Annual Report
and Accounts
for the year ended 31 January 2019
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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
Report of the Audit Committee
Report of the Remuneration Committee
Directors’ Report
Directors’ Responsibilities Statement
01
02
04
06
08
10
12
18
19
21
23
24
28
Our Financials
Independent Auditors’ Report
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
29
Company Statement of Financial Position 30
Consolidated Statement
of Changes in Equity
Company Statement
of Changes in Equity
Consolidated Statement of Cash Flows
Company Statement of Cash Flows
Notes to the Financial Statements
32
33
34
35
31
Highlights
Revenue
£m
20.89
16.13
42.68
31.60
25.56
15
16
17
18
19
Adjusted PBT & Operating Cash Flow
£m
5.1
5.1
3.3
2.4
2.3
1.8
2017
2018
2019
Adjusted PBT
Cash from Operations
Lawyer Numbers
321
297
277
269
266
244
248
228
208
231
215
177
168
146
143
134
140
117
101
105
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
Jul
18
Jan
19
Principals
Other Fee Earners
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26414 7 May 2019 3:39 pm Proof 525973 7 May 2019 3:39 pm Shell25973 7 May 2019 3:39 pm Shell25973 7 May 2019 3:39 pm ShellCHAIRMAN’S STATEMENTOn behalf of the Board, I am pleased to introduce Keystone Law’s first full year results as a quoted company.This has been another strong year for the Group, with revenue increasing by 35% to £42.7m (2018: £31.6m) and adjusted PBT* increasing by 57% to £5.1m (2018: £3.3m) (PBT increase of 145% to £4.7m from £1.9m), whilst adjusted PBT margin has increased from 10.4% to 12.0% (PBT margin 11.1% up from 6.1%). The business has also continued to be strongly cash generative, with cash generated from operations of £4.6m (2018: £2.4m) representing an operating cash conversion of 91% (2018: 91%).DIVIDENDIn accordance with the Group’s stated dividend policy, the Board is proposing to pay a final dividend for the year ended 31 January 2019 of 6.5p per share (2018: 0.84p per share in respect of post admission period). This brings the total dividend for the year to 9.0p.BOARD AND GOVERNANCEThis year has been our first full year operating as a Plc Board and I am happy to report that the business has moved smoothly to adopt the structures and governance requirements of a quoted business. We have also carried out our first Board effectiveness review, this was a positive exercise which highlighted no specific adverse issues and served to support points of focus for the coming year.During the year, the London Stock Exchange announced changes to its rules, requiring all AIM quoted companies to apply a recognised corporate governance code, and to explain how they do this. From the start of our period as an AIM company, as a Board, we acknowledged the importance of high standards of corporate governance and announced our intention to apply the Quoted Companies Alliance (QCA) Code. The QCA has also issued a new edition of the code this year which sets out the 10 Principles of Corporate Governance with guidance on how these should be satisfied. In our Corporate Governance Statement, we set out how these principles have been applied in our business.* Adjusted PBT for 2019 is calculated by adding share based payment costs and amortisation to PBT (2018: calculated by adding flotation costs, amortisation and loan note interest back to PBT). Details of these calculations are shown in the Financial Review.OUR PEOPLE AND TECHNOLOGYKeystone is driven by its people and its technology. It is the people who work for and with us that make the business such a successful and rewarding place to work. We place great emphasis on, and dedicate much time and effort towards attracting and retaining people of the highest calibre to work with us. Our modern agile business model provides the platform for our people to excel professionally whilst benefiting from the efficiencies and flexibility afforded by modern technology. It is this combination of our structure and culture which underpins everything we do and which drives our business forwards.OUTLOOKThis year has started well and in line with the Board’s expectations. We continue to focus on our core strategy of organic growth through the recruitment of lawyers from within the UK legal mid-market which remains a substantial opportunity for us. Although the outlook for the UK economy as a whole is somewhat uncertain at this time, we remain confident that our business model, together with the size of the market opportunity are sufficient to ensure that we will continue to deliver strong results.Robin Williams Non-executive Chairman 7 May 2019STRATEGIC REPORT01Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019STRATEGIC REPORTKeystone Law AR 2019.indd 107/05/2019 15:39:59 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, with
annual fee revenue of £33.4 billion in
2017 (up 6% year on year).
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
£16.3 billion in
annual revenue
K L
e
g
al
S
e
r
v
i
c
e
s
M
a
r
k
e
t
–
£
3
‘MID-MARKET’
LAW FIRMS
£9.34 billion in
annual revenue
‘HIGH
STREET’
LAW FIRMS
3
.4 billion in annual fee r e v e n
s
e
u
The “mid-market” (the largest 200
law firms in the country (including
Keystone) excluding the global
elite): these firms account for
£9.34 billion annual fee income
and employ approximately 50,000
fee earners (average revenue per
fee earner of £188,000) (Source:
The Lawyer Top 200, 2018). This is
the segment of the market which
Keystone operates within.
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 £16.3 billion annual
fee income and employing over
41,500 fee earners, with an
average revenue per fee earner of
approximately £392,000 (Source:
The Lawyer Top 200 2018).
The “high street” market: this
category covers the rest of the
market.
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
Alternative Business Structure (ABS), 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 9,500
law firms in England & Wales in July 2017 (source: Law
Society June 2018) and around 91,000 solicitors acting in
private practice. Despite this, the Directors believe that
the overall market can be broadly divided into the three
segments shown above and that the Mid-Market is the
segment in which Keystone operates:
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STRATEGIC REPORT
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.
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 2018 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 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
long standing 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 produced 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.
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019
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STRATEGIC REPORT
This year, we have also seen an increase in the number of
our Principal lawyers seeking to recruit their own juniors
or colleagues to work alongside them, with 15 Principals
recruiting a net 20 fee earners (2018: 4 Principals recruited
a net 5). Such juniors/colleagues are employed by or
contract with the Principal lawyer’s service company but
are, to all other intents and purposes a Keystone lawyer.
As such, they are fully vetted by the Central Office to
ensure that the quality of the services received by the
clients remains of the highest calibre. As is the case for the
Principal lawyers, these juniors sign a compliance agreement
with Keystone and are required to comply with all rules
and regulations governing Keystone’s lawyers’ professional
conduct. This development further demonstrates the
flexible and scalable nature of our model; the Principal
lawyers are able to scale their practice and benefit from the
additional fees that their service companies receive, whilst
Keystone benefits from the increasing size of the practices
which these lawyers are able to build.
Over and above this, we have also seen a general increase
in the demand for junior lawyers; this demand continues
to be met by the lawyers employed by the Central Office.
These lawyers provide a high quality and readily accessible
resource for those Principals who either do not need
full time support or who simply prefer not to take on
a permanently employed resource themselves.
The overall strength of the Keystone brand continues
to grow and this remains an essential part of the appeal
to both attracting and retaining clients and lawyers.
ONGOING INVESTMENT IN IT
IT is a fundamental part of the success of the Keystone
model, facilitating the modern agile way in which our
lawyers work. As such ongoing improvement and
development of our technology platform and solutions
is a core function of the Group.
IT security is a constant focus of our team and this year
we have launched two new initiatives to further enhance
the protection and visibility across our IT estate. These
initiatives are best in class third party solutions specifically
developed to address the challenges presented in managing
an agile IT infrastructure environment. The first of these
is a next generation anti-virus solution which not only
does everything that a conventional anti-virus would do
but also uses machine learning to enhance the protection
provided. The second provides enhanced visibility of the
devices operating on our network, as well as providing tools
which improve efficiency in rolling out new products across
the estate.
Whilst the introduction of the new GDPR legislation
this year presented a business opportunity for a number
of our lawyers, it also placed new data regulation on the
business. As part of the project to ensure compliance
with this, a full data audit of the Group was carried
out and appropriate steps taken to address the new
requirements which the legislation placed upon the
business. This project was completed ahead of the
implementation of GDPR regulation.
Following the launch of the latest version of Keyed In
(Keystone’s proprietary software platform) last year, we
have continued to focus on enhancing functionality and
incremental improvements. We have also delivered a new
module, designed to further improve the lawyer experience
during the set up and onboarding process whilst also
improving operational efficiencies and further enhancing
the scalability of the onboarding process.
