Annual Report
and Accounts
for the year ended 31 January 2018
Fast growing, profitable
and cash generative,
Keystone Law is disrupting
the traditional legal market.
Contents
Strategic Report
Chairman’s Statement
Market Review
Chief Executive’s Review
Financial Review and Strategic Report
Principal Risks and Uncertainties
Governance
The Board of Directors
Corporate Governance Statement
Directors’ Report
Directors’ Responsibilities statement
1
2
4
6
8
10
12
15
17
22
18
Our Financials
Independent Auditors’ Report
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
23
Company Statement of Financial Position 24
Consolidated Statements of
Changes in Equity
Company Statements of
Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Notes to the Financial Statements
26
27
28
29
25
Highlights
Revenue
£m*
20.89
16.13
31.60
25.56
15
16
17
18
Underlying EBITDA & Operating Cashflow
£m*
3.3
2.8
2.3
2.0
1.7
1.2
16
16
17
17
18
18
Operating Cashflow EBITDA
1.0
15
0.5
15
Lawyer Numbers
266
248
228
208
177
168
146
143
134
140
101
105
117
Jan-
12
Jul-
12
Jan-
13
Jul-
13
Jan-
14
Jul-
14
Jan-
15
Jul-
15
Jan-
16
Jul-
16
Jan-
17
Jul-
17
Jan-
18
* Underlying EBITDA for 2018 is calculated by adding flotation costs back to EBITDA.
For 2017 one off costs arising from the relocation of the central office have been
added back to EBITDA. Details of these calculations are shown in the financial review.
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 STRATEGIC REPORT
CHAIRMAN’S STATEMENT
PEOPLE
Keystone’s people are at the very heart of the success of
the business. Its unique culture and ethos are core elements
of its ongoing success and the Board recognises that these
essential elements must continue to be a core focus, so that
what makes the business special today will continue into
the future. Keystone aims to provide not only a platform
through which its people can excel professionally but also
an environment in which they can do so enjoyably. I would
like to take this opportunity to thank the entire Keystone
community for their ongoing commitment in making the
Group the success which it is today.
OUTLOOK
This is an exciting time for the business, the market
opportunity is substantial and the business is well structured
with a clear growth strategy to build on the strong business
performance that these maiden results reflect.
Robin Williams
Non-executive Chairman
24th April 2018
I was delighted to be appointed Chairman in October 2017,
ahead of the successful admission of the Group to AIM
on 27 November 2017 and, on behalf of the Board, I am
pleased to introduce Keystone Law’s maiden results as a
listed company.
The Group has continued to perform strongly this year
with a 23.6% increase in revenue to £31.6m (2017:
£25.6m) and an increase in underlying EBITDA* of 42.7%
to £3.27m (2017: £2.29m) (EBITDA increase of 28.8% to
£2.7m from £2.1m), whilst underlying EBITDA margin has
increased from 9% to 10.3% (EBITDA margin 8.4% up from
8.1%). The business has also continued to be strongly cash
generative, with underlying operating cash flow of £2.8m
(2017: 2.0m) representing an operating cash conversion of
86% (2017: 88%).
ADMISSION TO AIM
Keystone Law’s admission to AIM was a significant step
in the development of the business. The response to
the admission was positive, with demand exceeding the
targeted raise of £10m. In response to this demand existing
shareholders agreed to sell down some shares. As such,
the float raised £15m which was satisfied by a new issue of
£10m and £5m sell down. We are delighted to have brought
on board supportive institutional shareholders and are
confident that Keystone is well placed to exploit the market
opportunity which exists today within the legal sector.
DIVIDEND
As indicated at the time of the float, the Board is proposing
to pay a dividend in respect of the post admission period.
The proposed dividend this financial year is, therefore,
0.84p per share.
BOARD AND GOVERNANCE
The Board has been reorganised this year to better reflect
the Governance requirements of a listed business. As
such, in October 2017, Simon Philips stepped down as
Non-executive Chairman whilst continuing to be a valued
member of the Board as a Non-executive Director and
Chairman of the Remuneration Committee and member
of the Audit Committee. At the same time, I joined the
Board as Non-executive Chairman and Peter Whiting
joined as Senior Independent Director. Peter also Chairs
the Audit Committee and is a member of the Remuneration
Committee. The executive members of the Board are James
Knight, founder of the business and Chief Executive Officer
and Ashley Miller as Finance Director.
As a Board we acknowledge the importance of high
standards of corporate governance and we intend to apply
the Quoted Companies Alliance (“QCA”) Code which sets
out the standard of best practice for small and mid-size
quoted companies.
* Underlying EBITDA for 2018 is calculated by adding flotation costs
back to EBITDA. For 2017 one off costs arising from the relocation of
the central office have been added back to EBITDA. Details of these
calculations are shown in the financial review.
25973 16 May 2018 12:21 PM Shell
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018
01
STRATEGIC REPORT MARKET REVIEW
THE COMPOSITION OF THE UK LEGAL SERVICES MARKET
The UK Legal Services Market
The UK legal market is the second largest
in terms of fee income in the world,
representing approximately ten per cent.
of global legal services, with annual fee
revenue of £30.9 billion in 2014/15.
The UK is the largest legal market in Europe, second only
to the US worldwide and is globally recognised as the
most international due to the widespread use of English
law as the framework for international commercial
contracts and dispute resolution.
The U
15
LARGEST
UK LAW
FIRMS
£14.7 billion in
annual revenue
K L
e
g
al
S
e
r
v
i
c
e
s
M
a
r
k
e
t
–
£
3
‘HIGH
STREET’
LAW FIRMS
£7.4 billion in
annual revenue
0
.9 billion in annual fee r e v e n
s
e
u
‘MID-MARKET’
LAW FIRMS
£8.8 billion in
annual revenue
The “mid-market” (the largest 200
law firms in the country (including
Keystone) excluding the global
elite): these firms account for
£8.78 billion annual fee income
and employ approximately 47,000
fee earners (average revenue per
fee earner of £185,500) (Source:
The Lawyer Top 200, 2017).
The “global elite” (the Magic Circle
and Silver Circle firms and others
that together make up the 15 largest
UK firms by annual revenue): these
firms focus on delivering complex
legal services to the largest global
businesses, generating in aggregate
£14.67 billion annual fee income
and employing over 39,000 fee
earners, with an average revenue
per fee earner of approximately
£374,000 (Source: The Lawyer Top
200 2017).
The “high street” market: this
category covers the rest of the
market and accounts for £7.45
billion revenue across 13,000 firms
and employs approximately 27,000
lawyers, with the total number of
fee earners being unavailable.
Increasing complexity
The UK market operates under three different regulatory
environments, covering England and Wales (89.7 per cent.
of the UK market by value), Scotland (8.9 per cent.) and
Northern Ireland (1.4 per cent.). The Legal Services Act
2007 introduced pivotal reforms liberalising the market
in England and Wales which, through the creation of the
ABS structure, allowed ‘non-lawyers’ to own and act in
management capacities within law firms. These reforms have
not been adopted in Northern Ireland, nor fully adopted in
Scotland, where legal practice ownership remains restricted
to members of those countries’ regulatory bodies.
The UK market is diverse, comprising approximately 10,500
law firms nationwide in 2014 (source: SRA website) and
around 91,000 solicitors acting in private practice. Despite
this, the Directors believe that the overall market can be
broadly divided into three segments:
02
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018
THE MID-MARKET LAW FIRM MARKET
• Changes to legislative framework – The Legal Services
Act 2007 has allowed for changes to the delivery of legal
services, resulting in both new entrants to the market and
the creation of new business models which challenge the
longstanding models of the traditional law firms. Prior to
the Legal Services Act 2007, equity partnership was the
only basis on which a lawyer could access the highest
level of remuneration within a law firm.
• Increasing commodisation of services – The broader
development and use of technology to deliver
everyday services across the UK economy has meant
that the services offered are more widely available
and opportunities for differentiation more limited.
This has resulted in increasing client pressure on fees
and producing a marked shift in legal services pricing
mechanisms expected by clients.
• Macroeconomic climate – The last decade has been a
challenging time for the UK economy as a whole. Within
the legal market this has manifested itself in increased
pressure from clients on fees; at the same time businesses
have continued to suffer from inflationary pressure
on costs, especially property costs which represent a
substantial part of the cost base of most traditional law
firms. This has resulted in a long term squeeze on profits
for law firms operating in the “mid-market”.
IMPACT ON TRADITIONAL LAW FIRMS
• Increased billing targets – Within the traditional firms,
the most common response has been to demand
greater effort from those in senior associate and junior
partner roles to deliver more revenue per head and drive
business development whilst still retaining a high level of
managerial responsibility.
• Reduction in appeal of equity partnership – Much of
the historical appeal of equity partnership has reduced,
with many junior partners no longer seeing the merits
traditionally associated with that form of ownership.
The cost of buying into partnerships is high and reduced
profits in conventional mid-market law firms have
meant that the return on equity invested is no longer as
attractive as it was. Furthermore, with several high profile
law firm insolvencies in recent years and the associated
equity losses and personal liabilities for the equity
partners involved, partnership of a mid-market law firm is
no longer necessarily regarded as a secure investment.
OPPORTUNITY FOR KEYSTONE LAW
These dynamics have resulted in a significant number of
experienced but dissatisfied lawyers across the UK mid-
market seeking alternative ways to practise law.
The Directors believe that, as a result of these trends, the
UK legal services mid-market offers significant opportunity
for an alternative model law firm such as Keystone’s.
COMPETITIVE LANDSCAPE
Keystone was one of the first to establish this model and,
as such, has early mover advantage over other businesses
which have started to emerge and sought to replicate the
Company’s growth and performance through the operation
of similar business models.
The Directors are currently aware of at least 20 other such
firms (none of which was included in The Lawyer UK Top
200 2017 rankings), with approximately 800 consultant
lawyers in aggregate.
Whilst Keystone is widely considered the market leader
amongst these firms (as evidenced by the fact that it is the
only one to be placed in The UK Top 100), the Directors
believe that the Group’s opportunity exists across the entire
mid-market, as Keystone’s lawyers typically join from the
conventional firms operating in this segment of the market.
THE MARKET IS SUBSTANTIAL
AND DEVELOPING IN A WAY
WHICH MAKES KEYSTONE’S
BUSINESS MODEL INCREASINGLY
ATTRACTIVE TO QUALITY
LAWYERS AND THEIR
VALUABLE CLIENTS
James Knight
03
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018STRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW
Operational Review
INTRODUCTION AND HIGHLIGHTS
This year has been another successful twelve months of
profitable growth for Keystone. Financially, revenue has
grown 24%, profit margins have continued to increase and
cash generation has been strong. Keystone has continued
to demonstrate that it is an extremely attractive proposition
for both clients and those lawyers who work within the UK
legal “mid-market”. Our client base has developed strongly
with those new clients being spread evenly across all the
sectors in which we operate. The quantity of applicants who
are looking to join Keystone has continued to grow and
the calibre of lawyers accepted into the firm has remained
extremely high.
