Latest Results
Interim Results
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 2019 ('H1-2020' or the 'period').
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Financial Highlights
- Strong revenue growth of 15.3% to £23.0 million (H1-2019: £19.9 million)
- Adjusted PBT1 increased by 15.4% to £2.7 million (H1-2019: £2.3 million)
- Basic EPS rising to 6.3 pence (H1-2019: 5.5 pence)
- Robust cash conversion at 90.3% with operating cashflow2 of £2.4 million (H1-2019: £2.2 million)
- Interim ordinary dividend of 3.2 pence per share, in line with progressive dividend policy
- Special dividend of 8.0 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 Cashflow is calculated utilising cash generated from operations and deducting repayment of other borrowings; these being property lease payments in respect of the Keystone offices.
Business Highlights
- Principal1 lawyer recruitment continues to be strong
- Number of qualified new applicants rose by 7.5% to 114 (H1-2019: 106)
- Principal lawyers accepting offers increased by 24% to 36 (H1-2019: 29)
- Number of principals increased by 27 (H1-2019: 25)
- Demand for junior support, both through Pods1 and central office employed lawyers, continues to grow: Pod members increased by five and central office lawyers by two
- Invested in new office space to deliver more meeting rooms, hot desks and improved lawyer centre
- Aligned existing lease to new now hold co-terminus five year leases
- Keystone model and brand continues to be increasingly well respected
- Performance in the period has been ahead of expectations and this has laid a strong foundation for the rest of the year
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 another strong set of Interim Results, as reflected by both the Group's financial and operational performance. The revenue and profit growth has been driven by the ongoing strength of the recruitment activity as we continue to attract high calibre principal lawyers looking to take advantage of the benefits that the Keystone model offers and build their practices. This is providing clear evidence of the Group's ability to scale and take advantage of the considerable mid-market opportunity.
"The performance of the existing lawyers, together with the strength of the recruitment pipeline at the half year all serve to underpin our confidence in the second half."
Chief Executive Officer's Statement
I am pleased to report that the Group has continued to trade strongly and above expectations throughout the first half of this financial year ('H1-2020'). As a result, revenue for the first six months has increased by 15.3% to £23.0m (H1-2019: £19.9m), reported PBT has increased by 12.1% to £2.4m (H1-2019: £2.2m) and adjusted PBT* has increased by 15.4% to £2.7m (H1-2019: £2.3m). Cash conversion has also remained strong with operating cashflow** of £2.4m being a conversion of 90.3% (H1-2019: £2.2m and 94.6%).
Throughout the first half of this year the management team has continued to focus on delivering the UK centric organic growth strategy of the business and has been pleased with the progress made during the period. The Keystone model is becoming increasingly accepted within the legal profession and, as such, we continue to see high calibre candidates attracted to the business. Lawyer recruitment has been strong with 114 (H1-2019: 106) qualified new applicants (Principals) entering the pipeline this year, whilst Principals accepting offers has increased by 24% to 36 (H1-2019: 29). We have also seen a continuation of the growth of Pods (Principals' service companies employing more than one lawyer) with 10 new Pod members joining during the period (H1-2019: 7). Total lawyer numbers have increased by 34 (with 45 lawyers starting in the period) to 355 (H1-2019: increased by 31).
Whilst recruitment of high calibre new lawyers with client followings is undoubtably the number one driver of growth for the business, that growth is underpinned by the continual work by our lawyers in developing and maintaining their practices. The Marketing team and the Growth and Development team have had another busy six months supporting Keystone lawyers in achieving this. Those teams deliver extensive and often personalised support, with all new lawyers benefiting from substantial up-front investment to help them successfully establish their practice at Keystone. Our lawyers have continued to benefit from the multitude of centrally organised events and networking opportunities as well as the high quality marketing collateral and tender support delivered by the Marketing team.
In response to the growing demand for client meeting rooms and hot desking facilities we have taken advantage of the opportunity to lease a second floor in the same building as our central offices at Chancery Lane. As such, from the second half of this year, we will be able to offer our lawyers twice as many meeting rooms as well as increasing both the hot desks and the permanent desks available to those lawyers who wish to pay for this facility. The timing of this new floor has been very propitious becoming available in time to replace the existing lawyer centre where the lease ends in December. We have also taken advantage of the lease negotiations to agree new terms on our existing lease, such that both floors are now under new five year co-terminus leases.
