Good afternoon, ladies and gentlemen, and welcome to the Keystone Law Group PLC investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged; they can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, as usual, we would just like to submit the following poll, and if you could give that your kind attention, I'm sure the company would be most grateful.
I would now like to hand you over to the executive management team from Keystone Law Group PLC. James, good afternoon, sir.
Good afternoon, everybody, and thank you for being here for Keystone's results for the six-month period finishing on the 31st of July 2025. I'm pleased to announce that it's been a good year for Keystone. Before we get into that, I would like to just summarize a little bit of background about the firm. In case anybody on this call is really not aware of what we are and what is unusual about us, Keystone is a law firm. It is a regulated law firm established in 2002. We provide conventional legal services to high-net-worth individuals and corporates. What is different about this particular law firm is that we are structured in a very unique way. Our lawyers operate from such an office as they choose to work from, whether that be at home or in some other commercial premises.
They receive a high percentage of fees rather than a traditional salary or partnership share. They are supported by a large team of about 80 individuals based in the central London office of Chancery Lane, where we also have meeting rooms. The reason why Keystone is successful is because it provides all the freedom and the flexibility that our lawyers want, and they combine that with all of the support and the infrastructure of a conventional law firm. The lawyers that we recruit, and recruitment of lawyers is the number one driver of growth at Keystone. Those lawyers bring in their own clients. They bring in clients for themselves and their new Keystone colleagues. Sometimes they have good connections, sometimes they have a full book of business to bring to the firm. We recruit very carefully. We only recruit the best.
The product that we offer, I mean, our reputation and our product rest with the caliber of the lawyers. It's extremely important that we keep that high and to ensure that there is a good fit between the lawyers we take on and the existing lawyers in the firm. We have a clear culture. We recruit very much like a conventional employer, even though our lawyers are actually self-employed. This is important to limit risk and also, as I mentioned earlier, to keep the caliber of the lawyers high. We do a great deal to ensure that our lawyers work together seamlessly, to know each other very well. It's a very sociable firm. It's a very friendly firm. It's a very team-oriented firm. The greatest misunderstanding about Keystone is often that it is a bunch of individuals operating under one brand on their own.
34% approximately of work at Keystone is cross-referred from one lawyer to another, thereby bringing all of the benefits of the conventional firm and all of the benefits of this new platform model. We are able to grow quickly, and we are able to scale quickly depending on the quality of the candidates that we receive. The six months just gone has actually been a very good time for us. The market that we operate in is a £12 billion market. That is the size of the mid-sector private practice law firm market. That is what is addressable by Keystone. For a firm that has just turned over almost £100 million, a £12 billion market is very exciting. It is the second largest market in the world and one that we are very steadily progressing within.
I'd like to turn now to some of the highlights of the year that has just gone. As I mentioned earlier, it has been a strong year. The revenue has increased by 16.5%. Adjusted PBIT is up 11.2%, and the adjusted PBT is up 20.4%. I will leave it to Ashley later on here to delve into those figures in a little bit more detail and to give you an indication of the effect of interest earned on the client account and what that has had over the course of the last six months. Operating cash conversion is very good, 104.2%, and we remain debt-free with cash in the bank, which is what we always make sure that we have. We have always been debt-free, and we like to keep cash in the bank just in case it is required for anything unexpected.
As usual, we will be issuing a dividend. In this particular case, that will be for £0.075 per share. I mentioned earlier that recruitment was the number one driving factor for Keystone. The KPIs have remained strong. We have recruited 30 new principals. These are the senior lawyers who bring in the work into Keystone. We have recruited 30 of those during the period just gone. Other fee earners, these are pod members, have increased by 19 so that we have 140 of those within the firm. We finished the year with a total fee earner complement of 612. Turning across the slide to the next slide here, giving you a little bit of an indication as to how that recruitment strategy has broken down. Applicants, 164.
Now, applicants are lawyers that have come to the firm either through an agency, either directly, or either as a referral from one of our existing Keystone lawyers. Those applicants, they're not just anybody who sends a CV through. They are applicants that look interesting on paper to us, and they go into the pipeline for processing. By processing, I mean contacting, interviewing, discussing, maybe interviewing again, ironing out any challenges. It is a bit like in a conventional recruitment process for an employee. Quite often, it's a conversation, a conversation that may happen over two weeks and may happen over two years. It is a process to ascertain whether there is a good fit. We are looking for people that are not just good CVs, not just good clients to bring to the firm, but also are a good personality fit with the rest of the firm.
