REG - System1 Group PLC - Final Results
03/07/2024 07:00
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RNS Number : 8843U System1 Group PLC 03 July 2024
System1 Group PLC (AIM: SYS1) ("System1" or "the Group" or "the Company")
Financial results to 31 March 2024
System1 Group the marketing decision-making platform www.system1group.com
(http://www.system1group.com) announces its results for the twelve months
ended 31 March 2024 ("FY24").
Highlights
2024 2023 Change**
("FY24")
("FY23")
Results for the year £m £m %
*Restated
Platform Revenue ("Predict & Improve" ***) 24.8 17.4 43%
Other Revenue (Bespoke consultancy) 5.2 6.0 -13%
Total Revenue 30.0 23.4 28%
Gross profit 26.1 19.7 32%
Operating costs (23.4) (18.9) 24%
Other operating income 0.4 - nm
Finance expense - (0.1) -108%
Profit before tax 3.1 0.7 333%
Tax charge (1.1) (0.3) 241%
Profit for the financial year 2.0 0.4 403%
All figures in the Highlights are presented in millions rounded to one decimal
place unless specified otherwise. Percentage movements are calculated based on
the numbers reported in the financial statements and accompanying notes.
* FY23 has been restated to bring it in line with IFRS 16 rules relating to
sublease income on our old New York office. The restatement does not affect
Profit before Taxation, but reduces FY23 Adjusted EBITDA by £0.2m. See note 3
for more information
** Year-on-year percentage change figures are based on unrounded numbers.
*** Data and data-led consultancy
Key performance indicators
Restated*
Platform revenue growth 43% 40% 3%
Number of clients 428 297 44%
Gross profit % Revenue 87% 84% 3%
Adjusted EBITDA £m (1) 4.4 1.6* 175%
Adjusted EBITDA % Revenue 15% 7% 8%
Rule of 40 (2) 57% 47% 10%
Free Cash Flow (FCF) £m (3) 4.0 (3.1) 7.1
FCF % Adjusted EBITDA 92% (196%) 288%
Net Cash £m 9.6 5.7 3.9
Diluted earnings per share** 16.0p 3.2p 404%
Dividend per share 5.0p - nm
(1. ) profit before taxation + share-based payments + interest,
depreciation and amortisation
(2. ) Platform Revenue growth %+ Adjusted Group EBITDA % Group
Revenue
(3. ) Cash flow after interest and before debt
raising/reduction, buybacks/dividends
· Momentum maintained - second consecutive year of 40%+ Platform
revenue growth
· 44% increase in number of clients, with 260 wins in the year
· Net Revenue Retention Rate of 100% on platform revenue
· Significant double-digit revenue growth in US, UK and Europe
· Gross profit margin improves by 2.8 points to 87%
· Adjusted EBITDA % revenue margin rises by 8 points to 15%
· £4m free cash flow; £9.6m year-end net cash
· Profit before Taxation >4x higher, Profit after Taxation
>5x higher than in FY23
· Diluted EPS 16.0p per share (FY23: 3.2p)
· Proposed Dividend of 5p per share, equating to £0.6m. Record
date 27 September 2024, payment date 18 October 2024.
Commenting on the results, CEO James Gregory said:
"Our success last year was underpinned by 260 new client wins and our scalable
growth model. In the coming year we will step up investment in attracting,
winning and retaining customers in order to continue our growth trajectory.
The new financial year has started strongly, particularly in the US, and we
anticipate an increase of 50% in Q1 total revenue with platform revenue up 70%
versus Q1 FY24. As a result we continue to expect strong double-digit revenue
growth for the financial year as a whole."
Further information on the Company can be found at www.system1group.com
(http://www.system1group.com) .
This announcement contains inside information for the purposes of article 7 of
the Market Abuse Regulation (EU) 596/2014 as amended by regulation 11 of the
Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication
of this announcement, this information is now considered to be in the public
domain.
For further information, please contact:
System1 Group PLC
Tel: +44 (0)20 7043 1000
James Gregory, CEO
Chris Willford, Chief Financial Officer
Canaccord Genuity Limited
Tel: +44 (0)20 7523 8000
Simon Bridges / Andrew Potts/ Harry Rees
Group Overview - System1 on a page
Who we are and why we exist
System1 is a marketing decision-making platform business. Our target customers
are the world's largest advertisers. These businesses understand that
creativity is the most powerful tool for growth within their control. System1
helps them make confident creative decisions that lead to transformational
business results.
What we do
System1 predicts and improves marketing effectiveness. Our advertising and
idea tests measure emotion to give our customers the most accurate predictions
of the business impact of creativity. We 'predict' (provide research
results) and work with our customers to 'improve' (provide insight and
consultancy on those results) advertising effectiveness, innovation
effectiveness and brand effectiveness. Our unique selling point is
predictiveness, translating emotion into business results.
Our products
Our Platform offers automated fast-turnaround Data and Data-led Consultancy
products for ad testing, innovation testing and brand effectiveness tracking.
We can supplement the platform proposition with bespoke consultancy where this
is required by our customers. Our largest customers buy both Data and
Consultancy.
Where we operate
We run tests in 81 markets globally
Office locations include New York, Miami, Sao Paulo, Los Angeles, London,
Paris, Hamburg, Rotterdam, Singapore, and Sydney.
How we operate
We are guided by our growth model "flywheel". We meet our customers' needs
with leading propositions delivered efficiently via the platform. We build
awareness of our propositions through fame-building partnerships which bring
customer interest that we seek to convert and scale up. Growth in our scalable
model produces improved margins which we then seek to reinvest in our people,
our shareholders, and back into the business growth flywheel. The growth model
is underpinned by a robust support structure and performance culture.
Chairman's Statement
My first full year as your chairman has proved both satisfying for me and
rewarding for all shareholders. Led expertly by CEO James Gregory, the
business grew revenue and profit before tax by 28% and 333% respectively and
generated £4m free cashflow. Earnings for the year were up 403% to £2.0m,
16.0 pence per share. We began the financial year with a market capitalisation
of £20 million and ended it valued at over £50 million. In light of this
much-improved performance and the Board's confidence in the future, we are
recommending a dividend for the year of 5.0 pence per share.
The CEO's Statement comprehensively reviews progress towards our strategic
priorities. Highlights in the past year include
· 260 new clients acquired
· Worked with 5 of the top 10 advertisers in the US and 7 out of 10
in the UK
· New partnerships formed with TikTok, an American commercial
broadcast television and radio network, and Effie to name but three
· New customer-focused products brought to market, notably Test
Your Ad Pro+, have proved our scalable customisation model
During the year we reintroduced a short-term incentive plan (STIP) for members
of the executive committee and our three executive directors. We did this
because in spite of the impressive turnaround in financial performance, the
Long-Term Incentive Plan will likely not meet its lowest threshold even if
revenue growth in the new financial year matches an exceptional FY24. The
retention and reward of our key people is a mission critical priority. Going
forward we favour a blend of short- and longer-term incentives for the most
senior executives and will provide further detail on this in 2025.
As a board we listened carefully to the feedback from all stakeholders in the
previous year and as a result have broadened our investor relations
activity, in particular improving smaller shareholders' access to management
via virtual meetings.
Finally on behalf of the board I would like to recognise the immense effort
that our 150 colleagues in the business make every day to meet and exceed the
needs of our customers. Their efforts, guided by our new strategy, are
beginning to bear fruit.
Rupert Howell
Chairman
CEO's Statement
MAINTAINING MOMENTUM
FY24 was our first full year of execution post the 2022 Strategic Review and
has exceeded expectations, although I believe we are just scratching at the
surface of the opportunity facing us. System1 delivered £30m of Revenue, up
28% year on year, growing quarter on prior quarter throughout the year. This
was underpinned by 43% growth in Platform Revenue (our strategic platform and
products) and Profit before Taxation up by 333% on the previous year.
By putting the client at the heart of all we do, we've strongly grown our
brand and client base, seeing 260 new client wins and almost doubling our
client base. We are having particular success in the US where we work with the
5 of the top 10 US Advertisers (as ranked by Visual Capitalist), building on
our already strong UK presence where we work with 7 of the top 10 UK
Advertisers (as ranked by Statista). New client platform revenue has increased
by 121% year on year to £7.5m, and platform revenue reached 82% of total
revenue, providing a solid base for future growth.
We have increased our fame with global partnerships with TikTok, an American
commercial broadcast television and radio network, Effie, Pinterest,
Radiocentre, GroupM Nexus, JC Decaux, Roku, Aardman, OMD and Fuse alongside
existing partnerships with ITV and LinkedIn. The quality of these partnerships
speaks to the strength of our platform and products. We have expanded our
product base, providing the ability to test across the whole marketing
campaign (TV, Digital, Audio, Out of Home). Our FY25 revamped Innovation
product launch to meet our customers' needs provides a focussed growth
opportunity in this channel.
We have established a true performance culture, one where all members of the
business are motivated to deliver top class outcomes for our clients, recently
being awarded the accolade of "The Sunday Times Best Place to Work" in the UK.
In February 2024, we strengthened our Executive Team with the addition of Mike
Perlman, our new Chief Commercial Officer, running the global sales teams and
based in the US.
In the coming year we will step up investment in attracting, winning and
retaining customers to continue our growth trajectory. We believe we have
significant headroom to grow the base of the business we have today… as well
as the massive opportunity to win in the US, where we have the chance to
create an Innovation offering that is as great as our Advertising offering and
to continue to win with the world's largest advertisers.
I'm so proud of our staff, who have delivered a great year and look forward to
seeing continued growth in the coming year. Thank you to the Board for their
wise counsel and strategic guidance, to the Executive team for being
extraordinary leaders and to John Kearon for his counsel and support during my
first year as CEO.
Progress towards our goals & The Flywheel
We have made strong progress and have grown the business by focussing
obsessively on delivering the plan encapsulated in our flywheel. The flywheel
concept builds on the four strategic goals we set out 6 years ago, taking on
board the learnings from the 2022 Strategic Review.
1. We help the world's largest advertisers make confident creative
decisions that lead to transformational business results
Putting the customer at the heart of all we do has helped transform our
business. We have a clear target market - the world's largest advertisers. We
know these clients have the capacity and capability to invest in pre-testing
of advertising and innovation as well invest in brand tracking.
We know that our clients will be judged on the success of their advertising,
their innovation and their brand growth. Data from over 5,000 IPA case studies
shows that the biggest influence within any of these that a brand can control
is creative: this has a x12 impact on the profit multiplier. But we also know
from Clayton Christensen of Harvard Business School that 51% of advertising
has no impact on market share growth and that 95% of new product launches
fail, as brands do not harness the power of creativity. The accurate
predictiveness of our tests on our platform and the expert guidance provided
by our people give our clients the confidence that their products and services
will be a success when launched in the market.
And most importantly, our clients know that once launched, these adverts and
innovations will drive real business results for them: growth of their brand,
revenue and profit.
2. We've created a platform and proposition … to help the world's
largest advertisers make confident creative decisions
We achieve this by measuring what matters most: emotion, that gets to your
"System 1" response. Our IP and thought leadership have built on the work by
Daniel Kahneman in "Thinking Fast and Slow" that sets out how System 1
thinking is fast, instinctive, emotional and drives behaviours. Our clients
are clear that our ability to capture, measure and interpret emotional
responses to creative content is the number one reason they buy from us, and
many say that we do what no-one else in the market can do. Our platform,
products and guidance are built on measuring emotion and translating that data
into actionable insights that will deliver real business results.
We have focussed on our platform and product development, with expansion of
the Test Your Ad product suite across FY24 and a relaunch of the Test Your
Innovation product suite in early FY25. The relaunch of Test Your Innovation
seeks to align the proposition better with the innovation process in the
world's biggest companies. The new TYA and TYI features build on our fully
automated platform, where we delight our customers and create competitive
advantage with zero manual intervention and therefore, high levels of
scalability.
We have been able to accelerate progress in this area with our new executive
team structure working smoothly to translate our unique IP into predictions
and improvements for our customers: Robyn Di Cesare as Chief Product Officer
partnering with Orlando Wood, our Chief Innovation Officer to set out the
vision and Mark Beard, our Chief Information Officer speedily delivering the
IT development.
Test Your Ad has expanded to cover all media types from early-stage scripts to
finished films, to ensure we have the fastest, most predictive, actionable
products that meet our customers' needs. Alongside the TV testing, we now
offer TYA for Digital, Audio, Out of Home and Print testing, allowing our
customers to test full campaigns across media types.
Test Your Ad Pro+ has been a game-changer as we've built the ability to
deliver customer and project specific customisation in a scalable manner,
through the automated platform. Following the launch in July 2023 this brings
in incremental revenue with a higher price point than the Test Your Ad Pro
product and has quickly become one of the top selling products.
We also refreshed data-led consultancy, to incorporate our latest thought
leadership, providing an updated framework on how advertising works and
recommend improvements for our clients. This has been very well received, with
clients regularly siting 'highly actionable' in their feedback.
With our customer-centric focus, in April 2024 we have launched a new Test
Your Innovation product suite to replace Test Your Idea. This repositions the
previous version in a way that better suits our clients, ensuring our products
neatly follow a standard product development cycle. This exciting development
will help accelerate our growth in the Innovation space in the upcoming year.
We also continued our investment in growing our world-leading Test Your Ad
database to over 100,000 ads, where we test every ad in the US and UK on a
daily basis, creating what we believe to be the world's largest database of
validated ad-effectiveness data and providing our customers with unique
insight into the performance of them and their competitors.
Influential Marketing Professor Mark Ritson published an article in Marketing
week, showcasing how SKY use System1 pre-testing capability early in the
process to predict business results in the short and long term and enable
quick decision making. In the article he describes System1 as having "come to
dominate the field of pre-testing in a remarkable short period of time".
Marketing Professor Peter Field followed this with evidence from the IPA
database showing that those campaigns that pre-tested did better than those
that didn't and credits System1 as one of the reasons for that difference.
https://www.marketingweek.com/ritson-pre-testing-no-brainer/
3. We're famous for predictions and improvements … that help the world's
largest advertisers make confident creative decisions
We have step-changed the volume and quality of System1 fame creation in FY24.
We have worked in partnership with global industry-leading companies, which we
promote through a wide range of channels, focussed primarily on the US and UK
and secondarily into our other key markets in Brazil, Germany, France, Asia
and Australia. The result of this fame building activity is an increase by
over 40% of leads generated in the US and UK vs FY23.
PR - We increasingly had our voice heard on important industry topics like the
'Long and Short of It' and 'Wear Out', and around big ad occasions like the
Super Bowl, Christmas and major new ad campaigns. Regular features in leading
publications like Marketing Week, The Drum, Campaign, Ad Age, Adweek and more
led to a year on year 69% increase in global coverage. This resulted in
System1's share of voice increasing 87.5% in the US and 51% in the UK.
Events - System1 had a big pink presence at leading industry events, some of
which attract 10k plus attendees. These include ANA's Masters of Marketing,
Brand Innovator's Marketing Innovation Summits, Festival of Marketing and
MAD//Fest.
Partnerships - Partnerships help drive Fame, generate co-branded thought
leadership to be shared with the industry, and enable introductions to
partners' clients. New partnerships solidified in FY24 include Pinterest,
resulting in research on digital ads; Radiocentre, resulting in the
publication of the Listen Up!; and Aardman. New partnerships with TikTok and
Effie will be highlighted with research coming in FY25.