It has been a busy period for all of the central office and the team has worked hard to deliver a first class service to both our lawyers and our clients. We continue to strive to be 'best in class' and focus on supporting our lawyers across all disciplines, ensuring that they are free to focus on working with their clients to deliver exceptionally high calibre legal services.
Dividend
As a result of the strong performance in H1-2020, as well as the ongoing confidence which the Board has in the outlook for the full year, I am pleased to announce that the Board has declared an interim ordinary dividend of 3.2 pence per share (H1-2019: 2.5 pence per share). Having reviewed the cash position and working capital requirements of the Group, the Board has also decided to declare a special dividend of 8.0 pence per share. The dividends will be payable on 25 October 2019 to shareholders on the register on 4 October 2019 and the shares will go ex-dividend on 3 October 2019.
Summary and Outlook
In summary, the Board is extremely pleased with the performance of the Group in the first half of this year, which has been ahead of expectations, and it is confident that this has laid a strong foundation for the rest of the year.
The performance of existing Keystone lawyers, together with the recruitment activity during the first half of the year and the strength of the recruitment pipeline at the half year, all serve to underpin management's confidence in the second half.
James Knight
Chief Executive Officer
23 September 2019
* 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 are also added back.
* * Operating Cashflow is calculated utilising cash generated from operations and deducting repayment of other borrowings; these being property lease payments in respect of the Keystone offices.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period ended 31 July 2019
| Note | 6 Months to July 2019 (Unaudited) £ | 6 Months to July 2018 (Restated) (Unaudited) £ | |
| Revenue | 22,984,364 | 19,940,081 | |
| Cost of sales | (16,796,779) | (14,559,616) | |
| Gross profit | 6,187,585 | 5,380,465 | |
| Depreciation and amortisation | 2 | (354,993) | (332,141) |
| Administrative expenses | 2 | (3,502,288) | (2,958,137) |
| Other operating income | 35,160 | 32,816 | |
| Operating profit | 2,365,464 | 2,123,003 | |
| Finance income | 68,482 | 50,681 | |
| Finance costs | 3 | (3,020) | (5,982) |
| Profit before tax | 2,430,926 | 2,167,702 | |
| Corporation tax expense | (462,551) | (457,092) | |
| Profit and total comprehensive income for the year attributable to equity holders of the Parent | 1,968,375 | 1,710,610 | |
| Basic and diluted EPS (p) | 6.3 | 5.5 |
The above results were derived from continuing operations.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
For the period ended 31 July 2019
| Note | 31 July 2019 (Unaudited) £ | 31 July 2018 (Restated) (Unaudited) £ | 31 January 2019 (Restated) (Audited) £ | |
| Assets | ||||
| Non-current assets | ||||
| Property, plant and equipment | 278,700 | 43,780 | 55,775 | |
| Right of use assets | 2,245,784 | 887,086 | 746,666 | |
| Intangible assets | 6,634,932 | 6,985,816 | 6,810,373 | |
| Available-for-sale financial assets | 13,628 | 13,628 | 13,628 | |
| 9,173,044 | 7,930,310 | 7,626,442 | ||
| Current assets | ||||
| Trade and other receivables | 15,482,709 | 11,804,946 | 14,510,726 | |
| Cash and cash equivalents | 6,357,449 | 5,312,192 | 6,343,637 | |
| 21,840,158 | 17,117,138 | 20,854,363 | ||
| Total assets | 31,013,202 | 25,047,448 | 28,480,805 | |
| Equity and liabilities | ||||
| Equity | ||||
| Share capital | 62,548 | 62,548 | 62,548 | |
| Share premium | 9,920,760 | 9,920,760 | 9,920,760 | |
| Share based payments reserve | 88,224 | - | 43,205 | |
| Retained earnings | 5,266,571 | 4,016,232 | 5,331,002 | |
| Equity attributable to equity holders of the Parent | 15,338,103 | 13,999,540 | 15,357,515 | |
| Non-current liabilities | ||||