Collaborative rainmakers, people who will be on a similar wavelength to the firm. I mean, we're a broad church, but we still, like any good successful organization, we have a culture and a personality. Offers made and offers accepted are not exactly a subset of each other. An offer made can happen during the period, and it can be accepted in a different time period. In fact, all of these are different. None of these are subsets of each other. Obviously, offers made are always actually, having said that, going to be more than accepted. Some lawyers decide to stay where they are. Some may decide to go into a conventional firm.
If they're looking at the dispersed model and we have made them an offer and they wish to go with the dispersed model or the platform model, as we are called, it is to us that they will invariably come. As mentioned earlier, we have finished the principal numbers. Actually, I didn't mention earlier, but I'll mention it now. Principal numbers have increased to 472, and I did mention that 612 lawyers is the total as at the end of the period. Now, turning across the slide here, we talk a lot in these meetings about the growth of the firm, about the recruitment. It's what investors and potential shareholders are most interested to know about, the growth prospects.
We also like to add some color because 95% of our operations is delivering on the client demand, and that involves supporting our lawyers, delivering, if you like, a service to our lawyers, everything our lawyers need to operate, everything they need to operate in as a team, sometimes together, dynamically, to fulfill the client demands every bit as efficiently as they would in a conventional law firm, or hopefully more so, as is often the case. One of the areas we've decided to focus on this time is that of AI because it is so relevant and it is so much on people's minds. AI is, to some, a frightening concept. It is certainly something very nascent. It's certainly something everybody's talking about. We are definitely talking about it, but we're also getting very involved.
It has been an easy journey for us in some ways to emotionally adopt the concept of AI because we have always been very much about the technology. Ever since 2002, Keystone has been about using technology to drive efficiencies, to cut overheads. This is how we are able to effectively apportion 75% of the fees earned by lawyers to those lawyers. That is a much higher share than they would ever receive in an employed world. One of the ways that we do that is keeping overheads down and efficiencies high. One of the ways we do that is by using technology. That has always been the case. AI presents a world of wonderful opportunities to us.
We have already, previous to this period, launched the KeyBot, which is a ChatGPT equivalent, but within the Keystone domain so that the confidentiality of clients is assured whilst we are still using the AI technologies that the ChatBot or the KeyBot can provide. Recently, we have launched a new operating manual with AI enabled so that the 200-page document that is extremely complex can now be accessed by any lawyer easily by asking simple, straightforward questions. How do I do this? How do I do that? Particularly relevant for new lawyers in their early stages, having to get used to a whole new system and way of working. We have quite a few other AI plans in place that are actually being produced at the moment. Also, we're taking advantage of some of the AI technologies that are introduced by our suppliers, maybe on an opt-in basis.
We are opting in. We're a big believer of the technology that this delivers. The AI story for law firms, and we are in many ways no different, is one of two sides. On the one hand, there is the infrastructure required to the operations of a firm. Particularly with us, where we have our unique IT platform, that infrastructure improvement using AI must be accomplished by bespoke development, either our own developers, of which we have three, or outsourcing so that they can produce these bespoke improvements to our operations fitting in with our IT platform. The other side to AI in law firms are the tools that the fee earners use. In that particular case, our requirements are no different than the conventional. We have a large team of lawyers in many different practice areas doing fee earning work.
AI tools relevant to their practice area can be very useful. It is our job to really assess what's out there. There's a lot coming onto the market, to look at it carefully, assess what is best, what is useful, what is really going to get used, how to apply it on a firm-wide basis, on an individual practice area basis, or maybe just literally individuals that will make good use of it. Not all lawyers, a lot of people will not be relevant to the AI story in this respect, not want to use it, may find that the conventional way can actually be quicker for them, which is fine. We don't really want to be buying licenses for people that aren't going to use it, but we are very much encouraging, teaching, helping people to adopt these new tools so we remain competitive and profitable.