CENTRAL OFFICE TEAM
I would like to take this opportunity to thank all the staff of
the Central Office team, who have worked hard throughout
the year, delivering high quality support to our lawyers and
their clients in an efficient and effective manner. We have
continued to invest in our people growing the team where
necessary and enhancing their skills so as to ensure that
we have a team with the necessary aptitudes to support
the ongoing growth of the Group. Across the disciplines
we continue to attract and retain people of the highest
calibre who work tirelessly to help us achieve the success
which we aspire to and which we have enjoyed this year.
LOOKING AHEAD
Keystone’s business model has again demonstrated its
ability to attract high quality lawyers looking to develop their
practice in an alternative manner together with the flexibility
and potential the structure provides for Principal lawyers to
build their own teams around them.
The current year has started well and the activity of
the existing lawyers, together with the strength of our
recruitment pipeline, gives me great confidence that the
business will deliver another year of strong performance
and profit growth. I look forward to another exciting year
of continued growth and development as we continue to
pursue our strategy for success.
James Knight
Chief Executive
7 May 2019
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26414 7 May 2019 3:39 pm Proof 5FINANCIAL REVIEW AND STRATEGIC REPORTKEY PERFORMANCE INDICATORS (KPI’S)The following KPI’s are used by the management to monitor the financial performance of the Group.Revenue growth: 35.1% increase (2018: 23.6%)Adjusted PBT growth: 56.8% increase (2018: 43.4%)Adjusted PBT margin: 12.0% (2018: 10.4%)PBT growth: 145.5% increase (2018: 60.9%)PBT margin: 11.1% (2018: 6.1%)Operating cash conversion %: 91% (2018: 91%)Trade debtor days: 40 (2018: 42)Net Assets: £15.4m (2018: £12.6m)The calculation of adjusted PBT is shown below.INCOME STATEMENTI am pleased to report revenue for the year of £42.7m, an increase of 35.1% 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 principal lawyer numbers increasing from 244 to 277. This year, the business has also benefited from a particularly significant piece of litigation work which has generated approximately £2.2m of revenue in the year.GROSS PROFITThe gross profit margin of the business has fallen slightly this year to 27.1% (2018: 27.6%). This is principally caused by two factors; the reduction in the proportion of billing done on central office owned clients which was approx. 1% of the billing this year (2018: c. 5.75%); during last year there were a number of corporate transactions on clients “owned” by the central office (where lawyers are the client “owner” they get 15% of the fees, so where central office is the “owner” the pay away to lawyers is only 60% rather than the full 75%) which contributed to the level of fee income on these clients. This decline has been largely offset by the increased contribution of the lawyers employed by central office on whom we achieve a higher percentage gross profit, who contributed 3.1% of revenue (2018: 1.9%).OVERHEAD COSTSOverhead costs, excluding depreciation, amortisation, share based payments and flotation costs (from 2018) have increased by 21%. This has been driven in part by the full year impact of costs associated with being a Public Company (£0.2m impact this year). Excluding this, overheads would have increased by c. 17.5%.ADJUSTED PBTAdjusted PBT is calculated as follow:2019£’0002018£’000Profit before tax4,7451,932Amortisation351351Share based payments43–Loan note interest–390Flotation cost–604Adjusted PBT5,1393,277Adjusted PBT has increased by 56.8% to £5.1m (2018: £3.3m). The continued operational gearing in the business has meant that adjusted PBT margin has also risen to 12.0% (2018: 10.4%).Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 201906Keystone Law AR 2019.indd 607/05/2019 15:40:04 STRATEGIC REPORT
NET ASSETS
The net assets of the Group have improved from £12.6m
to £15.4m, with the retained earnings of £3.8m being partly
offset by the dividends paid.
DIVIDEND
The Board is recommending a final dividend of 6.5p per
share. This will bring the total dividend for the period
to 9.0p (interim dividend paid of 2.5p per share) on the
basis set out at the time of the IPO. The proposed final
dividend will be payable on 12 July 2019 to shareholders
on the register at the close of business on 14 June 2019.
The shares will go ex-dividend on 13 June 2019.
On behalf of the Board
Ashley Miller
Finance Director
7 May 2019
TAXATION
The effective tax rate of 19.8% is higher than the standard
rate and that of the prior year (17.8%) due to the impact
of certain non-recurring items in the prior year. There were
three items which are non-recurring in nature in the prior
year; the exceptional costs associated with the successful
AIM listing; the deduction of interest on loan notes which
was previously disallowed but is 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%.
EARNINGS PER SHARE
Basic earnings per share has increased from 6.0p to 12.2p,
with the dilution effect from shares granted under LTIP
being negligible. Adjusted earnings per share, (calculated
by making the same adjustments to earnings as has been
made in calculating adjusted PBT and divided by the average
shares in circulation this year) has increased by 42.5%
to 13.4p (2018: 9.4p).
STATEMENT OF FINANCIAL POSITION
CASH
The Group’s business model is strongly cash generative
because its most significant cost, the fees paid to lawyers,
is only paid once Keystone has been paid for the work
it has delivered. As such, operating cash conversion for
the year was 91% (2018: 91%) generating cash from
operations of £4.6m (2018: £2.7m). Capital expenditure
was £0.04m and corporation tax payments were £0.9m.
As such, cash generated by the business in the year was
£3.8m (2018: £1.9m). The Group paid dividends of £1.0m
(2018: Nil), leaving closing cash of £6.3m (2018: £3.6m)
and no debt.
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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 lawyers as well as
focusing on ensuring that all lawyers
feel a part of the Keystone “family”.
Furthermore, management continues
to monitor the characteristics of
the Keystone model to ensure that
they remain commercially compelling
and attractive to both existing and
potential Keystone lawyers.
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STRATEGIC REPORT
Mitigation
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 believes 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.
CONTRACTUAL
ARRANGEMENTS
WITH LAWYERS
COMPETITION
Risk
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.
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.
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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.
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GOVERNANCE
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 and D4t4 Solutions.
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.
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CORPORATE GOVERNANCE
STATEMENT
INTRODUCTION
The Directors acknowledge the importance of high
standards of corporate governance. The Directors have
decided to apply the Quoted Companies Alliance Code
2018 on Corporate Governance (the “QCA Code”) which
sets out a framework of 10 Principles to corporate
governance. The Board intends to ensure that the Group
complies with the Code and sets out below how it complies
with each of the 10 principles.
A further aspect which is central to the Keystone model
is its culture. Keystone is far more than just a collection
of individual lawyers accessing its platform, it is a cohesive
law firm which delivers a full range of services to its clients
either working individually or as part of a team, as each
assignment requires. The flat structure, absence of politics,
and inclusive culture, all facilitated by the extensive
opportunities which the Group provides for its lawyers
to network and socialise, all ensure that Keystone’s lawyers
are well connected and fully integrated in the firm.
KEYSTONE’S BUSINESS MODEL
AND STRATEGY (PRINCIPLE 1)
KEYSTONE’S BUSINESS MODEL
As a full service networked law firm, Keystone delivers
conventional legal services across a range of service areas
and industry to a client base comprising predominantly
SMEs and private individuals. It is how these services are
delivered via Keystone’s distinctive platform model, rather
than the services themselves, which differentiates Keystone
from other law firms. It is this platform model which is
central to Keystone’s growth and success.
Unlike conventional law firms, Keystone’s high calibre and
experienced lawyers are self-employed; predominantly
contracting with Keystone through personal service
companies. The lawyers have no fixed remuneration, instead
benefiting from a transparent, consistent and 100 per cent.
variable pay structure, with between 60-75 per cent. of
fees paid to the lawyer once Keystone has been paid for the
work undertaken. They work from their own offices (mainly
in the UK, although geographic location is not a limiting
factor due to the way in which services are delivered) and
are free to focus exclusively on client care and development
and the delivery of legal services. They are fully supported
by the Group’s Central Office team which provides all of the
services they require to deliver high quality legal services to
their clients; including (but not limited to) compliance and
insurance, junior lawyer support, marketing, finance and IT.