"Uncensored CMO" Podcast - FY24 has a large focus in the US with an impressive
roster of guests including Professor Scott Galloway, Liquid Death's Mike
Cessario, former Netflix CMO Bozoma Saint-John and Michelob ULTRA's Ricardo
Marques, as well as Amazon Chief Creative Officer Jo Shoesmith, Just Eat's
Susan O'Brien and GUT's Anselmo Ramos. Uncensored CMO now has listeners in 150
markets and is the #1 marketing podcast in the UK and top 20 in the US.
Ad of the Week - Celebrates the best and most effective creative content from
around the world, which engages brands and agencies and further amplifies
System1's Fame. In FY24 subscribers increased by 20%.
Thought Leadership - System1 continued to expand its thought leadership around
major advertising moments like the Super Bowl and Christmas, timely topics
like sustainability (The Greenprint and The Greenprint USA) and sports
sponsorship (The Sport Dividend), and evergreen areas of focus like
advertising effectiveness (Timeless Importance of the Show, Ritson on
Advertising), media best practices (Listen Up!), and category insights for
charity, auto, financial services and other sectors.
4. We make it easy for System1 to convert the world's largest advertisers
at the right time
FY24 was a record year for new client wins, beating the previous record set in
FY23, based on our platform automation and increased fame building, amplified
through global partnerships. Our go-to-market strategy has seen us win well in
specific sectors, such as Grocery Retailers, Big Tech and Pharmaceuticals.
We won 260 new clients, delivering £8.3m of new revenues (of which £7.5m on
platform), with 33% in the US and 41% in the UK. As always, we are not
permitted to name many of our clients, and new wins in the period included:
Pfizer, M&S, Tesco, easyJet, Toyota, Muller, B&Q, and Just Eat.
We saw 90% of new revenues coming from our strategic platform suite of
predictions and improvements. The power of our predict and improve offer was
shown through 67% of new revenues coming from customers buying both these
offerings. We are also seeing the importance of retaining a small amount of
bespoke consultancy to allow us to win with the world's largest advertisers.
5. We scale up and are embedded throughout the world's largest advertisers
We saw excellent levels of revenue growth, with total revenues up 28% and
platform revenues up by 43%.
We have started to make good progress in maximising revenue opportunities
within our existing client base but have opportunity to make further inroads
in this space. We had a Net Revenue Retention Rate on total platform revenue
of 100%.
Concentration in our top 10 and top 20 clients was consistent year on year.
Our top 10 clients made up 30% of revenue and our top 20 clients 45% of
revenue. All of our top 20 clients in FY24 bought platform products with 78%
of spend from the top 20 clients being on data and data-led consultancy. No
one client in FY24 was larger than 5% of total company revenue.
We continue to see the majority of revenue coming from the world's largest
advertisers who follow our model of test and improve, buying data and data-led
consultancy. In FY24 75% of total revenue came from the 40% of the clients by
number that purchased both data and consultancy. Conversely, the 51% of
clients by number that purchased only data represented just 16% of Group
revenue.
We are starting to focus on cross-selling our comms, innovation and brand
tracking product lines. In FY24, 2% of our clients bought all 3 product lines,
but this contributed to 13% of total revenue. 13% of our clients bought more
than one product line, contributing to 45% of total revenues for the year.
We now work with 5 of the top 10 US advertisers and 7 of the top 10 UK
advertisers.
6. We reinvest the results of higher volumes and margins from helping the
world's largest advertisers make confident creative decisions
We grew profit before tax by 333% in FY24 and gross profit margin growth was
exceptional at +3 points to 87% and ahead of our 85% long-term benchmark.
While FY24 was a prudent year of investment, we plan to invest in FY25 across
our people, our platform and proposition and also reward our shareholders.
People - In the second half of FY23 we changed the way that most people in the
business are rewarded by placing greater emphasis on variable pay linked to
growth in the Group's gross profit. FY24 was therefore the first full year of
this approach which we believe is working well. Whereas only a few colleagues
received a cost-of-living increase to their salary, variable pay across the
Group rose by £2.8m year-on-year as a result of significantly higher sales
volumes and improved profit margins.
Platform and proposition - In FY24, we maintained our investment in our
platform and proposition. Cash spend on our IT development was £2.0m
alongside nearly £1.0m on TYA premium, and continued support for our
partnerships and marketing.
Shareholders - Aside from the significant share price gain during the
financial year, we announced in April that the Group intends to resume
dividend payments and today announced a 5p per share dividend for FY24 subject
to shareholder approval at the forthcoming AGM.
7. We have a robust support structure and performance culture that allows
us to help the world's largest advertisers make confident creative decisions
FY24 has been a strong year in building out our performance culture and we
have highly motivated teams with strong retention and employee engagement. We
create an environment where all colleagues can do their jobs with ease to
ensure they are focussed on adding value to our clients. We monitor staff
satisfaction quarterly with focus teams owning actions on the feedback
provided. By removing the blockers from our teams' day-to-day lives, we have
seen staff happiness reach record levels in FY24, and this was further
enhanced with System1 recognised as a "Sunday Times Great Place To Work" in
the UK for the first time.
Outlook: we haven't scratched the surface of where we could get to
FY25 is a year where we are seeking to maintain the momentum gathered in FY24
and start to spin our flywheel even faster. The new financial year has started
strongly, particularly in the US, and we anticipate an increase of 50% in Q1
total revenue with platform revenue up 70% versus Q1 FY24. As a result we
continue to expect strong double-digit revenue and profit growth for the
financial year as a whole. Bespoke consultancy will likely fall as we reach
the end of some long-term contracts that will not renew, however this should
not significantly affect overall group revenue or profit growth.
We have three big opportunities that fill me with belief for the year ahead.
Firstly, we are making headway into the US market. Our go-to-market investment
in FY24 has grown our fame, and we plan to increase this investment for the
year ahead. We have strengthened the commercial teams across sales and
marketing, with Michael Perlman joining as global Chief Commercial Officer,
and Alex Banks as SVP Commercial Americas, leading the US and LatAm sales
teams - both executives are based in the US and have significant commercial
leadership experience in our industry sector.
Secondly, the relaunch of our Test Your Innovation product suite will allow us
to create a revenue stream for Innovation that could eventually become bigger
than our Comms revenue stream. We say this because according to ESOMAR
research, the target addressable market for innovation is 4.8X that of
communications at $12.02bn.
Thirdly, we've not yet maximised the revenue opportunities from the world's
largest advertisers we already work with. Alongside the new business engine we
have firing, we have a renewed focus on ensuring that we expand within those
clients we have already won, to ensure we are in each brand and region for
each of our 3 product lines (Comms, Innovation and Brand).
We recognise that we will need to invest in FY25 to deliver our growth
ambitions and we have created, and are already filling or recruiting 20 new
roles in FY25. As the business grew faster than expected in FY24, some of
these roles are in operational and support positions to ensure we continue to
deliver high quality outcomes for our clients. The other roles are investments
in future growth across our commercial and marketing teams, with significant
focus in the US.
Finally, thank you to all of our staff who make our flywheel spin, to our
customers for making world class marketing with confidence in their creative
and to our shareholders for their continued support.
James Gregory
Chief Executive Officer
3 July 2024
Financial Review
Overview
2024 2023^ Change Change*
("FY24")
("FY23")
Results for the year £m £m £m %
Restated
Platform Revenue ("Predict & Improve") ** 24.8 17.4 7.4 43%
Other Revenue (Bespoke consultancy) 5.2 6.0 (0.8) -13%
Total Revenue 30.0 23.4 6.6 28%
Direct Costs (3.9) (3.7) (0.2) 6%
Gross profit 26.1 19.7 6.4 32%
Operating costs (23.4) (18.9) (4.5) 24%
Other operating income 0.4 - 0.4 nm
Finance expense - (0.1) 0.1 -108%
Profit before tax 3.1 0.7 2.4 333%
Tax charge (1.1) (0.3) (0.8) 241%
Profit for the financial year 2.0 0.4 1.6 403%
All figures in the Financial Review are presented in millions rounded to one
decimal place unless specified otherwise. Percentage movements are calculated
based on the numbers reported in the financial statements and accompanying
notes.
^ FY23 has been restated to bring it in line with IFRS 16 rules relating to
sublease income on our old New York office. The restatement does not affect
Profit before Taxation, but reduces FY23 Adjusted EBITDA by £0.2m. See note 3
for more information
* Year-on-year percentage change figures are based on unrounded numbers.
** Data and data-led consultancy
Key performance indicators
FY24 FY23^ Change**
£m £m %
Restated
Platform revenue growth 43% 40% 3% points
Number of clients 428 297 44%
Gross profit % Revenue 87% 84% 3% points
Adjusted EBITDA £m(1) 4.4 1.6 175%
Adjusted EBITDA % Revenue 15% 7% 8%
Rule of 40 (2) 57% 47% 10% points
Free Cash Flow (FCF) £m (3) 4.0 (3.1) 7.1
FCF % Adjusted EBITDA 92% (196%) 288% points
Net Cash (£m) 9.6 5.7 3.9
Diluted earnings per share** 16.0p 3.2p 404%
Dividend per share 5.0p - nm
( )
( ) (1. ) profit before taxation + share-based payments +
interest, depreciation and amortisation
(2. ) Platform Revenue growth %+ Adjusted Group EBITDA %
Group Revenue
(3. ) Cash flow after interest and before debt
raising/reduction, buybacks/dividends
( )
( )
Revenue performance
Total Revenue reached £30.0m up 28% on FY23. Platform revenue rose by £7.4m
(43%) in the year to £24.8m due mainly to continued strong growth in
automated ad-testing revenues. Predict Your platform revenue rose 41% fuelled
by the continued success of Test Your Ad, notably the new TYA+ variant.
Improve Your platform-led consultancy revenue increased by 51%, benefiting
from System1's strategic focus on the world's largest advertisers. Overall
platform revenue represented 82% of total revenue in FY24, compared with 74%
in the previous year. Other revenue, primarily bespoke consultancy, fell by
£0.8m in the year, as customers continued to adopt the standard platform
products, and the company focused its resources accordingly.
The Communications (Comms) product group, including Test Your Ad, grew by
£6.9m (43%) year-on-year, notably in the UK, Europe and the US.
Communications revenue, including ad-testing, accounted for 76% of all revenue
in FY23 (FY22: 68%) Brand tracking revenues increased by £0.4m (11%), and
Innovation revenues were down by, £0.7m (18%). The geographic spread of the
business remained similar to the previous financial year.
Direct costs
Direct costs increased by 6% year on year on Revenue growth of 28%, reflecting
a higher proportion of Platform Revenue and efficiencies in the supply chain,
including further automation and new outsourcing partners. As a consequence of
these improvements the gross profit margin rose by 3 points to 87%.
Operating costs
Total operating costs increased to £23.4m (FY23: £18.9m) due mainly to
employment costs (including higher variable performance pay linked to
targets), increased customer acquisition costs, lower net benefit of
capitalised IT development costs, and foreign exchange translation effects on
non-sterling debtors and bank accounts. Some £3.1m was invested in
development and innovation during the year, related primarily to the marketing
predictions platform, automated prediction products, TYA Premium database, and
AI-related research and development.
Average employee numbers were slightly below the previous year, despite
recruitment in customer facing roles in H2 that is set to continue into
FY25.
Profit before taxation
Profit before taxation for the year of £3.1m was £2.4m higher than the
previous year owing to the flow through of far higher sales volumes and
improved margins, more than offsetting a 24% increase in operating costs.
Tax
The Group's effective tax rate decreased from 44% to 35%. This is due mainly
to the impact of R&D tax credits in respect of FY21 and FY22 (£0.2 m
recognised in FY24, £nil in FY23). The R&D claim for FY23 is in progress,
but is yet to be approved and has not been recognised in the financial
statements.
Funding and liquidity
Cash net of debt rose by £3.9m from £5.7m to £9.6m, broadly in line with
the £4.0m free cash flow. £6.4m of cash was generated from operations;
£0.9m was invested, including £0.7m in capitalised software development; and
£1.0 was spent on property leases including imputed interest. A stronger GBP
compared to FY23 year-end reduced value of non-Sterling cash balances by
£0.1m.
Dividend
No dividend was paid during FY24. In April 2024 the Board announced its
intention to resume paying dividends, in line with the existing policy to
distribute 30-40% of after-tax earnings through the cycle. At this stage the
Board expect this to be through the declaration of a single ordinary dividend
each year alongside the Company's full year results. The Board is proposing a
dividend of 5.0 pence per share for FY24 (record date 27 September 2024) which
will be put to the Group's annual general meeting on 25 September 2024 and
will be payable on 18 October 2024.
Chris Willford
Chief Financial Officer
3 July 2024
Principal Risks and Uncertainties
The Board is responsible for reviewing risk and regularly reviews the risks
facing the Group, as well as the controls in place to mitigate potential
adverse impacts. The risk register is assessed at least twice a year, but the
Board's consideration of risk matters is not limited to those formal reviews.
The Audit Committee reviews the effectiveness of financial controls. The Board
endeavours to identify and protect the business from the big remote risks:
those that do not occur very often, but which when they do, have major
ramifications. The types of event that we are concerned about and seek to
manage are summarised below.
Risk Area Potential Impact Mitigation
Loss of a significant customer Revenues and profits fall due to the loss of a large customer We work with more than 400 customers and work hard to earn their loyalty. Our
customer base is diversified such that we have no customers contributing over
10% of revenue.
Loss of key personnel Key personnel leave the business, taking knowledge and external relationships We seek to ensure that System1 is as attractive to existing employees as it is
with them. to talented external recruits. Reward is competitive, and regular performance
evaluation identifies individuals who may be "at risk". For the most senior
executives, the LTIP (long-term incentive plan) and STIP (short-term incentive
plan) are designed to provide a strong financial motivation to stay at
System1. These incentives are reviewed periodically to ensure they remain
effective.
Loss of a critical supplier The bankruptcy, change of control or resignation of a strategic supplier We have several mission-critical functions carried out by third-party
leaves the Group unable to meet customer demand suppliers (such as panel suppliers). For these functions, we seek to ensure we
are not too reliant on any one organisation and typically have three qualified
providers. We work in close co-operation with our strategic suppliers,
ensuring that any issues and concerns are surfaced rapidly and resolved in
partnership.
Loss of assets, data, intellectual property Theft of intellectual property via unauthorised or illegal access to or We endeavour to protect the business from significant risks, through a
copying of the Company's databases, proprietary methods, and algorithms combination of trademark protection; insurance; development of internal
guidelines and policies; comprehensive information security programme, and our
employee, customer and supplier terms and conditions.
Litigation risk Legal action is taken against the Company by customers, employees, suppliers, We endeavour to protect the business from significant risks, through our terms
or other stakeholders and conditions, trademark protection and comprehensive professional indemnity
insurance.
Risk Area Potential Impact Mitigation
Strategic risk Technological advances including artificial intelligence reduce the commercial The Group positions itself as "the most predictive" provider of information to
viability of the Group's methodology support creative and marketing decisions. Currently a combination of real-life
panel respondents and System1's methodology achieves this goal. Our S1
Futures programme includes an exploration into how AI could transform
predictive research.