We have also received significant external recognition
this year. We broke into The Lawyer Magazine’s list of the
Top 100 UK law firms (based on revenue) and into Legal
Week magazine’s Best Legal Advisers Report 2016-2017
(published in 2017 and based on client feedback) where
we were the only firm to be ranked in the top five of all
categories surveyed. These accolades are highly gratifying
as they recognise both the growth of the firm as well as the
quality of the client service we deliver. The year culminated
with our admission to AIM, which was extremely successful,
a result which endorsed our own confidence in the strength
and potential of the business and the market opportunity
which exists.
KEYSTONE’S STRATEGY AND
DELIVERY AGAINST IT
As communicated at the time of the AIM listing, Keystone’s
principal strategy is to grow the business organically
by attracting quality lawyers who have strong client
relationships and the skills to win business. The level of
support and infrastructure provided by Keystone, combined
with the freedom, flexibility and remuneration engendered
by its business model is highly attractive to UK lawyers,
a circumstance that we believe will continue to develop
further.
We have had another extremely active year on the lawyer
recruitment front, and I am happy to report that the number
of qualified new applicants which we received has increased
by 24% year on year, whilst the number of candidates
accepting offers has increased by 15%. As a result of this
the total number of fee earners has gone up from 228
to 266 and we start the new financial year with a strong
pipeline of applicants for the coming year.
As ever, recruitment has been driven across a broad front
using all suitable channels to market. The direct channel
(applicants applying directly to the business in an unsolicited
manner) once again contributed the largest share of new
applicants and the team has worked consistently to drive
targeted marketing campaigns towards relevant lawyers
employed by conventional law firms. The success of the
“Quit the Circus” campaign which ran through the summer
and autumn period not only drove a significant uplift in new
applicants but also won “Marketing Campaign of the Year” at
the Modern Law Awards.
OUR GREATEST ASSET IS OUR
PEOPLE AND OUR EXISTING
LAWYERS ARE OUR GREATEST
AMBASSADORS.
04
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018
CHIEF EXECUTIVE’S REVIEW
Our greatest asset is our people, and our existing lawyers
are our greatest ambassadors. Introductions of new
applicants by lawyers who are already at the firm have
continued to grow this year, reflecting the confidence our
existing lawyers have in the Keystone model. Over the years
Keystone has developed its own culture and personality, one
where hard work and success lives in harmony alongside
happiness and job satisfaction. I would like to take this
opportunity to thank Keystone’s lawyers for their continuing
commitment to Keystone and all that it stands for.
The overall strength of the Keystone brand is crucial in
attracting and retaining both clients and lawyers. I firmly
believe that our admission to AIM has enhanced and
strengthened that brand and that this will help support our
ambitious growth plans.
INVESTMENT IN INFRASTRUCTURE
KEYED IN
Keyed In is the proprietary software platform at the heart
of Keystone. It supports and facilitates our lawyers in their
work and it is the key interface between them and the
administrative team based in the central office. Whilst the
continual development and improvement of our systems is
a core function at Keystone, this year we have developed
and released a completely new version of Keyed In. Built on
the success of the existing platform but redeveloped using
“best in class” open source software, the new platform is
more efficient and easier to support and enhance and as
such both facilitates growth and also reduces risk to the
business. The latest version of Keyed In not only provides
the business with a modern and scalable platform which will
support the growth plans of the business into the future but
also facilitates our lawyers to be even more productive in
how they work with the ability to access it from any device
including mobile phones and tablets.
This has been an important and significant project which has
been successfully delivered and I would like to thank all of
those who have been involved in making this happen.
CHANCERY LANE OFFICE
This has been the first full year of operating from our new
offices in Chancery Lane. The move to Chancery Lane was
an important step for Keystone, ensuring that the physical
presence of the firm matched the expectations of its
clients and lawyers whilst providing a pleasant and efficient
working environment for the central office team. The new
offices are perfectly situated, placing Keystone right in the
heart of the legal world. The facilities available for the clients
and lawyers are entirely appropriate for the successful “mid-
market” law firm we are today and a suitable platform for
the business over the coming years.
CENTRAL OFFICE TEAM
It has also been another busy year for all of those in the
central office team. As a team we remain committed to
delivering the highest level of service to our clients and
lawyers. It is the delivery of these services which make it
possible for the lawyers to focus on delivering high quality
legal work to many thousands of important clients. There are
many individual achievements across the teams but for now
I would just like to thank the whole central office team who
have worked tirelessly to help us achieve another successful
year.
LOOKING AHEAD
This is a truly exciting time for Keystone. The market sector
in which we operate is substantial and developing in a
way that makes Keystone’s business model increasingly
attractive to quality lawyers and their valuable clients. As
technological advances continue to fuel the demand for
flexible and mobile working solutions, Keystone’s first mover
advantage puts us in an excellent position to benefit from
the significant cultural changes now taking place within the
legal profession.
The current year has started well and is in line with the
Board’s expectation and we look forward to another year of
sustainable organic growth.
James Knight
Chief Executive
24th April 2018
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018
05
STRATEGIC REPORT FINANCIAL REVIEW AND
STRATEGIC REPORT
KEY PERFORMANCE INDICATORS (KPI’S)
The following KPI’s are used by the management to monitor
the financial performance of the Group.
Revenue Growth: 23.6% increase
Underlying EBITDA growth: 42.7% increase
Underlying EBITDA %: 10.3% (2017: 9%)
EBITDA growth: 28.8% increase
EBITDA %: 8.4% (2017: 8.1%)
Underlying operating cash conversion %: 86% (2017: 88%)
Trade debtor days 42 (2017: 41)
Net Assets: £12.6m (2017: £1.5m)
The calculation of underlying EBITDA is shown below.
INCOME STATEMENT
I am pleased to report revenue for the year of £31.6m; an
increase of 23.6% on the prior year. Revenue growth has
been driven by the lawyers recruited last year contributing
a full year of productivity as well as contributions from the
lawyers who have been recruited during this year, with
lawyer numbers increasing from 228 to 266.
GROSS PROFIT
The gross profit margin of the business has increased this
year to 27.6% (2017: 25.7%). At the end of last financial
year, the business reviewed the remuneration structure
of the lawyers. Prior to this point, there had been certain
circumstances under which Keystone paid out more than
75% of fees earned to lawyers; with effect from 1 February
2017 a change was made so that Keystone always earns
at least a 25% gross margin. The financial effect of these
changes has been to increase the underlying margin of
the business by just over 1%. The remaining increase in
gross margin has been driven by a growth in the revenue
generated by the employed in house fee earners as well
as margin only income which the Group receives from
operations in the Isle of Man.
OVERHEAD COSTS
This year, there have been two events which have caused
the overhead base of the business to step up; the move to
our new offices in Chancery Lane (£0.15m) and the change
from a Private to a Public Company (£0.2m). Excluding
these, overheads (excluding exceptional costs), increased
by 20.9%.
EBITDA
In assessing the performance, the business uses an adjusted
EBITDA as a KPI as this excludes items which are non-
recurring in nature. Below is a table which shows how
EBITDA is adjusted to arrive at the underlying EBITDA.
EBITDA
Flotation costs
Double run of property
Dilapidations provision
2018
£’000
2,666
604
–
–
2017
£’000
2,069
–
147
75
Underlying EBITDA
3,270
2,291
Underlying EBITDA has increased by 42.7% to £3.3m
(2017: £2.3m). The continued operational gearing in the
business has meant that underlying EBITDA margin has also
risen to 10.3% (2017: 9%).
FLOTATION COSTS
On 27th November 2017 the Group was successfully
admitted to AIM. The total cost directly attributable to the
transaction was £1.1m of which £0.5m has been allocated
to share premium and the balance being charged as a cost in
the period.
06
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018
25973 16 May 2018 12:21 PM Proof 9
TAXATION
The effective tax rate of 17.8% is lower than the standard
rate and that of the prior year (27.8%) due to the impact of
certain non-recurring items. There have been three items
which are non-recurring in nature this year; the exceptional
costs associated with the successful AIM listing, the
deduction of interest on loan notes which was previously
disallowed but are allowable this year as the interest
has been paid and an additional R&D tax credit for the
development work on Keyed In. Excluding these items, the
underlying effective tax rate would have been 20.8%.
NET ASSETS
The net assets of the Group have improved from £1.5m to
£12.6m. This has been predominantly caused by the funds
raised on listing.
DIVIDEND
The Board is recommending a final dividend of 0.84p
per share. The proposed final dividend will be payable on
2 July 2018 to shareholders on the register at the close of
business on 15 June 2018. The shares will go ex-dividend
on 14 June 2018.
At the time of the admission to AIM, the Board indicated
that it aimed to pay a dividend equivalent to 2/3rds of
post-tax profits for the year ending 31 January 2019 and
that it would pay a dividend in respect of the post admission
period on a similar basis. The total dividend proposed for the
year ended 31 January 2018 is equivalent to 18.08% (being
the proportion of the year post admission) of 2/3rds of the
post-tax profit (pre-flotation costs)
On behalf of the board
Ashley Miller
Finance Director
24th April 2018
EARNINGS PER SHARE
The underlying basic earnings per share, based on the
weighted average number of shares of 26.3m shares (2017:
25.0m shares adjusted for the bonus issue and share
consolidation in the year) was 12.4p per share (2017: 7.6p).
Underlying earnings are stated after adding back flotation
costs in 2018 and one off costs arising from moving offices
in 2017 as well as amortisation in both years. Whilst basic
earnings per share (being net profit for the year divided by
the number of shares used above) has increased from 3.5p
to 6.0p. Had the earnings per share been calculated against
the closing number of shares (31m) then the underlying
earnings per share would have been 8.1p per share.
STATEMENT OF FINANCIAL POSITION
CASH
The Group’s business model is strongly cash generative
due to its most significant cost, the fees paid to lawyers,
only being paid once Keystone has been paid for the work
they have delivered. As such, underlying operating cash
conversion for the year was 86% (2017: 88%) generating
underlying operating cash flow of £2.8m (2017: £2.0m).
Capital expenditure was £0.03m and corporation tax
payments were £0.5m. The successful AIM listing raised
£10m which , as indicated at the time of the admission, was
used to pay down the Group’s debt to leave the business
debt free and to cover the costs of the IPO (£0.2m of which
remain unpaid at the year end). As such, as at 31 January
2018, the Group has no debt and a cash balance of £3.6m.
07
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018STRATEGIC REPORT PRINCIPAL RISKS AND
UNCERTAINTIES
The Corporate Governance Report includes an overview of the Group’s approach to risk management and internal controls.
Set out below are the principal risks and uncertainties that the Group faces and the activities designed to mitigate these
risks. The Board recognises that the nature and scope of risks can change and that there may be other risks to which the
Group is exposed and therefore the list is not intended to be exhaustive.