Fundamental to the operation of Keystone’s model is the
Group’s technology solution which has been specifically
developed to deliver services to a mobile/dispersed
workforce such as we have. This uses both bespoke
proprietary software as well as best in class industry specific
solutions which, enable its’ lawyers to work efficiently and
effectively wherever and whenever they wish in a secure
and compliant manner. It also provides a quick, easy and
efficient means by which to access the services which the
central office provides.
The cash generative nature of Keystone’s platform model
and the associated lack of fixed salary overheads of its
lawyers enables the Group to scale rapidly and without
working capital pressures and constraints.
THE GROUP’S STRATEGY
The Group’s strategy is to grow the business organically,
focusing on the substantial opportunity which exists in
the UK legal mid-market. Furthermore, management
will consider international opportunities to the extent
that they are consistent with and will enhance the core
offering of Keystone.
Keystone’s platform model and associated remuneration
structure is attractive to high calibre, experienced lawyers
from mid-market firms with their own client following,
providing an alternative way to practise the law and the
opportunity to earn more than in a conventional firm
whilst enjoying a better work-life balance. The recruitment
of such lawyers enables the Group to drive its growth
and to develop a highly diverse client base. With each
lawyer developing their own business opportunities and
cross-referring work to Keystone colleagues, the Directors
believe that the Group’s growth is sustainable.
It is essential for the success of this strategy that the
selection process focused on the quality of the lawyers
who are recruited. The key to building a successful law firm
in the mid to long term is in maintaining the quality high
as this creates a virtuous circle, making the opportunity
more attractive to future candidates (and their clients)
as well as reducing the principal risks associated with
law firms (see Principal Risks and Uncertainties).
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GOVERNANCE
COMPOSITION OF THE BOARD,
ITS SUBCOMMITTEES AND
ITS MEMBERS (PRINCIPLE 5,
PRINCIPLE 6 AND PRINCIPLE 9)
The Board comprises five Directors, two executives
and three non-executives, reflecting a blend of different
experiences and backgrounds. Directors’ biographies
setting out their experience, skills and independence are
shown on pages 10 and 11. The Board believes that the
composition of the Board brings a desirable range of skills
and experience in light of the Company’s challenges and
opportunities while at the same time ensuring that no
individual (or a small group of individuals) can dominate
the Board’s decision making.
The Non-Executive Directors are expected to devote such
time as is necessary for the proper performance of their
duties. It is anticipated that this will require them to spend
a minimum of 24 days a year working for the Company.
The Non-Executive Directors meet during the year without
the Executive Directors and provide effective balance and
challenge, The Executive Directors are full time employees
of the Company.
The Non-Executive Directors keep their skill set up to
date with a combination of attendance at CPD events and
experience gained from other board roles. The Executive
Directors are employed full time in the Group and this
is the best way of their keeping up to date. The Group’s
Nominated Adviser and the Company Secretary ensure
the Board is aware of any applicable regulatory changes.
All Directors are able to take independent professional
advice in the furtherance of their duties, if necessary, at
the Group’s expense. In addition, the Directors have direct
access to the advice and services of the Company Secretary
and Finance Director.
The division of responsibilities between the Chairman
and Chief Executive Officer has been agreed by the Board
and is set out below.
ROLE OF THE CHAIRMAN
AND CHIEF EXECUTIVE
The Chairman leads the Board ensuring its effectiveness
and his role and responsibilities are clearly divided from
those of the Chief Executive Officer. The Chairman:
• sets the Board agenda;
• ensures that the Directors receive accurate and timely
information and that adequate time is available for
discussion of all agenda items, in particular strategic
issues;
• makes sure that all Directors, particularly the Non-
Executive Directors, are able to make an effective
contribution;
• maintains a constructive relationship between the
Executive Directors and the Non-Executive Directors;
• has primary responsibility for leading the Board; and
• chairs Board meetings.
The Chief Executive Officer has responsibility for all
operational matters which include the implementation
of strategy and policies approved by the Board. In addition,
he has responsibility for managing the business of Keystone
subject to the matters reserved for the Board. He has
overall responsibility for the Group’s development and
expenditure and delivering on the budget prepared by
the Finance Director and approved by the Board.
MATTERS RESERVED FOR THE BOARD
The Board is responsible for reviewing, formulating and
approving the Group’s strategy, budgets and corporate
actions and overseeing 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; and
• Changes to the Board composition.
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CORPORATE GOVERNANCE
STATEMENT
BOARD DECISIONS AND
ACTIVITY DURING THE YEAR
The Board has a schedule of regular business comprising
all the major financial and operational matters of the Group.
The Board has established a number of committees, the
work of which is described below. The Board has ensured
that all areas for which it is responsible 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 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 the Board’s current practice that the
Non-Executive Directors meet periodically and at least
annually, without the Executive Directors.
BOARD MEETINGS
Board meetings are held monthly and arranged by the
Company Secretary. Where the subjects to be discussed
call for it, the Company Secretary arranges for or prepares
suitable papers which are then circulated to the Directors
in advance. Additional ad hoc meetings and committee
meetings are called as necessary, for example to approve
the release of the Group’s annual report, once it has been
approved in principle in substantially the final form.
At least annually the Board will consider the Group’s
strategy and annual budget.
There are currently no plans in place for evolution of the
corporate governance framework in line with the Group’s
plans for growth as the Board believes that the current
structure of the Board is suitable for the such growth plans
in the short to medium term. However, the Board will keep
this under regular review.
The table below shows the Directors’ attendance at scheduled
meetings of the Board and its committees during the year:
James Knight
Ashley Miller
Robin Williams
Peter Whiting
Simon Philips
Board
12/12
12/12
12/12
12/12
12/12
Audit Remuneration
2/2
2/2
2/2
2/2
2/2
2/2
2/2
DISCLOSURE COMMITTEE
The Disclosure Committee is available as needed to review
how the Group should deal with price sensitive information
and information that may be price sensitive information.
The purpose of the Disclosure Committee is to provide a
rapid response to the potentially urgent matter of required
disclosures. All Board members are members of the
Disclosure Committee as is the Company Secretary. The
quorum of the Disclosure Committee is one of the Chief
Executive Officer, the Finance Director, or the Company
Secretary and any Non-Executive Director.
The terms of reference are available on the Company’s website.
NOMINATION COMMITTEE
The Group does not have a separate nomination committee
(this is a departure from the QCA recommendations).
Given the size of the Board and the Company, the Board
does not believe that such a committee is necessary and
has decided that the full Board will carry out the functions
which such a committee would normally fulfil.
BOARD EFFECTIVENESS
(PRINCIPLE 7)
During the year, the Group has carried out its first Board
effectiveness review. This was an internal review led by
the Chairman. The Chairman prepared and circulated a
series of questionnaires covering the effectiveness of the
Board as a whole, the NEDs and the Chairman. These were
completed by each Director and returned (in the case of
the first two) to the Chairman and (in the case of the latter)
to the Senior Independent Director. A summary of the
responses was compiled, so as to remain anonymous, and
then the outcome was discussed by the Board as a whole.
No specific failings in effectiveness were identified and
the review served to reinforce the Board’s focus on the
development of strategy, the quality of Board papers
and the Board’s monitoring of risk.
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GOVERNANCE
RISK MANAGEMENT AND
INTERNAL CONTROLS (PRINCIPLE 4)
The Board is responsible for maintaining a sound system of
internal controls to safeguard shareholders’ investments and
the Group’s assets. Such a system is designed to reduce and
manage, the risk of failing to achieve the Group’s objectives.
It is designed to provide a reasonable 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 currently the most
appropriate solution given the size and complexity of the
Group. The Board revisits this decision periodically.
The Group uses technology, with each new matter taken
on being subjected to a risk questionnaire, as well as more
traditional methods, such as file audits, to proactively
monitor matters and actively engages with consultants
to assess, understand and manage any risk that should
arise. The Group’s standard terms of business, provided
to each client at the start of each engagement, advises the
clients of the Group’s complaints procedure; this procedure
directs the clients directly to the compliance department.