The Group does not compete effectively in the largest and faster-growing The Group formally reviews product and geographic markets as part of its
markets regular strategy review. We have upweighted our presence in the US to reflect
the significant opportunity in that market and are relaunching Test Your
Innovation in order to improve our performance in the largest of our chosen
product markets.
Operational risk An outage or other technical issues on our survey platform results in delays All our services are hosted on a secure external cloud infrastructure with
in delivering customer projects multiple failover options. We continuously monitor system availability and
endeavour to alert the customer to any delays on the rare occasions where
there is disruption.
A reduction in panel data quality affects the company's reputation with key We conduct both operational and strategic reviews of respondent quality in
customers close collaboration with our approved panel suppliers and can switch provider
where required via our platform API.
A cyber-attack causes a material breach to our infrastructure Our business does not ordinarily hold non-employee personal data. Any personal
data of clients' or suppliers' employees is held by System1 in compliance with
the applicable legislation. We have invested in our controls (including
penetration tests), processes and IT infrastructure and have held ISO 27001
accreditation covering information security since 2019.
The volume of change initiatives could lead to a loss of operational control All change initiatives are subject to project governance, and development is
run on an "agile" methodology. The Executive Team reviews operational
performance regularly providing early warning of potential deviations from
plan. The Board reviews operational performance monthly and strategic
direction regularly and when appropriate.
A subsidiary incurs substantial losses The Group operates a highly centralised model with minimal delegation of
financial authority below the Executive Directors. All bank payments and
transfers have to be authorised by Group Finance.
Financial risk Failure to manage credit, currency, market, interest rate or liquidity risk Due to the straightforward nature of the business, its international cost
expose the Group to losses base, the Group's strong balance sheet, and the fact that most of the Group's
customers are large, credit-worthy organisations, foreign exchange and credit
risks have historically proved to be modest. Further information is given in
Note 8 to the financial statements.
Environmental and political risks The Group's revenue streams could be affected by customers' decisions to The Group trades principally in Europe and the USA and is exposed to the
reduce marketing budgets social and economic impacts in those regions. The 2020 Covid-19 pandemic
demonstrated the Group's resilience during an economic downturn. The main
exposure is to our customers' decisions on the size of market research budgets
in response to external events and macroeconomic factors such as inflation and
interest rate increases.
Shareholder relations: the Company's plans could be opposed by significant The Company holds comprehensive investor one-on-one and group meetings in
shareholders roadshows at least twice a year. In addition, quarterly trading updates
provide an opportunity to engage with shareholders and potential investors.
Political risk through adverse regime or regulatory change The territories representing the vast majority of the Group's revenue are
socially, politically, and economically stable. We do not currently service
clients based in Russia or Belarus, and our operations have not been directly
affected by the ongoing conflicts in Ukraine or Gaza. We have a regional
operations centre in Brazil where just under 10 percent of our employees are
based and are comfortable that the benefits of the operation outweigh the
slightly elevated risks.
Conflicts of Interest Directors' and employees' personal, financial or business affairs may result The Board formally records directors' interests at each meeting, and
in situations where the company's interests are not fully aligned with their directors' new external appointments are notified as soon as is practical.
own
Below board level the company reviews senior employees' outside interests on a
case-by-case basis to ensure no detriment to the company arises.
Reputational risk Press releases or other statements from the company could include incorrect or All trade press releases are reviewed by at least one member of the Executive.
defamatory content, adversely affecting the company's reputation with Financial releases are reviewed by at least two Board members and our
customers and other stakeholders Nominated Adviser.
Comments or articles posted by employees on social media could adversely The Group has a social media policy which sets out employees' duty of care
affect the Group's reputation with customers and other stakeholders when posting work-related content on social media.
Section 172 Report
Section 172 of the Companies Act requires the Board to take into consideration
the interests of stakeholders in its decision making. This section provides
information about the Board's approach to engagement with stakeholders,
namely:
· Customers
· Talent
· Investors
· Suppliers
· Community and Environment
In determining the Board's approach, the Board members have regard to the
following:
· The likely consequences of any decision in the long term
· The interests of the company's employees
· The need to foster the company's business relationships with
suppliers, customers and others
· The impact of the company's operations on the community and the
environment
· The desirability of the company maintaining a reputation for high
standards of business conduct, and
· The need to act fairly as between members of the company.
Overarching the Group's approach to all stakeholders is System1's cultural
pyramid:
Customers
Our target customers are the world's largest advertisers. The board
understands the importance of forming and retaining good working relationships
with its existing and target customers.
These customers understand that creativity is the most powerful tool for
growth within their control.
'The power of creativity for growth could be considered our industry's most
fundamental reason for being.
Creativity is a superpower'
Marc Pritchard, P&G Chief Brand Officer'
System1 helps these companies make confident creative decisions that lead to
transformational business results. Our advertising and idea tests measure
emotion to give our customers the most accurate predictions of the business
impact of creativity. We also provide expert guidance to our customers to
help them improve the effectiveness of their ad or innovation.
Talent
Our primary focus is on attracting, growing, and retaining world class talent
to drive and deliver against our strategy, with a culture of healthy
performance. To achieve this, we embed structures that promote equal
opportunity and guard against discrimination. We are proud of being an
inclusive organisation - our culture is founded on principles of inclusion
such as feedback, honesty, and creativity.
How we engage with our talent
We have cultural values (Customer Commitment, Creativity, Collaboration and
Conviction) as well as a set of team behaviours known as TIDE, which describe
how we work together.
Truth - always tell the truth… and tell it early
Intent - always assume good intent…yet resolve issues
Debate - Debate… Decide & Unite
Elephant - Don't allow 'elephants' in the room...yet be empathetic in dealing
with them
This helps to ensure that employees understand the behaviours expected of them
and allow us to operate a high trust environment, which is linked to business
success. We embed our values and behaviours by the following:
1. Introducing them to all employees during their onboarding programme, as
part of a 1Welcome afternoon, chaired by the CEO and Chief People Officer
2. Making them a consistent part of all company communications and
3. Celebrating examples of best practice with awards on our Town Halls.
We conduct quarterly employee input surveys which are reviewed by the Board.
These use our FaceTrace methodology to capture how employees feel about
working at System1, along with reasons. We also ask them what is working well,
what could be improved and add a topical question. We hold follow up
discussions with each team across the business, chaired by the team leaders
and the HR team to agree improvements, actions and owners.
In addition to monthly Town Hall meetings with all staff, we also hold monthly
senior management forums and run monthly workshops with managers. These
meetings give us the opportunity to connect across the business at different
levels, share and cascade updates and celebrate success - including System1
Value Awards, where employees are nominated by colleagues and are recognised
for working according to our values.
We pay fairly - there is no discrimination across any factor - we ensure this
by using benchmarking data and conducting annual salary reviews by individual
and across roles, and there is a structured approach to career and
professional development across the business, based on departmental and
cross-company leadership frameworks, to ensure there is clarity and
consistency in our expectations and performance ratings. We have a strong
learning and development culture. We encourage employees to plan their
development using the support and resources we provide (including internal
training programs, professional certifications and MBA sponsorships). We
advertise roles internally and promote inter departmental opportunities.
Talent engagement outcome
We continue to develop our hybrid virtual working approach, working closely
with managers and all employees to maximise productivity, creativity and
happiness. We believe in a healthy performance culture and use the below model
to guide us in achieving this.
We are continuously evolving our engagement tools, based on feedback and
measures.
In October 2023 we introduced automated, mandatory 360 feedback for all
employees and in March 2024 we launched department and behaviour frameworks,
both of which have been very well received and provide useful input for
development planning.
In April 2024 we adopted a Flexible Holiday policy, following a successful
trial in FY24. This builds on our Flexible Working approach and Flexible
Benefits platform and provides our employees with increased autonomy when it
comes to choosing how they work and rest.
We continue to find it very important to regularly bring people together in
person, to share updates and build relationships, to complement the time spent
working remotely. We run 1derful Wednesday events to encourage employees to
socialise together in the office and hold regional and all-company Strategy
meetings half yearly.
Investors
The most visible way that the Company takes the interests of equity investors
into consideration is through the high level of share ownership on the Board.
In addition, the Group Executive Team members' interests are aligned through
their participation in a long-term incentive plan.
The Company encourages two-way communications with all its shareholders and
responds quickly to requests or queries received. Larger investors and
potential investors are invited to meet management after the full-year and
interim results. We also run virtual meeting and presentations via
InvestorMeetCompany, an investor engagement platform which we use for capital
markets days, group meetings of investors after full year and interim results,
and the annual general meeting. In addition, the Company maintains regular
contact with its principal bank to ensure that it is kept informed of the
Company's performance and prospects.
Communication is primarily through the Company's website and the Annual
General Meeting where participation is encouraged so that the Board may answer
questions. All shareholders have at least twenty-one clear days' notice of the
Annual General Meeting.
All shareholders will receive a copy of the Annual Report. We encourage the
use of electronic copy but still produce a very small quantity of hard copies
for investors who request them. The interim report is available online via the
Company's website.
The Group seeks advice from its Nominated Advisor, Canaccord on all formal
shareholder communications and relies on their services to arrange the
twice-yearly investor "roadshows".
Suppliers
We work with a small number of trusted suppliers and operate on a strong
partnership basis. As outlined in the Principal Risks and Uncertainties
section on page 16, the loss of a critical supplier could leave the Group
unable to meet customer demand, therefore the Board has regard to the
importance of fostering good relationships with our suppliers to promote the
success of the Group. Our approach is centred on lean principles and
continuous quality improvement, with weekly and monthly meetings to review
service levels, KPIs and resolve issues. We share data between teams to ensure
that there is one view of our partnership metrics.
Our key delivery suppliers include:
· MAP Marketing Research provides us with survey programming and
project management services
· Toluna, Prodege and NetQuest provide us with market research
panel respondents to complete our surveys
· Datawise provides us with bespoke data processing and charting
services on our non-standard deliverables
· Intonation provides us with translation services (forward
translation of questionnaires and back translation of respondent verbatim)
Community
ESG Strategy
This year, we have launched a new ESG Strategy, driven by a steering committee
formed of Executive and Senior Managers in Talent, Legal and Finance
departments and with sign off from the Board.
Environment
We understand the importance of tackling carbon emissions. Although System1's
operations fall outside of manufacturing and are primarily online, they are
not entirely carbon-neutral. System1 has partnered with Greenly, a leading
carbon emissions company. With their support, we have developed a
comprehensive plan to measure, reduce and offset our carbon footprint.
The journey with Greenly began with an assessment of System1's emissions
across the entire value chain, from daily operations to supply chain
logistics. We determined that our emissions are most prevalent in Scope 3 -
emissions from the activities by those System1 indirectly affects in our value
chain.
Throughout 2022, System1 registered 0.066 KGCO23/GBP, which is slightly lower
than the median of our competitors within the sector at 0.070 KGCO23/GBP
(based on 61 companies). In particular, our commuting figures are lower than
average, driven by the high number of remote team members.
There are areas for improvement as well. Travel outside of commuting to work
remains higher than average. Our outsourcing strategy contributes to a
higher-than-average figure for services purchased, as expected.
With Greenly's expertise and guidance, System1 is implementing solutions to
reduce emissions, including:
· Updated travel policy to encourage employees to take trains
rather than planes where possible
· A more rigorous approval process for external conferences, to
promote local travel only
· Global annual event held in the UK (where we have most employees)
to reduce the need for flying
· Second annual event held regionally, to avoid the need for most
employees to fly
· Switched to least data-intensive formats for our marketing assets
· Provision in our road map to include a clause that asks our
suppliers to conduct mandatory carbon reporting and target a 3% reduction, at
the time of contract renewals in new contracts
· Continue to extend lifespan of IT equipment (extended from 3 to 4
years in 2022)
As a result of the efforts of all stakeholders, System1's recommendations and
actions are predicted to decrease our emissions by 2% - 2.5% of total
emissions against turnover per year.
Social
Under the second pillar, we have focused on infusing System1's HR strategy
with values of social responsibility and inclusivity. This includes reviewing
existing social initiatives, like employee benefits, community engagement
programs, and diversity and inclusion efforts, as well as analysing
Satistraction surveys containing employee feedback on the impact of existing
social initiatives.
The following recommendations were agreed, which will be actioned with the
support of our employee resource groups:
· Training - extend bias training to entire company and conduct
bi-annually
· Local communities - commit to reinforcing that employees can
participate in at least 1 Look Out volunteering initiative per year
· Diversity policy - review at least annually and ensure accuracy
· Health & Safety - have a dedicated and trained global health
& safety rep
· Communication - communicate the ESG strategy via 1Hub
(Sharepoint) so all employees are aware of what we do and our goals
Governance
The third and final pillar is focused on governance and owned by our legal and
finance leaders. The governance goals for FY25 are to:
· Annually review existing governance structures and practice in
light of industry standards and regulatory requirements
· Continue to provide regular training to board members and
decision-makers in the business to ensure all are well equipped
· Continually assess risk management procedures - to ensure they
effectively identity, assess and mitigate risks in alignment with corporate
objectives and regulatory expectations
· Further strengthen stakeholder engagement - strategies to enhance
communication and collaboration with stakeholders, employees, customers and
the wider community
· Regularly monitor compliance - collaborating closely with key
stakeholders, including the Senior Independent Non-Executive Director, and
regularly review compliance with all relevant laws, regulations, and internal
policies, taking corrective action as necessary
· Evaluate board performance periodically - conducting an annual
evaluation of the board's performance to identify areas for improvement and
ensure its composition aligns with the company's strategic direction
· Review and update policies and procedures - systematically review
and update governance policies and procedures to reflect changes in the legal
and regulatory environment, as well as evolving best practices
· Oversee Technology and Cybersecurity - regularly assess the
effectiveness of technology use and cybersecurity measures in protecting
company assets and information, including staff training
· Succession planning - maintain a comprehensive succession plan
for key executive and board positions to ensure long-term leadership
continuity
On behalf of the Board
Chris Willford
Chief Financial Officer
3 July 2024
Group Directors' Report
Review of the business and future development
The Chairman's Statement, CEO's Statement, the Financial Review, the Section
172 Report, Principal Risks and Uncertainties, and the Corporate Governance
Report set out:
· the issues, factors and stakeholders considered in determining
that the Directors have complied with their responsibilities under section 172
of the Companies Act 2006 (Corporate Governance Review);
· the methods used to engage with stakeholders and understand the
issues to which the Directors must have regard under section 172 of the
Companies Act 2006 and the effect on the Company's decisions and strategies
during the year (Corporate Governance Review);
· the way that management view the business (Group Overview,
Chairman and CEO's statements, Financial Review);
· its strategy, positioning, and objectives (Group Overview,
Chairman and CEO's statements).
· its historic financial performance (Chairman and CEO's
statements, Financial Review);
· an assessment of its future potential (Group Overview, Chairman
and CEO's statements, Financial Review);
· its key performance indicators (Financial Review); and
· its key business risks (Principal Risks and Uncertainties).
Dividends
The Company did not pay a dividend in the year ended 31 March 2024 and
proposes to pay a dividend of 5.0p per share.
Directors
The following individuals served as directors of the Company, System1 Group
PLC, during the year and up to the date of approval of the financial
statements:
James Gregory (Executive)
John Kearon (Executive)
Chris Willford
(Executive)
Conrad Bona (Non-Executive)
Rupert Howell (Non-Executive)
Phillip Machray (Non-Executive)
Sophie Tomkins (Non-Executive)
The Remuneration Committee Report sets out directors' interests in the shares
of the Company.