LITIGATION,
PROFESSIONAL
LIABILITY AND
UNINSURED RISKS
REGULATORY RISK
AND COMPLIANCE
RISKS
Risk
Due to the nature of a law firm and its role
of providing legal advice, the Group remains
susceptible to potential liability for negligence,
breach of contract and other client claims. From
time to time, in the ordinary course of business,
Keystone receives claims of professional negligence
which it notifies to its insurers. Any potential claim
may be expensive to defend, divert the time and
focus of management away from the Group’s
operations and may result in the Group having to
pay substantial monetary amounts, any of which
could impact on the reputation of the Group and
result in a material adverse effect on Keystone’s
business and overall financial condition.
The Group, like most businesses is subject to a
range of regulations. Failure to comply with these
could have significant implications for the business
ranging from reputational damage to criminal
prosecution and sentencing.
PERSONNEL
For any business, personnel is a particularly
prominent asset heavily contributing to its strength
and attractiveness. The Group is heavily reliant on
its lawyers to attract new clients and also maintain
relationships with existing clients. If the Group were
to lose the services of key lawyers with high client
retention rates, or cease to be able to attract new
lawyers, this could significantly impair the strategy
and success of the firm from both a reputational
and financial standpoint.
Mitigation
We have a robust compliance and
risk management team which focuses
on supporting lawyers to reduce the
risk that such issues may arise and to
the extent that they do arise we seek
to mitigate any such risk by carrying
professional indemnity insurance with
a cap of £30 million.
The business has an experienced
and robust compliance and risk
management team which oversees
the Group’s policies and procedures
ensuring that they meet the relevant
regulatory requirements. The Group
uses technology to support and drive
compliant behaviour and to help the
team to focus on areas of potential
risk. Furthermore, the team calls upon
external professional advice where
needed to ensure that the business
meets its compliance and regulatory
obligations.
The Group invests considerable
time and effort in working to attract
high quality new lawyer as well as
focusing on ensuring that all lawyers
feel a part of the Keystone “family”.
Furthermore, management continue
to monitor the characteristics of
the Keystone model to ensure that
they remain commercially compelling
and attractive to both existing and
potential Keystone lawyers.
08
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 Risk
Mitigation
CONTRACTUAL
ARRANGEMENTS
WITH LAWYERS
COMPETITION
Keystone’s lawyers are self-employed, contracting
with the Group predominantly via personal
service companies. The self-employed status of
the Group’s consultants is based not only on the
contractual structure but also on the way in which
the arrangements operate in practice. There is a
risk that some of the consultant lawyers may be
deemed to be workers or employees, and as such,
would be entitled to additional benefits including,
but not limited to, paid annual leave and sick pay. If
this were to occur then in addition to the rights for
workers, such lawyers would gain rights for unfair
dismissal. If the consultant lawyers were deemed
to be employees, then the tax treatment would be
different and the Group would be liable for PAYE
and national insurance contributions for such people
deemed to be employees. Furthermore, if there is a
change in employment law or tax law which means
that the nature of the relationship which exists
between the Group and its lawyers is not one of
self-employment, then the rights and obligations
referred to above could also be triggered
Keystone competes with other legal firms that
offer commercial law services in which quality of
advice, service, reputation and value operate as
highly competitive factors to distinguish the Group.
Despite this, there remains a risk that competitor
firms, or a newly established firm will acquire
market share. Competition remains a core risk for
the Group as any loss of market share could reduce
revenue, reduce margins, reduce the ability to
recruit new lawyers and reduce the retention rates
of current personnel, any of which could materially
adversely affect the Group’s business operations
and overall financial condition.
The Group monitors the legislative
landscape for any developments
which could have a bearing upon
this relationship. Where necessary
the Group would seek external
professional advice to support it in
assessing the implications of any such
developments.
Keystone’s growth strategy continues
to be focused on attracting good
quality lawyers with strong client
relationships. By maintaining the
calibre of lawyers attracted and
retained management believe that
they will maintain and enhance their
position in the market. Management
also continues to review monitor the
characteristics of the Keystone model
to ensure that they stay ahead of any
current or future competitors.
INFORMATION
SYSTEMS AND
SYSTEM SECURITY
BREACHES
IT forms an integral part of the business’s operating
model and as such any breakdown of the Group’s
information technology system could be significant.
Also, as Keystone processes sensitive personal data
it is possible that a security breach could result in
some of this data becoming public. Were this to
occur then Keystone could face liability under data
protection laws and could lose the goodwill of any
clients affected by such a breach.
Hosting and support of all systems
is outsourced to a large, reputable
business who is dedicated to the
provision of these services. They
are contracted to keep all data safe,
secure and backed up. They utilise
a number of tools and appliances to
maintain Keystone’s data integrity and
security.
09
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018STRATEGIC REPORT THE BOARD OF DIRECTORS
EXECUTIVE DIRECTORS
JAMES KNIGHT
CHIEF EXECUTIVE OFFICER
ASHLEY MILLER
FINANCE DIRECTOR
James founded Keystone in 2002
when he set out to create a new type
of law firm. Prior to that he had a 10
year career as a commercial solicitor in
London, Hong Kong and Dubai. James
now focuses on business development,
marketing, international opportunities
and other drivers of growth.
Ashley joined Keystone in January
2015 following the PE investment
by Root Capital in the business. He
is a commercially-orientated finance
professional with over 20 years’
experience. Having trained with Price
Waterhouse, Ashley has spent his
career establishing and managing
international finance departments for
SME businesses operating across the
professional services sector.
10
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Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 NON-EXECUTIVE DIRECTORS
ROBIN WILLIAMS
INDEPENDENT
NON-EXECUTIVE CHAIRMAN
PETER WHITING
SENIOR INDEPENDENT
DIRECTOR
SIMON PHILIPS
NON-EXECUTIVE
DIRECTOR
Robin joined the Board in October
2017 as Independent Non-execuitve
Chairman. He is also currently
Chairman of Xaar Plc, FIH Group
Plc and Stirling Industries Plc as well
as NED and Chairman of the audit
committee for Van Elle plc. He is a
chartered accountant with 30 years’
experience with listed companies
initially as an adviser, then as a
leading executive and latterly as non-
executive.
Peter joined the Board in October
2017 as Senior Independent Director
and Chair of the audit committee.
He is an experienced NED who is
also currently Senior Independent
Director and Chair of the remuneration
committee of both FDM Group
(Holdings) plc and Microgen plc as well
as Non-executive Director and Chair of
the remuneration committee of TruFin
Plc. Earlier in his career he led the UK
small and mid-cap research team at
UBS and was Chief Operating Officer
of UBS European Equity Research from
2007 to 2011.
Simon joined the Keystone board
following the investment by Root
Capital in October 2014 and was
Chairman until October 2017. Since
then he has been a Non-executive
Director and Chair of the remuneration
committee. He is an experienced
entrepreneur in the software and
outsourcing sectors and the Managing
partner of private equity firm Root
Capital.
11
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018GOVERNANCE CORPORATE GOVERNANCE
STATEMENT
BOARD MEETINGS
The Board has met once during the year following admission
to AIM and has a programme of Board and Committee
meetings for the current financial year. For all board
meetings, an agenda is established and papers circulated in
advance so that all Directors can give due consideration to
the matters in hand. As a minimum the Board will meet four
times per annum and the matters discussed include;
• Financial and Operating performance review including
presentations from Senior Managers
• Progress on all strategic aims of the business
• Proposals on any areas of major expenditure
• Update on all governance legal, health & safety and risk
matters
The Board will at least annually consider the Group’s
strategic plan and annual budget.
The following table shows directors attendance at scheduled
board and committee meetings since admission.
Board
Audit Remuneration
James Knight
Ashley Miller
Robin Williams
Peter Whiting
Simon Philips
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
Due to the timing of the admission to AIM, there were
no audit committee meetings held post IPO and pre year
end. Since year end, there has been one audit committee
meeting at which all the members of the committee were
present.
CHAIRMAN’S INTRODUCTION
In this section of our report, we set out our Corporate
Governance Framework. This is our first statement since
admission to AIM on 27 November 2017.
The Directors recognise the importance of sound corporate
governance and intend to comply with the Corporate
Governance Guidelines, to the extent appropriate for a
Company of its nature and size. The Quoted companies
Alliance Corporate Governance Code for small and mid-size
Quoted Companies (“the QCA Code”) were designed by the
Quoted Companies Alliance (“the QCA”) in consultation with
a number of significant institutional small company investors
as an alternative corporate governance code applicable to
AIM companies. An alternative code was proposed because
the QCA considers the UK Corporate Governance Code to
be inappropriate for many AIM companies.
The Corporate Governance Guidelines state that “The
purpose of good corporate governance is to ensure that
the Company is managed in an efficient, effective and
entrepreneurial manner for the benefit of all shareholders
over the longer term”.
THE COMPOSITION OF THE BOARD
The Board comprises 5 directors, two executives and three
Non-executives, reflecting a blend of different experience
and background. Two of the Non-executives are considered
independent.
HOW THE BOARD OPERATES
The Board is responsible for reviewing, formulating and
approving the Group’s strategy, budgets and corporate
actions and oversee the Group’s progress towards its
goals. This is formally documented in a schedule of matters
reserved for board approval and includes;
• Strategy and business plans, including annual budget
• Structure and capital including dividends
• Financial reporting and controls
• Internal controls on risk management and policies
• Significant contracts and expenditure
• Communication with shareholders
• Remuneration and employment benefits
• Changes to the board composition
12
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Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 BOARD DECISIONS AND ACTIVITY
DURING THE YEAR
The Board has a schedule of regular business, financial
and operational matters and each Board Committee has
compiled a schedule of work to ensure that all areas for
which the Board has responsibility are addressed and
reviewed during the course of the year. The Chairman,
aided by the Company Secretary, is responsible for ensuring
the Directors receive accurate and timely information. The
Company Secretary compiles the Board and Committee
papers which are circulated to the Directors prior to the
meetings. The Company Secretary also ensures that any
feedback or suggestions for improvement on Board papers is
fed back to management and ensures input is gathered from
all Board members on matters that should be included for
consideration at meetings. The Company Secretary provides
minutes of each meeting and every Director is aware of the
right to have any concerns minuted.
In addition to the board meetings there is regular
communication between Executive and Non-executive
Directors, including where appropriate updates on matters
requiring attention prior to the next scheduled board
meeting. It is intended that the Non-executive Directors will
meet as appropriate, but not less than annually, without the
Executive Directors being present.
BOARD COMMITTEES
The Board has delegated specific responsibilities to the
Audit and Remuneration Committees. Each Committee
has terms of reference setting out its duties, authority and
reporting responsibilities. The terms of reference of each
Committee were put in place at the time of the Company’s
admission to AIM and it is intended they will be kept under
review to ensure they remain appropriate and reflect any
changes in legislation, regulation or best practice. Each
committee comprises the Non-executive Directors.
