Keystone Law : Full Year results for the period ending 31 January 2023

24 April 2023

Keystone Law Group Plc

('Keystone', the 'Group' or the 'Company')

Full year results for the period ended 31 January 2023

Sustained financial and operational growth underpinned by Keystone's unique model and technology platform

Keystone, the network and tech-enabled challenger law firm, is pleased to announce its full year results for the year ended 31 January 2023 ("FY 2023").

Financial Highlights:

• Revenue growth of 8.1% to £75.3 million (2022: £69.6 million)
• Revenue per Principal up 4.1% to £190k (2022: £182.5k)
• PBT of £8.4 million (2022: £8.4 million)
• Adjusted PBT of £9.2 million, up 6.3% v Underlying Adjusted PBT 2022 of £8.7 million (1)
• Adjusted basic EPS of 24.2 pence, up 2.5% from 23.6 pence
• Strong operating cash conversion at 96.5% with cash generated from operations of £9.3 million (2022: £10.0 million); the Group remains debt-free
• Proposed final ordinary dividend of 10.9p (2022: 11.2p), bringing total ordinary DPS for the year to 16.1p (2022: 15.7p)

1. Adjusted PBT in 2022 (£9.1m) was enhanced by approximately £0.4m from impact of Covid-19 and related restrictions, excluding these underlying adjusted PBT was c£8.7m and Underlying adjusted PBT margin would have been 12.5%

Operational Highlights:

• Registered 232 qualified high-calibre new applicants (2022: 228) against a backdrop of a highly competitive recruitment market
• 32 Principals joined across FY 2023, increasing the number of Principals to 398 (2022: 394)
• Total fee earners increased to 507 (2022: 481)
• Delivered of a full programme of face-to-face networking and social events, which form such an essential part of our DNA, enhancing both the professional and personal experience of those working at Keystone
• Continued investment in our central office team, ensuring that the service delivery ethos and level of support enjoyed by our lawyers remains second to none
• Ongoing investment in technology platform:

1. designing and building proprietary pitch creation tool to enable our lawyers to produce personalised pitches quickly and easily

1. developing bespoke tool to drive greater operational efficiency in preparation and submission of applications to legal directories

Current Trading and Outlook:

• Keystone has made a positive start to the current financial year, with levels of client demand remaining strong
• Conditions in the recruitment market are starting to change as demand for lawyers is falling from the exceptional levels experienced in recent years. However, candidates still cautious of change
• The Board remains confident that FY 2024 will be another good year.

James Knight, Chief Executive Officer of Keystone, commented:

"Keystone has delivered another strong financial performance; growing revenue, increasing underlying profits and generating strong cashflow. Our unique business model continues to appeal to the high-calibre candidates we seek to recruit and, in what has been a highly competitive recruitment market, we have continued to grow our lawyer base.

The new financial year has started well. We have started to see demand for recruitment of lawyers across the industry cooling slightly from exceptional levels, and I am confident that as the year progresses, we will see traditional push factors generating increased candidate flow which will further support our growth."

Analyst Briefing

A meeting for analysts will be held virtually at 9.30am this morning. Analysts wishing to attend this event can register via email at keystonelaw@vigoconsulting.com.

Retail Investor Presentation

Keystone Law's management team will provide a separate presentation and Q&A for investors at 1.00pm on Wednesday, 26 April 2023.

The presentation will be hosted on the Investor Meet Company digital platform, where questions can be submitted pre-event up until 9.00am on the day before the meeting, or at any time during the live presentation.

To sign up to IMC, please visit:

www.investormeetcompany.com/keystone-law-group-plc/register-investor

For further information please contact:

Keystone Law Group plc

James Knight, Chief Executive Officer Ashley Miller, Finance Director www.keystonelaw.com

+44 (0) 20 3319 3700

Panmure Gordon (UK) Limited (Nominated Adviser and Joint Broker)

Dominic Morley (Corporate Finance)

Rupert Dearden (Corporate Broking) www.panmure.com

+44 (0) 20 7886 2500

Investec Bank plc (Joint Broker)

Carlton Nelson

James Rudd www.investec.co.uk +44 (0) 20 7597 5970

Vigo Consulting (Financial Public Relations) Jeremy Garcia / Charlie Neish / Kate Kilgallenkeystonelaw@vigoconsulting.com

+44 (0)207 390 0233

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR").

