the timing, of qualified new applicants
which ebbed and flowed in response to the changing picture. The start of the 2022 financial year has seen a fair but variable start with events continuing to evolve as we move from full lockdown to the start of the relaxation of restrictions
in line with the government’s roadmap.
In spite of the negative effect that COVID-19 had on client demand, most notably during the first half of the year, our lawyers have continued to grow their practices by recruiting juniors and colleagues into their Pods and as of 31 January 2021 we had
74 (2020: 56) Pod members operating within 44 Pods (2020: 31). This growth has been driven by a combination of new and existing Principals and further endorses the strength and flexibility of the model.
continuing Investment in IT
The investment made over many years in our IT infrastructure meant that we started the year in a strong position and as such COVID-19 had only a limited effect on the focus of the IT team this year. As always we continued to develop and enhance
our core systems to ensure that they remain “best in class”, always seeking to provide the best user experience and to drive ever greater operational efficiencies. Over and above this, IT security continues to be a key focus for
the team and having rolled out a number of security enhancements to the estate last year, we continued to enhance the security environment as well as stepping up the awareness programme on cybersecurity.
The one area where COVID-19 did affect the IT team was in the take up and usage of video conferencing platforms as a primary tool for client meetings as well as internal interaction with colleagues. We had all the necessary tools in place prior
to the pandemic although usage levels were low with most people favouring more conventional means of meeting. Once again, having the tools available ahead of the outbreak meant that we were well-placed to ensure a seamless transition from physical
meetings to online meetings and the IT team worked extremely well to educate Keystone personnel on the availability and functionality of Microsoft Teams.
Ongoing Investment in the Central office team
Once again this year, the Central office team has demonstrated the “positive and can do” attitude of which I have become so proud over the years. It is worth noting that the Central Office team have previously only worked from our offices
in Chancery Lane but with the outbreak of the pandemic they immediately switched to remote working. Their positive attitude to this seismic shift in the working environment ensured that we could continue to support our lawyers without interruption
and deliver the “best in class” service to which they have become accustomed. This year has demonstrated the flexibility and adaptability of all aspects of the Keystone model and as ever the Central office team has played a key part
in delivering this. I would like to take this opportunity to thank all of the Central office team for their hard work and enthusiasm.
The current year has started well. The activity of the existing lawyers is strong and both the number and quality of qualified new applicants provide confidence in the year ahead. With the government roadmap in place and progress being made towards
the relaxation and hopefully end to lockdown restrictions, it is to be hoped that the general economic outlook will improve. Having performed well in spite of the restrictions last year, the Group is well positioned to take advantage of the
improving position this year and deliver another strong performance.
28 April 2021