BOARD EFFECTIVENESS
The skills and experience of the Board are set out in their
biographical details on pages 10 and 11. The experience
and knowledge of each of the Directors gives them the
ability to constructively challenge strategy and scrutinise
performance. Robin and Peter joined the Board in October
2017 and have taken part in an induction process, during
which they met with key employees and advisers and
received presentations from the Executive Directors on
strategy and finance. It is intended that, in the future, on
joining the Board, new directors will undergo a formal
programme which will be tailored to the existing knowledge
and experience of the director concerned.
TIME COMMITMENTS
All Directors have been advised of the time required to fulfil
the role prior to appointment and were asked to confirm
that they could make the required commitment before they
were appointed. This requirement is included in their letter
of appointment.
DEVELOPMENT
The Company Secretary ensures that all Directors are
kept abreast of changes in relevant legislation and
regulations, with the assistance of the Group’s advisers
where appropriate. Executive Directors are subject to
the Group’s performance review process through which
their performance against objectives is reviewed and their
personal and professional development needs considered.
CONFLICTS OF INTEREST
At each meeting, the Board considers Directors’ conflicts
of interest. The Company’s Articles of Association (Articles)
provide for the Board to authorise any actual or potential
conflicts of interest.
DIRECTORS’ AND OFFICERS’
LIABILITY INSURANCE
The Company has purchased Directors’ and Officers’ liability
insurance as allowed by the Company’s Articles.
13
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018GOVERNANCE CORPORATE GOVERNANCE
STATEMENT
The Committee considers all proposals for non-audit
services and ensures that these do not impact on the
objectivity and independence of the auditor. The Audit
Committee in its meetings with the external auditor reviews
the safeguards and procedures developed by the auditor to
counter threats or perceived threats to their objectivity and
independence and assess the effectiveness of the external
audit. The Group’s policy on non-audit services performed
by the external auditor is to address any issues on a case by
case basis.
REMUNERATION COMMITTEE
The remuneration committee reviews the performance of
the executive directors, sets the scale and structure of their
remuneration and the basis of their service agreements with
due regard to the interests of shareholders and reviews
and approves any proposed bonus entitlement. It will also
be responsible for the consideration of any share based
incentive schemes to be put in place across the Group.
The members of the Remuneration committee are:
Simon Philips (Chairman)
Peter Whiting
Robin Williams
RISK MANAGEMENT AND
INTERNAL CONTROLS
The Board is responsible for maintaining a sound system of
internal control to safeguard shareholders’ investments and
the Company’s assets. Such a system is designed to manage
rather than eliminate the risk of failure to achieve business
objectives and can provide only reasonable and not absolute
assurance against material misstatement or loss.
The Board has considered the need for an internal audit
function, but has concluded that the internal control system
in place is appropriate or the size and complexity of the
Group.
The Board is also responsible for the identification and
evaluation of major risks faced by the Group and for
determining the appropriate course of action to manage
those risks.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE
The audit committee is charged with the oversight of the
internal financial controls and risk management systems,
making recommendations to the Board on the appointment
of auditors and the audit fee, monitoring and reviewing the
conduct and control of the audit work as well as monitoring
the integrity of all formal reports and announcements
relating to the Group’s financial performance. The Finance
Director attends the committee meetings by invitation. The
Committee has unrestricted access to the Group’s auditors.
The members of the Audit Committee are:
Peter Whiting (Chairman)
Simon Philips
Robin Williams
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Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 DIRECTORS’ REPORT
The directors have pleasure in presenting their report and
the financial statements of the group for the period ended
31 January 2018.
PRINCIPAL ACTIVITIES AND
BUSINESS REVIEW
The principal activities of the Group during the period were
the provision of legal services. The results for the period
and the financial position of the Group are as shown in the
annexed financial statements. A review of the business and
its future development is given in the Chairman’s and Chief
Executive’s statements.
RESULTS AND DIVIDENDS
The results for the year are set out in the consolidated
income statement on page 22. The directors propose a final
dividend of 0.84p per share subject to the approval at the
Annual General Meeting on 27 June 2018.
LIKELY FUTURE DEVELOPMENT
Our priorities for the following financial year are disclosed in
the CEO’s Report on pages 4 and 5.
SUBSTANTIAL SHAREHOLDINGS
As far as the Directors are aware, the only notifiable holdings
equal to or in excess of 3% of the issued ordinary share
capital at 16 April 2018 were as shown in the table below:
No of Shares
% Holding
James Knight
Root Capital Fund II LP
William Robins
11,832,127
7,075,000
1,563,698
River & Mercantile Asset Mgt
1,500,000
Cavendish Asset Mgt
The Stancroft Trust Ltd
1,409,000
1,250,000
FIL Investment International
1,028,000
37.8%
22.6%
5.0%
4.8%
4.5%
4.0%
3.3%
DIRECTORS AND THEIR INTEREST
The directors who served throughout the year except where
otherwise stated and in place at the date of this report are
as follows:
James Knight
Ashley Miller
Robin Williams
Peter Whiting
Simon Philips
William Robins
Mark Machray
Appointed October 2017
Appointed October 2017
Resigned October 2017
Resigned October 2017
Charles Stringer
Resigned November 2017
According to the register of Directors’ interests maintained
under the Companies Act, the following interests in shares
of Group Companies were held by the Directors in office at
the year ends:
No of Shares
% Holding
James Knight
Ashley Miller
Simon Philips *
Robin Williams
Peter Whiting
11,832,127
247,672
12,500
21,875
Simon Philips is one of the beneficial owners of the shares
held by Root Capital Fund II. Although the Non-executive
Directors hold shares, their holdings are at a level which
does not impinge their independence.
15
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018GOVERNANCE DIRECTORS’ REPORT
AUDITED DIRECTORS’ REMUNERATION
Directors’ remuneration payable in the year ended
31 January 2018 is set out below:
Salary
&
£’000
Fees Bonus
James Knight
Ashley Miller
Simon Philips
Robin Williams
Peter Whiting
299
108
17
20
12
–
35
–
–
–
Pension
Contributions
Total
2018
Total
2017
15
4
–
–
–
314
147
17
20
12
252
117
–
–
–
456
35
19
510
369
DIRECTORS’ INDEMNITIES
The Directors are entitled to be indemnified by the
Company to the extent permitted by law and the Company’s
articles of association in respect of certain losses arising
out of or in connection with the execution of their powers,
duties and responsibilities.
GOING CONCERN
The Group financial statements have been prepared on
a going concern basis as the Directors have reasonable
expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future.
The Group has no debt, is strongly cash generative and has
a strong trading performance. The Group’s forecasts and
projections show that the Group has sufficient resources for
both current and anticipated cash requirements.
FINANCIAL RISK MANAGEMENT
Financial risk is managed by the Board on an ongoing basis.
The key risks relating to the Group are outlined in more
detail in note 25 to the consolidated financial statements.
The Group’s principal risks and uncertainties are outlined in
the strategic report.
POST BALANCE SHEET EVENTS
There have been no material post balance sheet events.
ANNUAL GENERAL MEETING
The Company’s first AGM will be held on 27 June 2018.
The Company also purchased and maintained Directors’ and
Officers’ Liability Insurance throughout the year.
POLITICAL DONATIONS
No political contributions were made during the year.
SHARE CAPITAL
Details of share capital are given in Note 16 to the financial
statements.
EMPLOYEES
The Group operates an equal opportunities employment
policy. The Group’s policy on recruitment, development,
training and promotion includes provision to give full and
fair consideration to disabled persons, having particular
regard to their aptitudes and abilities. The Group appreciates
and values the input of all its employees and encourages
development and training to enhance employee skills. The
Group ensures that employees are aware of any important
matters that may impact on the performance of the Group
AUDITORS
A resolution to reappoint RSM UK Audit LLP as auditor
for the ensuing year will be proposed at the annual
general meeting in accordance with Section 487(2) of the
Companies Act 2006.
DISCLOSURE OF INFORMATION TO AUDITOR
The Directors confirm that, so far as they are each aware,
there is no relevant audit information of which the Group’s
auditors are unaware; and each director has taken all the
steps that they ought to have taken as a director to make
themselves aware of any relevant audit information and
to establish that the Group’s auditors are aware of that
information.
On behalf of the board
Ashley Miller
Finance Director
24th April 2018
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Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 DIRECTORS’ RESPONSIBILITIES
STATEMENT
The directors are responsible for preparing the Strategic
Report and the Directors’ Report and the financial
statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare group and
company financial statements for each financial year. The
directors are required by the AIM Rules of the London
Stock Exchange to prepare the group and company financial
statements in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the European
Union (“EU”).
The group financial statements are required by law and
IFRS adopted by the EU to present fairly the financial
position and performance of the group. The Companies
Act 2006 provides in relation to such financial statements
that references in the relevant part of that Act to financial
statements giving a true and fair view are references to their
achieving a fair presentation.
Under company law the directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the group and
company and of the profit or loss of the group for that
period.
In preparing the group and company financial statements,
the directors are required to:
a. select suitable accounting policies and then apply them
consistently;
b. make judgements and accounting estimates that are
reasonable and prudent;
c. state whether they have been prepared in accordance
with IFRS as adopted by the EU, subject to any material
departures disclosed and explained in the company
financial statements;
d. prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the group
and the company will continue in business.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the group’s and company’s transactions and disclose with
reasonable accuracy at any time the financial position of
the group and the company and enable them to ensure
that the financial statements comply with the requirements
of the Companies Act 2006. They are also responsible for
safeguarding the assets of the group and the company and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the United
Kingdom governing the preparation and dissemination of
Financial Statements may differ from legislation in other
jurisdictions.
17
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018GOVERNANCE INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF KEYSTONE LAW GROUP PLC
OPINION
We have audited the financial statements of Keystone Law Group plc the ‘group’ for the year ended 31 January 2018
which comprise group and company statement of financial position, group statement of comprehensive income, group
and company statement of changes in equity, group and company statement of cash flows and notes to the financial
statements, including a summary of significant accounting policies. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European
Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at
31 January 2018 and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the group and parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as
applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
CONCLUSIONS RELATING TO GOING CONCERN
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you
where:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not
appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant
doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a
period of at least twelve months from the date when the financial statements are authorised for issue.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) we identified, including those which had the greatest effect on the overall audit strategy, the allocation of
resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
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Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 REVENUE RECOGNITION AND ACCRUED INCOME
RISK
Revenue is the most significant component of the financial statements and there is a risk that this could be materially
misstated due to recognising revenue in the incorrect accounting period. Additionally, revenue is materially impacted by
changes in the accrued income balance which is subject to judgemental decisions by management.
The Group has recognised revenue of £31.6m in respect of lawyer fees billed and accrued in the year, revenue consists of a
large number of relatively low value sales. Due to the large volume of transactions in the year there is a risk that not all of the
matters in the year have been appropriately billed.