The other story in regards to the last six months that is of relevance and adds a little bit of color to Keystone Law Group and its operations is something we've been working on for the last year, which is a marketing brand refresh. It's not a rebrand. There's no change of name. It's just the look, feel, colors, design, style. A lot has happened in the last 10 years since we last did this. We are a very, very different, more advanced, cutting-edge, technologically enabled law firm. During those 10 years, a lot has changed as well in terms of culture, style, fashion. Generally, nothing to do with us. It's just the world has changed, and it changes in subtle ways, whereas styles and what makes a good presentation, what makes a good website, these are things that change.
It's very important for Keystone Law Group, a law firm that is innovative and at the forefront of legal evolution. It's very important for us to look the part as well as just talking the part. It's very important not to be complacent, sit back and say, "It's all working fine." We don't really need to change anything. We need to innovate not just on this, but in everything that we do. We need to be, without overdoing it, we need to be self-critical. Look at what we're doing, what's working, what isn't, but also even if it's working, what's working but could work better? How has time changed? The brand refresh is very much part of that whole story. I'd like to pass now over to Ashley, who will elaborate and focus on the financials.
As we've said, it's been a very positive year for us this year to date. We've had revenue growth of 16.5%, taking us to £54.2 million. Adjusted PBIT is up 11.2% to £6.2 million, and adjusted PBT is up 20.4% to £7.3 million, which is an adjusted PBT margin of 13.6%. The operating cash flow conversion, particularly strong in the first half, as always. We always tend to be stronger in the first than the second half of the year, although the business is always very strong throughout. A conversion of 104.2% versus 106% last year. We retain a strong balance sheet and a strong cash position of £6.5 million. This is after having paid out the ordinary, the final ordinary, and a special dividend at the back end of last year. We closed the period with adjusted EPS of 17.8p and an interim dividend of 7.5p.
In terms of just giving a bit more color on some of those things, the revenue growth has really been driven by a combination of factors. Firstly, we have the actual growth in the number of principals, which have been driving strong recruitment both in this period and in last year, which flows through into driving that revenue now. We've also seen an increase in the revenue per principal of just under 10%, from £106,300 to £116,800. That rate rise itself is a combination of multiple factors. As a law firm, we review our rate card each year. That rate card review comes through in the spring, and this year it was approximately 4.9%. That is implemented on new matters, and there can be a bit of a slow burn to when that comes through.
Some of the increase will be reflective of the increase last year flowing through into the rest of last year and now here, and again, some from this rate rise. Over and above that, the continued evolution of the firm and delivery moving up the value chain is the other factor which really impacts on the revenue per principal. The growth in the revenue this year, this period, has very much been driven by our principals and our pod members. As a result of that, the share of revenue which we get from the central office lawyers who support our lawyers and lawyers we have in the Isle of Man has fallen as a share of the overall revenue, which goes to driving a reduction in the gross profit margin from 26% to 25.5%.
If we move down the P&L into the overhead base, we're a business which is growing, and we continue to need to invest across the central office team in order to support and sustain the growth of our lawyers and the service levels they expect. Within headcount, we've seen an increase of 16.7% year on year. That's driven by both the increase in number of heads. We've now had 79 heads. We had 68 this time last year. We had pay reviews. It's a competitive recruitment market, and wage inflation continues to be higher than historically. Our wage rise last year was on average 6%, representative of both the broader economic indicator, but also promotions within the business. A further 2% of that 16% increase was driven by the increase in the employer's national insurance contribution, which came through earlier this year.
In terms of the other admin costs, a number of these costs are really linked to either the revenue, such as the professional indemnity insurance, which is priced against that, or to do with the number of users we have. Many of our software licenses, etc., obviously are linked to user volumes. Over and above that, we've had some more larger spends this year, a circa £0.2 million additional cost on the IT infrastructure front, resulting from the migration to the public cloud, which was a project we took out in the second half of last year, and also investment in additional software licenses. We've also seen a slight change in the mix of where the lawyers have joined us in this period, vis-à-vis last year, and an additional recruitment cost of about £150,000 as a result of that.
