Keystone Law Group plc

Good afternoon, ladies and gentlemen, and welcome to the Keystone Law Group PLC investor presentation. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish our responses where it's appropriate to do so on the investor meet company platform. Before we begin, we would just like to submit the following poll. I would now like to hand you over to the executive management team from Keystone Law Group, PLC. James, good afternoon, sir.

Thank you very much and good afternoon, everybody. Welcome to Keystone's annual results for the year just gone, finishing end of January 2026. I am delighted to report that it's been a good year for Keystone. I'd like to give you a little bit of a summary of a bit more background to the firm, just in case you are not aware of what sort of organization it is. We are a regulated law firm. We operate a very different model described as the platform model. It is something that we invented in 2002. It has now become a very mainstream type option for lawyers coming from private practice. Lawyers have a great deal of freedom, flexibility and autonomy to work with their clients in the way that they choose, but they also have a tremendous amount of infrastructure support and regulation insofar as it is necessary, all provided by the Keystone Central Office. Whilst we used to be the only platform law firm in the country, we are now considered to be the premier platform law firm. We are the number one. This is much better than being alone, the outlier. It may be seen as competition, but in actual fact, it adds to the efficacy of the business model. We have grown into a significant law firm now over the years, and with that becomes an extremely strong sense of community, cross-referral of work, a sense of belonging, a culture, a dynamism. So we are essentially seeking to give our lawyers everything that they could possibly have, any benefit in the conventional workplace, whilst also removing some of the downsides of the conventional workplace the uh technology is a significant part of of what we do and we'll come on to talk about ai in due course we have grown um consistently since creation and in ipo November 2017, since IPO, we have continued to scale up in an extremely proactive way and managed to return dividends on every six months since we IPO'd. we do have a great ability to scale thanks to the pay when paid model that we operate and the fact that our lawyers operate from their own offices whether that be at home or elsewhere enabling us to scale in a way that is not inhibited in the same way as the conventional work space The offices in central London do have meeting rooms, hot desking, even permanent desks for the very few that wish to use those permanent desks. We have a proven track record in delivering sustainable growth and a progressive dividend policy. I'd like to turn now to the results themselves for the year just gone. As I mentioned at the start, it was a great year for us. In fact, one of the best years Well, I think possibly the best year we've ever had in terms of really well-rounded results. Nothing that is an outlier, nothing that I would prefer to be better. Revenue increased 17.9%. Adjusted PBT is up 20.6%. Operating cash conversion is always good at Keystone as a result of the paid when paid business model, 98.9% being pretty much around where it normally is. We've never had debt, we've got cash in the bank, and As also mentioned earlier, we are very good at paying dividends, having done so at the interim period at 7.5 pence, and we will be doing so paying 17.2% in the near future. That's a 22% or 22.5% increase on last year. The other side of our business is... the recruitment. That is because we grow this firm by recruiting good quality lawyers with good quality client followings. And that is the numero uno way that we do grow the firm. And in a way, it gives you insight to the future in terms of next year's results. 61 new principals. These are the senior lawyers. They are self-employed, but they are Keystone lawyers at the same time and very much presented as Keystone lawyers. 63 new pod members. These are junior lawyers employed by the principals. Again, Keystone lawyers with all the insulation and all the environment of Keystone around them. New principals have this year been particularly effective in bringing in pod members with them. In other words, mostly these may have been their junior lawyers at their previous law firm. This gives an indication of the... confidence in which they are joining us, bringing an overhead for themselves with them, knowing that they are going to be extremely busy and going to need this support from day one. Total fee earners up 13.5%. Turning across the page, we see some more details on the recruitment KPIs. We focus, as I mentioned, this is the number one source of growth. Our revenue per principal has increased beautifully, 10.5% over the year. However, the number one driver is the recruitment. The figures speak