The Group accrued income balance at the year end is £4.5m, this has a matching cost liability of £3.3m in respect of the fees
due to lawyers. The accrued income balance is calculated as a proportion of forecasted billings, the proportion used is based
on historic billing information. There are inherent uncertainties in the estimations used.
For the above reasons, revenue recognition including accrued income is considered to be a key audit matter.
Refer to note 3 and 4 in the financial statements for the disclosures relating to the revenue and accrued income.
OUR RESPONSE
Our audit procedures included assessing the reasonableness of the revenue figure in relation to lawyer numbers in
comparison to prior financial years. In addition, we documented and tested the control process in place to ensure that these
controls had been applied. We also performed period-end cut off testing to ensure that revenue had been recognised in the
correct accounting period. No issues were noted in the testing completed.
We assessed the reasonableness of the method and the assumptions used in calculating the accrued income balance, as well
as the proportion of associated cost liability due to the lawyers. We re-performed the accrued income calculation based on
the assessment of the assumptions made and did not identify a material difference from management’s calculation.
GOODWILL AND INTANGIBLE ASSETS
RISK
The Group carries goodwill amounting to £4.8m in respect of past business acquisitions and intangible assets of £2.4m in
respect of lawyer relationships. Lawyer relationships are amortised over a 10 year life. The recoverability of the goodwill
and intangible assets arising on these acquisitions is dependent on the cash generating units to which goodwill is allocated
generating sufficient cash flows in the future. Due to the significant management judgement in forecasting the cash flows
and selecting an appropriate discount rate there is a high level of estimation uncertainty which results in there being a
significant risk associated with determining whether goodwill is impaired. For these reasons, goodwill and intangible assets
are considered to be a key audit matter.
Refer to note 12 in the financial statements for the disclosures relating to the goodwill and intangible assets and the related
impairment calculations.
OUR RESPONSE
Our audit procedures included auditing the discounted cash flow model, testing and challenging the judgements and
assumptions used by management in their assessment of whether goodwill had been impaired and performing sensitivity
analysis on the cash flow model.
We have used our knowledge of comparable companies and market data to challenge the assumptions, in particular the
revenue growth rate assumptions and the inputs and methodology in determining the discount rate used to calculate the
present value of projected future cash flows.
19
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF KEYSTONE LAW GROUP PLC
We considered the historical accuracy of key assumptions by comparing the accuracy of the previous estimates of
profitability and related cash flows to the actual amounts realised. We assessed management’s sensitivity analysis of key
assumptions, including the revenue growth forecasts and the discount rate and considered whether the disclosures about
the sensitivity of the outcome of the impairment assessment to reasonably possible changes in key assumptions were
adequate and properly reflected the risks inherent in the assessment of the carrying value of goodwill.
OUR APPLICATION OF MATERIALITY
When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing
and extent of our audit procedures and to evaluate the effects of misstatements, both individually and on the financial
statements as a whole. During planning we determined a magnitude of uncorrected misstatements that we judge would be
material for the financial statements as a whole (FSM). During planning FSM was calculated as £255,000, which increased to
£322,000 during the course of our audit. We agreed with the Audit Committee that we would report to them all unadjusted
differences in excess of £10,000, as well as differences below those thresholds that, in our view, warranted reporting on
qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our audit was scoped by obtaining an understanding of the Group and its control environment, including Group-wide
controls, and assessing the risks of material misstatement. The financial statements were audited on a consolidated basis
using Group materiality. The scope of our audit covered 100% of both consolidated profit before tax and consolidated net
assets.
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the
annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there is a material misstatement in the financial statements
or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
20
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Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the
course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have
nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement set out on page 17, the directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have
no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Colin Roberts, FCA (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
25 Farringdon Street, London, EC4A 4AB
24th April 2018
21
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
YEAR ENDED 31 JANUARY 2018
Revenue
Cost of sales
Gross profit
Depreciation and amortisation
Flotation costs
Administrative expenses
Other operating income
Operating profit
Finance income
Finance costs
Profit before tax
Corporation tax expense
Profit and total comprehensive income for the year attributable
to owners of the Parent
Basic and diluted EPS (p)
The above results were derived from continuing operations.
2018
£
Restated
2017
£
Note
4
31,600,490
25,558,975
(22,891,379)
(18,994,015)
8,709,111
6,564,960
5
5
5
6
7
7
(382,266)
(386,086)
(603,581)
–
(5,448,143)
(4,571,973)
8,406
76,614
2,283,527
1,683,515
41,368
29,786
(392,462)
(512,649)
1,932,433
1,200,652
10
(344,520)
(332,842)
1,587,913
867,810
6.0
3.5
22
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 31 JANUARY 2018
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Available-for-sale financial assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Retained earnings
Equity attributable to equity holders of the Parent
Non-current liabilities
Borrowings
Deferred tax liabilities
Current liabilities
Trade and other payables
Borrowings
Corporation tax liability
Provisions
Total liabilities
Total equity and liabilities
Note
11
12
14
2018
£
Restated
2017
£
Restated
2016
£
50,392
50,735
49,231
7,161,258
7,512,142
7,863,026
13,628
13,628
13,628
7,225,278
7,576,505
7,925,885
15
11,994,713
9,283,626
6,593,269
3,589,969
714,266
446,353
15,584,682
9,997,892
7,039,622
22,809,960
17,574,397
14,965,507
16
62,548
471
9,920,760
428,123
2,568,343
1,030,005
12,551,651
1,458,599
471
428,123
162,195
590,789
17
–
5,771,427
6,971,427
477,355
547,533
615,737
477,355
6,318,960
7,587,164
22
17
21
9,646,204
8,338,738
5,492,290
–
1,200,000
59,750
75,000
183,100
75,000
886,997
408,267
–
9,780,954
9,796,838
6,787,554
10,258,309
16,115,798
14,374,718
22,809,960
17,574,397
14,965,507
The financial statements on pages 22 to 52 were approved and authorised for issue by the Board of Directors on
24th April 2018 and were signed on its behalf by:
A Miller
Director
24th April 2018
Keystone Law Group Plc
Registered No: 09038082
23
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS
COMPANY STATEMENT OF
FINANCIAL POSITION
AS AT 31 JANUARY 2018
Assets
Non-current assets
Investment in Subsidiary
Current assets
Trade and other receivables
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Retained earnings
2018
£
Restated
2017
£
Restated
2016
£
Note
13
9,000,000
9,000,000
9,000,000
9,000,000
9,000,000
9,000,000
15
1,853,694
1,853,694
12,500
12,500
8,333
8,333
10,853,694
9,012,500
9,008,333
16
62,548
471
471
9,920,760
428,123
428,123
658,886
326,868
(845,160)
Equity attributable to equity holders of the Company
10,642,194
755,462
(416,566)
Non-current liabilities
Borrowings
Current liabilities
Trade and other payables
Borrowings
Total liabilities
Total equity and liabilities
17
22
17
–
–
5,771,427
6,971,427
5,771,427
6,971,427
211,500
1,285,611
1,653,472
–
1,200,000
800,000
211,500
2,485,611
2,453,472
211,500
8,257,038
9,424,899
10,853,694
9,012,500
9,008,333
The Company’s profit for the financial year was £381,593 (2017: £1,172,928)
The financial statements on pages 22 to 52 were approved and authorised for issue by the Board of Directors on
24th April 2018 and were signed on its behalf by:
A Miller
Director
24th April 2018
24
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
YEAR ENDED 31 JANUARY 2018
At 1 February 2016 (restated)
Profit for the year and total comprehensive income
At 31 January 2017 (restated)
Profit for the year and total comprehensive income
Bonus Share Issue
New share capital subscribed
At 31 January 2018
Attributable to equity holders of the Parent
Share
capital
£
Share
premium
£
Retained
earnings
£
Total
£
Note
471
–
471
–
49,575
428,123
162,195
590,789
–
867,810
867,810
428,123
1,030,005
1,458,599
–
–
1,587,913
1,587,913
(49,575)
–
12,502
9,492,637
–
9,505,139
62,548
9,920,760
2,568,343
12,551,651
16
16
16
16
25
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS
COMPANY STATEMENT OF
CHANGES IN EQUITY
YEAR ENDED 31 JANUARY 2018
At 1 February 2016 (restated)
Profit for the year and total comprehensive income
Dividend received from subsidiaries
At 31 January 2017 (restated)
Profit for the year and total comprehensive income
Dividend received from subsidiaries
Bonus Share Issue
New share capital subscribed
At 31 January 2018
Attributable to equity holders of the Company
Share
capital
£
Share
premium
£
Retained
earnings
£
Total
£
471
428,123
(845,160)
(416,566)
Note
–
–
–
–
(327,972)
(327,972)
1,500,000
1,500,000
471
428,123
326,868
755,462
–
–
49,575
–
–
–
(1,118,407)
(1,118,407)
1,500,000
1,500,000
(49,575)
–
12,502
9,492,637
–
9,505,139
62,548
9,920,760
658,846
10,642,194
16
16
26
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018
CONSOLIDATED STATEMENT OF
CASH FLOWS
YEAR ENDED 31 JANUARY 2018
Cash flows from operating activities
Profit before tax
Adjustments to cash flows from non-cash items
Depreciation and amortisation
Loss on disposal of property plant and equipment
Finance income
Finance costs
Working capital adjustments
Increase in trade and other receivables
Increase in trade and other payables
Increase in provisions
Cash generated from operations
Interest Paid
Corporation taxes paid
Cash generated from operating activities
Cash flows from investing/(used in) activities
Interest received
Purchases of property plant and equipment
Net cash generated from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares, net of issue costs
Repayment of other borrowings
Net cash generated from/(used in) financing activities
Net increase in cash and cash equivalents
Cash at 1 February
Cash at 31 January
2018
£
Restated
2017
£
Note
1,932,433
1,200,652
5
7
7
382,266
386,086
–
33,619
(41,368)
(29,786)
392,462
512,649
2,665,793
2,103,220
(2,711,087)
(2,690,357)
2,484,063
2,340,925
–
75,000
2,438,769
1,828,788
(2,870)
(7,126)
(538,049)
(626,212)
1,897,850
1,195,410
41,368
(31,039)
10,329
29,786
(70,325)
(40,539)
9,505,142
–
(8,537,617)
(886,998)
967,525
(886,998)
2,875,704
267,913
714,266
446,353
3,589,970
714,266
27
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS COMPANY STATEMENT
OF CASH FLOWS
YEAR ENDED 31 JANUARY 2018
Cash flows from operating activities
Loss before tax
Adjustments to cash flows from non-cash items
Finance costs
Working capital adjustments
Increase in trade and other receivables
Increase in trade and other payables
Cash used in operations
Corporation taxes paid
Cash generated from operating activities
Cash flows from investing activities
Interest received
Purchases of property plant and equipment
Net cash generated from investing activities
Cash flows from financing activities
Dividend received from subsidiaries
Proceeds from issue of ordinary shares, net of issue costs
Repayment of other borrowings
Net cash generated from financing activities
Net increase in cash and cash equivalents
Cash at 1 February
Cash at 31 January
Note
2018
£
2017
£
(1,118,407)
(327,972)
7
389,593
505,523
(728,814)
177,551
(1,841,194)
(4,167)
102,483
(873,384)
(2,467,525))
(700,000)
–
–
(2,467,525)
(700,000)
–
–
–
–
–
–
1,500,000
1,500,000
9,505,142
–
(8,537,617)
(800,000)
2,467,525
700,000
–
–
–
–
–
–
28
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 NOTES TO THE FINANCIAL
STATEMENTS
1. GENERAL INFORMATION
The Company was incorporated as Keystone Law Group Limited on 13 May 2014 under the Companies Act 2006
(registration no. 09039092) and subsequently used as the vehicle to acquire Keystone Law Limited (the main trading
company in the Group) and its subsidiaries on 17 October 2014. The Company was re-registered as a Public Limited
Company on 10 November 2017. The Company was incorporated and is domiciled in England and Wales. The principal
activity of the Group is the provision of legal services.