We recruit through the three channels: direct, lawyer-referred, which we pay a £5,000 fee, and through recruitment agencies, where we pay a fee linked essentially to the revenue that our lawyers will bring. An additional mix of those in that channel or a higher value could result in additional costs. The impact of that is all that the adjusted PBIT increased 11.2% to £6.2 million, and the margin of 11.4% is down effectively from the flow-through of the change in gross profit margin. During the course of the year, we were able to renegotiate the bank interest rates, essentially conditions as the margins of the rates have started to fall. The banks have conceded we get a better share of that. We are now seeing the benefit of that during this first half with net interest income of £1.1 million, up from £500,000.
That means that the benefit of that falls through very much to the adjusted PBT margin, where we've seen an increase in margin from 13.1% to 13.6%. Moving on to the balance sheet. The balance sheet of this business is always very clean and simple. As I've said previously, the cash position, we're debt-free, and we had cash of £6.5 million. The dividends paid out this year included the special dividend of £4.8 million, as well as the final ordinary of £4.4 million. Debtor days are always strong, and this again is really a reflection of the model and how you have the alignment of interest with the lawyers, where the pay when paid structure really focuses the mind. At 33 days, we're in line with where we were last year.
The trade debt within the payables, the largest element is the payments, payable liability to the lawyers, which is the part we would pay away linked with our debtors. In terms of the fixed assets, it's fairly self-explanatory to the fit-out we had last year, and the intangibles are a historic position from some peer investment in October 2014. Moving over to the cash flow, the business, as we've said, is fundamentally cash generative, and the operating cash conversion is always strong and no less so in this period. In terms of sort of movements year on year within the cash flow model below that, I've already referred to the net interest, obviously, as well as impacting the income statement. That flows through into the cash flow.
Corporation tax, this year we've actually had less cash outflow than last year, and this is just an anomaly from last year where we were reclassified by HMRC as super large, which means that having previously paid half of our corporation tax in year and half in the following year, we moved into a period of paying all of the corporation tax in the year. That meant last year was a transitional period, and the first half of last year we had four quarterly payments versus in this period the normal two. These payments are particularly, again, particularly low last year because we were in a rent-free period following the renewal of our leases in Chancery Lane, London. The dividends, I've already highlighted the breakdown of those.
Thank you, Ashley. As we've said, it's been a good year. I mean, it's been a good six months, and I think that this bodes well for the year as a whole, finishing on the end of January 2026. We've started the second period in good shape. Recruitment has been positive, and billings have been positive. We are enjoying the sort of market that we are experiencing at the current time, and by that, I mean the mixture of a strong legal demand from clients and a recruitment market which is not overly competitive, allowing us to be able to recruit the people that we want without an undue level of competition for these lawyers, which is something that we saw in the post-pandemic lockdown time. For about two years, the legal market was extremely busy. That was great for us in many ways.
Our revenue responded well from that, but it was very challenging on the recruitment side. Some of those years went on for a couple of years. I think I remember recruiting only about 30 lawyers in the course of a whole year, whereas obviously that's what we have done in the six-month period. Keystone continues to remain a wonderful challenge. There are other law firms operating in this way. We like that. It's extremely helpful because it helps to make the platform model, the Keystone model, the model that we invented back in 2002. It helps to bring that into the mainstream, and we are pretty much now mainstream accepted within the legal profession, which means that the scope, the number, the % of lawyers who are keen to join us or prepared to join us because it's not so new, it's not such a strange, disruptive concept anymore.
That means that net is able to be cast so much wider, and that is of great help to us. I would very much welcome questions. We would very much welcome questions if you would like to put them into the little Q&A box that is on the right-hand side, and I'm happy to deal with anything that we can deal with. I see that there's one here from David B, who is interested to know what sort of feedback we've had from the lawyers on both the external and the internal AI tools that we have rolled out to them. Are they moving the dial, increasing efficiency? Like with a lot of things, such as brand refresh and so on, a lot of these, the AI tools are a slow burn in terms of moving the dial, in terms of actually seeing, being able to quantify the efficiency.
You end up basically relying on anecdotals, in other words, talking to people, getting feedback, etc. Yes, it is extremely, particularly the AI-enabled operating manual, which is something that people, rather than having to, people need to use from day one. It's not a case of you're having to slightly change behavior or get people to get used to it. People are getting used to that very quickly and finding it, particularly the lawyers that have been with us for a while, who certainly don't know every page of the 200 pages of the operating manual, they are finding it extremely helpful. The other tools, they're all designed to improve efficiencies, to speed up the process, to make life easier. The conventional way of doing things is still there.
