Interim Results

Differentiated model and continued momentum supports confidence and reinstated dividend

Keystone Law (AIM: KEYS), the fast growing, UK Top 100, challenger law firm, today announces its interim results for the six months ended 31 July 2020 (‘H1-2021’ or the ‘period’).

Financial Highlights

  • Revenue growth of 6.5% to £24.5million (H1-2020: £23.0 million)
  • Adjusted PBT1 £2.2 million (H1-2020: £2.7 million)
  • Basic EPS 5.0 pence (H1-2020: 6.3 pence)
  • Strong operating cash conversion2 at 133% with cash generated from operations of £3.3 million (H1-2020: £2.6 million)
  • Strong cash position and debt free; net cash £6.9m (H1-2020: £6.4m)
  • Dividend payments recommenced with two interim ordinary dividends of 3.3 pence per share each declared (total 6.6 pence per share)

1 Adjusted PBT is calculated utilising profit before tax and adding back amortisation for both periods; for the current year share based payments and one off costs associated with property relocation is also added back.
2 Operating cash conversion is calculated utilising cash generated from operations and dividing it by the PBT after non cash movements.

Business Highlights

  • Moved central office team seamlessly to remote working
  • Service delivery 100% operational throughout the period
  • COVID-19 pandemic initially impacted new client instructions significantly before recovering to near pre-pandemic levels by end of period
  • Effect on overall activity levels mitigated by ongoing client work; so decrease less pronounced but recovery slower.  Still c. 5% below pre COVID-19 levels at end of July
  • Principal1 lawyer recruitment remained strong following initial lengthening of processes
    • Number of qualified new applicants rose significantly by 27% to 145 (H1-2020: 114)
    • Principal lawyers accepting offers increased by 14% to 41 (H1-2020: 36)
    • 27 new Principals joined (net 19) (H1 2020: 33 (net 27)
    • 17 Pod members joined (net 14) (H1 2020: 26 (net 20)
  • Performance in the period has been very satisfactory in light of the challenging circumstances and whilst there remains uncertainty about the future we are confident that the Group remains in a good position to build a strong platform for future growth

1 Principal lawyers are the senior lawyer 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 company 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.

James Knight, Chief Executive Officer of Keystone Law, commented: “I am pleased to report that, in what has been a challenging environment, the business has delivered a very satisfactory performance.  This period has served to demonstrate both the financial and operational resilience of Keystone as well as showcasing how perfectly well-suited it is to the needs of lawyers who wish to work in a more modern, flexible and collaborative environment. I am confident that the COVID-19 pandemic has highlighted some of the benefits of the Keystone model to many more lawyers and this will further support the business as we move forward.

“Whilst there remains uncertainty as to how COVID-19 will impact the rest of the year, I am confident that we are in a strong position to deal with any challenges and continue to build for the future.”


Chief Executive Officer’s Statement

I am pleased to report that, in light of the challenging environment, Keystone has delivered a very satisfactory performance in the first half of this financial year (‘H1-2021’ or the ‘period’), with revenue rising to £24.5m (H1-2020: £23.0m), reported PBT of £1.9m (H1-2020: £2.4m), adjusted PBT(1) of £2.2m (H1-2020: £2.7m) and cash generated from operations of £3.3m (H1-2020: £2.6m).

As reported in April, the operational and financial structure of the Keystone model ensured that the Group was in a strong position to face the challenges presented by COVID-19 and the resultant restrictions which impacted the UK economy.  Keystone’s infrastructure and its business culture have been developed to ensure that our people can deliver high quality legal services to their clients on a remote basis and, whilst to date this has been focused on our lawyers, it was a simple step to move our Central office team onto the same footing and this was achieved the week before the government restrictions were implemented.  We have, therefore, been able to maintain 100% operational capacity throughout the first half of the year across all aspects of our business, whilst ensuring the health and wellbeing of our people.  Financially the fully variable remuneration structure of the lawyers, who are paid when Keystone is paid, as well as the Group’s small property footprint, has meant that profits and cash have both been substantially protected despite the fall in demand from our clients. That said, the investment in the central office team as well as the new office space made during last year meant that we had a higher overhead base in the first half than during the same period last year.  As a result, although we have seen an increase in revenue and small increase in gross profit, the Group’s profit before tax has declined.