Share capital
At 31 March 2024, the Company had 13,226,773 Shares in issue (2023:
13,226,773) of which 547,844 were held in treasury (2023: 547,844). The
treasury shares will be used to help satisfy the requirements of the Group's
share incentive schemes.
Substantial shareholders
As at 31 May 2024, the Company was aware of the following significant
interests in the ordinary issued share capital of the Company.
No. % Voting shares
John Kearon 2,818,235 22.2
BGF Investment Management Limited 880,000 6.9
Stefan Barden 853,554 6.7
Kestrel Investment Partners 674,000 5.3
Herald Investment Mgt 595,111 4.7
Lombard Odier Asset Mgt 528,476 4.2
Ennismore Fund Mgt 523,012 4.1
University of Notre Dame Du Lac 500,000 3.9
Motley Fool Asset Mgt 479,670 3.8
AXA Investment Mgrs 457,128 3.6
Financial risk management
The Group's activities expose it to the following financial risks. Further
assessment of financial risks is outlined in Note 8 to the Consolidated
Financial Statements.
Credit risk
We manage credit risk on a Group basis, arising from credit exposures to
outstanding receivables and cash and cash equivalents. Since the majority of
the Group's customers are large blue-chip organisations, the Group rarely
suffers a bad debt. The Group's cash balances are held, in the main, at HSBC
Bank.
Market risk - Foreign exchange risk
In addition to the United Kingdom, the Group operated in the United States,
Rest of Europe, Brazil, Singapore, and Australia during the period and was
exposed to currency movements impacting commercial transactions and net
investments in those countries. Management endeavours to match the currencies
in which revenues are earned with the currencies in which costs are incurred.
So, for example, the US operation generates most of its revenue in US dollars
and incurs most of its costs in US dollars also.
Liquidity risk
The Company monitors its cash balances regularly and holds sufficient cash in
immediately available current accounts to minimise liquidity risk. The Company
has an overdraft facility with HSBC.
Other risks
Management do not consider price risk or interest rate risk to be material to
the Group.
Capital risk management
The Group manages its capital to ensure that it can continue as a going
concern while maximising its return to shareholders. The Company has a £1.5m
secured overdraft facility with HSBC. To the date of the signing of these
financial statements, no amounts have been drawn under the overdraft facility.
The Group has not entered any derivative contracts.
Going concern
As noted in Principal Risks and Uncertainties, and in note 3 to the
consolidated financial statements, the Directors have considered financial and
operational risks in the prevailing economic climate and marketing industry
trends in the going concern assessment. In addition to the mitigating actions
taken by the Company to address these risks, the Directors have closely
monitored the performance of the Group throughout the year, noting the £9.6m
cash balance at year-end and the availability of a £1.5m overdraft facility
(which has not been drawn to date).
The Group has reviewed its financial forecasts for the 12 months from the
approval of these financial statements, flexing sensitivity analysis scenarios
with external and internal inputs that would represent the Group's central
forecast and various downturn scenarios.
Accordingly, after making appropriate enquiries, at the time of approving the
financial statements the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for at least 12 months from the approval of these financial
statements. For this reason, the Directors continue to adopt the going concern
basis in preparing the Company and Group financial statements.
Research and development
The Company's Labs and IT Development teams are involved in the development
and validation of new market research methods and products.
Employees
The Group maintains fair employment practices, attempts to eliminate all forms
of discrimination and to give equal access, and to promote diversity. Wherever
possible we provide the same opportunities for disabled people as for others.
If an employee were to become disabled, we would make every effort to keep
them in our employment, with appropriate training where necessary.
Health and safety policies
The Group does not have significant health and safety risks and is committed
to maintaining high standards of health and safety for its employees,
visitors, and the public.
Directors' indemnities
Directors' and officers' insurance cover has been established for each of the
Directors to provide cover against their reasonable actions on behalf of the
Company. The indemnities, which constitute a qualifying third-party indemnity
provision as defined by Section 234 of the Companies Act 2006, remain in force
for all current Directors. All relevant information known to the Directors has
been relayed to the appointed auditor.
Disclosure of information to auditors
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the System1 Group PLC website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
In the case of each Director in office at the date the Directors' report is
approved:
· so far as the director is aware, there is no relevant audit
information of which the Group's and Company's auditors are unaware; and
· they have taken all the steps that they ought to have taken as a
director in order to make themselves aware of any relevant audit information
and to establish that the Group's and Company's auditors are aware of that
information.
On behalf of the Board
Chris Willford
Chief Financial Officer
3 July 2024
Statement of Directors' Responsibilities
The directors are responsible for preparing the Group Strategic Report, Group
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 have elected under company
law and are required by the AIM Rules of the London Stock Exchange to prepare
the group financial statements in accordance with UK-adopted international
accounting standards and have elected under company law to prepare the company
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law)
including Financial Reporting Standard 101 "Reduced Disclosure Framework".
The Group financial statements are required by law and UK-adopted
international accounting standards to present fairly the financial position
and the financial performance of the Group and Company. 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 the Company and of the profit or loss of the Group
for that period.
In preparing each of 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. for the Group financial statements, state whether they have been
prepared in accordance with UK-adopted international accounting standards;
d. for the Company financial statements, state whether applicable UK
accounting standards have been followed, subject to any material departures
disclosed and explained in the Company financial statements;
e. 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 and the 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 System1 Group PLC website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
On behalf of the Board
Chris Willford
Chief Financial Officer
3 July 2024
Corporate Governance
Governance
System1 understands how vital good governance is for achieving our business
goals and sustainability targets. We will share more about our approach to
governance in later sections of this report.
We know that good governance is key for our Group's success. It benefits
everyone involved with our Group - not just our shareholders, but our
employees, clients, and partners too. That is why we have built a governance
structure that makes sure our decisions are transparent, responsible, and
uphold the highest ethical standards.
We are committed to ongoing review and refinement to make sure we manage risks
effectively and stay compliant with laws and regulations.
Our Board of Directors is central to our governance structure. It consists of
individuals with a wide range of skills and experiences. They provide critical
oversight, strategic counsel, and informed decision-making, ensuring our
commitment to the highest ethical standards is never compromised.
Employee engagement and development form a crucial part of our governance
strategy. Our significant investment in ongoing professional development
ensures our team is equipped with the latest industry knowledge, skills, and
best practices to deliver exceptional market research and insights to our
clients.
As we move forward, we are committed to maintaining and improving our
governance standards and to promoting a culture of responsibility, integrity,
and excellence throughout System1.
As an AIM-listed company, System1 adheres to the ten principles of the Quoted
Companies Alliance (QCA) Corporate Governance Code. The QCA Code identifies
ten principles that underpin growth in long-term shareholder value,
encompassing an efficient, effective and dynamic management framework
accompanied by good communication to promote confidence and trust.
Deliver growth
Establish a strategy and business model to promote long-term value for Our strategy is to grow the platform-based predictions business and achieve See Group Overview page 4 and CEO's Statement page 6
shareholders economies of scale
Understand and meet shareholder needs and expectations The CEO and CFO communicate regularly with investors at half-yearly results Visit system1group.com/investors for further information
roadshows
Take into account wider stakeholder and social responsibilities and their The preferences of customers, employees, suppliers, community as well as See Section 172 Report page 19 and system1group.com/investors
implications for long-term success investors inform our decision making
Embed effective risk management, considering both opportunities and threats, The Board is responsible for setting risk appetite and tolerance. The See Principal Risks and Uncertainties page 16 and Board Effectiveness page 38
throughout the organisation Executive manages risk day to day
Maintain a dynamic management framework
Maintain the Board as a well- functioning, balanced team led by the Chair The Board has two Committees: Audit Committee; and Remuneration Committee. The See Corporate Governance pages 36 and 37
composition and experience of the Board is reviewed in the Board Evaluation.
All Directors recognise the need to commit sufficient time to fulfil the role.
This requirement is included in their letters of appointment. The Board is
satisfied that the Chair and Non-executive Directors devote sufficient time to
the Group's business.
Ensure that between them the Directors have the necessary up-to-date The Board members have the appropriate ranges of skills and experience, See Board experience pages 39 to 41 and Board Effectiveness page 38
experience, skills and capabilities covering, Sales & Marketing, Technology, Finance, Governance and
Sustainability
Evaluate Board performance based on clear and relevant objectives, seeking The Board carries out an annual effectiveness review assess its strengths and See Corporate Governance page 34 and Board Effectiveness page 38
continuous improvement areas for development and improvement
Promote a corporate culture that is based on ethical values and behaviours The culture of System1 is guided by the core "TIDE" values See Section 172 Report page 20
Maintain governance structures and processes that are fit for purpose and The Board is satisfied that the delegated authorities and budgetary processes See Board of Directors pages 39 - 40 and system1group.com/investors
support good decision making by the Board in the company are adequate to support its strategic growth plans. The Board
regularly considers the need to adapt and improve processes in line with the
growth of the entity including any associated investment in tools and
resources.
Build trust
Communicate how the Company is governed and is performing by maintaining a The investors section of our website includes our Annual Report, results, See Remuneration and Audit Committee reports on pages 42 and 45 and
dialogue with shareholders and other relevant stakeholders presentations, notice of AGM and results of the AGM and general meetings. system1group.com/investors for further information
Strategy
All directors are familiar with the market in which the Group is operating,
the Group's value proposition, and its strategic intent.
The Board actively participates in setting, and regularly reviewing, the
strategy of the business, and is responsible for ensuring that the Company's
business model is, and remains, aligned to the achievement of its strategic
objectives. The Company sets out its strategy within the Strategic Report
section of its Annual Report and Accounts.
Risk management
The Board reviews the risks facing the business on a regular basis. The
identified principal risks and uncertainties are those outlined in the
Strategic Report.
The Board is responsible for the Group's system of internal controls and risk
management, and for reviewing the effectiveness of these systems. These
systems are designed to manage, rather than eliminate, the risk of failure to
achieve business objectives, and to provide reasonable, but not absolute
assurance against material misstatement or loss.
The key features of the Group's internal controls are described below:
· clearly defined organisational structure with appropriate
delegation of authority;
· comprehensive budgeting programme with an annual budget approved
by the Board;
· regular review by the Board of actual results compared with
budget and forecasts;
· regular reviews by the Board of full year expectations;
· detailed budgeting and monitoring of costs incurred on the
development of new products;
· a limited number of Directors and Executives authorised to commit
the company to legal agreements or make payments;
· regular reviews of customer and employee feedback;
· information security controls (for which the Company has obtained
ISO 27001 accreditation).
The Board take measures to review internal controls and embed risk management
procedures on an ongoing basis and implement metrics and objectives to monitor
the business as part of a continuous improvement programme.
Corporate culture
The Group endeavours to maintain a culture built on integrity. To surface
unethical or deceitful behaviours, it promotes openness amongst its employees,
provides channels for employees to feedback concerns to the Executive
Directors and the Board (such as anonymous employee feedback surveys, and
confidential whistle-blowing channels), and conducts exit interviews. Further
information on System1's culture and values can be found in the Section 172
Report.
The Board of Directors
The Board comprised three Executive Directors and four independent
Non-Executive Directors, including the Non-Executive Chairman for the year
ended 31 March 2024. The membership of the Board is set out in the Group
Directors' Report. We believe that the directors have the mix of leadership,
marketing and financial skills and experience necessary to oversee the Group
and deliver its strategy for the benefit of the shareholders over the medium
to long-term, and this mix is regularly under review as strategy develops. The
composition of the Board is set out on pages 39 to 40 and is intended to
achieve a balanced range of personal qualities and capabilities, and to
support the Company's commitment to promoting gender equality and diversity.
The biographical details of the directors are presented below.
The Board operates an induction programme for new Non-Executive Directors. The
Board reviews its AIM obligations with its Nominated Advisor annually and
endeavours to keep up with best practice governance via QCA seminars and
training material. All directors can access the Company's advisors and obtain
independent professional advice at the Company's expense in performance of
their duties as directors.
During the year, the Remuneration Committee sought advice from external
consultants on board and senior management remuneration. Neither the Board nor
the respective committees have sought other external advice on any significant
matter during the year. The Audit Committee works with the Company's auditor,
Haysmacintyre LLP. The Board liaises regularly with the Company's Nominated
Advisor, Canaccord Genuity to ensure compliance with AIM Rules.
The Board considers each of the Non-Executive Directors to be independent, for
the following principal reasons:
· they all have served on the Board for less than ten years;
· their remuneration is not material in the context of their
financial circumstances;
· they have no executive role;
· they each own an immaterial number of shares in the Company in
the context of their financial circumstances;
· they are not related to any of the Executive Directors; and
· they have no material conflict of interest given their other
roles and business activities.
The Board schedules regular monthly meetings during the year, except for
August, and additional ad hoc meetings as required. All Directors can allocate
sufficient time to the Group to discharge their responsibilities fully. In
recent times, we have embraced a hybrid approach to our board and committee
meetings, conducting them both virtually via Microsoft Teams as well as in
person at our central London location. The number of regular meetings that
each director attended during the financial year is set out below:
Board Audit Committee Remuneration Committee
(12 meetings) (3 meetings) (2 meetings)
Rupert Howell 12 3 2
Sophie Tomkins 12 3 2
Phil Machray 12 3 2
Conrad Bona 12 3 2
James Gregory 12 2* 1*
John Kearon 9 -* -*
Chris Willford 12 3* 1*
*by invitation
Matters reserved for the Board
The Board discusses and reviews all matters and issues which are important to
the business. Certain decisions are reserved for the Board, which include:
· approval of the Group's long-term objectives and strategy;
· approval of the annual operating and capital budget, and any
material changes thereto;
· extension of the Group's activities into new business or
geographic areas;
· changes to the Group's capital structure and/or major changes to
corporate structure, including acquisitions, disposals, and investments;
· approval of interim and annual reports, and regulatory or
non-routine shareholder communications;
· approval of significant changes in accounting policies or
practices;
· approval of share buybacks, dividends and dividend policy;
· assessment of the effectiveness of risk and control processes.
Matters referred to the Board are considered by the Board as a whole and no
one individual has unrestricted powers of decision. Where directors have
concerns which cannot be resolved in connection with the running of the Group
or a proposed action, their concerns would be recorded in the Board Minutes.
This course of action has not been required to date.
The provisions on engagement with stakeholders including shareholders,
employees and customers are dealt within the Section 172 Report on pages 19 to
25.
Appointment of Directors
The Board formally approves the appointment of all new Directors. Each year at
the Annual General Meeting, all Directors retire by rotation and are subject
to re-election.
Remuneration Committee
The Remuneration Committee is responsible for determining the specific
remuneration and incentive packages for each of the Company's Executive
Directors and keeping under review the remuneration and benefits of all senior
executives. Its members are:
Philip Machray - Chairman of the Remuneration Committee
Conrad Bona
Rupert Howell
Sophie Tomkins
The Remuneration Committee's role and responsibilities are to:
· review and approve the remuneration and incentive schemes of
Executive Directors, including pension rights, other benefits, and any
compensation payments, ensuring that no Director is involved in any decisions
as to their own remuneration;
· review and approve the level and structure of remuneration and
incentive schemes for senior management;
· select, appoint, and set the terms of reference for any
remuneration consultants who advise the Committee;
· approve the payments to Directors under any performance-related
pay or share schemes operated by the Group;
· ensure that contractual terms on termination of any Director are
fair to the individual and the Group, that
· failure is not rewarded and that the duty to mitigate loss is
fully recognised;
· approve any major changes in employee benefits structures
throughout the Group;
· approve the policy for authorising claims for expenses from the
Directors.