Furthermore, under the terms of the compliance agreement,
which each consultant enters into with the Group, the
consultants are required to report all risks, complaints
and regulatory matters to the compliance function.
The Board is 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. Senior management conducts an annual risk
audit and submits this to the Board for review. The Board
assesses both the risks and the controls in place to prevent
the risk crystallising as well as any mitigation which would
exist should they materialise.
The Group takes a pro-active approach to risk management
which starts at the strategic level with the Group identifying
areas of the law in which it will not operate. The Group
then recruits to this risk profile. The recruitment process is
controlled by senior management team who are qualified
and experienced solicitors and who have many years’
experience of recruiting consultants to Keystone. The Group
focuses on attracting experienced and well qualified lawyers
with a client following from highly respected law firms,
thereby reducing the risk profile of the lawyer base.
As a law firm, Keystone is regulated by the Solicitors
Regulatory Authority (“SRA”) as well as being subject to other
legal regulation governing its industry and the economy as a
whole (eg: anti money laundering legislation, data protection
rules (GDPR) etc). As such, the Group has a dedicated
compliance department, led by the Group’s Compliance
Officer and staffed by employed qualified solicitors, whose
role it is to ensure compliance with all such regulation as
well as handling any complaints or claims received from the
Group’s clients. The structure of Keystone ensures that this
department is wholly independent of the consultant lawyers,
whilst the “open door collegiate” culture of the Group
ensures that lawyers are more than happy to seek support
and guidance from the team where they identify issues of
potential concern. This department reports to the Chief
Executive who is fully appraised of any regulatory matters
being handled, complaints / claims made as well as the status
of these and the Board receives regular updates as to the
status of any significant regulatory matter, any claims made or
complaints which the CEO believes may proceed to a claim.
As the most significant risk for a law firm is associated
with claims for professional negligence, one of the Group’s
significant contracts (and as such an item which requires
Board sign off) is the renewal of the professional indemnity
insurance. This ensures that the Board is the body which
is ultimately responsible for assessing the appropriateness
of the level of cover which the Group holds.
The financial procedures and controls of the Group
are under the stewardship of the Finance Director
(see Directors’ Biographies on pages [••]). These processes
and controls are reviewed as part of the Group’s audit on
an annual basis, this includes a specific SRA audit to ensure
compliance with the SRA’s rules on client money, and the
Group’s auditors meet with the Audit Committee of the
Board on a bi-annual basis without the presence of the
Finance Director.
CORPORATE CULTURE
(PRINCIPLE 8)
One fundamental aspect of the success of Keystone is
the culture of the Group. For the lawyers, the flat structure,
transparent and consistent remuneration policy and
absence of politics creates an extremely positive, open
and encouraging environment in which they can thrive
in driving forward their practices. Within the central office
team we engender a positive client focused culture; this
extends beyond the clients of the law firm to include the
lawyers themselves; whom we treat as if they were clients.
By engendering this supportive culture with our lawyers
we ensure that they are free to focus on client development
and delivering legal services which are wholly consistent
with the Group strategy.
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CORPORATE GOVERNANCE
STATEMENT
Furthermore, as a law firm, Keystone is regulated by the
SRA and as such has to comply with the SRA Code of
Conduct. Central to this Code is a series of obligations
placed on the Group and its consultants to operate
with integrity and uphold the rule of law.
Keystone’s business model drives positive behaviour.
It aligns the interests of clients and lawyers, both of
which are fulfilled through the Group and the support
the lawyers receive and use in advising the clients.
WIDER STAKEHOLDER
ENGAGEMENT AND SOCIAL
RESPONSIBILITIES (PRINCIPLE 3)
The Board recognises the importance of the wider
stakeholder groups, principally being: consultants and
employees, clients and the Group’s suppliers. The Group
engages with each of these stakeholder groups regularly
through a range of channels.
UNDERSTANDING AND MEETING
SHAREHOLDER NEEDS AND
EXPECTATIONS (PRINCIPLE 2)
The Board places great emphasis on good communications
with shareholders. The Group primarily communicates with
shareholders via its annual and interim reports. Following
the issue of these, the Chief Executive and the Finance
Director meet with shareholders and analysts. Further
announcements may be made during the course of the year
via RNS in satisfaction of the Board’s reporting obligations in
compliance with regulation and best practice.
The Group’s AGM also provides an opportunity for
shareholders to communicate directly with the Board and
shareholder participation is encouraged. Details of the
Group’s AGM, and the business to be transacted at it, are
announced in the usual way and reproduced on the Group’s
website.
In addition, the Chairman is available to meet major
shareholders on request to discuss governance and strategy.
The Senior Independent Director is also available to meet
shareholders separately if requested. Reports of these
meetings and any other shareholder communications
during the year are provided to the Board. Shareholders can
contact the Group Secretary by emailing CS@keystonelaw.
co.uk. Use the heading “Shareholder contact” to request that
a matter be brought to the Board’s attention or to arrange a
meeting with the Chairman or Senior Independent Director.
CONSULTANTS AND EMPLOYEES
Keystone’s success is built on the calibre and commitment
of its consultants and employees who share a common
commitment to go above and beyond client expectation.
Keystone is characterised by its open and inclusive
collegiate culture with consultants feeling free to share
their views about the Group with management in an
unhindered manner. The senior management and central
office employees engage directly with the Group’s
consultants daily and meet with them in a range of different
formats regularly throughout the year, providing plentiful
opportunity for dialogue. Furthermore, Keystone conducts
a formal annual survey in which the consultants provide
their feedback on the service, support and infrastructure
they receive as well as producing a quarterly internal
magazine and sending out more regular bulletins by
email or over Keyed In.
Keystone’s employees are equally central to the success
of the Group and on a periodic basis central office team
are brought together for informal “town hall” style meetings.
Keystone’s central office is open plan and there is a good
day to day dialogue between all members of staff who are
encouraged to speak freely. Management is encouraged
to ensure good engagement within its teams.
CLIENTS
Keystone’s consultants have strong client relationships
and as such normally have an open dialogue with their
clients such that they receive regular feedback during the
progression of each matter. Clients are also invited to give
feedback directly to senior management in the Group’s
engagement letter which is sent to every client at the
commencement of the matter.
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GOVERNANCE
As a regulated law firm, the services we provide are
governed by the highest standards of professional
practice and our internal compliance function works
with our lawyers, our clients, our regulator and our
ombudsman in this respect.
Our service and expertise regularly wins awards.
A number of industry publications including The Lawyer,
Legal Week, Chambers and Partners have independently
attested to Keystone’s very high level of client satisfaction.
SUPPLIERS
Each of our Group unit heads engage directly with our
suppliers in their area. We engage regularly with our key
suppliers. The heads of our Group units have direct access
to the Board and discuss supplier matters both formally
and informally as and when necessary.
COMMUNICATE HOW THE GROUP
IS GOVERNED AND IS PERFORMING
BY MAINTAINING A DIALOGUE
WITH SHAREHOLDERS AND
OTHER RELEVANT STAKEHOLDERS
(PRINCIPLE 10)
All announcements regarding AGM’s or any other
shareholder meetings, together with results of any
votes held are reported on the Group’s website which
is also the source for historical financial reports and any
regulatory news.
Activity of the Board and its subcommittees are shown
in the body of this report, which itself will be published
on our website.