for themselves. All of the metrics are good. The total number of principals at Keystone is 491. And the total number of fee earners is now 654. I would mention at this stage that we've become a very significant firm now. Obviously, in the early days, we were small, an outlier. We attracted lawyers and clients because we offered something that was new and innovative, the freedom of... and the flexibility and the autonomy. But what we are now, we still, obviously, that is a great attraction for principals joining us. However, we are also now a significant part powerful law firm that is attracting lawyers who wish to join us because of what we have become they may may like the flexible working etc but really they're joining us because they they we are a better stronger stronger brand better colleagues than their previous firms so notwithstanding previously we had some advantages now we have those advantages and many more AI is, of course, an incredibly important story. It's a subject on everybody's mind at the current time. Keystone has always been propagated upon an IT, right from the word go. Our story was that we use IT and technology to drive efficiencies, to reduce overheads, and to... support work. So it's very much, it's very much ingrained in our DNA to try and take advantage of any new useful IT tools. And the AI story is extremely useful. And the technology that's coming on board are some of these absolutely fantastic tools to help with fee earning. We have assembled a team that has been looking into this over the last eight months of lawyers, IT, management, principals, et cetera, to test and carefully assess what is best out there. Is it Harvey? Is it Legora? Is it Jilo? Is it Co-Counsel? And we have very recently, in fact, just announced to the firm on Tuesday at the Spring Conference that Co-Counsel is the solution that we are going with. It's amazing. We've tested it all the way. It's perfect for this business. It's owned by Thomson Reuters. It encapsulates PLC, which is the template database and knowledge hub that we principally use anyway. And Westlaw is comprised of 10,000 legal books. It is, I think, the perfect solution for us. Other solutions that we have been using up until now and will continue to use are things like KeyBot. KeyBot being That's our name for an environment that is very much like ChatGPT and Claude that gets you so far. I mean, it has been a very useful stand-in. It continues to be relevant for more general-type work required. I mean, it does what ChatGPT does. It is... It's as good as far as it goes, but it only goes to the public environment, to the internet, whereas CoCouncil is going straight into accessing, it can do everything that chat can do or Keybot can do, but it can also do a whole lot more. Six months ago, I did announce that we had created an AI solution on the operating manual to interrogate that. That's going extremely well. We have a new AI solution coming out about source of funds to help with the money laundering side of things. We've brought in the N1 Assist, which is part of NetDocuments, which is there to help interrogate the documents in our massive database, Knowledge Hub, where everything is held in a secure manner, being part of NetDocuments. It's far too early to tell how the technology that is now being sort of introduced and is now people are getting upskilled on and learning and getting used to using, quite how that will affect pricing, etc. But we are very confident that that these tools are going to be great enhancers. I think with AI, one of the most important things is to embrace it, is to get ahead of it, to use it, to become skilled on it. In the legal profession at the current time, only about 3% of lawyers are using AI. Even with Keybot, we had some 360-something of our lawyers were using that. Our lawyers are more, let's say, tech-friendly, I think, than many. I suppose the model is about entrepreneurialism, seizing opportunities. So that is what is happening on that front. Since I last presented to you, we have undertaken our brand refresh. This has been about a year's work. What you see in front of you in terms of the slides is, if you can remember what it used to look like, it's a different look. It's one that I'm very happy with. It's modern, fresh, dynamic. I think so anyway, and our lawyers do as well. On the right-hand side there, you can see the The results of a very recent survey from our lawyers indicating not 100% happiness, but you're never going to get that with a rebrand or a refresh. You know, there's always people that like change. But I mean, in terms of people that agree that they like it or they're not too sure. It's overwhelming. And I'd say very, very good for a brand refresh. We involved them in the process in as much as not decision making process, but kept them updated as we went along. So they felt that they were really part of the progression. I'll pass over now to Ashley, who will take you through the financials.