The Remuneration Committee schedules two formal meetings per year and meets at
other times as necessary. The Remuneration Committee may invite any of the
executive directors to attend meetings of the Remuneration Committee. The
Remuneration Committee may use consultants to advise it in setting
remuneration structures and policies. It is exclusively responsible for
appointing such consultants and setting their terms of reference.
The Annual Statement from the Remuneration Committee Chair is set out in the
Remuneration Committee Report on page 45.
Audit Committee
The Audit Committee is responsible for ensuring the financial performance of
the Group is properly monitored and reported on to shareholders, reviewing the
Group's financial systems and controls, and overseeing the Group's risk
management. Its members are:
Sophie Tomkins - Chair of the Audit Committee
Conrad Bona
Rupert Howell
Philip Machray
The Audit Committee's role and responsibilities are to:
· monitor the integrity of the financial statements of
the Group;
· review significant financial reporting matters
· review the Group's internal financial controls and risk
management systems;
· make recommendations to the Board, for it to put to the
shareholders for their approval in relation to the appointment of the external
auditor and to approve appropriate remuneration and terms of reference for the
external auditor;
· discuss the nature, extent and timing of the external
auditor's procedures and discussion of external auditor's findings;
· monitor and ensure the external auditor's independence
and objectivity and the effectiveness of the audit process;
· develop and implement policy on the engagement of the
external auditor to supply non-audit services;
· report to the Board, identifying any matters in respect
of which it considers that action or improvement is required; and
· ensure a formal channel is available for employees and
other stakeholders to express any complaints in respect of financial
accounting and reporting.
Board effectiveness
In line with best practice governance, the Group's Senior Independent Director
recently concluded the annual review of the Chair. This involved confidential
discussions with the independent Directors, to act as a sounding board for any
concerns, and to ensure that the Board is functioning optimally. The review
concluded that the Board meetings and Board matters were being run well, with
all Directors given full opportunity to express views and ask questions of the
Executive, and with clear goal setting and follow up of action points.
Additionally, this year's Board Evaluation was internally facilitated and
gathered the feedback of all Directors across a series of questions addressing
the effectiveness of the Board and its Committees. It included a number of key
topics including:
· the effectiveness of the Board in setting strategy and assessing
risk;
· the relationship between the CEO and Chair;
· that decision making was balanced and objective and took active
account of relevant stakeholder issues;
· shareholder relations and communications;
· that the Board was effective and responsive to new information
and events; and
· that the Board had the appropriate composition and skills to
discharge its duties, and had sufficient process in place for regular
self-assessment.
Overall, the Board Evaluations have indicated that Board processes are robust,
although certain areas have been flagged as needing continued focus, notably
strategy, risk review and mitigations, and succession planning. The Board aims
to meet face to face as often as possible, and continues to review practical
and transparent ways of engaging with its shareholders, particularly in light
of the significant changes in the shareholding register since the year-end.
As a result of this year's process, a number of actions were agreed including
revisiting succession planning, review of ESG policies and effectiveness, and
plans for a comprehensive Strategy Day.
The skills and experience of the Board are set out in their biographical
details on pages 39 and 40. The experience and knowledge of each of the
Directors gives them the ability to constructively challenge strategy and to
scrutinise performance. The Board meets regularly with external experts
including the NOMAD to ensure that it remains abreast of developments and
current best practice.
All Directors undertook a thorough induction process on joining the Board,
tailored to the existing knowledge and experience of the Director concerned.
The Group maintains communication with a wide range of stakeholders to ensure
that their needs, interests and expectations are understood and reflected
within the Group's strategy and in Board decision making. Further details of
how the Board has taken account of the needs of the Group's stakeholders are
set out on pages 19 to 25.
Succession planning
The Board, led by the Chairman, carries out ongoing assessments as to the
succession needs and planning of the Board. Senior management appointments are
made by the Executive Directors, who carry out ongoing assessments of
succession needs and skills gaps across the business. Compensation
arrangements for key appointments are overseen by the Remuneration Committee.
The Board
CONRAD BONA
INDEPENDENT NON-EXECUTIVE DIRECTOR
Conrad joined System 1 Group in September 2022 as a Non-Executive Director.
Conrad is a business consultant, investor and entrepreneur who started his
career as a banking and finance lawyer and has worked in Toronto, London and
Tokyo. He has a degree in economics from the University of Western Ontario,
law degrees from the University of Edinburgh and the University of New
Brunswick and qualified to practice as a lawyer in multiple jurisdictions. No
longer practising law, Conrad now advises companies on a wide range of
commercial, financial and business matters. He has both Canadian and British
citizenship and is based in London, England.
Favourite ad of all time: John Lewis Monty the Penguin
JAMES GREGORY
CHIEF EXECUTIVE OFFICER
James Joined System1 Group as Chief Operating Officer in 2021 and was
appointed CEO in December 2023. Prior to joining System1, James worked at
HomeServe Plc as Chief of Staff, Tesco Plc as Online Director, and Capgemini
Consulting. He brings 15 years of leadership experience in strategy and
transformation, operations and commercial management across digital,
distribution and online retail environments. Past roles involved scaling
digital businesses, initiating and leading large scale, complex
transformations, and delivering new customer propositions.
Favourite ad of all time: John Smiths Peter Kay, 'Ave It
RUPERT HOWELL
INDEPENDENT NON-EXECUTIVE CHAIRMAN,
Rupert joined System1 Group in 2021 as a Non-Executive Director and became
Chairman in September 2022. He founded a multi-award-winning ad agency HHCL
(named 1 of the top 10 ad agencies of all time). Rupert was then CEO of Chime
Communications PLC, President EMEA of McCann Erickson, PLC Executive Director
at ITV PLC, Chairman of Matomy Media, and Executive Director of Reach PLC. He
is currently Chairman of ROXi, a music streaming and entertainment business,
and Co-founder/Chairman of Pinwheel, the sustainable living and planet repair
app.
Favourite ad of all time: Tango Slap
JOHN KEARON
FOUNDER AND PRESIDENT
John ("JK") founded the Company in 1999 and remains its largest shareholder.
During 20 years as CEO, JK steered System1 from a start-up to where it is
today, shaking up traditional market research with fresh innovative thinking
& game-changing methods. Before System1, JK founded innovation agency,
Brand Genetics, after being Planning Director at Publicis, and holding various
research/marketing positions at Unilever.
Favourite ad of all time: Coca Cola Life Argentina
PHILIP MACHRAY
INDEPENDENT NON-EXECUTIVE DIRECTOR
Phil joined System1 Group in 2022 as a Non-Executive Director and was
appointed Chair of the Remuneration Committee in December 2022. He started his
career at Deloitte in 1992, rising to Director of Assurance and Advisory. He
then joined Trinity Mirror Group, where he held a number of roles, and became
Director of Corporate Development, reporting to the CEO, of what became Reach
PLC. Since 2021, Phil has worked at Merit Group PLC, a data and intelligence
business, as Chief Financial Officer and since January 2024 Chief Executive
Officer. Phil serves as a Non-Executive Director, and audit committee Chair
of Digitalbox, a mobile-first digital publisher and AIM-listed company.
Favourite ad of all time: John Smiths Peter Kay, 'Ave It
SOPHIE TOMKINS
INDEPENDENT NON-EXECUTIVE DIRECTOR
Sophie joined the Board as Non-Executive Director in June 2018, became Audit
Committee Chair in June 2019 and Senior Independent Director in August 2021.
Her career included nearly two decades as a London-based stockbroker, focusing
mainly on high growth small to mid-cap companies. She started at Cazenove
& Co, and became more entrepreneurial, at both Collins Stewart, and then
Fairfax. As a City Analyst, and then Head of Equities, Sophie advised numerous
companies and Boards on a huge range of high-profile IPOs and M&A deals.
She is currently Non-Executive Director and Audit Committee Chair of Virgin
Wines UK PLC and a Non-Executive Director of Wilmington plc. Sophie is also a
qualified Chartered Accountant.
Favourite ad of all time: Yellow Pages JR Hartley
CHRIS WILLFORD
CHIEF FINANCIAL OFFICER
Chris joined System1 Group in 2020 as Chief Financial Officer. A Chartered
Management Accountant, he built his career with blue chip consumer businesses
including Unilever, British Airways (Group Treasurer) Barclays (Finance
director of Corporate Bank and UK Retail Bank) and Bradford & Bingley
(Group Finance Director). Prior to joining System1 in 2020, Chris worked as a
consultant with a portfolio of scale up media and tech businesses.
Favourite ad of all time: Skoda Cake
Board skills and experience
Sales and marketing Technology Finance Governance Sustainability
Conrad Bona ★ ★ ★ ★
Rupert Howell ★ ★ ★ ★
John Kearon ★ ★ ★
Philip Machray ★ ★ ★
Sophie Tomkins ★ ★ ★
Chris Willford ★ ★ ★
James Gregory ★ ★ ★
Audit Committee Report
The Audit Committee is responsible for ensuring that the financial performance
of the Group is properly reported and reviewed. Its role includes monitoring
the integrity of the financial statements (including annual and interim
accounts and results announcements), reviewing internal control and risk
management systems, reviewing any changes to accounting policies, reviewing
and monitoring the extent of the non-audit services undertaken by external
auditors and advising on the appointment of external auditors.
Members of the Audit Committee
The membership of the Committee is set out on page 37 of the Corporate
Governance Report. All members of the Committee are independent Non- Executive
Directors. The Chief Financial Officer routinely attends the Audit Committee
meetings by invitation, but other Executive Directors or members of the
management team may also be invited to attend meetings as required. The
Non-Executive Directors are provided an opportunity at the Audit Committee
meetings to discuss matters with the Auditors without the presence of the
Executive Directors.
The Board is satisfied that the Chair of the Committee has recent and relevant
financial experience. Sophie is a Chartered Accountant and is also Chair of
the Audit Committee at Virgin Wines UK plc and Audit Chair Designate at
Wilmington PLC. The Committee meets at least twice a year and more frequently
if required and has unrestricted access to the Group's auditor. Attendance at
Board and Committee meetings is set out in the Corporate Governance Report on
page 35. During FY24, three formal meetings were held in addition to the
meetings held as part of the external tender process.
Duties
The main duties of the Audit Committee are set out in its terms of reference,
which are summarised on page 37 and available on the Group's website
(system1group.com/investors).
The work carried out by the Audit Committee during FY24 comprised the
following:
· ensuring the financial performance of the Group is being properly
measured and reported on;
· review of the audit plan;
· consideration of key audit matters and how they are addressed;
· going concern review;
· review of suitability of the external auditor;
· review of the financial statements and Annual Report;
· review of the appropriateness of the Group's accounting policies
and judgements made in the preparation of the financial statements, and
adequacy of the disclosures made therein;
· consideration of the external audit report and management
representation letter;
· review of the risk management and internal control systems;
· meeting with the external auditor without management present;
· review of anti-bribery policy and whistleblowing arrangements
· Oversight of the external tender process.
Change of Auditor FY24
Following a competitive and comprehensive tender process, overseen by the
Audit Committee, the Group appointed Haysmacintyre LLP with effect from 1st
December 2023.
Following the appointment, Haysmacintyre performed pre-planning, planning, and
interim fieldwork in the final quarter of FY24 in order to gain greater
understanding of key systems, controls, and to assess key judgements. The
findings arising from this work, and that performed post year-end, are set out
in the Audit Report on pages 50 to 56.
Role of the external auditor
The Audit Committee monitors the relationship with the external auditor to
ensure that auditor independence and objectivity are maintained. As part of
this role, the Committee reviews the non-audit fees of the auditor. There were
no non-audit fees to Haysmacintyre in the year under review.
Auditor Performance
The Audit Committee also assesses the auditor's performance. The Committee has
adopted a broad framework to review the effectiveness of the Group's external
audit process and audit quality which includes: assessment of the audit
partner and team with particular focus on the lead audit engagement partner;
planning and scope of the audit, with identification of particular areas of
audit risk; the planned approach and execution of the audit; management of an
effective audit process; communications by the auditors with the Committee;
how the audit contributes insights and adds value; a review of independence
and objectivity of the audit firm; and the quality of the formal audit report
to shareholders. The Audit Committee recommends that Haysmacintyre be
appointed as the Group's auditor at the next AGM.
Areas of key significance in the preparation of the financial statements
Prior to publication of this Annual Report and Accounts, the Committee
reviewed the accounting policies and significant judgements and estimates
underpinning the financial statements as disclosed in notes to the
consolidated financial statements.
Significant focus is placed on key accounting policies, including any
judgements and estimates, which underpin the financial statements, which
include:
· revenue recognition;
· capitalisation and valuation of intangibles;
· valuation of share-based payments
· Sabbatical provision release.
Further detail on the approach to these areas can be found in Note 4 to the
financial statements.
Audit process
The auditor prepares an audit plan for the review of the full period financial
statements. The audit plan sets out the scope of the audit, areas to be
targeted and audit timetable. This plan is reviewed and agreed by the Audit
Committee. Following the audit, the auditor presents its findings to the Audit
Committee for discussion. No major areas of concern were highlighted by the
auditor during the period; however, areas of significant risk and other
matters of audit relevance are regularly communicated.
Internal audit
At present the Group does not have an internal audit function and the
Committee believes that management is able to derive assurance as to the
adequacy and effectiveness of internal controls and risk management procedures
without one.
Risk management and internal controls
As described throughout the Annual Report and the Corporate Governance section
of the Group's website (system1group.com/investors), the Group has established
a framework of risk management and internal control systems, policies, and
procedures. The Audit Committee is responsible for reviewing the risk
management and internal control framework and ensuring that it operates
effectively. During the period, the Committee has reviewed the framework, and
the Committee is satisfied that the internal control systems in place are
currently operating effectively.
Whistleblowing
The Group has in place a process whereby employees can discuss concerns
confidentially, including a channel of communication directly with our
non-executive Directors. The Committee is comfortable that the current policy
is operating effectively.
Anti-bribery
The Group has in place an anti-bribery and anti-corruption policy which sets
out its zero-tolerance position and provides information and guidance to those
working for the Group on how to recognise and deal with bribery and corruption
issues. The Committee is comfortable that the current policy is operating
effectively.
Sophie Tomkins
Chair, Audit Committee
Remuneration Committee Report
Annual statement from the Remuneration Committee chair, Philip Machray
Dear Shareholder,
The Remuneration Committee sets the strategy, structure, and levels of
remuneration for the Executive Directors and reviews the remuneration of
senior management, to ensure alignment of objectives and incentives throughout
the business in pursuit of the Group's stated objectives. The membership and
terms of reference of the Remuneration Committee are set out in the Corporate
Governance Report.
This Remuneration Report is split into two parts:
1. The directors' remuneration policy sets out the Company's policy on
directors' remuneration, and the key factors that were considered in setting
the policy
2. The annual report on remuneration sets out payments and awards made to
the directors for the year to 31 March 2024.