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26414 7 May 2019 3:39 pm Proof 5OVERVIEWThe 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 Committee has unrestricted access to the Group’s auditors. Full terms of reference are available on the Company’s website. The Audit 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.COMPOSITION AND MEETINGSThe Audit Committee has three members, two of whom are independent Non-Executive Directors with one having recent and relevant financial experience with competence in accounting or auditing. The Finance Director attends the committee meetings by invitation. The members of the Audit Committee are:Peter Whiting (Chairman), Simon Philips and Robin Williams.The Audit Committee has met twice during the year, once following the annual audit of last year’s accounts and once following the half year. All members of the committee attended both meetings as well as the Finance Director by invitation. The auditors attended both meetings to provide feedback on their work to the committee and independently on the Finance Director.INTERNAL FINANCIAL CONTROLS AND RISK MANAGEMENT FRAMEWORKThe Audit Committee is charged with oversight of the internal financial control and risk management framework in the business. This framework is intended to provide reasonable, but not absolute, assurance against material financial misstatement or loss. The Audit Committee has concluded that sound risk management and internal controls have been in operation throughout the period.FINANCIAL MANAGEMENT AND REPORTINGThe Committee is satisfied that the Annual Report and Financial Statements, taken as a whole, provide a fair, balanced and understandable assessment of the Group’s performance, its strategy and business model as well as its financial position as at the end of the period and has advised the Board accordingly.In reaching these conclusions, the committee has considered the information provided by management and discussions held with the external auditors. INTERNAL AUDIT FUNCTIONGiven the Group’s size and complexity, the Board does not consider it necessary to have an internal audit function at this time. This position will be reviewed annually. EXTERNAL AUDITThe Committee has reviewed and agreed the scope and methodology of the work undertaken by the Group’s external auditors RSM. It has considered their independence and objectivity and has agreed the terms of their engagement and their fees.RSM have been the Group’s auditors since the Group’s shares were admitted to AIM. A review of their independence and audit process effectiveness is performed each year before a recommendation is made to the Board to propose their re-appointment at the AGM.Peter Whiting Chairman, Audit CommitteeREPORT OF THE AUDIT COMMITTEE18Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019Keystone Law AR 2019.indd 1807/05/2019 15:40:09 26414 7 May 2019 3:39 pm Proof 5REPORT OF THE REMUNERATION COMMITTEEOVERVIEWThe Remuneration Committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to their remuneration and terms of service. 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 is responsible for the management of the Group’s share based incentive scheme and any future such schemes that may be put in place.The Remuneration Committee meets as and when necessary, but at least twice each year. The committee members have regard to the recommendations put forward in the QCA Code and, where appropriate, the QCA Remuneration Committee Guide and associated guidance. The Remuneration Committee comprises at least two independent Non-Executive Directors and is chaired by a Non-Executive Director who is appointed by the Board in consultation with the two independent Non-Executive Directors.The full terms of reference are available on the Company’s website.COMPOSITION AND MEETINGSThe members of the Remuneration Committee are: Simon Philips (Chairman) Peter Whiting Robin WilliamsDuring the year the Committee met twice and all members of the committee were present.DIRECTORS’ REMUNERATION SUMMARY (AUDITED)The remuneration of the Directors is set out in the table below:£’000Salary & FeesPensionContributionsTotal2019Total2018James Knight30015315314Ashley Miller1407147147Simon Philips50–5017Robin Williams60–6020Peter Whiting35–351258522607510KEY ACTIVITIESDuring the year the Committee:• Considered the need for a long term incentive plan (“LTIP”) to further align the remuneration policy of the Group with the interests of shareholders.• Prepared, with the support of professional advisers, the draft scheme rules for the LTIP which was presented to and approved by the AGM of the Group.• Reviewed share allocation to qualifying individuals under the LTIP.• Reviewed remuneration arrangements for the Executive Directors and senior management team.19Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019GOVERNANCEKeystone Law AR 2019.indd 1907/05/2019 15:40:11 REPORT OF THE
REMUNERATION COMMITTEE
The following table shows Share Awards held by Directors:
31 January
2018
–
–
Granted
20,820
20,820
31 January
2019
20,820
20,820
A Miller
Total
DIRECTORS INTERESTS
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:
James Knight
Ashley Miller
Simon Philips*
Robin Williams
Peter Whiting
No of Shares
10,932,127
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.
Simon Philips
Chairman, Remuneration Committee
LONG TERM INCENTIVE PLAN
At this year’s AGM, the shareholders approved the adoption
of the Keystone Law Long term incentive plan 2018.
The main terms of the plan are as follows:
• The Remuneration Committee was authorised to
grant performance share awards or nil- cost options
to qualifying employees.
• Awards will be made subject to appropriate performance
criteria.
• Any award made will be subject to a three year vesting
period followed by a two year holding period, during
which time employees may not sell the shares except
insofar as necessary to pay for the tax arising from the
grant.
• No single grant may have a value greater than 100%
of the base salary of the individual to whom the grant
is made.
• The total number of shares which may be granted
(net of any cancelled) under this scheme may not
exceed 5% of the total share capital of the Company.
In July 2019, performance share awards were issued to
members of the senior management and Executive team.
As per the terms of the scheme, these awards were subject
to performance criteria, with 70% being linked to EPS
growth and 30% linked to comparative total shareholder
return with both elements being measured over a three
year period. The Remuneration Committee considers
that the targets are appropriate and are aligned with
shareholder interests.
The fair value of the employee services received in
exchange for these grants is recognised as an expense on a
straight-line basis over the vesting period. The total amount
to be expensed is determined by reference to the fair value
of the options or shares determined at the date of grant.
The awards are valued using the Monte Carlo (TSR
component) and Black-Scholes (EPS component) option
pricing models. Non-market based vesting conditions are
included in assumptions about the number of options that
are expected to become exercisable or the number of shares
that the employee will ultimately receive. This estimate is
revised at each balance sheet date to allow for options that
are not expected to vest and the difference is credited to
the Consolidated Statement of Comprehensive Income with
a corresponding adjustment to reserves.
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GOVERNANCE
DIRECTORS’ REPORT
The Directors have pleasure in presenting their report
and the financial statements of the Group for the year
ended 31 January 2019.
PRINCIPAL ACTIVITIES
AND BUSINESS REVIEW
The principal activities of the Group during the year were
the provision of legal services. The results for the year 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 28. The Directors propose
a final dividend of 6.5p per share subject to the approval
at the Annual General Meeting on 9 July 2019.
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 28 February 2019 were as shown in the
table below:
James Knight
Root Capital Fund II LP
Canaccord Genuity Wealth
Management
William Robins
Stancroft Trust
No of Shares % Holding
10,932,127
3,150,000
35.0%
10.1%
2,057,985
1,563,698
1,350,000
Cavendish Asset Management
1,331,500
River & Mercantile Asset
Management
Unicorn Asset Management
950,000
950,000
6.6%
5.0%
4.3%
4.3%
3.0%
3.0%
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
AUDITED DIRECTORS’
REMUNERATION
Directors’ remuneration payable in the year ended
31 January 2019 is set out in the Report of the
Remuneration Committee.
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.
The Company also purchased and maintained Directors’
and Officers’ Liability Insurance throughout the year.
SHARE CAPITAL
Details of share capital are given in note 18 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.
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DIRECTORS’ REPORT
GOING CONCERN
The Group and Company 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.
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
7 May 2019
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 26 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 [July 2019].
POLITICAL DONATIONS
No political contributions were made during the year.
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.
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GOVERNANCE
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.
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INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF KEYSTONE LAW GROUP PLC
OPINION
We have audited the financial statements of Keystone Law Group Plc (the ‘parent Company’) and its subsidiary (the ‘Group’)
for the year ended 31 January 2019 which comprise of the Consolidated Statement of Comprehensive Income, the
Consolidated Statement of Financial Position, the Company Statement of Financial Position, the Consolidated Statement
of Changes in Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the
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 2019 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 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 judgement, 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) that we identified. These matters included 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 Group and parent Company 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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OUR FINANCIALS
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 £42.7m in respect of lawyer fees billed and accrued in the year and 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 £5.6m, this has
a matching cost liability of £4.2m 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.
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 the 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.
We performed both an analytical review of revenue and also tested the controls in place within the revenue cycle to verify
that revenue is not materially misstated. In particular, we reviewed a sample of invoices to ensure that the correct review
procedures have been followed.
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.
Refer to note 3 and 4 in the financial statements for the disclosures relating to the revenue and accrued income.
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. When evaluating whether the effects of misstatements, both individually and on the financial
statements as a whole, could reasonably influence the economic decisions of the users we take into account the qualitative
nature and the size of the misstatements. During planning materiality for the Group financial statements as a whole was
calculated as £322,000, which increased to £485,000 during the course of the audit. Materiality for the parent Company
financial statements as a whole was calculated as £225,000, which was not significantly changed 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 that threshold 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.
