Operator: Good afternoon, and welcome to the Keystone Law Group plc investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand you over to James Knight, CEO. Good afternoon, sir.
James Knight: Thank you. Welcome to interim results for Keystone, six months ended 31st of July 2026. I am unsure exactly how familiar you are with the model, but Keystone has been alive and well for the last 25 years, and operating very much the same model now as we did right from the start. At the time, a very revolutionary, disruptive model, lawyers working from their own offices, earning a high percentage of fees rather than the conventional partnership employed salaried model. This gave lawyers, this continues to give lawyers a great sense of freedom and flexibility, whilst also allowing them to be part of a strong community, to have all of the support and the infrastructure of the conventional law firm. Throughout the years, we have grown bigger, we have grown stronger. The support has become increasingly sophisticated in line with the sophistication of our lawyers and our clients. And of course, technology, which always played a strong part of what we do, has increasingly come to the fore never more so, excuse me, never more so than today with AI innovations. The firm has grown really well on an annualized basis for the last 25 years. We IPO'd in 2017 and have continued to go really well since then. The market in which Keystone operates, the mid-market commercial law market is large. It is about GBP 14 billion, and that is just the sector that we operate in, and most of that, well, I would say almost all of that is addressable by the Keystone model. We are able to scale quickly, unencumbered by office space and the requirements of cash flow. We operate a very efficient pay-when-paid model, which allows the lawyers to achieve the efficiencies and the freedoms and the flexibilities that they want, whilst helping our financials. We operate a progressive dividend policy, and that has consistently returned value to shareholders ever since IPO in 2017. Moving now to the results of the six-month period just gone. I am delighted to announce another strong financial performance with revenue increasing 22.5%, revenue per principal up 14.5%, adjusted profit before tax increased 31.3%. Those are the income high-level stats. The payaways, this is the first time ever that we have completed a full gamut of different styles of payaway, share buyback, interim dividends, and special dividends. And you can see the figures there. The share buyback of GBP 1.5 million is, let's say, roughly related to the value of the LTIPs, which ensured or eliminated the dilution that would have flowed from the issuing of new shares for the LTIPs interim dividend GBP 0.096, special dividend GBP 0.15. Whilst we grow as a firm, it is also extremely important that we improve. I like to say that this is a law firm that is improving quicker than it is growing. It has been wonderful to have launched our brand refresh over the last six months, bringing the look and feel of Keystone up to where we have become. Every 10 years or so, it is necessary to do these things. Cultures change, times change, looks change, so we need to keep abreast with that. The AI is another big focus. We have been rolling out an extremely good tool called CoCounsel, owned by Thomson Reuters, one of the big choices available, and certainly the one that we believe is highly suitable for Keystone. It has been well received by our lawyers and the rollout and uptake continues. Recruitment is always a big part of the story. 23 high caliber principals joined us and the same number coincidentally of pod members. These are junior lawyers that are employed by our senior lawyers, who we call principals. Looking, focusing on the recruitment KPIs, last year was an extremely strong market for us. Certainly, we recruited stronger, more substantially than usual. This last six months is a little bit off from where we are there, but still extremely good in many ways. Certainly, the caliber of the lawyers, it is very important that we maintain a high caliber for our reputation because that is our product, for our liability, our risk, for all reasons. This firm has a tremendously good reputation because we have such good lawyers. 23 new principals recruited during the period, as I mentioned earlier, brings us up to 501 principals in the firm, 682 lawyers in total. I mentioned earlier that the AI is an important focus for us at the current time. Obviously, it is important for our lawyers to have the tools so that they can remain competitive. There are some excellent tools out there for lawyers. There is the Luminance, the Harveys, the LexisNexis, and CoCounsel, the one that we believe is appropriate for this firm. Rollout is ongoing and follows on from other AI initiatives that are continuing to receive take-up from lawyers. We are also producing a number of tools, or have produced, that help with the operations of the firm internally. The most recent one that we are launching in the near future, just testing at the current time, deals with source of funds and a requirement for us to establish where our clients' monies have come from by asking certain questions. It is a device that will save time and deal with what is often a rather difficult exchange for lawyers when delving into the wealth of our clients. We will pass over now to Ashley to take us through the financial highlights.