There are three elements in director remuneration:
· Base salary
· Bonus
· Long term incentive plan (LTIP) Benefits
The Committee regularly reviews the appropriateness of remuneration across the
Group and is satisfied that an appropriate reward structure exists below Board
level to recognise and retain our top talent.
Directors' remuneration policy
The policy described in this part of the Remuneration Report is intended to
apply for three years beginning in FY23 to FY25 and covers Executive Directors
and a small number of other senior managers ("Executives").
The Remuneration Committee considers the policy annually to ensure that it
remains aligned with business needs and is appropriately positioned relative
to the market. As the current LTIP matures in FY25, the remuneration
committee has commenced work on the design of a new scheme and expects to
consult with shareholders on a new remuneration policy in the year ahead.
The Committee has based the Executive reward structure on the long-term
organic growth strategy of the business. If successful, this will deliver
significant shareholder value, and Executive rewards are designed to correlate
with the key driver of that value (primarily revenue growth).
Fixed annual elements-including salary, pension, and benefits-are to recognise
the responsibilities and leadership roles of our Executives and to ensure
current and future market competitiveness. Variable elements - including
bonuses and Long-term incentives are to motivate and reward them for
delivering the Group's strategy and making the Group successful on a
sustainable basis.
The balance of variable elements, between short-term and long-term awards, is
designed to focus decision making on delivering shareholder value. Whereas
in FY23 the Committee judged that delivery of the Group's long-term growth
strategy was the primary objective and no short-term awards were granted, for
FY24, the Committee considered that, in light of the 2022 strategic review,
short-term incentives (bonuses) matched to the near-term goals of the
strategic review would be applicable to retain and reward Executives.
Base salary and benefits
FY23 and FY24: Base salary is paid in 12 equal monthly instalments during the
year. Salaries are reviewed annually, and any changes are effective from the
beginning of the Group's financial year (which is 1st April). Benefits
comprise money purchase pension contributions of up to 6% of salary, private
medical and dental insurance, life insurance and long-term disability
insurance.
Bonuses
FY23: Participants in the 2021 LTIP did not participate in the Company's
annual bonus or profit share scheme and had no other short-term incentive
plans. Therefore, over the period to March 2023, the only remuneration
received was base salary and benefits.
FY24: Executives earned cash bonuses for exceeding annual targets. Targets
were set such that no bonus accrued until Adjusted Profit before Taxation (=
Profit before Taxation and Share-Based Payments) exceeded the budgeted
performance for that measure. In view of the exceptional performance during
FY24, with profit before taxation up by over 4x on FY23, and progress made
towards delivering the long-term strategy, the Committee decided to remove the
originally proposed 50% of salary cap on the FY24 bonus for Executive
Directors.
Further, in recognition of the CEO's exceptional performance during the year,
and mindful that no additional LTIP awards have been made to him since
appointment to the role, the Remuneration Committee intends to additionally
award nil-costs share options to him in July 2024, in an amount equivalent to
his FY24 annual bonus. These awards will vest in April 2026 if he remains in
office at that time. This award is intended to both reward and retain in a
manner aligned with shareholder value.
The long-term incentive plan
The Company introduced the current 2021 LTIP in October 2021. It was approved
by shareholders at the Annual General Meeting on 13 August 2021 and covers the
period ending 31 March 2025. The 2021 LTIP was implemented in October 2021 as
a modification to the 2019 LTIP.
Under the approved modified scheme, the 2021 LTIP features the following:
· The awards have taken the form of zero-cost stock options.
· The overall plan limit is 10% of issued ordinary share capital as
at 1 January 2017.
· New awards can be granted up to 22 March 2025
· The award has 4 tranches of vesting dates on 12 August 2022 to
2025 with a hard end-date for exercise of 21 March 2027.
· The market conditions underpinning these options are an average
daily closing mid-price of the Company's shares must be at least £4.00 during
the month of July (excluding weekends) of the relevant year when vesting
occurs. If the share price target is not met, the award will roll onto the
next date of vesting, except in the final year of the LTIP.
· Non-market performance conditions: If for the financial year
immediately preceding the year of Vesting, Adjusted Profit After Tax is
greater than £0 and subject to the Remuneration Committee considering and
being satisfied with the level of profitability for the financial year
immediately preceding the year of Vesting and the overall corporate and share
price performance since 31 March 2021:
a) all of the award will vest if revenue is equal to or greater than the
Stretch Target;
b) one-third of the award will vest if revenue is equal to the Threshold
Target;
c) a proportionate amount of the award will vest on a straight-line basis
if revenue is between the Threshold Target and the Stretch Target (between
one-third and all of the award).
· The Threshold Target means revenue of £45m in the Company's
financial year ending 31 March and represents the minimum level of revenue
that must be achieved for any vesting to occur. This means that 50% revenue
growth is required in FY25 for any vesting to occur under the 2021 LTIP and
accordingly no charge has been recognised in FY24 as the probability of this
being achieved has been assessed as low.
· The Stretch Target means revenue of £88m in the Company's
financial year ending 31 March and represents the minimum level of revenue
that must be achieved for full vesting to occur.
At 31 March 2024, the number of options granted under the 2021 LTIP reached
1,185,139 (or 9.0% of issued ordinary share capital of maximum capacity at
10%).
At 31 March 2024, there were three Executive Director participants in the 2021
LTIP (James Gregory, John Kearon and Chris Willford) and six senior manager
participants. The specific vesting levels are set out as follows:
Equity level shares No. Of issued shares Revenue target
Executive Directors 154,311 1.2% £45.0m Threshold
308,623 2.3% £88.0m Stretch
462,934 3.5%
Senior Managers 198,401 1.5% £45.0m Threshold
396,802 3.0% £88.0m Stretch
595,203 4.5%
Non-employee plan
In April 2019, the Committee granted Stefan Barden, then an advisor to the
Board, a separate equity award, originally comprising 300,000 zero-cost stock
options in three tranches of 100,000, with the following performance
conditions: In October 2021, the non-employee plan was modified to reflect the
same targets as the 2021 LTIP scheme. As at 31 March 2024, Stefan Barden
retained 46,995 of his Tranche 1 options, with the remaining 253,005 options
cancelled.
Dilution
Vested stock options are set out as follows:
No. %
Voting shares as at 31 March 2024 12,678,929 100%
2010-2014 LTIP - vested on 28 May 2014 (closed) 10,144 <0.1%
10,144 <0.1%
Unvested options comprise options granted under the 2019 and 2021 LTIP
schemes, and the Non- Employee Plan, all described above. The maximum
aggregate dilution under these schemes is 9.4% of the Company's voting shares.
Non-Executive Directors
Non-Executive Directors do not participate in any of the Company's incentive
arrangements, nor do they receive any benefits. Their fees are reviewed
periodically and set by the Board as a whole.
Remuneration of all employees
All employees are entitled to base salary, benefits, and a discretionary
annual bonus or commissions. Since January 2012, equity awards have not been
granted to employees who are not also members of executive management.
Director service contracts and policy on payment for loss of office
All the Executive Directors have service contracts. The agreements include
restrictive covenants which apply during employment and for a period of 6
months after termination. All the Executive Directors' service contracts can
be terminated on six months' notice in writing by either the Company or the
director.
Annual report on remuneration
Remuneration for Executive Directors
Year ended 31 March 2024 (audited)
Salary Back-dated salary* Payment in lieu of pension Bonus Benefits Pension Total
£ £ £ £ £ £
James Gregory 262,500 26,167 - 158,041 222 19,840 466,770
John Kearon 190,000 - 158,041 4,644 8,081 360,766
Chris Willford 210,000 12,600 158,041 4,940 - 385,581
Total 662,500 26,167 12,600 474,123 9,806 27,921 1,213,117
*Included with remuneration is an element of salary contractually agreed in
April 2023 in respect of services rendered from 6 December 2022 (appointment
as Chief Executive Officer) to 31 March 2023.
Year ended 31 March 2023 (audited)
Salary Back-dated salary* Payment in lieu of pension Bonus Benefits Pension Total
£ £ £ £ £ £
James Gregory 57,973 - - - - 3,899 61,872
John Kearon 265,000 - - - 6,622 - 271,622
Chris Willford 210,000 - 12,600 - 5,943 - 228,543
Total 532,973 - 12,600 - 12,565 3,899 562,037
This Annual report on Remuneration discloses the highest paid director in the
year.
Directors' interests
The Directors who held office at 31 March 2024 held the following shares in
the Company as at that date:
No. %
John Kearon 2,818,235 22.2%
Chris Willford 33,666 0.3%
Conrad Bona 26,407 0.2%
James Gregory 15,384 0.1%
Philip Machray 15,380 0.1%
Rupert Howell 10,000 0.1%
Sophie Tomkins 8,000 0.1%
Directors' interests in options over shares and conditional shares of the
Company are shown below.
Date of grant Earliest exercise date Exercise price No. Exercised in year Cancelled in year No.
at 1 Apr 2023
at 31 Mar 2024
James Gregory 27/10/2021 12/08/2022 0.0p 132,267 - - 132,267
John Kearon 04/09/2019 12/08/2022 0.0p 198,400 - - 198,400
Chris Willford 27/11/2020 12/08/2022 0.0p 132,267 - - 132,267
Options and conditional shares granted under the 2019 LTIP and modified in
2021, as described in the Directors' remuneration policy. These modified
options can vest at any time between 12 August 2022 and 12 August 2025,
provided performance and market targets are met.
There were no equity awards or vesting of options other than under the LTIP as
set out in the directors' remuneration policy.
Fees for Non-Executive Directors (audited)
The Non-Executive Directors received fees, but no other benefits, as follows.
2024 2023
£ £
Conrad Bona (appointed 1 September 2022) 38,000 22,167
Graham Blashill (resigned 28 September 2022) - 21,000
Jane Wakely (resigned 15 July 2022) - 11,108
Philip Machray 39,849 32,772
Rupert Howell 42,000 40,000
Sophie Tomkins 40,000 40,000
159,849 167,047
Philip Machray
Chair, Remuneration Committee
Independent auditors' report
to the members of System1 Group PLC
Opinion
We have audited the financial statements of System1 Group PLC (the 'parent
company') and its subsidiaries (the 'group') for the year ended 31 March 2024
which comprise:
Group Company
the Consolidated Statement of Comprehensive Income; the Company Statement of Changes in Equity;
the Consolidated Statement of Changes in Equity; the Company Balance Sheet;
the Consolidated Balance Sheet; and related notes to the financial statements
the Consolidated Statement of Cash flows;
and related notes to the financial statements
The financial reporting framework that has been applied in the preparation of
the group financial statements is applicable law and UK-adopted International
Financial Reporting Standards (IFRSs). The financial reporting framework that
has been applied in the preparation of the parent company financial statements
is applicable law and United Kingdom Accounting Standards, including Financial
Reporting Standard 101 "Reduced Disclosure Framework" (United Kingdom
Generally Accepted Accounting Practice).
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 March 2024 and of the group's profit for the
period then ended;
· have been properly prepared in accordance with UK adopted IFRSs;
· the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and 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 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.
An overview of the scope of our audit
The Group consists of 13 components, located in various geographical
territories. All components are trading apart from System1 Agency Limited and
System1 AdRatings Limited, which are dormant. Three UK components, System1
Research Limited, System1 Agency Limited and System1 AdRatings Limited are
exempt from statutory audit requirements but audit work on these was performed
to component level materiality where considered appropriate.
The scope of the audit and our audit strategy was developed by using our audit
planning process to obtain an understanding of the Group, its activities, its
internal control environment, current, and where relevant to our audit, likely
future developments.
Our audit testing was informed by this understanding of the Group and
accordingly was designed to focus on areas where we assessed there to be the
most significant risks of material misstatement.
Audit work to respond to the assessed risks was performed directly by the
audit engagement team who performed full scope audit procedures on the Parent
Company and the Group as a whole.
Our audit planning and risk assessment identified 5 components (one of which
was System1 Group PLC, the Parent company) which were categorised as full
scope audits. The remaining components were deemed to be out of scope
(analytical review components), however it was decided as part of our group
scoping that we would perform specific audit procedures over revenue across
all components to achieve 100% coverage of this balance. Further information
around these procedures is disclosed within the key audit matters section of
this report.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Our evaluation of the directors' assessment of the group's ability to continue
to adopt the going concern basis of accounting included:
· Discussing management's assessment of the group's ability to
remain a going concern;
· Reviewing and understanding the cash flow forecasts for the
period to end of July 2025 which are the central element of management's going
concern assessment;
· Assessing and challenging the inputs in and judgements made in
the preparation of the cash flow forecasts for the period to end of July 2025;
and
· Performing stress tests including sensitivity analysis to model
the effect of changing assumptions made or amending key data used in
management's cash flow forecasts and considering the impact on the group's
ability to adopt the going concern basis.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group's ability to continue as
a going concern for a period of at least twelve months from when the financial
statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on:
· the overall audit strategy,
· the allocation of resources in the audit; and
· directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
In determining the key audit matters we considered the:
· Areas of higher risks of material misstatement or significant
risks identified in accordance with ISA (UK) 315
· Significant audit judgements on financial statement line items
that involved significant management judgement such as accounting estimates,
and
· The impact of significant events and transactions during the
period covered by the audit.
The following table summarises the key audit matters we have identified and
rationale for their identification together we how we responded to each in our
audit and our key observations. The table also shows how our judgement of the
magnitude of each risk has changed since the previous audit.
Key audit matter How we addressed the key audit matter in the audit
Revenue recognition (Group) In response to this risk, our work consisted of, but was not limited to, the
following audit procedures in respect of all full scope components:
The Group's revenue recognition policy is included within the accounting
policy in Note 5 of the financial statements.
During the year ended 31 March 2024, the Group have recognised revenues of · We gained an understanding of key processes and controls relating
£30,019k (2023: £23,410k). The Group recognises revenue largely at the point to the revenue process and revenue recognition, through the documentation of
in time at which the final written debrief becomes available to the customer. walkthrough procedures for each material revenue stream to assess the design
This is deemed by management to be the point at which the performance and implementation of controls;
obligations are satisfied, and control is transferred to the customer.
· We assessed the Group's s accounting policy for each revenue
The application of the five-step model of IFRS 15, in particular determining stream with reference to the five-step model of IFRS 15, "Revenue from
whether a contract exists with a customer, and the determination of whether Contracts with Customers";
the performance obligations included in such contract have been satisfied,
involves judgement. Revenue is also deemed to be a key metric to users of the · We performed a substantive review over the occurrence of revenue
financial statement, As a result, this was deemed to be an area of high through reconciling cash receipts in the period to the nominal ledger;
importance in the Group audit, and was therefore determined to be a key audit
matter. · We performed test of details for transactions In March 2024 and
April 2024, obtaining evidence to demonstrate the performance obligations were
satisfied in the period in which the transaction had been recognised;
· Using Data Analytical procedures, we performed a review of
entries posted to revenue accounts in the period to determine entries which
did not follow the expected flow of transactions.
In addition to the above procedures performed over the full scope components,
we also performed substantive analytical review procedures in respect of all
other out of scope components, providing 100% coverage over the Group's
revenue as at the 31 March 2024.