The address of its registered office is:
48 Chancery Lane
London
WC2A 1JF
The Financial Statements are presented in Pounds Sterling, being the functional currency of the Group.
2. ACCOUNTING POLICIES
STATEMENT OF COMPLIANCE
The Financial Statements have been prepared in accordance with International Financial Reporting Standards and
interpretations issued by the International Financial Reporting Standards Interpretations Committee (“IFRIC”) as adopted by
the European Union (collectively “adopted IFRS’s”).
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
KEY ACCOUNTING ESTIMATES
The principal accounting policies applied in the preparation of the Financial Statements are set out below. These policies
have been consistently applied to all the years presented, unless otherwise stated.
BASIS OF PREPARATION
The preparation of Financial Statements, in conformity with IFRS requires the use of certain critical accounting estimates. It
also requires management to exercise its judgement in the process of applying the Group’s accounting policies.
BASIS OF CONSOLIDATION
The Group Financial Statements consolidates the financial statements of the Company and its subsidiary undertakings drawn
up to 31 January 2017 and 2018.
A subsidiary is an entity controlled by the Company. Control is achieved where the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired during the period are included in the consolidated statement of comprehensive income
from the effective date of acquisition, as appropriate. Where necessary, adjustments are made to the financial statements of
subsidiaries to bring their accounting policies into line with those used by the Group.
29
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
2. ACCOUNTING POLICIES CONTINUED
The acquisition method of accounting is used to account for business combinations that result in the acquisition of
subsidiaries by the Group. The cost of a business combination is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired, liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Any
excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised is recorded as goodwill.
Inter-company transactions, balances and unrealised gains on transactions between the Company and its subsidiaries, which
are related parties, are eliminated in full.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity
therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination
and the non-controlling shareholder’s share of changes in equity since the date of the combination. Total comprehensive
income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.
GOING CONCERN
The Group financial statements have been prepared on a going concern basis as the Directors have reasonable expectation
that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has no
debt, is strongly cash generative and has a strong trading performance. In adopting the going concern basis the Directors
have considered the receipt of the net proceeds from the placing of shares by the Company upon admission to AIM. The
Group’s forecasts and projections show that the Group has sufficient resources for both current and anticipated cash
requirements.
ACCOUNTING DEVELOPMENTS
None of the standards, interpretations and amendments effective for the first time from 1 February 2016 have had a
material effect on the Financial Statements.
The following standards and interpretations, relevant to the Group’s operations that have not been applied in the Financial
Statements, were in issue but not yet effective or endorsed (unless otherwise stated):
IFRS 9
‘Financial Instruments’ (effective for annual periods beginning on or after 1 January 2018)
Under IFRS 9 the classification of financial assets is based on whether the contractual cash flows of the instrument are solely
payments of principal and interest, and whether the business model is to collect those contractual cash flows and/or sell the
financial assets.
Available-for-sale investments which are measured at fair value through other comprehensive income under IAS 39 are
either designed at fair value through other comprehensive income under IFRS 9 or if not so designated, continue to be
measured at fair value through other comprehensive income.
30
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 IFRS 15
‘Revenue from contracts with customers’ (effective for annual periods beginning on or after 1 January 2018)
IFRS 15 introduces a revenue model in which the core principle is that an entity should recognise revenue in line with the
transfer of services to the customer in an amount that reflects the consideration to which the entity expects to be entitled
for those services provided.
IFRS 16
‘Leases’ (effective for annual periods beginning on or after 1 January 2019)
Under IFRS 16 a right-of-use asset and a lease liability are recognised for all leases except ‘low-value’ and ‘short’ term leases
where lease payments are recognised on a straight-line basis over the lease term.
The Board does not anticipate that the implementation of these statements will have a material impact to the financial
statements of the Group.
SEGMENT REPORTING
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-
maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the executive directors that make strategic decisions. The executive directors are
of the opinion that the Group has only one reportable operating segment.
REVENUE
Income represents the fair value of services provided during the year on client assignments. Fair value reflects the amounts
expected to be recoverable from clients, excluding VAT. Fee income is recognised as contract activity progresses, except
where the final outcome cannot be assessed with reasonable certainty.
Fee income in respect of contingent fee assignments is recognised in the period when the contingent event occurs and
collectability of the fee is assured.
Unbilled fee income on individual assignments is included as accrued income within receivables with reference to the stage
of completion of the assignment.
OPERATING PROFIT
Operating profit is stated after all expenses, including those considered to be exceptions but before finance income or
expenses.
31
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
2. ACCOUNTING POLICIES CONTINUED
EBITDA
EBITDA is utilised as a key performance indication for the Group and is calculated utilising profit before tax, adjusted for
finance income and costs, amortisation and depreciation.
Underlying EBITDA is further adjusted to remove the financial impact of the flotation in the current year and the one off
costs arising in the previous year as a result of the office relocation which resulted in having to run two properties for a
number of months as well as the recognition of a dilapidations provision.
EBITDA
Flotation cost
Double run of property
Dilapidations provision
Underlying EBITDA
DISBURSEMENTS
Disbursements are not included in income or expenses.
2018
£’000
2,666
604
–
–
2017
£’000
2,069
–
147
75
3,270
2,291
TAXATION
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except that a
change attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in
other comprehensive income.
The current tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by
the reporting date in the countries where the Group operates and generates taxable income.
Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the Financial Statements and on unused tax losses or tax credits available to the Group. Deferred tax is
determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
The carrying amounts of deferred tax assets are reviewed at each reporting date and a valuation allowance is set up against
deferred tax assets so that the net carrying amount equals the highest amount that is more likely than not to be recovered
based on current or future taxable profit.
32
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 TANGIBLE ASSETS
Property, plant and equipment is stated in the statement of financial position at cost, less any subsequent accumulated
depreciation and subsequent accumulated impairment losses.
The cost of property, plant and equipment includes directly attributable incremental costs incurred in its acquisition and
installation.
DEPRECIATION
Depreciation is charged so as to write off the cost of assets over their estimated useful lives, as follows:
Asset class
Depreciation method and rate
Fixtures, fittings and equipment
25% — 33% straight line
GOODWILL
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group’s interest
in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity, recognised at the date of
acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less accumulated
impairment losses.
IMPAIRMENT OF INTANGIBLES
Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and
are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are largely independent cash inflows (CGU).
OTHER INTANGIBLE ASSETS
Lawyer relationships have been separately identified on acquisition and were recognised at fair value at the acquisition date.
The fair value of the asset was calculated by reference to the net present value of the future benefits accruing to the Group
from the utilisation of the asset discounted at an appropriate discount rate. These lawyer relationships are subsequently
held at cost less accumulated amortisation. Amortisation is charged to the income statement on a straight-line basis over the
estimated useful life of the asset, which, in the case of lawyer relationships is estimated to be 10 years.
INVESTMENTS
Fixed asset investments are stated at historical cost less provision for any diminution in value.
33
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
2. ACCOUNTING POLICIES CONTINUED
FINANCIAL INSTRUMENTS
The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial
liability or an equity instrument in accordance with the substance of the underlying contractual arrangement. Financial
instruments are recognised on the date when the Group becomes a party to the contractual provisions of the instrument.
Financial instruments are initially recognised at fair value. Financial instruments cease to be recognised at the date when the
Group ceases to be party to the contractual provisions of the instrument.
Financial assets are included on the balance sheet as trade and other receivables or cash and cash equivalents.
a. Trade & other receivables
Trade and other receivables are stated at their original invoiced value, as the interest that would be recognised from
discounting the future cash receipts over the short credit period is not considered to be material. Trade receivables are
reduced by appropriate allowances for estimated irrecoverable amounts.
b. Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives financial instruments and comprise the investment held in Keypoint
Law Pty Limited. This investment is included in non-current assets and is held at cost as management does not intend to
dispose of it within 12 months of the end of the reporting period.
c. Trade and other payables
Trade and other payables are stated at their original invoiced value, as the interest that would be recognised from
discounting the future cash payments over the short credit period is not considered to be material.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
TRADE RECEIVABLES
Trade receivables are amounts due from clients for services performed in the ordinary course of business.
TRADE PAYABLES
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if the company does not have an unconditional right, at the
end of the reporting period, to defer settlement of the creditor for at least twelve months after the reporting date. If there is
an unconditional right to defer settlement for at least twelve months after the reporting date, they are presented as non-
current liabilities.
34
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 BORROWINGS
All borrowings are initially recorded at the amount of proceeds received, net of transaction costs. Borrowings are
subsequently carried at amortised cost, with the difference between the proceeds, net of transaction costs, and the amount
due on redemption being recognised as a charge to the income statement over the period of the relevant borrowing.
Interest expense is recognised on the basis of the effective interest method and is included in finance costs.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least 12 months after the reporting date.
PROVISIONS
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is
probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the reporting
date and are discounted to present value where the effect is material.
LEASES
Leases in which substantially all the risks and rewards of ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the income statement on a straight line basis over the lease
term.
SHARE CAPITAL
Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources
received or receivable, net of the direct costs of issuing the equity instruments. If payment is deferred and the time value of
money is material, the initial measurement is on a present value basis.
DEFINED CONTRIBUTION PENSION OBLIGATION
Contributions to defined contribution plans are recognised as employee benefit expense when they are due. If contribution
payments exceed the contribution due for service, the excess is recognised as a prepayment.
35
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF
ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, management is required to make judgements, estimates and
assumptions about the carrying value of assets and liabilities that are not readily apparent from other sources. The estimates
and underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision
and future periods if the revision affects both current and future periods.
The key sources of estimation uncertainty that have a significant effect on the amounts recognised in the Financial
Statements are described below.
ACQUISITION ACCOUNTING
The acquisition of Keystone Law Limited by the Company falls outside the scope of IFRS 3, business combinations.