Yes. So as James has said, it's been a particularly strong period for us last year. with revenue growth of 17.9%, taking us to 115.2 million of revenue. Adjusted PBIT was up 11.4% to 12.9 million, and adjusted PBT up 20.6% to 15.3 million, which represented a margin of 13.3%. The operating cash conversion at just under 99% was particularly strong, although we do consistently deliver a conversion in the region of 95% to 100%. and we finished the period with £9.7 million cash in the bank. We are debt-free. We had adjusted EPS for the period of 37 pence, and the ordinary DPS in total will be 24.7 pence. In terms of the income statement, and just a bit more detail behind those numbers, the revenue growth was really driven by accommodation of the broad-based demand and continued strength in recruitment, with average principal numbers increasing 6.7%, and the average total number of fee earners rising 9.3%. Revenue per principal also grew strongly, 10.5% in the period, moving from 220,000 to 243,500. The revenue growth this year has really been driven dramatically by or more considerably by our principals and their pods. And as a result of that, the revenue we gain from the areas we enjoy an enhanced margin on, which are a small number of lawyers in the Isle of Man and our central employed lawyers, reduced as a percentage of the mix, which meant the gross profit margin moved down to 25.5% in the period. Staff costs in the business increased 17% as we continue to invest in our people. We really do have to, across the pieces, it's fundamental that we continue to invest in all elements of the business, the infrastructure, the people, the IT, the tech, in order to facilitate and empower our lawyers to deliver the high quality services they need to deliver to our clients. And we saw that in the staff costs with an increase in the headcount rising on average from 69 last year to 81. As well as that, in order to attract and retain the best talent, we need to pay a competitive wage in this market. On the other admin costs, we saw an increased spend of 19.3%, with the largest single feature being one of those strange situations where it's a good thing to pay an increased cost. And that's because our recruitment costs increased by 0.5 million this year. That was a feature of a number of lawyers coming through our recruitment channel, the recruiters, where we pay our recruiters a percentage with reference to the size of the practice that they bring with them. So larger practices resulted in a higher cost there. Over and above this, the other main drivers really were the cost of investment in IT, the ongoing costs of the refresh, and also just the general growth in the business. So many of our costs are semi-variable or variable, linked with the activities we carry out. As a result of all of this, our adjusted PBIT increased 11.4% to 12.9 million on a margin of 11.2%. And this year we have benefited from renegotiation in the first half of the year of interest rates with the banks, meaning that we are getting, as interest rates have started to fall, we're getting a better share of the interest rate. Consequently, we've seen a step up there. And that's left our adjusted PBT increase of 20.6%. to 15.3 million or a margin of 13.3%. The balance sheet of the business is very clean and very straightforward. Our cash position is strong and we're debt free. The alignment of interest we have with our lawyers because of the pay when paid model means that working capital lock up in the business is minimal and debtor days were 35 at the year end compared to 34 the year before. We also, because of this pay when paid, have a significant interconnectivity between the debtor balances and our creditor liabilities with 23 million of the trades and other payables only payable upon receipt of funds to Keystone. On the provisions, it's important to recognise that whilst as required by governance, we disclose the under professional indemnity provision, we disclose the gross liability. We also have a corresponding asset being the amount we'd recover under our insurance. and consequently the net increase of the position year on year was only £75,000. The intangible assets on the balance sheet are a reflection of a PE structure of a deal done in October 2014 before we came to market and therefore have nothing really to do with trading. The cash flow again just demonstrates the strength and the high quality of the earnings we have with the conversion into cash very significant. Operating cash conversion has already been mentioned before. This year, we've seen the net interest flow through from the P&L account comes through into an increase in the cash flow. And really across a number of lines, such as corporation tax, capex and lease payments, this year is a return to a normal run rate where we'd have distortions in 2025. So on the corporation tax, 2025 was a year we transitioned through to paying all corporation tax in year, which meant we last year paid six quarterly payments as opposed to four. On the capex, again, last year we had a significant outlay in terms of the fit out of our offices upon signing our new leases. So that refit cost was a one-off last year, and we've reverted to our normal levels this year of about 0.1 of capex. And likewise, the lease payments this year are the normal run rates, with last year benefiting from a rent-free period upon resigning of the leases. The dividends this year, the cash flow impact was larger than the previous year, and that's really a factor not only of the progressive dividend, but also the payment of the special dividend that we paid during the year declared this time last year of 4.7 million pounds.