Capitalisation of development costs (Group and Parent company) In response to this risk, our work consisted of, but was not limited to, the
following audit procedures:
Application of IAS 38
As at 31 March 2024, the Group and Parent company had development costs with
carrying value of £1,437k (2023: £1,124k). During the period, the Group and Application of IAS 38
Parent company capitalised development costs of £736k (2023: £1,225k), which
have been recognised as intangible asset additions. All intangible asset
additions recognised for the year ending 31 March 2024 relate to the Supply
Chain Automation platform. · We obtained management's development cost capitalisation policy
and assessed the policy with reference to the capitalisation requirements of
Management capitalise development cost when the project is deemed to have met IAS 38.
all criteria of IAS 38 - Development costs. The process in determining when a
project meet all these criteria involves management judgement and estimation. · We performed a reconciliation of the intangible fixed asset
register between the prior year and current year financial statements.
The costs capitalised consist of both directly attributable staff costs and
invoiced consultant costs. Estimates are made in determining the proportion of · For a sample of current year additions, we performed substantive
staff costs to be capitalised in respect of development cost additions in the procedures to verify the balance of costs capitalised during the period. We
period. critically assessed the percentage of staff costs capitalised for the sample
of additions.
Impairment of intangibles assets and capitalised development costs
· We discussed the current year project for which costs were
The impairment of intangible assets, namely those relating to capitalised capitalised with individuals outside of the finance department to understand
development costs, has been identified as an area of significant risk, with the commercial rationale and justification of this particular project.
overstatement due to fraud or error considered to be high. The carrying value
of capitalised development costs as at 31 March 2024 is £1,437k (2023:
£1,124k). Given the size of the balance with reference to materiality, there
is a risk that this balance is materially overstated. Impairment of intangibles assets and capitalised development
Management performed impairment assessments for capitalised development costs costs
in accordance with IAS 36 'Impairment of Assets' on a project level. The
impairment reviews were performed through a 'Value in Use' calculation,
considering either the incremental cashflows or cost-savings relating to the
project for which the costs were capitalised. · We obtained management's impairment assessment and critically
analysed the inputs in the model and the forecasts for future revenues of
Management impairment reviews are areas that carry risks of error or fraud due projects for which development costs have been capitalised.
to the degree of estimation uncertainty included in forecasting and
discounting future cash flows, due to the assumptions made in relation to · We benchmarked the key inputs used within management's model to
growth rates, the applicable discount rate and other inputs included with external sources and internal projects to determine the appropriateness of
management's model. The impact of this is that the recoverable amount of such assumptions.
capitalised development costs carries a high degree of estimation uncertainty
and a potential range of reasonable outcomes greater than materiality for the · We compared historic forecasts against actuals to determine the
financial statements. accuracy of forecasts as well as performing sensitivity analysis on future
forecasts to determine the impact on headroom within the model.
Our application of materiality
The scope and focus of our audit were influenced by our assessment and
application of materiality. We define materiality as the magnitude of
misstatement that could reasonably be expected to influence the readers and
the economic decisions of the users of the financial statements. We use
materiality to determine the scope of our audit and the nature, timing and
extent of our audit procedures and to evaluate the effect of misstatements,
both individually and on the financial statements as a whole.
Group Financial Statements Parent Company Financial Statements
Materiality £278,000 £98,700
Benchmark Materiality for the Group was determined to be 1% of total forecast Group Materiality for the Parent company was determined to be 1% of total assets.
revenues for the period, based on the point at which we performed our audit The Parent company is a holding company for investments in subsidiaries,
planning and risk assessment. intercompany balances and intangible assets, and as such total assets is
deemed to be an important metric to users of the Parent company financial
Revenue is a key metric to management and users of the financial statements, statements.
and as such was deemed the most appropriate benchmark for determining
materiality.
We also considered other important metrics in determining materiality for the
Group, and the chosen revenue materiality fell within the acceptable range for
these alternative metrics, including EBITDA and Net Profit.
Whilst Group revenues finished higher than the initial expectation, we elected
to not adjustment Group materiality to reflect 1% of actual Group revenues.
Our materiality therefore reflected 0.9% of Group revenues.
Basis for, and judgements used in the determination of materiality Revenue is a key metric to management and users of the financial statements, The Parent company is a holding company for investments in subsidiaries,
and as such was deemed the most appropriate benchmark for determining intercompany balances and intangible assets, and as such total assets is
materiality. The Group's long term strategic plans highlight a focus on deemed to be an important metric to users of the Parent company financial
revenue growth. statements.
We also considered other important metrics in determining materiality for the
Group, such as profit based metrics, and the chosen revenue materiality fell
within the acceptable range for these alternative metrics.
Performance materiality - Based on our risk assessment and our review of the
Group's control environment, performance materiality was set at 65% of
materiality, being £181,000 . A percentage of 65% was used to reflect that
that this is our first year of appointment as auditors of the Group's
financial statements. We typically set performance materiality between 50% and
75% of materiality.
Performance materiality for the Parent company was set at 65% of materiality
being £64,200.
Reporting threshold - The reporting threshold to the audit committee was set
as 5% of materiality, being £13,900.
Reporting threshold for the Parent company was set at 5% of materiality, being
£4,940.
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 period 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 its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received from
branches not visited by us; or
· the parent company financial statements are not in agreement with
the accounting records and returns; or
· certain disclosures of directors' remuneration specified by law
are not made; or
· we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the group's and the parent company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below. However, the primary
responsibility for the prevention and detection of fraud rests with both those
charged with governance of the Group and management.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Based on our understanding of the company and industry, we identified that the
principal risks of non-compliance with laws and regulations related to
regulatory requirements in respect of employment law, including but not
limited to minimum wage regulation, and food standards requirements. We
considered the extent to which non-compliance might have a material effect on
the financial statements. We also considered those laws and regulations that
have a direct impact on the preparation of the financial statements such as
the Companies Act 2006, payroll tax and sales tax.
We evaluated management's incentives and opportunities for fraudulent
manipulation of the financial statements (including the risk of override of
controls) and determined that the principal risks were related to posting
inappropriate manual journal entries to revenue and the risk of management
bias in accounting estimates. Audit procedures performed by the engagement
team included:
· Discussions with management including consideration of known or
suspected instances of non-compliance with laws and regulation and fraud;
· The evaluation of management's controls designed to prevent and
detect irregularities;
· The identification and review of manual journals, in particular
journal entries which shared key risk characteristics; and
· The review and challenge of assumptions, estimates and judgements
made by management in their recognition of accounting estimates.
Because of the inherent limitations of an audit, there is a risk that we will
not detect all irregularities, including those leading to a material
misstatement in the financial statements or non-compliance with regulation.
This risk increases the more that compliance with a law or regulation is
removed from the events and transactions reflected in the financial
statements, as we will be less likely to become aware of instances of
non-compliance. The risk is also greater regarding irregularities occurring
due to fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
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.
Jon Dawson (Senior Statutory Auditor)
For and on behalf of Haysmacintyre LLP, Statutory Auditors
10 Queen Street Place
London EC4R 1AG
3 July 2024
Consolidated Income Statement
for the year ended 31 March 2024
Note 2024 2023
£'000 £'000
Restated
Revenue 6 30,019 23,410
Cost of sales 17 (3,898) (3,692)
Gross profit 26,121 19,718
Administrative expenses 17 (23,434) (18,929)
Other operating income 18 413 49
Operating profit 3,100 838
Finance income 21 44 17
Finance expense 21 (35) (136)
Profit before taxation 22 3,109 719
Income tax (expense)/credit 22 (1,076) (315)
Profit for the financial year 2,033 404
Attributable to the equity holders of the Company 404
2,033
Earnings per share attributable to equity holders of the Company
Basic earnings per share 24 16.0p 3.2p
Diluted earnings per share 24 16.0p 3.2p
The notes on pages 63 to 93 are an integral part of these consolidated
financial statements.
All the activities of the Group are classed as continuing.
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2024
2024 2023
£'000 £'000
Profit for the financial year 2,033 404
Other comprehensive income:
Items that may be subsequently reclassified to profit/(loss)
Currency translation differences on translating foreign operations (72) 227
Other comprehensive income for the period, net of tax (72) 227
Total comprehensive income for the period attributable to equity holders of 1,961 631
the Company
The notes on pages 63 to 93 are an integral part of these consolidated
financial statements.
Consolidated Balance Sheet
as at 31 March 2024
Registered company no. 05940040
Note 2024 2023
£'000 £'000
Restated
ASSETS
Non-current assets
Property, plant, and equipment 7 225 813
Intangible Assets 8 1,578 1,396
Finance lease receivable 10 - 93
Deferred tax asset 23 151 203
1,954 2,505
Current assets
Contract assets 180 102
Finance lease receivable 10 85 256
Trade and other receivables 11 7,261 6,344
Income tax receivables - 55
Cash and cash equivalents 9 9,610 5,719
17,136 12,476
Total assets 19,090 14,981
EQUITY
Attributable to equity holders of the Company
Share capital 12 132 132
Share premium account 1,601 1,601
Merger reserve 477 477
Foreign currency translation reserve 351 423
Retained earnings 5 8,007 5,974
Total equity 10,568 8,607
LIABILITIES
Non-current liabilities
Provisions 13 - 353
Lease liabilities 16 66 362
66 715
Current liabilities
Provisions 13 6 101
Lease liabilities 16 280 1,094
Contract liabilities 15 1,137 764
Income taxes payable 470 -
Trade and other payables 14 6,563 3,700
8,456 5,659
Total liabilities 8,522 6,374
Total equity and liabilities 19,090 14,981
The notes on pages 63 to 93 are an integral part of these consolidated
financial statements.
These financial statements were approved by the directors on 3 July 2024 and
are signed on their behalf by:
James Gregory Chris Willford
Director
Director
Consolidated Statement of Cash Flows
for the year ended 31 March 2024
Note 2024 2023
£'000 £'000
Net cash generated from/(used in) operations 26 6,430 (87)
Tax paid (499) (541)
Net cash generated from/(used in) operating activities 5,931 (628)
Cash flows from investing activities
Purchases of property, plant, and equipment 7 (97) (30)
Purchase of intangible assets 8 (736) (1,225)
Net cash used by investing activities (833) (1,255)
Net cash flow before financing activities 5,098 (1,883)
Cash flows from financing activities
Interest received 36 -
Interest paid (35) (136)
Property lease liability payments (1,121) (1,053)
Purchase of own shares 12 - (134)
Repayment of borrowings - (2,500)
Net cash used by financing activities (1,120) (3,823)
Net increase/(decrease) in cash and cash equivalents 3,978 (5,706)
Cash and cash equivalents at beginning of year 5,719 11,174
Exchange gain/(loss) on cash and cash equivalents (87) 251
Cash and cash equivalents at end of year 9,610 5,719
Office lease costs are not included within "Net cash flow before financing
activities" (the Company's key cash flow performance indicator). "Net cash
flow before financing activities", adjusted for office leases, known by the
Company as "Operating cash flow" is shown below:
2024 2023
£'000 £'000
Net cash flow before financing activities 5,098 (1,883)
Net cash flow for property leases (1,156) (1,116)
Operating cash flow 3,942 (2,999)
The notes on pages 63 to 93 are an integral part of these consolidated
financial statements.
Consolidated Statement of Cash Flows (continued)
for the year ended 31 March 2024
Consolidated Movements in Net Cash and Financing Activities
Cash and cash equivalents Borrowings Lease liabilities Total
£'000 £'000 £'000 £'000
At 1 April 2022 11,174 (2,500) (2,508) 6,166
Cash flows (5,706) 2,500 1,116 (2,090)
Non-cash charges
Interest on lease liabilities - - (64) (64)
Exchange and other non-cash movements 251 - - 251
At 31 March 2023 5,719 - (1,456) 4,263
Cash and cash equivalents Borrowings Lease liabilities Total
£'000 £'000 £'000 £'000
At 1 April 2023 5,719 - (1,456) 4,263
Cash flows 3,978 - 1,156 5,134
Non-cash charges
Interest on lease liabilities - - (34) (34)
New lease liabilities (175) (175)
Disposal of lease liabilities - - 163 163
Exchange and other non-cash movements (87) - - (87)
At 31 March 2024 9,610 - (346) 9,264
Consolidated Statement of Changes in Equity
for the year ended 31 March 2024
Note Share capital Share premium account Merger reserve Foreign currency translation reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
At 31 March 2022 132 1,601 477 196 5,857 8,263
Profit for the financial year - - - - 404 404
Other comprehensive income:
- currency translation differences - - - 227 - 227
Total comprehensive income - - - 227 404 631
Transactions with owners:
Employee share options:
- value of employee services 10 - - - - (153) (153)
Purchase of treasury shares - - - - (134) (134)
At 31 March 2023 132 1,601 477 423 5,974 8,607
Profit for the financial year - - - - 2,033 2,033
Other comprehensive income:
- currency translation differences - - - (72) - (72)
Total comprehensive income - - - (72) 2,033 1,961
Transactions with owners:
Employee share options:
- value of employee services 10 - - - - - -
At 31 March 2024 132 1,601 477 351 8,007 10,568
The notes on pages 63 to 93 are an integral part of these consolidated
financial statements.
Notes to the Consolidated Financial Statements
for the year ended 31 March 2024
1. General information
System1 Group PLC (the "Company") was incorporated on 19 September 2006 in the
United Kingdom. The Company's principal operating subsidiary, System1 Research
Limited, was at that time already established, having been incorporated on 29
December 1999. The address of the Company's registered office is 4 More London
Riverside, London, England, SE1 2AU. The Company's shares are listed on the
AIM Market of the London Stock Exchange ("AIM").
The Company and its subsidiaries (together the "Group") provide market
research data and insight services. The Chief Executive's Statement and the
Financial Review provide further detail of the Group's operations and
principal activities.
2. Basis of preparation
The Group has prepared its consolidated financial statements in accordance
with UK-adopted international accounting standards and applicable law. The
consolidated financial statements have been prepared under the historical cost
convention.
The preparation of financial statements in accordance with UK-adopted
international accounting standards ("UK-adopted 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. The
critical accounting judgements and estimates applied in the preparation of the
consolidated financial statements are disclosed in Note 5.
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ("the Functional Currency"). The consolidated financial
statements are presented in Pounds Sterling (GBP), which is the Company's
functional and presentation currency. The financial statements are presented
in round thousands unless otherwise stated.
3. Prior period restatement
During the year ended 31 March 2024 the Group determined that the sublease of
its former New York office, previously accounted for as a right-of-use asset,
should have been presented as a finance lease receivable. The following table
summarises the impact of the prior period reclassification on the financial
statements of the Group. There is no impact on basic or diluted earnings per
share.
Consolidated income statement Restated As previously presented
£'000 £'000
Administrative expenses 18,929 19,203
Other income 49 340
Finance income 17 -
Increase/(decrease) in profit for the year - -
Restated As previously presented
Consolidated balance sheet £'000 £'000
Property, plant and equipment 813 1,162
Finance lease receivable - non-current 93 -
Finance lease receivable - current 256 -
Increase/(decrease) in net assets - -
4. Going concern
The Group has prepared its financial statements on a going concern basis.
As noted in the Financial Review, cash balances and cash flow are healthy, and
we will continue to invest in our products, data assets and talent. We ended
the year with a cash balance and net cash of £9.6m and net assets at £10.6m
(31 March 2023: £5.7m and £8.6m respectively).
