Latest 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’).

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.

Dividend

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