However, IFRS 3 does not provide any further guidance on how such transactions should be accounted for and therefore in
the absence of an IFRS that specifically applies to this transaction, management has used its judgement in developing and
applying an accounting policy. The policy adopted is to use ‘acquisition accounting’ based on the principles of a business
combinations as set out in IFRS 3.
RECOGNITION OF LAWYER RELATIONSHIPS
Lawyer relationships have been separately identified on acquisition and are held at amortised cost. The value attributed to
these lawyer relationships is based on a multi-period excess earnings valuation for the lawyers present in Keystone Law
Limited at the acquisition date relative to the revenue that they are forecast to generate over the following 10 year period,
less attrition. These lawyer relationships are estimated to have a useful life of 10 years and are amortised on a straight-line
basis each year.
RECOVERABILITY OF TRADE RECEIVABLES
Due to the nature of the business, there are high levels of trade receivables at the year end, and therefore a risk that some
of these balances may be irrecoverable. A bad debt review is carried out by the business where debts are assessed and
provided against when the recoverability of these balances is considered to be uncertain.
AMOUNTS RECOVERABLE ON CONTRACTS (WORK IN PROGRESS “WIP”)
The business has carried out a review of prior years’ billing activity in order to identify what share of post year end billing
relates to the previous financial year. This profile is then applied to the current year’s budgeted billing in order to calculate
the value of WIP valuation at the year end. The WIP valuation is then validated by reviewing the actual billing between the
year end and the time the accounts are prepared to ensure that actual performance is in line with the expected profile. Were
the actual billing to differ to the budget but all other things remained equal, then a 1% variance in billing would equate to
a movement in revenue of £44,614. This in turn would result in a change in the associated cost of sale of £33,461 and an
impact to profit of £11,153.
DILAPIDATIONS PROVISION
A provision for dilapidations on the Group’s offices has been included in the accounts and is based upon the amount the
Group expects to have to pay following termination of its lease, the liability is accrued over the term of the lease.
36
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 4. REVENUE
The Group’s revenue for the year from continuing operations is as follows:
Rendering of services
Other revenue
All revenue is derived from a single segment.
2018
£
2017
£
31,473,380
25,341,609
127,110
217,366
31,600,490
25,558,975
In accordance with IFRS 8, no single customer represented more than 10 per cent of revenue for any of the years ended 31
January 2017 or 2018.
5. EXPENSES BY NATURE
Expenses are comprised of:
Depreciation
Amortisation
Flotation costs
Staff costs
Operating lease expense – property
Other administrative expenses
2018
£
2017
£
31,382
35,202
350,884
350,884
603,581
–
2,326,259
1,972,404
238,427
246,671
3,104,256
2,468,469
6,654,789
5,073,630
Included within staff costs above are the costs of employed fee earners who are included within cost of sale (2018:
£220,799, 2017: £115,571).
37
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
6. OPERATING PROFIT
Operating profit is arrived at after charging:
Depreciation expense
Operating lease expense – property
Loss on disposal of property, plant and equipment
Fees to auditors : audit fee
Fees to auditors : non audit fees
7. FINANCE INCOME AND COSTS
Finance income
Interest income on bank deposits
Finance costs
Interest on bank overdrafts and borrowings
Interest expense on other financing liabilities
Total finance costs
Net finance costs
2018
£
2017
£
31,382
35,202
238,427
246,671
–
33,619
47,500
121,000
–
–
2018
£
2017
£
41,368
29,786
(2,870)
(1,267)
(389,592)
(511,382)
(392,462)
(512,649)
(351,094)
(482,863)
38
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 8. STAFF COSTS
The aggregate payroll costs (including directors’ remuneration) were as follows:
Wages and salaries
Social security costs
Pension costs, defined contribution scheme
2018
£
2017
£
2,026,290
1,738,263
225,959
182,047
74,010
52,094
2,326,259
1,972,404
The average number of persons employed by the Group (including directors) during the year, analysed by category was as
follows:
Fee Earners
Administration and support
Total
2018
£
6
34
39
2017
£
3
32
35
The Company does not employ any employees and as such has no staff costs.
9. DIRECTORS’ AND KEY MANAGEMENT PERSONNEL REMUNERATION
The directors’ remuneration is disclosed within the Directors Report. The directors are considered key management
personnel. Employers NIC paid on directors remuneration in the year was £54,148 (2017: £46,856)
39
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
10. CORPORATION TAX
TAX CHARGED/(CREDITED) IN THE INCOME STATEMENT
Current taxation
UK corporation tax
UK corporation tax adjustment to prior periods
Deferred taxation
Arising from origination and reversal of temporary differences
Unwinding of deferred tax liability
Tax expense in the income statement
2018
£
Restated
2017
£
417,119
388,666
(2,422)
12,379
414,697
401,045
–
1,974
(70,177)
(70,177)
344,520
332,842
The actual tax charge is lower than the standard rate of corporation tax in the UK applied to the profit before tax 2018 –
17.8%, (2017 – 27.8%).
The differences are reconciled below:
Profit before tax
Corporation tax at standard rate 19%, (2017: 20%)
(Decrease) / Increase in current tax from adjustment to prior periods
Decrease from effect of capital allowances depreciation
2018
£
Restated
2017
£
1,932,433
1,200,652
367,162
240,130
(2,422)
12,379
–
(965)
(Decrease) / Increase from effect of expenses not deductible in determining taxable profit
7,070
105,832
Decrease from effect of adjustment in research and development tax credit
Total tax charge
(27,290)
(24,534)
344,520
332,842
40
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 11. PROPERTY, PLANT AND EQUIPMENT
Cost or valuation
At 31 January 2016
Additions
Disposals
At 31 January 2017
Additions
At 31 January 2018
Depreciation
At 31 January 2016
Charge for year
Eliminated on disposal
At 31 January 2017
Charge for the year
At 31 January 2018
Carrying amount
At 31 January 2018
At 31 January 2017
At 1 February 2016
The Company had no property, plant and equipment in either 2018 or 2017.
Furniture,
fittings and
equipment
£
164,769
70,325
(57,785)
177,309
31,039
208,348
115,538
35,202
(24,166)
126,574
31,382
157,956
50,392
50,735
49,231
41
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
12. INTANGIBLE ASSETS
Cost or valuation
At 31 January 2017 and 2018
Amortisation
At 31 January 2016
Charge for year
At 31 January 2017
Charge for the year
At 31 January 2019
Carrying amount
At 31 January 2018
At 31 January 2017
At 1 February 2016
Lawyer
relationships
£
Goodwill
£
Total
intangibles
£
3,508,840
4,807,411
8,316,251
453,225
350,884
804,109
350,884
1,154,993
–
–
–
–
–
453,225
350,884
804,109
350,884
1,154,993
2,353,847
4,807,411
7,161,258
2,704,731
4,807,411
7,512,142
3,055,615
4,807,411
7,863,026
For the purpose of impairment testing, goodwill arising from the acquisition of Keystone Law Limited is allocated to the cash
generating unit (CGU) that is expected to benefit from the synergies of the combination. Goodwill reviews are undertaken
annually or more frequently if events or changes in circumstances indicate potential impairment.
An impairment review has been performed for the year ended 31 January 2018 and recoverable amounts have been
determined based on value-in-use calculations. These calculations have assessed the projected future cash flows over the
next five years based on financial budgets approved by management for the year ended 31 January 2019 and then projected
for a further 4 years. A discounted cash flow model was prepared taking into account management’s assumptions for growth
in EBITDA and the historical growth rates experienced by the Group, using a discount rate of 11 per cent post tax.
Management does not foresee any realistic adverse movement in the assumptions used in the impairment review which
would trigger the requirement for an impairment
42
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 13. INVESTMENTS
COMPANY SUBSIDIARIES
Details of the Company’s subsidiaries as at the end of each year were as follows:
Proportion of ownership interest and
voting rights held by the Group
Name of subsidiary
Principal activity
Country of incorporation and
principal place of business
Keystone Law Limited*
Provision of legal services England and Wales
Keystone Law (Guernsey)
Limited
Dormant
England and Wales
2018
100%
100%
2017
100%
100%
Keystone Law Limited is owned by the Company whilst Keystone Law (Guernsey) Limited is owned by Keystone Law
Limited. The registered office of all subsidiaries above is 48 Chancery Lane, London, WC2A 1JF.
14. AVAILABLE-FOR-SALE FINANCIAL ASSETS
Non-current financial assets
Available-for-sale financial assets
2018
£
2017
£
13,628
13,628
Assets held for sale represent the value of the Group’s investment in Keypoint Law Limited Pty, an Australian law firm. These
assets are valued at cost.
43
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
15. TRADE AND OTHER RECEIVABLES
Trade receivables
Provision for impairment of trade receivables
Net trade receivables
Receivables from related parties
Accrued income
Prepayments
Other receivables
Total current trade and other receivables
Company
Group
2018
£
2017
£
2018
£
Restated
2017
£
–
–
–
1,846,153
–
–
–
–
–
–
–
6,632,062
4,870,156
(1,208,843)
(697,843)
5,423,219
4,172,313
15,806
29,307
4,461,398
3,888,999
12,500
895,833
465,850
7,541
–
1,198,456
727,157
1,853,694
12,500
11,994,713
9,283,626
The fair value of those trade and other receivables classified as financial instrument loans and receivables are disclosed in
the financial instruments note.
The Group’s exposure to credit and market risks, including impairments and allowances for credit losses, relating to trade and
other receivables is disclosed in the financial risk management and impairment of financial assets note.
Included within other receivables are unbilled disbursements of £990,058 at 31 January 2018 (31 January 2017 -
£604,326).
Trade receivables stated above include amounts due at the end of the reporting period for which an allowance for doubtful
debts has not been recognised as the amounts are still considered recoverable and there has been no significant change in
credit quality.
44
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 AGE OF TRADE RECEIVABLES THAT ARE NOT IMPAIRED
0 to 30 days
31 to 60 days
61 to 90 days
91 to 120 days
3 to 6 months
6 months to 1 year
Over 1 year
Average age (days)
2018
£
2017
£
2,740,155
2,172,482
1,122,030
921,923
440,385
426,542
258,080
232,761
235,006
151,100
625,563
230,196
–
37,309
5,423,219
4,172,313
42
41
The provision for impairment of trade receivables (analysed below) is the difference between the carrying value and the
present value of the expected proceeds.
AGE OF IMPAIRED TRADE RECEIVABLES
31 to 60 days
61 to 90 days
91 to 120 days
3 to 6 months
6 months to 1 year
Over 1 year
2018
£
–
19,306
21,227
41,874
2017
£
–
4,200
2,280
16,660
532,067
265,607
594,369
409,096
1,208,843
697,843
The Directors consider that the carrying value of trade and other receivables approximates to fair value.
45
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
16. ALLOTTED, CALLED UP AND FULLY PAID SHARES
– GROUP AND COMPANY
A Ordinary shares of £10.00 each
No.
–
£
–
No.