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INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF KEYSTONE LAW GROUP PLC
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.
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 their 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 23, 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.
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OUR FINANCIALS
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.
USE OF OUR 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 (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB
7 May 2019
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CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
YEAR ENDED 31 JANUARY 2019
Revenue
Cost of sales
Gross profit
Depreciation and amortisation
Flotation costs
Share based payments
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.
Note
2019
£
2018
£
4
42,689,253
31,600,490
(31,107,330)
(22,891,379)
11,581,923
8,709,111
(385,111)
(382,266)
–
(603,581)
(43,205)
–
(6,594,276)
(5,448,143)
72,876
8,406
4,632,207
2,283,527
120,463
41,368
(7,659)
(392,462)
4,745,011
1,932,433
5
5
5
5
6
7
7
11
(937,782)
(344,520)
3,807,229
1,587,913
12
12.2
6.0
28
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OUR FINANCIALS
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
AS AT 31 JANUARY 2019
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
Share based payments reserve
Retained earnings
Equity attributable to equity holders of the Parent
Non-current liabilities
Deferred tax liabilities
Current liabilities
Trade and other payables
Corporation tax liability
Provisions
Total liabilities
Total equity and liabilities
Note
2019
£
2018
£
13
14
16
55,775
50,392
6,810,373
7,161,258
13,628
13,628
6,879,776
7,225,278
17
14,510,726
11,994,713
6,343,637
3,589,969
20,854,363
15,584,682
27,734,139
22,809,960
18
62,548
62,548
9,920,760
9,920,760
43,205
–
5,331,002
2,568,343
15,357,515
12,551,651
19
407,177
477,355
407,177
477,355
23
11,665,043
9,646,204
210,291
22
94,113
59,750
75,000
11,969,447
9,780,954
12,376,624
10,258,309
27,734,139
22,809,960
The financial statements on pages 28 to 55 were approved and authorised for issue by the Board of Directors on
7 May 2019 and were signed on its behalf by:
A Miller
Director
7 May 2019
Keystone Law Group Plc
Registered No: 09038082
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COMPANY STATEMENT OF
FINANCIAL POSITION
AS AT 31 JANUARY 2019
Assets
Non-current assets
Investment in Subsidiary
Current assets
Trade and other receivables
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Share based payments reserve
Retained earnings
Equity attributable to equity holders of the Company
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
Note
2019
£
2018
£
15
9,043,205
9,000,000
9,043,205
9,000,000
17
4,324,448
1,853,694
4,324,448
1,853,694
13,367,653
10,853,694
18
62,548
62,548
9,920,760
9,920,760
43,205
–
3,301,043
658,886
13,327,556
10,642,194
23
40,097
40,097
211,500
211,500
13,367,653
10,853,694
The Company’s profit for the financial year was £3,686,727 (2018: £381,593)
The financial statements on pages 28 to 55 were approved and authorised for issue by the Board of Directors on
7 May 2019 and were signed on its behalf by:
A Miller
Director
7 May 2019
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OUR FINANCIALS
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
YEAR ENDED 31 JANUARY 2019
Share
capital
£
Note
Attributable to equity holders of the Parent
Share based
payments
reserve
£
Share
premium
£
Retained
earnings
£
Total
£
At 31 January 2017 (restated)
Profit for the year and total
comprehensive income
Bonus Share Issue
471
428,123
–
49,575
–
–
New share capital subscribed
12,502
9,492,637
At 31 January 2018
18
62,548
9,920,760
–
–
–
–
–
–
–
1,030,005
1,458,599
1,587,913
1,587,913
(49,575)
–
–
9,505,139
2,568,343
12,551,651
3,807,229
3,807,229
(1,044,570)
(1,044,570)
43,205
–
43,205
–
–
–
–
–
–
Profit for the year and total
comprehensive income
Dividends paid in the year
Share based payments
At 31 January 2019
18
62,548
9,920,760
43,205
5,331,002
15,357,515
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COMPANY STATEMENT OF
CHANGES IN EQUITY
YEAR ENDED 31 JANUARY 2019
At 31 January 2017 (restated)
Profit for the year and total
comprehensive income
Dividend received from subsidiaries
Bonus Share Issue
Note
Share
capital
£
Share
premium
£
471
428,123
–
–
49,575
–
–
–
New share capital subscribed
12,502
9,492,637
At 31 January 2018
18
62,548
9,920,760
Profit for the year and total
comprehensive income
Dividend paid in the year
Share based payments
At 31 January 2019
–
–
–
–
–
–
Share based
payments
reserve
£
Retained
earnings
£
Total
£
–
–
–
–
–
–
–
–
326,868
755,462
(1,118,407)
(1,118,407)
1,500,000
1,500,000
(49,575)
–
–
9,505,139
658,886
10,642,194
3,686,727
3,686,727
(1,044,570)
(1,044,570)
43,205
–
43,205
18
62,548
9,920,760
43,205
3,301,043
13,327,556
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OUR FINANCIALS
CONSOLIDATED STATEMENT OF
CASH FLOWS
YEAR ENDED 31 JANUARY 2019
Cash flows from operating activities
Profit before tax
Adjustments to cash flows from non-cash items
Depreciation and amortisation
Share based payments
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
Dividends paid in year
Proceeds from issue of ordinary shares, net of issue costs
Repayment of other borrowings
Net cash generated (used in)/from financing activities
Net increase in cash and cash equivalents
Cash at 1 February
Cash at 31 January
Note
2019
£
2018
£
4,745,011
1,932,433
5
5
7
7
385,111
382,266
43,205
–
(120,463)
(41,368)
7,659
392,462
5,060,523
2,665,793
(2,516,013)
(2,711,087)
2,018,839
2,484,063
19,113
–
4,582,462
2,438,769
(7,659)
(2,870)
(857,420)
(538,049)
3,717,383
1,897,850
120,463
41,368
(39,609)
(31,039)
80,854
10,329
(1,044,570)
–
–
–
9,505,142
(8,537,617)
(1,044,570)
967,525
2,753,667
2,875,704
3,589,970
714,266
6,343,637
3,589,970
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019
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COMPANY STATEMENT
OF CASH FLOWS
YEAR ENDED 31 JANUARY 2019
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
(Decrease)/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
Dividend paid
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
2019
£
2018
£
(13,273)
(1,118,407)
7
–
389,593
(13,273)
(728,814)
(2,470,734)
(1,841,194)
(171,423)
102,483
(2,655,430)
(2,467,525)
–
–
(2,655,430)
(2,467,525)
–
–
–
–
–
–
3,700,000
1,500,000
(1,044,570)
–
–
–
9,505,142
(8,537,617)
2,655,430
2,467,525
–
–
–
–
–
–
34
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OUR FINANCIALS
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 2019 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.
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.
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019
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NOTES TO THE
FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES CONTINUED
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 and Company 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
is cash positive, 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.
ACCOUNTING DEVELOPMENTS
None of the standards, interpretations and amendments effective for the first time from 1 February 2018, including IFRS 9
and 15, 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 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 implementation of this standard will impact on all three primary statements. On the statement of financial position,
a new type category of fixed asset (assets for use) will be created to recognise the value of leases, whilst the full liability of
a leases will be recognised within both current and non-current liabilities. Over the life of the leases, the fixed asset will be
depreciated and this charge will replace the current cost of operating leases which is charged as part of the administrative
expenses. On the cashflow, payments of leases will be treated as repayment of borrowings, currently these payments form
part of operating cashflow.
The table below sets out the impact of these changes on the position as at 31 January 2019:
Income Statement
Depreciation and amortisation
Administrative expenses
Consolidated Statement of Financial Position
Assets for Use
Trade and other payables
Loans and borrowings (Current liabilities)
Loans and borrowings (Non-current liabilities)
Consolidated Statement of Cash Flows
Depreciation and amortisation
Increase in trade and other payables
Cash generated from operating activities
Repayment of other borrowings
Current
£
Change
£
Post IFRS 16
£
(385,111)
(280,777)
(665,888)
(6,594,276)
280,777
(6,313,499)
-
746,666
746,666
(11,665,043)
89,982 (11,575,061)
-
-
(311,971)
(311,971)
(524,708)
(524,708)
385,111
280,777
665,888
2,018,839
39,317
2,058,156
3,717,383
320,094
4,037,477
-
(320,094)
(320,094)
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OUR FINANCIALS
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.