| Lease liabilities | 4 | 2,054,201 | 676,648 | 524,677 |
| Deferred tax liabilities | 372,088 | 442,266 | 407,177 | |
| 2,426,289 | 1,118,914 | 931,854 | ||
| Current liabilities | ||||
| Trade and other payables | 12,388,666 | 9,238,336 | 11,575,061 | |
| Lease liabilities | 4 | 320,523 | 320,063 | 311,971 |
| Corporation tax liability | 496,741 | 284,625 | 210,291 | |
| Provisions | 42,880 | 85,970 | 94,113 | |
| 13,248,810 | 9,928,994 | 12,191,436 | ||
| Total liabilities | 15,675,099 | 11,047,908 | 13,123,290 | |
| Total equity and liabilities | 31,013,202 | 25,047,448 | 28,480,805 |
The interim statements were approved and authorised for issue by the Board of Directors on 20 September 2019 and were signed on its behalf by:
A Miller
Director
Keystone Law Group plc
Registered No: 09038082
STATEMENT OF CHANGES IN EQUITY
For the period ended 31 July 2019
| Attributable to equity holders of the Parent | |||||
| Share capital £ | Share premium £ | Share based payment reserve £ | Retained earnings £ | Total £ | |
| At 1 February 2018 (audited) | 62,548 | 9,920,760 | - | 2,568,343 | 12,551,651 |
| Profit for the period and total comprehensive income | - | - | - | 1,710,610 | 1,710,610 |
| Dividend Paid | - | - | - | (262,721) | (262,721) |
| At 31 July 2018 (unaudited) | 62,548 | 9,920,760 | - | 4,016,232 | 13,999,540 |
| Profit for the period and total comprehensive income | - | - | - | 2,096,619 | 2,096,619 |
| Share based payments | - | - | 43,205 | - | - |
| Dividend Paid | - | - | - | (781,849) | (781,849) |
| At 31 January 2019 (audited) | 62,548 | 9,920,760 | 43,205 | 5,331,002 | 15,357,515 |
| Profit for the period and total comprehensive income | - | - | - | 1,968,375 | 1,968,375 |
| Share based payments | - | - | 45,019 | - | 45,019 |
| Dividend Paid | - | - | - | (2,032,806) | (2,032,806) |
| At 31 July 2019 (unaudited) | 62,548 | 9,920,760 | 88,224 | 5,266,571 | 15,338,103 |
Application of IFRS16 has not resulted in any changes to the historic reserves values.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period ended 31 July 2019
| Note | 6 Months to July 2018 (Unaudited) £ | 6 Months to July 2018 (Restated) (Unaudited) £ | Year ended 31 January 2019 (Restated) (Audited) £ | |
| Cash flows from operating activities | ||||
| Profit before tax | 2,430,926 | 2,167,702 | 4,745,011 | |
| Adjustments to cash flows from non-cash items | ||||
| Depreciation and amortisation | 2 | 354,993 | 332,141 | 665,588 |
| Share based payments | 45,019 | - | 43,205 | |
| Finance income | (68,482) | (50,681) | (120,463) | |
| Finance costs | 3,020 | 5,982 | 7,659 | |
| 2,765,476 | 2,455,144 | 5,341,300 | ||
| Working capital adjustments | ||||
| (Increase) / Decrease in trade and other receivables | (971,983) | 189,767 | (2,516,013) | |
| Increase / (Decrease) in trade and other payables | 813,605 | (267,614) | 2,058,456 | |
| (Decrease) / Increase in provisions | (51,233) | - | 19,113 | |
| Cash generated from operations | 2,555,865 | 2,377,297 | 4,902,556 | |
| Interest Paid | 3 | (3,020) | (5,982) | (7,659) |
| Corporation taxes paid | (211,189) | (267,307) | (857,420) | |
| Cash generated from operating activities | 2,341,656 | 2,104,008 | 4,037,477 | |
| Cash flows from investing / (used in) activities | ||||
| Interest received | 3 | 68,482 | 50,681 | 120,463 |
| Purchases of property plant and equipment | (248,711) | (9,699) | (39,609) | |
| Net cash generated from investing activities | (180,229) | 40,982 | 80,854 | |
| Cash flows from financing activities | ||||
| Repayment of lease liabilities | (114,809) | (160,045) | (320,094) | |
| Dividend Paid | (2,032,806) | (262,722) | (1,044,570) | |
| Net cash (used in) from financing activities | (2,147,615) | (422,767) | (1,364,664) | |
| Net increase in cash and cash equivalents | 13,812 | 1,722,223 | 2,753,667 | |
| Cash at 1 February | 6,343,637 | 3,589,970 | 3,589,970 | |
| Cash at 31 July | 6,357,449 | 5,312,192 | 6,343,637 |