Although the year started well, the COVID-19 pandemic had a significant impact on demand with the number of new instructions declining by approximately 30% during the first six weeks of the lockdown.  While all areas of the business were affected, the impact was not uniform with certain areas, such as property, family and private client being most severely affected whilst litigation, for example, has held up well.  As time has progressed and we have seen a gradual opening up of society and the economy, new instructions in most practice areas have slowly recovered to almost pre COVID-19 levels, although as with the decline, certain areas still lag behind others.  As one would expect, the reduced level of new client instructions has had a more pronounced effect on the business than any other factor whereas the effect on overall activity has been somewhat mitigated by ongoing work on existing matters, such that the depth of the drop off has been less, and the rate of recovery has been slower, in feeding through into revenue.  So whereas new matters fell by approximately 30%, underlying activity in the business dropped by approximately 20% and at the end of the period is still around 5% down on the levels achieved at the start of the year.

Notwithstanding the decline in client demand, lawyer recruitment has remained strong, albeit we did see a lengthening of the recruitment process during the early part of the pandemic. The business has continued to demonstrate its appeal to lawyers even in these testing times and we have seen an increase in both the number of qualified new applicants (145 v H1-2020: 114) and in the number of Principals who have accepted offers in the period (41 v H1-2020: 36). All our recruitment channels have been productive in the period, although it has been the recruitment agencies who have driven the increase in H1-2021.  Whilst recruitment through this channel has historically yielded a lower conversion rate than our other channels, we are delighted that the recruiters are increasingly appreciating the opportunity that Keystone’s model presents, both for their candidates and for themselves.  We have also continued to see strong recruitment by our Principals of junior resource to support them within their Pods, with 17 new Pod members joining in the period (H1-2020: 8). Overall lawyer numbers have increased by 33 (H1-2020: 34) to 426, with 27 new Principals (H1-2020: 33), a net increase of 19 and a net 14 other fee earners.

  1. 1 Adjusted PBT is calculated utilising profit before tax and adding back amortisation and share based payments for both periods; and one off costs associated with property relocation for the prior year are also added back.


Although there remains uncertainty about what further effects COVID-19 may have in the second half of this year, given the resilience that the business has shown thus far and bearing in mind the strong cash position, I am pleased to announce that the Board has decided to recommence dividend payments.  We have therefore decided to declare two interim dividends. The first being an interim ordinary dividend of 3.3 pence per share (H1-2020 3.2 pence per share), this being the recommencement of normal dividend payments under our historic dividend policy. The second being an interim ordinary dividend of 3.3 pence per share, being half of the amount that would have been paid as a final dividend for the year ended 31 January 2020 were it not for the outbreak of COVID-19.  We believe that in paying a second interim dividend at this level we are striking a reasonable balance between returning value to shareholders and ensuring that the cash position of the Group is sufficiently robust to manage any further COVID-19 related effects in the second half of the year.  The dividends will be payable on 16 October 2020 to shareholders on the register on 25 September 2020 and the shares will go ex-dividend on 24 September 2020.

Summary and Outlook

In light of the circumstances, the Board is pleased with the performance of the Group in the first half of this year and whilst there remains uncertainty as to what the impact of COVID-19 may be in the second half, it is confident that Keystone remains in a strong position to deal with any challenges and continue to build a strong platform for future growth.


James Knight
Chief Executive Officer
11 September 2020

For the period ended 31 July 2020

 Note6 Months to
July 2020
6 Months to
July 2019
Revenue 24,468,02722,984,364
Cost of sales (18,159,798)(16,796,779)
Gross profit 6,308,2296,187,585
Depreciation and amortisation2(435,879)(354,993)
Share based payments (80,831)(45,019)
Administrative expenses2(3,831,021)(3,457,269)
Other operating income 11,28535,160
Operating profit 1,971,7832,365,926
Finance income 36,05168,482
Finance costs (59,357)(3,020)
Profit before tax 1,948,4772,430,926
Corporation tax expense (388,156)(462,551)
Profit and total comprehensive income for the year attributable to equity holders of the Parent 1,560,3211,968,375
Basic and diluted EPS (p) 5.06.3


The above results were derived from continuing operations.