Ashley Miller: Yes, it has been a very strong period for us this year or this six months. We have seen revenue growth of 22.5%, taking us up to GBP 66.3 million, whilst adjusted PBIT has grown 31.6% to GBP 8.1 million. The continued strength of interest meant that we have adjusted PBT up 31.3% to GBP 9.6 million, which is a margin of 14.5%. Cash conversion in this business is always strong. The pay-when-paid model fundamentally makes that the case. Our conversion of 95.6% in the first half is reflective of that. That left us with GBP 10.5 million of cash. The adjusted EPS in the period of GBP 0.231 is an increase from GBP 0.178 the same period last year. James has already mentioned the dividends that we are paying at this time. If we move across for a bit more color on the income statement, you will see that the revenue growth has been driven essentially by broad-based client demands. We have seen strength across the business as a whole, albeit that we have had some standout strength within the corporate and corporate restructuring. Essentially, a couple of million pounds worth of revenue was slightly lumpier in the first half, and we have seen about 20% of the revenue come from corporate this year versus 16% last year. We have also seen continued strength in recruitment during the second half of last year, particularly and into this half, driving that revenue. We have seen the average principals increase 7.1% year-on-year, whilst total fee earners rose 12.5%. All of this resulted in an increased revenue per principal of 14.5%, taking us up to 133,800. Now we are a very real business, and it is really important that whilst we recruit these lawyers at the high quality and the high caliber, we need to ensure that we continue to invest in the business to provide the support and infrastructure that they need. To that end, we have continued to invest in our people. We have seen staff costs increase 15% year-on-year, with average headcounts increasing from 79 to 92. Other admin costs also increased by 14%. Within that, one of the larger areas was a transition, a move to a different IT managed provider, managed service provider. We now work with Acora. The reason for that migration was very much that we identified about 18 months ago that the provider we were with at the time was not really the partner we needed to continue to scale the business and grow into the future. The new partner that we have taken, Acora, is much better suited to deal with the complexity that we have now as the business of the scale we are at. We are very happy with the transition. It went exceedingly well, and as I say, but it has resulted in a slightly increase in cost. All of these factors resulted in our enhanced drop-through of revenue to adjusted PBIT with a margin at 12.3%, which is up 0.9% this year or this period, and the net interest remains strong, increasing GBP 0.3 million, leaving us with a margin adjusted PBT of GBP 9.6 million. Onto the balance sheet. The balance sheet here is, as always, very clean, very strong, and very simple. We are always cash positive. We do not have any debt, and we are net cash position of GBP 10.5 million at the end of the period. The pay-when-paid model of the business ensures that trade debtors remain very much aligned in interest for the lawyers have to get paid. So 33 debtor days remains very strong and there is always a corresponding liability for any remaining debtors on the balance sheet. We have already explained that we carried out the share buyback of GBP 1.5 million in the period, which when we bought just under 268,000 shares, which we used to fulfill our commitments under the LTIPs, which vested in the period. Onto the cash flow, it is a very clean cash flow statement this year. As always, very strong cash conversion, as is the nature of the business. CapEx is operating at normal levels, which for our business is sub 0.1 per annum. On the cash flow, obviously reflective of the share buyback, we have the GBP 1.5 million, which is new this year. Whilst the dividends in this year are reflected as lower than previously, that was because in 1H last year, we paid not only an ordinary but also a special dividend at that point in time.
James Knight: Thank you, Ashley. I am very delighted to bring you a set of results that certainly I hope will instill some confidence. In terms of outlook, as you probably guessed, I am quite positive about that. Certainly, this six-month period has started. We are only a month in or so. It started well. There are a lot of advantages now with Keystone Law as we have become from being an outlier small firm, we are now a really significant, very good law firm that operates behind the scenes very differently. But in terms of the output, in terms of the product that we deliver, it is a conventional legal service. Whilst we used to be successful in attracting lawyers with the promise of better work-life balance, we still have all of those advantages, but now we can also attract lawyers on the basis that we are more often than not a better firm than the one that they are coming from, or certainly able to stand alongside them. So it makes me extremely positive that not only are we, I suppose in some ways getting better at what we do, getting more experienced, but there are very many reasons why this firm is in a much, much better position than it was even five years ago. So in terms of these next six months anyway, we expect to be comfortably ahead when it comes to revenue, and materially ahead when it comes to profits. Hopefully that is something that we will turn into a reality as I am pretty sure that we will. That is the end of the formal report, and we will work through some questions now.
Ashley Miller: Okay. If I can take the first question. James has asked, could I talk through the economics of newly recruited principals? How long does it typically take for a new principal to reach mature level of productivity, and has that changed over time? In terms of the period of time it takes lawyers to come up to speed, in terms of individual lawyers, they can be all shapes and sizes depending on their personal circumstances when they come across. But broadly, if we look at cohorts of lawyers each year, they broadly come on board and get up to productivity, up to the level they will be billing pretty quickly, typically within a quarter of being on board. That is what we see there and that has really been a fairly consistent theme for a number of years now. That has not really changed dramatically over time.
James Knight: Gareth H asks, should we be concerned about the reported rise in AI-generated assisted legal actions and claims as it affects the legal sector in the U.K.? Certainly, the AI claims are becoming a very significant issue. That relates in all sorts of different ways. AI claims against our clients, in areas like employment. The employment tribunals are, I understand, at the point of collapse already because it is so relatively easy and quick for claims to be put in, whereas in the past they would not happen. These are by and large individuals who would not be going to a law firm for a claim and they would not know how to do it anyway. It is possible to create a 20-page claim document in a very short amount of time using AI. It is likely, I believe, and we are starting to see some evidence of this, that lawyers are going to be very busy as a result of AI claims or certainly those that represent commercial clients as we do, because our clients are seeing a lot of increased activity, and they need lawyers to defend that. That is one side. In terms of claims against us as a law firm, well, again, like every organization, yes, there is some indication that there is going to be uptick in people that are putting in claims complaints. We have an extremely good, strong claims record. We are an extremely well-run, efficient firm, and we deal with these things. But you cannot please everybody all of the time. All firms, from what I understand it, have noticed an influx from this. But it is just one of those things that you have to deal with.