ADJUSTED PBT
Adjusted PBT is utilised as a key performance indication for the Group and is calculated as follows:
Profit before tax
Amortisation
Share based payments
Loan note interest
Flotation cost
Adjusted PBT
2019
£’000
4,745
351
43
–
–
2018
£’000
1,932
351
–
390
604
5,139
3,277
EQUITY SHARE BASED PAYMENTS
The cost of providing share based payments to employees is charged to the profit or loss over the vesting period
of the related awards. The cost is based on the fair value of the awards made determined at the date of the award using
a combination of the Black Scholes and Monte Carlo pricing models as appropriate given the vesting and other conditions
attached to the awards. The value of the charge may be adjusted to reflect expected and actual levels of vesting.
DISBURSEMENTS
Disbursements are not included in income or expenses.
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019
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NOTES TO THE
FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES
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.
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.
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OUR FINANCIALS
INVESTMENTS
Fixed asset investments are stated at historical cost less provision for any diminution in value.
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.
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 twelve months after the reporting date.
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019
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NOTES TO THE
FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES
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.
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.
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.
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OUR FINANCIALS
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 £31,721. This in turn would result in a change in the associated cost of sale of £23,791 and
an impact to profit of £7,930.
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.
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.
2019
£
2018
£
42,466,671
31,473,380
222,582
127,110
42,689,253
31,600,490
In accordance with IFRS 8, no single customer represented more than 10 per cent of revenue for any of the years ended
31 January 2018 or 2019.
5. EXPENSES BY NATURE
Expenses are comprised of:
Depreciation
Amortisation
Share based payments
Flotation costs
Staff costs
Operating lease expense – property
Other administrative expenses
2019
£
2018
£
34,226
31,382
350,884
350,884
43,205
–
–
603,581
2,884,754
2,326,259
280,777
238,427
3,867,698
3,104,256
7,461,544
6,654,789
Included within staff costs above are the costs of employed fee earners who are included within cost of sales
(2019: £438,952, 2018: £220,799).
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019
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NOTES TO THE
FINANCIAL STATEMENTS
6. OPERATING PROFIT
Operating profit is arrived at after charging:
Depreciation expense
Operating lease expense – property
Fees to auditors: audit fee
Fees to auditors: non audit fees
Solicitors accounts rules audit
Corporation tax compliance
Advisory
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
8. STAFF COSTS
The aggregate payroll costs (including Directors’ remuneration) were as follows:
Wages and salaries
Social security costs
Pension costs, defined contribution scheme
2019
£
2018
£
34,226
31,382
280,777
238,427
52,500
47,500
11,500
9,000
11,000
8,500
–
101,500
2019
£
2018
£
120,463
41,368
(7,659)
(2,870)
–
(389,592)
(7,659)
(392,462)
112,804
(351,094)
2019
£
2018
£
2,519,731
2,026,290
275,588
225,959
89,435
74,010
2,884,754
2,326,259
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
The Company does not employ any employees and as such has no staff costs.
42
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019
2019
£
8
37
45
2018
£
6
34
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OUR FINANCIALS
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 £62,684 (2018: £54,148).
10. EQUITY SETTLED SHARE BASED PAYMENT PLANS (LTIP)
At this year’s AGM the Group adopted the Keystone Law Long Term Incentive Plan 2018 (The Plan). The Plan is a
discretionary benefit offered for the benefit of selected key employees. Its main purpose is to increase the alignment
of interest of the employees with the long term goals and performance of the business and its shareholders.
Under the terms of the scheme, awards may either be granted as Nil Cost options or Performance Share Awards and the
type, value, performance conditions and periods as well as to whom the grants are to be made are at the discretion of the
Remuneration Committee.
A summary of the structure of the rules of the Plan is set out below:
• Awards may either be granted as Nil-Cost options or Performance Share Awards.
• Awards may be granted under this Plan during the 10 year period following the date of approval.
• Maximum number of shares awarded (excluding those which have lapsed) under the Plan may not exceed 5% of the
share capital of the Company.
• Maximum number of shares which may be awarded under any Share plan for the Company may not exceed 10% of the
share capital of the Company in 10 years preceding the date of issue.
• No individual may receive awards in any single year with a value greater than 100% of that individual’s base salary.
• Awards are personal and non transferable.
• Grants shall be subject to a 3 year vesting period.
• Following vesting, shares are subject to a further 2 year holding period (save for allowing shares to be sold to pay the tax
liability arising on the Vesting of the Award.
• Reduction of Awards and Clawback provisions are included.
The Company has the following number of performance shares granted under Awards during the year (none had been
exercised at 31 January 2019)
Performance Share Awards
Total
31 January
2018
–
–
Granted
92,208
92,208
31 January
2019
92,208
92,208
The weighted average remaining contractual life of the performance shares was 2.5 years at 31 January 2019.
The following table shows Share Awards held by Directors:
A Miller
Total
31 January
2018
–
–
Granted
20,820
20,820
31 January
2019
20,820
20,820
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019
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NOTES TO THE
FINANCIAL STATEMENTS
10. EQUITY SETTLED SHARE BASED PAYMENT PLANS (LTIP)
The performance share awards issued include market-based performance conditions and have been valued using a
combination of the Monte Carlo options pricing model (TSR tranche) and Black-Scholes method (EPS tranche). The charge
for the year is £43,205 (2018: £Nil). The key assumptions used in the calculation of the fair value of the share based
payments are as follows:
EPS Tranche
TSR Tranche
Share price at grant date
Exercise price
Risk free rate
Dividend yield
Expected term
Volatility (simulated TSR performance)
Grant date TSR performance of Company
Grant date median/upper quartile TSR performance of comparator group
Correlation
Discount for post-vesting transfer restrictions
11. 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
£3.36
£0.00
–
0.74%
3 years
–
–
–
–
16.6%
2019
£
1,007,960
–
1,007,960
–
(70,178)
937,782
£3.36
£0.00
0.79%
0.74%
3 years
30%
2.65%
0.34%/0.90%
5%
16.6%
2018
£
417,119
(2,422)
414,697
–
(70,177)
344,520
The actual tax charge is lower than the standard rate of corporation tax in the UK applied to the profit before tax
2019 – 19.8% (2018 – 17.8%).
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OUR FINANCIALS
2019
£
2018
£
4,745,011
1,932,433
901,552
367,162
–
35,630
(2,422)
7,070
–
(27,290)
937,782
344,520
2019
£
2018
£
3,807,299
1,587,913
4,201,388
2,931,970
2019
No of shares
2018
No of shares
31,273,941 26,346,056
53,447
–
31,327,388 26,346,056
12.2
12.2
13.4
6.0
6.0
9.4
The differences are reconciled below:
Profit before tax
Corporation tax at standard rate 19% (2018: 19%)
(Decrease)/Increase in current tax from adjustment to prior periods
(Decrease)/Increase from effect of expenses not deductible in determining taxable profit
Decrease from effect of adjustment in research and development tax credit
Total tax charge
12. EARNINGS PER SHARE
The calculations of earnings per share are based on the following profits and number of shares:
Profit attributable to owners of the parent
Adjusted earnings
Weighted average number of shares
For basic earnings per share
Dilutive effect of grants under LTIP
For diluted earnings per share
Basic earnings per share (p)
Diluted earnings per share (p)
Adjusted basic earnings per share (p)
Adjusted basic earnings is calculated by making the same adjustments made when calculating adjusted PBT from PBT.
Adjusted basic earnings per share is calculated by taking adjusted earnings and dividing it by undiluted average shares for
the current year.