As at 31 July 2020

 Note31 July 2020
31 July 2019
31 January 2020
Non-current assets    
Property, plant and equipment
- Owned Assets
-Right of use assets 1,493,0822,245,7841,746,157
Total Property, plant and equipment 1,849,6712,524,4842,131,157
Intangible assets 6,284,0476,634,9326,459,490
Available-for-sale financial assets 13,62813,62813,628
Current assets    
Trade and other receivables315,285,98715,482,70916,561,439
Cash and cash equivalents 6,878,6136,357,4494,386,586
Total assets 30,311,94631,013,20229,552,300
Equity and liabilities    
Share capital 62,54862,54862,548
Share premium 9,920,7609,920,7609,920,760
Share based payments reserve 252,32288,224171,491
Retained earnings 5,518,4555,266,5713,958,134
Equity attributable to equity holders of the Parent 15,754,08515,338,10314,112,933
Non-current liabilities    
Lease liabilities 1,189,8752,054,2011,499,900
Deferred tax liabilities 301,910372,088336,999
Current liabilities    
Trade and other payables 12,022,77312,388,66612,500,318
Lease liabilities 538,544320,523497,791
Corporation tax liability 422,918496,741541,892
Provisions 81,84142,88062,467
Total liabilities 14,557,86115,675,09915,439,367
Total equity and liabilities 30,311,94631,013,20229,552,300


The interim statements were approved and authorised for issue by the Board of Directors on
11 September 2020 and were signed on its behalf by:


A Miller


For the period ended 31 July 2020

 Attributable to equity holders of the Parent
Share based
At 1 February 2019 (audited)62,5489,920,76043,2055,331,00215,357,515
Profit for the period and total comprehensive income---1,968,3751,968,375
Share based payments--45,019-45,019
Dividend Paid---(2,032,806)(2,032,806)
At 31 July 2019 (unaudited)62,5489,920,76088,2245,266,57115,338,103
Profit for the period and total comprehensive income---2,194,2452,194,245
Share based payments--83,267-83,267
Dividend Paid---(3,502,682)(3,502,682)
At 31 January 2020 (audited)62,5489,920,760171,4913,958,13414,112,933
Profit for the period and total comprehensive income---1,560,3211,560,321
Share based payments--80,831-80,831
Dividend Paid-----
At 31 July 2020 (unaudited)62,5489,920,760252,3225,518,45515,754,085


For the period ended 31 July 2020

 Note6 Months to July 2020
6 Months to July 2019
Year ended 31 January 2020 (Audited)
Cash flows from operating activities    
Profit before tax 1,948,4772,430,9265,225,891
Adjustments to cash flows from non-cash
Depreciation and amortisation2435,879354,993794,658
Share based payments 80,83145,019128,286
Finance income (36,051)(68,482)(151,991)
Finance costs 59,3573,02086,365
Working capital adjustments    
Decrease/(Increase) in trade and other receivables 1,275,452(971,983)(2,050,713)
(Decrease)/Increase in trade and other
Increase/(Decrease) in provisions 19,374(51,233)(31,646)
Cash generated from operations 3,305,7742,555,8654,926,107
Interest paid (11,710)(3,020)(8,710)
Interest portion of lease liability (47,647)-(77,655)
Corporation taxes paid (542,219)(211,189)(801,849)
Cash generated from operating activities 2,704,1982,341,6564,037,893
Cash flows from/(used in) investing activities    
Interest received 36,05168,482151,991
Purchases of property plant and equipment (26,597)(248,711)(403,501)
Net cash generated from investing activities 9,454(180,229)(251,510)
Cash flows from financing activities    
Repayment of lease liabilities (221,624)(114,809)(207,946)
Dividend Paid -(2,032,806)(5,535,488)
Net cash (used in) from financing activities (221,624)(2,147,615)(5,743,434)
Net increase/(decrease) in cash and cash equivalents 2,492,02813,812(1,947,051)
Cash at 1 February 4,386,5866,343,6376,343,637
Cash at 31 July 6,878,6136,357,4494,386,586



Notes to the Financial Statements are available in the printable PDF version