2
Ordinary shares of £0.002 (2017: £0.0001 each)
31,273,941
62,548
428,573
Incentive Ordinary shares of £0.0001 each
–
–
22,552
31,273,941
62,548
451,127
£
20
429
22
471
As at 31 January 2018
As at 31 January 2017
As at 31 January 2017
Bonus issue
Consolidated 2:1
Incentive Shares converted to Ordinary
Shares redeemed
New Shares allotted
As at 31 January 2018
Ordinary
Incentive
A Ordinary
428,573
22,552
47,142,920
2,480,720
(23,785,747)
(1,251,636)
1,238,194
(1,251,636)
–
6,250,000
31,273,941
–
–
–
2
–
–
–
(2)
–
–
RIGHTS, PREFERENCES AND RESTRICTIONS
Ordinary shares have the following rights, preferences and restrictions:
Ordinary shares have attached to them full voting, dividend and capital distribution (on winding up) rights; they do not confer
any rights of redemption.
A Ordinary shares had the following rights, preferences and restrictions:
A Ordinary shares had no right to dividends and had no right to participate on a return of capital in liquidation or otherwise.
A Ordinary shares did not carry any right to vote except if any holder of those shares was entitled to exercise in respect of all
their shares in aggregate less than 5% of the total number of votes capable of being cast, in which case the number of votes
conferred on the A Ordinary shares was increased by such a number as entitled them to exercise 5% of the votes capable of
being cast.
Incentive Ordinary shares had the following rights, preferences and restrictions:
The Incentive shares had no right to vote nor any right to dividends but were entitled to participate on a return of capital in
liquidation or otherwise.
46
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 17. BORROWINGS – GROUP AND COMPANY
Non-current loans and borrowings
Other borrowings
Current loans and borrowings
Other borrowings
2018
£
2017
£
–
5,771,427
2018
£
2017
£
–
1,200,000
The loans were unsecured loan notes held by the Company which attracted an interest rate of 6% per annum. These were
fully paid down during the year using the funds raised from the float. The loans and borrowings classified as financial
instruments are disclosed in the financial instruments note.
The Group’s exposure to market and liquidity risk; including maturity analysis, in respect of loans and borrowings is disclosed
in the financial risk management and impairment of financial assets note.
18. DEFERRED TAX
Accelerated capital allowances
Timing differences on intangibles
Deferred tax
Company
2018
£
2017
£
–
–
–
–
–
–
Group
2018
£
6,588
2017
£
6,588
470,767
540,945
477,355
547,533
47
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
19. OBLIGATIONS UNDER LEASES AND HIRE PURCHASE CONTRACTS
OPERATING LEASES
The Group leases two offices under non-cancellable operating lease agreements.
The total future value of minimum lease payments is as follows:
Within one year
In two to five years
In over five years
2018
£
2017
£
320,063
200,683
836,680
745,668
–
8,172
1,156,743
954,523
The amount of non-cancellable operating lease payments recognised as an expense during the year was £238,427 (2017 -
£246,671). The Company has no operating leases.
20. PENSION AND OTHER SCHEMES
DEFINED CONTRIBUTION PENSION SCHEME
The Group operates a defined contribution pension scheme. The pension cost charge for the year represents contributions
payable by the Group to the scheme and amounted to £74,010 (2017 - £52,094).
21. PROVISIONS
At 31 January 2017 and 2018
22. TRADE AND OTHER PAYABLES
Trade payables
Accrued expenses
Amounts owed to group undertakings
Social security and other taxes
Other payables
Total trade and other payables
Dilapidations
provision
£
Total
£
75,000
75,000
Company
2018
£
–
2017
£
Group
2018
£
2017
£
–
5,358,137
3,811,518
211,500
1,178,098
4,240,491
4,401,957
–
–
–
107,513
–
–
–
–
47,576
121,206
–
4,057
211,500
1,285,611
9,646,204
8,338,738
The fair value of the trade and other payables classified as financial instruments are disclosed in the financial instruments
note.
The Group’s exposure to market and liquidity risks related to trade and other payables is disclosed in the financial risk
management and impairment of financial assets note. The Group pays its trade payables on terms and as such trade
payables are not yet due at the balance sheet dates.
48
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 23. RELATED PARTY DISCLOSURES
On 17 October 2014, the Company acquired 100% of the share capital of Keystone Law Limited for a total consideration
of £9,000,000 this was satisfied by the payment of £3,150,000 cash, shares in the Company with a value of £278,573 and
6% loan notes as follows: J Knight £4,714,285, C Stringer £428,571, W Robins £428,571. The cash for the acquisition was
funded by means of an equity subscription by Root Capital Fund II and £3,000,000 of debt. In exchange for the latter, the
Company issued 6% loan notes to Root Capital Fund II. Interest on the loan notes has accrued from the date of grant until
this year without being paid out. During the period, all loans, included accrued interest were paid in full. The balance owed at
31 January 2017 as well as the balance paid during the year is shown in the table below:
J Knight
C Stringer
W Robins
Root Capital Fund II
Paid
2017
£
Balance
2017
£
4,695,689
4,501,935
426,880
407,401
426,880
407,401
2,988,166
2,851,809
Interest charged on these loans was £369,070 in the year ended 31 January 2018 and £505,523 in the year ended
31 January 2017.
During the period, the Group has delivered services in the normal course of its business to Root Capital LLP and companies
within the Root Capital Fund II portfolio. These transactions have been made at arm’s length on normal commercial terms.
The value of transactions with Root Capital LLP and companies within the Root Capital Fund II portfolio was £64,130 in the
year ended 31 January 2018, and £138,084 in the year ended 31 January 2017. No balances were outstanding at any of the
years ended 31 January 2017 and 2018.
49
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
24. FINANCIAL INSTRUMENTS
In common with other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note
describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them.
Further quantitative information in respect of these risks is presented throughout these financial statements.
The significant accounting policies regarding financial instruments are disclosed in note 2.
There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and
processes for managing those risks or the methods used to measure them from previous years unless otherwise stated in
this note.
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
FINANCIAL ASSETS
AVAILABLE-FOR-SALE FINANCIAL ASSETS
Available-for-sale financial assets
Assets held for sale are held at cost
LOANS AND RECEIVABLES
Cash and cash equivalents
Trade and other receivables
Loans and receivables are held at amortised cost.
FINANCIAL LIABILITIES
Trade and other payables
Borrowings
Company
2018
£
2017
£
Group
2018
£
2017
£
–
–
–
13,628
13,628
–
13,628
13,628
Company
2018
£
–
2017
£
Group
2018
£
2017
£
–
3,589,969
714,266
1,853,694
12,500
11,994,713
9,283,626
1,853,694
12,500
15,584,682
9,997,892
Company
2018
£
2017
£
Group
2018
£
2017
£
211,500
1,285,611
9,721,204
8,413738
–
–
–
6,971,427
211,500
1,285,611
9,721,204
15,385,165
Financial liabilities are held at amortised cost. There is no significant difference between the fair value and carrying value of
financial instruments.
50
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 25. FINANCIAL RISK MANAGEMENT AND IMPAIRMENT OF
FINANCIAL ASSETS
GENERAL OBJECTIVES, POLICIES AND PROCESSES
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and,
while retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that
ensure the effective implementation of the objectives and policies to the Group’s finance function. The Board receives
regular reports from the Finance Director through which it reviews the effectiveness of processes put in place and the
appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the
Group’s competitiveness and flexibility. Further details regarding these policies are set out below:
CREDIT RISK AND IMPAIRMENT
Credit risk arises principally from the Group’s trade and other receivables. It is the risk that the counter party fails to
discharge its obligation in respect of the instrument. The maximum exposure to credit risk equals the carrying value of these
items in the financial statements.
Credit risk with cash and cash equivalents is reduced by placing funds with banks with high credit ratings.
LIQUIDITY RISK
The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.
The Board receives cash flow projections on a regular basis which are monitored regularly. The Board will not commit to
material expenditure in respect of its ongoing development programme prior to being satisfied that sufficient funding is
available to the Group to finance the planned programmes.
INTEREST RATE RISK AND FAIR VALUE RISK
There is no significant interest rate risk in respect of temporary surplus funds invested in deposits and other interest-bearing
accounts with financial institutions as the operations of the Group are not dependent on the finance income received.
CAPITAL RISK MANAGEMENT
The Group considers its capital to comprise its ordinary share capital and retained profits as its equity capital. In managing
its capital, the Group’s primary objective is to provide return for its equity shareholders through capital growth and future
dividend income. The Group’s policy is to seek to maintain a gearing ratio that balances risks and returns at an acceptable
level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment
needs. In making decisions to adjust its capital structure to achieve these aims, either through new share issues or the issue
of debt, the Group considers not only its short-term position but also its long-term operational and strategic objectives.
Details of the Group’s capital are disclosed in the Statement of Changes in Equity.
There have been no other significant changes to the Group’s management objectives, policies and procedures in the year nor
has there been any change in what the Group considers to be capital.
CURRENCY RISK
The Group is not exposed to any significant currency risk. The Group also manages its currency exposure by retaining its
cash balances in Sterling.
51
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018OUR FINANCIALS NOTES TO THE FINANCIAL
STATEMENTS
26. PRIOR YEAR ADJUSTMENTS
The prior year comparatives have been restated as detailed in the table below:
Income Statement
Depreciation and amortisation
Administrative expenses
Operating Profit
Profit before tax
Corporation tax expense
Profit and total comprehensive income for the year attributable
to owners of the parent
Consolidated Statement of Financial Position
Intangible Assets
Deferred Tax Liabilities
Retained Earnings
Company Statement of Financial Position
Investment in Subsidiary
Retained Earnings
Originally
Stated
£
Change
£
Restated
£
–
(386,086)
(386,086)
(4,607,175)
35,202
(4,571,973)
2,034,399
(350,884)
1,683,515
1,551,536
(350,884)
1,200,652
(527,921)
195,079
(332,842)
1,023,615
(155,805)
867,810
7,684,405
(172,263)
(7,512,142)
(6,588)
(540,945)
(547,533)
1,743,213
(713,208)
1,030,005
9,069,922
(69,922)
9,000,000
396,789
(69,921)
326,868
In the consolidated financial statements these adjustments arise principally as a result of goodwill being analysed, as required
by IFRS, between goodwill and lawyer relationships which is a separately identifiable intangible asset. The separate lawyer
relationships intangible asset is amortised and a corresponding deferred tax liability has also been recognised.
In addition, within trade and other receivables, £604,326 of unbilled disbursements which were previously shown within
trade receivables in 2017 have been included within other receivables in 2018 to better reflect the nature of the asset. The
comparative has been adjusted to reflect this change.
In the company statement of financial position, investments in subsidiary undertakings and retained earnings have been
adjusted to remove previously capitalised professional fees.
52
25973 16 May 2018 12:21 PM Proof 9
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2018 Keystone Law
48 Chancery Lane
London
WC2A 1JF
www.keystonelaw.co.uk
25973 16 May 2018 12:21 PM Proof 9