Notes to editors

Keystone (AIM: KEYS), is an award-winning, UK Top 100, law firm, providing conventional legal services in a £10bn addressable market through its scalable and unique model, with three defining characteristics:

• Lawyers have freedom, flexibility and autonomy, and are paid up to 75% of what they bill.
• Lawyers determine how, when and where they work, in contrast to the conventional law firm model.
• Lawyers are provided full infrastructure and support via its central office team, bespoke user-friendly IT platform, and network of colleagues and events.

Keystone is a full-service law firm, with 20 service areas and more than 50 industry sectors delivered by nearly 400 high-calibre self- employed Principal lawyers who work from their own offices.

In November 2020, Keystone was named Law Firm of the Year by The Lawyer, the first time a 'new' law firm has won the award.

More information about Keystone can be found at www.keystonelaw.co.uk.

CHAIRMAN'S STATEMENT

I am pleased to introduce Keystone Law's results for the year ended 31 January 2023.

Keystone has continued to perform well, delivering another strong set of financial results with revenue growing 8.1% to £75.3m (2022: £69.6m), and adjusted PBT(1) increasing to £9.2m representing an adjusted PBT margin of 12.3% (2022: £9.1m, 13.0%,having benefitted from cost savings of c£0.4m). Cash generation, a key feature of the business model, has remained strong, with cash generated from operations of £9.3m (2022: £10.0m) representing an operating cash conversion of 96.5% (2022: 102.7%).

1. Adjusted PBT is calculated by adding share based payment costs and amortisation of intangible assets to PBT. Details of these calculations are shown in the Financial Review.

DIVIDEND

In accordance with the Group's established dividend policy, the Board is proposing to pay a final ordinary dividend for the year ended 31 January 2023 of 10.9p per share (2022: 11.2p), bringing the total ordinary dividend for the year to 16.1p (2022: 15.7p).

OUR PEOPLE

On behalf of the Board, I would like to thank all of our Central Office team for their constant efforts. Their professionalism and commitment underpins the success of Keystone and, during the year, we have continued to invest in the team to ensure that the highest standards of professional support which we provide to our lawyers is maintained as we grow. In a period of such high demand for legal services, it is, of course, the efforts of our lawyers which have contributed strongly to these results and we also thank them for their ongoing commitment and dedication to their clients.

BOARD AND GOVERNANCE

The Board has continued to operate within the structures and governance requirements of the Quoted Companies Alliance ("QCA") Code as set out in the corporate governance section of the annual report.

Simon Philips has now been on the Board for over eight years, having joined in October 2014, when Root Capital (later rebranded ScaleUp Capital) invested in Keystone and, as recently announced, he has decided to step down following the announcement of these results.

Salar Farzad has recently been appointed to the Board as Non-executive Director, serving as a member of the various committees of the Board, and, following Simon's resignation, he will assume the role of Chair of the Audit Committee.

On behalf of the Board, I would like to express my thanks to Simon for the significant contribution he has made during his tenure and to welcome Salar to the Board.

OUTLOOK

I am pleased to say that the current year has started well. Although the outlook for the UK economy remains somewhat uncertain, we are confident that Keystone will continue to grow and carry on delivering strong results.

Robin Williams

Non-executive Chairman

24 April 2023

CHIEF EXECUTIVE'S REVIEW

INTRODUCTION AND HIGHLIGHTS

I am very pleased to be able to report another strong set of results for Keystone.

2023 has been a second consecutive year of strong client demand across the legal industry and our lawyers have taken full advantage of this situation to help drive increased revenue per Principal, thereby ensuring that Group revenue has increased by 8.1% to £75.3m (2022: £69.6m), whilst adjusted PBT increased to £9.2m (2022: £9.1m, having benefitted from cost savings resulting from the Covid-19 restrictions preventing face to face activities (PBT £8.3m, 2022: £8.3m)). The cash generative nature of the model has continued strongly, with cash generated from operations of £9.3m (2022: £10.0m), leaving the business with a closing cash balance of £9.2m.

Despite the very competitive legal recruitment market, we have ended the year with 398 Principals* (2022: 394) and a total of 507 fee

earners (2022: 481).

• 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 is 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 interviewed and fully 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.

THE RETURN OF FACE-TO-FACE NETWORKING

It has been a great benefit that we have been able to resume our programme of face-to-face networking and social events for our lawyers and clients this year. During lockdown, we had been unable to deliver a full programme of such events, and, whilst we had successfully used technology to meet many of the needs that in person events engender, there can be no doubt that the full potential of these activities is best achieved when people are physically together.