I think one of the most dangerous things you can do with AI is to force everybody in and say, "Right, you've got to do this." A lot of organizations are doing that. It's not our style for a start, but it's also very dangerous because it can actually slow things down. It can decrease profitability. It's a long game. We're playing that long game, but in order to play the long game, you have to start it. People talk about the AI journey, being in on the AI, starting your AI journey, and that's what's important. We will, even if they're not necessarily quantifiable, we will see excellent returns. I am convinced of it over the long term in terms of efficiency and approval ratings as well.
David B has also asked about whether the net interest level earned in H1 is sustainable. The interest rate we have is linked to base, and therefore, as everyone anticipates that base over the coming periods will decline, I would anticipate that our net interest would also do so. If you look at the analyst notes which are out there, they are also confirming that and really a perception that over the next year will be less and the following year less than that. Clearly, if interest rates don't move and things change, then it would be, but it is linked to there, so that is variable over time.
Michael J has asked if there are any risks from competitors also investing in technology-enabled legal platforms that could impact Keystone's market share. There are a number of points there. First of all, there is the first mover advantage that Keystone experienced and continues to experience and hopefully experiences forever more. Having launched in 2002, we created this concept and we have been seeking to improve. We have been running at full speed ever since. I think as you get older, more experienced, you can actually run faster in terms of we are an ambitious organization. We are keen to adopt the latest technologies. There are many smaller firms that have adopted the same model. That's inevitable. If that hadn't happened, then it would be very strange.
This is a fantastic opportunity in terms of the size of the market and the fact that this is a law firm model that is so effective. It would be very strange if other people didn't also give it a try. What's important for us is to keep running, to remain at the forefront. We are the oldest, biggest, best. We provide the best service. We have the best clients. We have the best brand. What's important is not to worry about the competitors, but to keep ahead of them, to do everything better than everybody else. With the first mover advantage and with an ambition and a knowledge to keep that preeminent position, we are confident that we will be able to attract the lawyers and clients that are suited to our organization, and those lawyers and clients will prefer us over and above our competitors.
David's asked whether how we see the UK labor market and uncertainty in employment levels impacting recruitment. I think it's fair to say that during the first half of this year, as we've spoken about the combined market conditions affecting our recruitment, this has already played to our advantage insofar as the market isn't as hot, and therefore there is more uncertainty, and therefore that's played to supporting as it is. In terms of the look forward, we see conditions remaining fairly positive for us in the near term, and there isn't anything massively out there that we anticipate changing those conditions.
Mark A has asked, what are the expected returns on investments and timelines for the brand refresh in terms of client acquisition and recruitment? In terms of timelines, that's a nice easy one to answer. Certainly, during the next six months, this will all be rolled out. I've seen the prototypes, and I've worked on the prototypes. I've been working very closely with our in-house team and our external suppliers, and I am very pleased with what we are soon going to be rolling out and that we will be rolling this out within the next, certainly within the period coming, within the next six months, and reporting fully on it in six months' time from now. In terms of return on investment, these are always impossible to quantify at any corporate level in terms of client acquisition or recruitment. It is part of a bigger picture.
It is part of marketing. It is part of how we look. It is part of how we present. It is the shop window. It is just good business to look relevant, to be up to date, because frankly, if your shop window looks old and tired, you're likely maybe to find that the service within the shop is a little bit old and tired as well. It's fundamental, and yet it's unquantifiable. Only maybe even in retrospect, it will be difficult to quantify because there are so many interesting, exciting things happening in this business at the current time that it will never be possible to say.
Stuart's asked whether there are near-term opportunities to expand internationally. Our focus is on the UK. We have a massive opportunity in the UK, and we remain UK-focused to take advantage of that. I think that's where we are in the near term.
Absolutely. That seems to complete the questions. I would like to say thank you to Ashley and thank you to everybody who has dialed in for this session. I hope you have found it useful and informative, and look forward to encountering you again in six months' time.
Perfect. James, Ashley, if I may just jump back in there, and thank you very much indeed for updating investors this afternoon. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can only better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Keystone Law Group PLC, we would like to thank you for attending today's presentation. That now concludes today's session. Good afternoon to you all.