Ashley Miller: Continuing on the bit on the AI theme here, we have a question: What is driving the big increase in value per principal? Is AI already having a positive impact, and how is AI impacting the daily working life of principals? In terms of the big drive and the big increase in the value per principal this year, it is really a number of factors, and we are not attributing this to positive features of AI as of yet. Really, it is the step-up of the drive-through from the numbers of principals we recruited throughout the course of last year. We had a strong second half last year with 30 principals join and a further 23, obviously, in this period, so the drive is there. The broad client demand continues to be strong. We have seen our annual rate rises come through in the quarter as we do every year as well. In response to the demand that is there, the normal nature of people using pods and recruiting juniors into the business now, we have seen such strength there with 23 pod members joining. That is both an engine for delivery but also a reflection of the demand or an indication of the demand that the lawyers, the principals themselves have for client work. So all of those have really been the features driving the step-up. In terms of AI and positive impact on that, I do not think anyone is ever going to be able to give absolute statistics as to how much additional revenue a business might acquire in due course as a result of AI. Doing things quicker does not in and of itself provide additional client demand. So we will not be able to provide direct statistics on that. In terms of how it is impacting daily life, lawyers are using it for a range of activities. It is very powerful in terms of both drafting, comparisons, research. All of these things are available through there. Indeed, obviously, our new tool with CoCounsel sitting across Westlaw and PLC means that the deep dive analytics and research tool is very powerful there. So it supports our lawyers in all sorts of ways, both across the business, and it continues to evolve. I think the important thing for us is the continued adoption of it across the suite of tools we provide to lawyers to take advantages that it offers.
James Knight: Marcus H asks, are you confident on the number of new principals picking up again in the short term, or most likely not in this financial year? First of all, I would say that in natural fact, our recruitment, while slightly less than a very bumper year last year, is really something that I am by no means disappointed about. It is strong, and in fact, if you combine that with the pod members, it is 46 lawyers in the six months, which is really quite some going. The reason it is slightly down, I would suggest, and it is anecdotal, is geopolitical uncertainty. We see this every time there is an election, a Brexit, a Ukrainian war. The uncertainty that is created until that abates does tend to mean that people are less likely to move jobs. But I have no idea whether that uncertainty will continue over the next six months. I think it's likely to abate, just as people get used to this situation in the Middle East. But we'll have to see. Really all we can say and make predictions on is how we believe that we will do by year-end, and as stated earlier, we're very confident both in terms of revenue and profit.
Ashley Miller: Turning now to a question around whether there's any update on the Ministry of Justice consultation in respect of interest on clients' accounts. There's been no confirmation one way or the other, I'm afraid. The consultation happened in the spring. Everyone responded from the industry negatively to the proposal, which was for the MOJ essentially to take a good chunk of the client's interest by means of whatever they chose to implement. There hasn't been an update, so it doesn't remain. There's no further clarity. What I would highlight is if you do see analysts' notes in the markets, you will see that they are building into it now a decreasing interest income over the coming three years in reflection of this downside risk. To the extent that the MOJ do end up implementing something, the projection should be deliverable in light of that, and if they don't, there could potentially be upside against that.
James Knight: There's a question: where do you think the ceiling is for Keystone? Is it the number of principals, revenue target, or something else? Well, it's a very interesting question. What I would point out is that the market that we operate in is a GBP 14 billion market, and our turnover is distinctly less than that in terms of the amount of growth that available is obviously very significant. The lawyers are there, the market is there. There's a long way to go, and we're looking forward to the journey.
Ashley Miller: The final question we have in here at the moment is in relation to revenue growth coming from new hires versus others, and why we refer to principals when we use partners on the website. In terms of the revenue growth, for us, the growth of our business is through recruitment of lawyers who bring on new clients for themselves and their colleagues. So that really is an organic growth strategy. To that extent, 100% of our growth is organic. We are not an M&A business. There is no payout for other things. In terms of the terms principals versus partners, principals are, for us, those people who contract with us through the service company, and partners is a title which is used externally, essentially in the marketplace, and therefore, we attribute that to partners. You can, in some case, have more than one partner within a pod, but that is just a slight differentiation in the market.
James Knight: Thanks, Ashley. That concludes the questions. I would like to thank you all for attending today, and look forward to continuing to present to you in about eight months' time.
Operator: That is great. Thank you for updating investors today. Can I please ask investors not to close this session, as you will now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This may take a few moments to complete, and I am sure will be greatly valued by the company. On behalf of the management team, we would like to thank you for attending today's presentation, and good afternoon to you all.