Keystone Law Group plc Annual Report and Accounts for the year ended 31 January 2019
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NOTES TO THE
FINANCIAL STATEMENTS
13. PROPERTY, PLANT AND EQUIPMENT
Cost or valuation
At 31 January 2017
Additions
At 31 January 2018
Additions
At 31 January 2019
Depreciation
At 31 January 2017
Charge for the year
At 31 January 2018
Charge for the year
At 31 January 2019
Carrying amount
At 31 January 2019
At 31 January 2018
At 31 January 2017
The Company had no property, plant and equipment in either 2019 or 2018.
Furniture,
fittings and
equipment
£
177,309
31,039
208,348
39,609
247,957
126,574
31,382
157,956
34,226
192,182
55,775
50,392
50,735
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OUR FINANCIALS
Lawyer
relationships
£
Goodwill
£
Total
intangibles
£
3,508,840
4,807,411
8,316,251
804,109
350,884
1,154,993
350,884
1,505,877
–
–
–
–
–
804,109
350,884
1,154,993
350,884
1,505,877
2,002,963
4,807,411
6,810,374
2,353,847
4,807,411
7,161,258
2,704,731
4,807,411
7,512,142
14. INTANGIBLE ASSETS
Cost or valuation
At 31 January 2018 and 2019
Amortisation
At 31 January 2017
Charge for the year
At 31 January 2018
Charge for the year
At 31 January 2019
Carrying amount
At 31 January 2019
At 31 January 2018
At 31 January 2017
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 2019 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 2020 and then projected
for a further four years. A discounted cash flow model was prepared taking into account management’s assumptions for
growth and the historical growth rates experienced by the Group, using a discount rate of 11 per cent.
Management does not foresee any realistic adverse movement in the assumptions used in the impairment review which
would trigger the requirement for an impairment.
15. INVESTMENTS
COMPANY SUBSIDIARIES
Details of the Company’s subsidiaries as at the end of each year were as follows:
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
Proportion of ownership
interest and voting rights
held by the Group
2019
100%
100%
2018
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.
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NOTES TO THE
FINANCIAL STATEMENTS
16. AVAILABLE-FOR-SALE FINANCIAL ASSETS
Non-current financial assets
Available-for-sale financial assets
2019
£
2018
£
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.
17. TRADE AND OTHER RECEIVABLES
Trade receivables
Provision for impairment of trade receivables
Net trade receivables
Receivables from related parties
Accrued income
Prepayments
Other receivables
Company
Group
2019
£
2018
£
2019
£
2018
£
–
–
–
–
–
–
8,255,214
6,632,062
(1,702,097)
(1,208,843)
6,553,117
5,423,219
4,317,557
1,846,153
15,806
15,806
–
–
–
–
5,647,263
4,461,398
1,022,157
895,833
6,891
7,541
1,272,383
1,198,456
Total current trade and other receivables
4,324,448
1,853,694
14,510,726
11,994,713
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.
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.
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OUR FINANCIALS
2019
£
2018
£
3,475,845
2,740,155
1,482,896
1,122,030
853,050
440,385
469,966
258,080
271,360
235,006
–
–
625,563
–
6,553,117
5,423,219
40
42
AGE OF TRADE RECEIVABLES THAT ARE NOT IMPAIRED
0 to 30 days
31 to 60 days
61 to 90 days
91 to 120 days
4 to 6 months
6 months to 1 year
Over 1 year
Average age (days)
The provision for impairment of trade receivables (analysed below) is the difference between the carrying value and the
present value of the expected proceeds.
0 to 30 days
31 to 60 days
61 to 90 days
91 to 120 days
4 to 6 months
6 months to 1 year
Over 1 year
2019
Gross
£
2019
Provision
£
2019
Expected
Loss Rate
%
2018
Gross
£
2018
Provision
£
2018
Expected
Loss Rate
%
3,476,340
1,482,896
853,986
469,966
292,075
759,052
920,899
495
–
936
–
20,715
759,052
920,899
8,255,214
1,702,097
0.1
0.0
0.1
0.0
7.1
100.0
100.0
20.6
2,740,155
1,122,030
459,691
279,307
276,880
1,157,630
594,369
–
–
19,306
21,227
41,874
532,067
594,369
6,632,062
1,208,843
0.0
0.0
4.2
7.6
15.1
46.0
100.0
18.2
The Directors consider that the carrying value of trade and other receivables approximates to fair value.
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NOTES TO THE
FINANCIAL STATEMENTS
18. ALLOTTED, CALLED UP AND FULLY PAID SHARES –
GROUP AND COMPANY
Ordinary shares of £0.002
As at 31 January 2019
As at 31 January 2018
No.
£
No.
31,273,941
62,548
31,273,941
31,273,941
62,548
31,273,941
£
62,548
62,548
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.
19. DEFERRED TAX
Accelerated capital allowances
Timing differences on intangible assets
Deferred tax
Company
Group
2019
£
2018
£
–
–
–
–
–
–
2019
£
6,588
2018
£
6,588
400,589
470,767
407,177
477,355
20. 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
2019
£
2018
£
311,971
320,063
524,708
836,680
–
–
836,680
1,156,743
The amount of non-cancellable operating lease payments recognised as an expense during the year was £280,777
(2018 - £238,427). The Company has no operating leases.
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OUR FINANCIALS
21. 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 £89,436 (2018 - £74,010).
22. PROVISIONS
At 31 January 2018
Charge for the year
At 31 January 2019
The Company has no provisions.
23. 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
£
75,000
19,113
94,113
Total
£
75,000
19,113
94,113
Company
2019
£
–
2018
£
Group
2019
£
2018
£
–
6,438,227
5,358,137
40,097
211,500
5,048,699
4,240,491
–
–
–
–
–
–
–
–
178,117
47,576
–
–
40,097
211,500
11,665,043
9,646,204
The fair value of the trade and other payables classified as financial instruments is 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.
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NOTES TO THE
FINANCIAL STATEMENTS
24. DIVIDENDS
During the year, the Company paid the final dividend in respect of the year ended 31 January 2018, which was approved at
the Company’s 2018 Annual General Meeting (AGM), of 0.84p as well has an interim dividend in respect of the year ended
31 January 2019 of 2.5p per share. As such the total dividend payments in the year amounted to £1,044,570 (2018: £Nil).
The Directors will propose a resolution at the coming AGM to pay a final dividend of 6.5p per share (2018: £0.84) which,
if approved, would result in a dividend payment of £2,032,806 (2018: £262,701).
25. RELATED PARTY DISCLOSURES
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 £49,170
in the year ended 31 January 2019, and £64,130 in the year ended 31 January 2018. No balances were outstanding
at any of the years ended 31 January 2018 and 2019.
Also during the year, the Group received income in respect of a management charge from Keypoint Law Limited
Pty, an Australian law firm in which the Group holds a minority shareholding. The amount received was £47,930
(2018: £17,100), the Group is also owed £15,806 at 31 January 2019 (2018: £15,806) in respect of loan financing
which it provided to Keypoint.
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OUR FINANCIALS
26. 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
Company
Group
2019
£
–
–
2018
£
–
–
2019
£
13,628
13,628
2018
£
13,628
13,628
Company
Group
2019
£
–
2018
£
2019
£
2018
£
–
6,343,637
3,589,969
4,324,448
1,853,694
13,488,569
11,098,880
4,324,448
1,853,694
19,832,206
14,888,849
Company
2019
£
40,097
40,097
2018
£
Group
2019
£
2018
£
211,500
11,476,926
9,673,628
211,500
11,476,926
9,673,628
Financial liabilities are held at amortised cost. There is no significant difference between the fair value and carrying value of
financial instruments.
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NOTES TO THE
FINANCIAL STATEMENTS
27. 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.
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OUR FINANCIALS
28. RESERVES
SHARE PREMIUM
The balance of the share premium account represents the value received for shares issued above their nominal value net of
transaction costs.
SHARE BASED PAYMENTS RESERVE
The balance of the share based payments reserve represents the cumulative expense charged to the statement of
comprehensive income in respect of share based payments.
RETAINED EARNINGS
The balance of the retained earnings reserve represents the cumulative profits of the business net of distributions made to
shareholders.
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Keystone Law
48 Chancery Lane
London
WC2A 1JF
www.keystonelaw.co.uk
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