The Keystone events programme forms an essential part of our DNA, providing opportunities for our lawyers to come together to build and develop the bonds of collegiality and friendship, which enhance both the professional and personal experience of those working at Keystone.

The intangible value of our culture is essential in attracting and retaining high-calibre lawyers seeking to build and develop their practices, whilst benefitting from the positive impact on their lives that working in such an environment has; it is one of the main reasons why our lawyers are so evangelical about Keystone. The culture is a living and breathing facet of the business, which we nurture and grow, and the events provide the forum for our lawyers to experience this first-hand, whilst themselves contributing to its continuing growth.

The events address a multitude of professional and personal needs for our lawyers, ensuring that they know their colleagues extremely well, fomenting an environment in which work is cross-referred.Multi-lawyer and multi-disciplinary teams come together to work harmoniously to fulfil the needs of our clients, something which is demonstrated by the fact that over 30% of work is cross-referred.

HIGHLY COMPETITIVE LEGAL RECRUITMENT MARKET

Our strategy remains clear and simple: to drive growth organically through recruitment of high-calibre lawyers from across the mid- market segment of the UK legal services industry, whilst supporting those who join us to build and develop their practice, enabling them to focus exclusively on client development and legal work.

This year, client demand across the legal industry has remained strong and the most apparent impact of this has been the increased revenue per Principal (£190.0k, 2022: £182.5k), which has been the key driver of our revenue growth. This demand has also impacted the legal recruitment market on both the demand and the supply sides. On the demand side, most law firms across the sector have been actively recruiting in order to fulfil the client demand, which has led to significant wage inflation as firms have competed for talent by offering substantial pay packages. This, in turn, has created a candidate led market, where the balance of power has shifted towards employed lawyers who are presented with a variety of options forcing law firms to be more aggressive when it comes to retaining lawyers by actively buying candidates back in.

On the supply side, many of the push factors, which in normal times cause lawyers to seek change, have been absent. The significant demand has meant that lawyers have had less difficulty in hitting targets, wage inflation has meant that they are better rewarded for the work they do, and, with the balance of power in their favour rather than the employers, they have been able to avoid politics and resist pressures to return to offices which would otherwise, probably, have been brought to bear. Whilst it is very difficult to predict timing, we do not believe that these factors will continue indefinitely.

Overlaid onto these factors, the instability in the UK macroeconomic climate created an environment in which candidates were less likely to seek change and this also impacted candidate flow during the second half of the year.

Throughout this, Keystone has remained an attractive and competitive proposition for potential candidates, having received 232 qualified applicants in the period (2022: 228) and made offers to 79 candidates (2022: 76) with 42 candidates accepting offers (2022: 56).

CONTINUING INVESTMENT IN IT

It has been another busy year for the team as they have worked to deliver continual functional improvements and operational enhancements across our proprietary software platform ("Keyed-In) and the wider IT estate.

Over and above the day-to-day enhancements and improvements, the team also delivered some larger projects focused on the simplification and automation of tools used by our lawyers in their marketing initiatives. This included designing and building a proprietary pitch creation tool so that lawyers can prepare highly professional, effective and personalised pitches quickly and easily. Another project was the development of a bespoke tool to drive greater operational efficiency into the process of preparing and submitting applications to the legal directories, a project which was nominated for Best Use of Technology in the Modern Law Awards.

OUR CENTRAL OFFICE TEAM BENEFIT FROM ONGOING HOME WORKING

As always, the Central Office team has provided outstanding support to our lawyers throughout the year. This support, and the manner in which is delivered, is another key tenet of Keystone's success. The team is committed to providing excellent service to our lawyers, whom we consider, in many ways, to be our clients, such that the service delivery ethos is second to none. This dynamic is radically different to that experienced by many lawyers in conventional law firms and is another feature of the Keystone model which attracts and retains our lawyers.

LOOKING AHEAD

The Group has made a positive start to the year as our lawyers have remained busy meeting client demand. Conditions in the recruitment market have started to change, with demand for lawyers falling from the extremely high levels experienced last year. On the supply side, the market remains tight as candidates continue to be cautious and those push factors, which generally encourage increased movement, are yet to have a significant impact. We believe, that as the year progresses, demand on the recruitment front will continue to tighten and we will see an increased candidate flow, which will further help Keystone grow its Principal numbers. Overall, we are confident that 2024 will be another good year for Keystone.

James Knight

Chief Executive

24 April 2023