The Group has reviewed its financial forecasts for the 12 months from the
approval of these financial statements, flexing sensitivity analysis scenarios
with external and internal inputs that would represent the Group's forecast
and various downturn scenarios. Our internal assessment of a reasonable
worst-case scenario shows that, in the face of a striking negative downturn on
System1's immediate capacity to function, management would respond
appropriately by reducing our costs as soon as possible.
The Group is very confident in its ability to respond to an abrupt negative
situation, whatever the cause. Our mitigating factors involve an active review
cycle of the Group's performance. The Board reviews the performance of the
Group monthly, and senior management has a weekly assessment of sales revenue
and gross profit. The Group also reviews its profit forecasts on a monthly
basis.
The Group is confident that our strong balance sheet position, in particular
the cash balance, will be able to sustain the Group reasonably until July 2025
and beyond.
5. Principal accounting policies
The principal accounting policies adopted are consistent with those of the
financial statements for the year ended 31 March 2023.
Standards, amendments, and interpretations in issue but not yet effective
The Group adopted the following new pronouncements during the year ended 31
March 2024, which did not have a material impact on the Group's financial
statements:
• IAS 1: Classifications of Liabilities as Current or Non-Current
(effective for periods commencing on or after 1 January 2023)
• IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting
Policies (effective for periods commencing on or after 1 January 2023)
• IAS 8: Definition of Accounting Estimates (effective for periods
commencing on or after 1 January 2023)
• IAS 12: Deferred Tax Related to Assets and Liabilities Arising
from a Single Transaction (effective for periods commencing on or after 1
January 2023)
The following standards and amendments, issued before 31 March 2024 with an
effective date on or after 1 April 2024, have not been early adopted by the
Group, they do not have a material impact on the Group's financial statements:
• Amendment to IFRS 16 - Leases on sale and leaseback (effective for
periods commencing on or after 1 January 2024)
• Amendment to IAS 1 - Non-current liabilities with covenants
(effective for periods commencing on or after 1 January 2024)
• Amendment to IAS 7 and IFRS 7 - Supplier finance (effective for
periods commencing on or after 1 January 2024)
Basis of consolidation
The Group financial statements consolidate those of the Company and all its
subsidiary undertakings drawn up to 31 March 2024.
Subsidiaries are all entities over which the Group has power over the
subsidiary, i.e. the Group has existing rights that give it the ability to
direct the relevant activities (the activities that significantly affect the
subsidiary's returns), exposure or rights, to variable returns from its
involvement with the subsidiary and the ability to use its power over the
subsidiary to affect the amount of the subsidiary's returns.
The Group obtains and exercises control through voting rights.
The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Group
controls another entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are de-consolidated from the
date that control ceases.
The Group uses the acquisition method of accounting to account for business
combinations. The consideration transferred for the acquisition of a
subsidiary is the fair values of the assets transferred, the liabilities
incurred, and the equity interests issued by the Group. The consideration
transferred includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Acquisition related costs are expensed
as incurred. Identifiable assets acquired, liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date.
On an acquisition-by-acquisition basis, the Group recognises any
non-controlling interest in the acquiree either at fair value or at the
non-controlling interest's proportionate share of the acquiree's net assets.
The excess of the consideration transferred, the amount of any non-controlling
interest in the acquiree and the acquisition-date fair value of any previous
equity interest in the acquiree over the fair value of the Group's share of
the identifiable net assets acquired is recorded as goodwill.
All intra-group transactions and balances are eliminated on consolidation.
Unrealised gains on transactions between the Group and its subsidiaries are
eliminated. Unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Amounts reported
in the financial statements of subsidiaries have been adjusted where necessary
to ensure consistency with the accounting policies adopted by the Group.
Property, plant, and equipment
Property, plant, and equipment are stated at historical cost less accumulated
depreciation and accumulated impairment losses. Depreciation is provided to
write off the cost of all property, plant, and equipment to its residual value
on a straight-line basis over their expected useful economic lives, which are
as follows:
Furniture, fittings, and equipment 5 years
Computer hardware 3 to 4 years
The residual value and useful life of each asset is reviewed and adjusted, if
appropriate, at each balance sheet date.
Depreciation on all property, plant and equipment is charged to administrative
expenses.
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a lease. The
right-of-use asset is measured at cost, which comprises the initial amount of
the lease liability, adjusted for, as applicable, any lease payments made at
or before the commencement date net of any lease incentives received, any
initial direct costs incurred, and an estimate of costs expected to be
incurred for dismantling and removing the underlying asset, and restoring the
site or asset.
Right-of-use assets are depreciated on a straight-line basis over the
unexpired period of the lease or the estimated useful life of the asset,
whichever is the shorter. Where the Group expects to obtain ownership of the
leased asset at the end of the lease term, the depreciation is over its
estimated useful life. The Group had no such lease arrangements for the years
ended 31 March 2024 or 2023.
Right-of use assets are subject to impairment or adjusted for any
remeasurement of lease liabilities to reflect the actual and expected effect
of exercising extension and termination options in lease arrangements.
Depreciation on all right-of-use assets is charged to administrative expenses.
Finance lease receivables
Amounts due from lessees under finance leases are recognised as receivables at
the amount of the group's net investment in the leases. Finance lease income
is allocated to accounting periods so as to reflect a constant periodic rate
of return on the group's net investment outstanding in respect of the leases.
Subsequent to initial recognition, the group regularly reviews the estimated
unguaranteed residual value and applies the impairment requirements of IFRS 9,
recognising an allowance for expected credit losses on the lease receivables.
Finance lease income is calculated with reference to the gross carrying amount
of the lease receivables, except for credit-impaired financial assets for
which interest income is calculated with reference to their amortised cost
(i.e. after a deduction of the loss allowance).
Intangible assets
Software
Costs incurred in the development of identifiable and unique software products
controlled by the Group, and that will probably generate economic benefits
exceeding costs beyond one year, are recognised as intangible assets.
Costs include professional fees and directly attributable employee costs
required to bring the software into working condition. Non-attributable costs
are expensed under the relevant income statement heading.
Research and development - internally generated intangible assets
All on-going research expenditure is expensed in the year in which it is
incurred. Where no internally generated intangible asset can be recognised,
development expenditure is charged to administrative expenses in the period in
which it is incurred.
Furthermore, internally generated software and product development costs are
recognised as an intangible asset only if the Group can demonstrate all the
following conditions:
a) the technical feasibility of completing the intangible asset so that it
will be available for use or sale;
b) its intention to complete the intangible asset and use or sell it;
c) Its ability to use or sell the intangible asset;
d) how the intangible asset will generate probable future economic
benefits; and among other things, the Group can demonstrate the existence of a
market for the output of the intangible asset or the intangible asset itself
or, if it is to be used internally, the usefulness of the intangible asset;
e) the availability of adequate technical, financial, and other resources
to complete the development and to use or sell the intangible asset;
f) its ability to measure reliably the expenditure attributable to the
intangible asset during its development.
Amortisation
Intangible assets are amortised on a straight-line basis over their expected
useful economic lives, which are as follows:
Computer software licenses 5 years
Capitalised development costs 3 years
Amortisation on all intangible assets is charged to administrative expenses.
Impairment of property, plant and equipment, right-of-use assets, and
intangible assets
At each balance sheet date, the Group reviews the carrying amount of its
property, plant and equipment and intangible assets for any indication that
those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated to determine the extent of
the impairment loss, if any. Intangible assets not available for use are
tested for impairment on at least an annual basis. The recoverable amount is
the higher of the fair value less costs to sell and value in use. Cash flows
for the determination of value in use are derived from either the incremental
contribution attributable to the specific assets or from cost savings arising
from the use of the specific assets.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and bank deposits available on
demand.
Contract assets
Contract costs comprise directly attributable external costs incurred in
fulfilling customer contracts that relate to incomplete market research
projects. The Group assesses at each balance sheet date whether there is
objective evidence that contract cost assets are impaired, and provision is
made when there is evidence that the Group will not be able to recover all
costs incurred under the terms of the customer contract.
Income taxes
Current income tax liabilities comprise those obligations to fiscal
authorities relating to the current or prior reporting period, which are
unpaid at the balance sheet date. They are calculated according to the tax
rates and tax laws that have been enacted or substantively enacted at the
reporting date applicable to the fiscal periods to which they relate, based on
the taxable profit for the year.
All changes to current tax assets or liabilities are recognised as a component
of tax expense in the income statement, except where they relate to items
charged or credited to other comprehensive income or directly to equity.
Deferred income taxes are calculated using the liability method on temporary
differences. This involves the comparison of the carrying amounts of assets
and liabilities in the consolidated financial statements with their respective
tax bases. In addition, tax losses available to be carried forward as well as
other income tax credits to the Group are assessed for recognition as deferred
tax assets, by reference to the probable recovery of those losses against
future taxable profits.
Deferred tax liabilities are always provided for in full. Deferred tax assets
are recognised to the extent that it is probable that the underlying
deductible temporary differences will be able to be offset against future
taxable income. Deferred tax assets and liabilities are calculated, without
discounting, at tax rates that are expected to apply to their respective
period of realisation, provided they are enacted or substantively enacted at
the balance sheet date. Deferred tax is recognised as a component of tax
expense in the income statement, except where it relates to items charged or
credited to other comprehensive income or directly to equity.
Revenue recognition
The Group's revenues are primarily derived from the delivery of research
services. Revenue from the Group's research product lines (Platform Revenues
and Other Consultancy services) arise from contracts with customers within the
scope of IFRS 15 'Revenue from Contracts with Customers' and are recognised on
the same basis, as set out below.
Revenue is recognised at a point in time (rather than over time) as the key
performance obligation is the delivery of the final written debrief to the
customer. The only exception to this is where subscriptions are sold for
access to our Test Your Ad database, where revenue is recognised on a straight
line basis across the period of the subscription.
Revenue is recognised only after the results or final written debrief has been
delivered to the customer, except on the rare occasion that a large project
straddles a financial period end, and that project can be sub-divided into
separate discrete deliverables; in such circumstances revenue is recognised on
delivery of each separate deliverable, and the transaction price is allocated
across the discrete performance obligations by reference to the standalone
price for the separate services. Where a contract with a customer requires a
purchase order, signed schedule of work or similar document to evidence the
right to consideration, revenue is not recognised until the Group receives
these documents.
There are no elements of variable consideration in the contracts entered into
by the Group. Revenue is measured by reference to the fair value of
consideration receivable, excluding sales taxes, discounts and volume
rebates..
Other operating income
On 27 September 2021, the Company filed a complaint for trademark
infringement, unfair competition and deceptive trade practices at the United
States District Court Southern District of New York against System1 LLC
("LLC"), since renamed System1 Inc., an omnichannel customer acquisition
marketing provider, over their infringing use of the mark "SYSTEM1". On 30
June 2023 the Company announced that a settlement had been reached with LLC.
The parties have signed a global agreement which governs the co-existence of
their respective use of the "System1" mark in connection with their
operations. As part of this agreement, the Company is receiving a fixed
undisclosed payment payable in instalments. Amounts received under this
arrangement are included within other income.
During the prior year, the Group partnered with the University of Warwick on
UK government grant-funded research looking to harness artificial intelligence
(AI) and our proprietary databases to further improve our understanding of
predictions. The grant was specific to this research and was not a part of the
Group's usual operations.
Cost of sales
Cost of sales includes external costs attributable to customer projects. For
the research business, these include respondent sample, data processing,
language translation and similar costs.
Employee benefits
All accumulating employee-compensated absences that are unused at the balance
sheet date are recognised as a liability. The Group operates several defined
contribution pension plans. The Group pays contributions to these plans based
upon the contractual terms agreed with each employee.
The Group has no further payment obligations once the contributions have been
paid. The contributions are recognised as employee benefit expense when they
are due, and any outstanding amounts due at the reporting date are recognised
within accruals.
Share-based payment transactions
The Group issues equity-settled share-based compensation to certain employees
(including directors). Equity-settled share-based payments are measured at
fair value at the date of grant. The fair value determined at the grant date
of the equity-settled share-based payment is expensed on a straight-line basis
over the vesting period, together with a corresponding increase in equity,
based upon the Group's estimate of the shares that will eventually vest.
Apart from market-based elements of awards, these estimates are subsequently
revised if there is any indication that the number of options expected to vest
differs from previous estimates. Any cumulative adjustment prior to vesting is
recognised in the current period. No adjustment is made to any expense
recognised in prior periods. The fair value of option awards with time vesting
performance conditions are measured at the date of grant using a Black-Scholes
based Option Valuation model. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural considerations.
The fair value of awards made with market-based performance conditions (for
example, the entity's share price) are measured at the grant date using a
Monte Carlo simulation method incorporating the market conditions in the
calculations. The awards made in respect of the Group's long-term incentive
scheme have been measured using such a method. At the end of each reporting
period, an assessment is made in respect of any non-market conditions with
regard to likely vesting, and the estimate is adjusted prospectively as
required.
Social security contributions payable in connection with the grant of share
options are considered integral to the grant itself, and the charge is treated
as a cash-settled transaction.
Earnings per share
Basic EPS is calculated by dividing the profit or loss attributable to
ordinary shareholders of the company by the weighted average number of
ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting the profit or loss attributable to
ordinary shareholders and the weighted average number of ordinary shares
outstanding, for the effects of all dilutive potential ordinary shares.
Provisions
Provisions for sabbatical leave and dilapidations are recognised when:
a) the Group has a legal or constructive obligation because of past
events;
b) it is probable that an outflow of resources will be required to settle
the obligation; and
c) the amount has been reliably estimated. Where material, the increase in
provisions due to passage of time is recognised as interest expense. The
provision for sabbatical leave is measured using the projected unit credit
method. The provision for dilapidations is measured at the present value of
expenditures expected to be required to settle those obligations.
During the year ended 31 March 2024, the Company ceased to operate the
sabbatical provision in its entirety, with no previously eligible individuals
entitled to any further paid leave under the scheme or any alternate
compensation. Accordingly, the provision has been released in full.
Foreign currencies
Transactions in foreign currencies are translated into the functional currency
at the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses arising from the settlement of such transactions and
from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the Income
Statement.
The results and financial position of all Group companies that have a
functional currency different from the presentation currency are translated
into the presentation currency as follows:
a) assets and liabilities for each balance sheet presented are translated
at the closing rate at the balance sheet date;
b) income and expenses for each income statement are translated at average
exchange rates; and
c) all resulting exchange differences are recognised as a separate
component of equity.
On consolidation, exchange differences arising from the translation of the net
investment in foreign operations are recognised in other comprehensive income.
When a foreign operation is partially disposed of or sold, exchange
differences that were recorded in equity are recognised in the income
statement as part of the gain or loss on sale.
Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the main decision-making body of the Company and Group,
which collectively comprises the Executive Directors. The Executive Directors
are responsible for allocating resources and assessing performance of the
operating segments.
Financial instruments
Financial assets
The Group's financial assets comprise trade and other receivables held at
amortised cost. The Group does not possess assets held at fair value through
profit or loss. The classification is determined by management at initial
recognition, being dependent upon the business model and the contractual cash
flows of the assets.
Financial assets are derecognised when the rights to receive cash flows from
the investments have expired or have been transferred and the Group has
transferred substantially all risks and rewards of ownership. Financial assets
arising from contracts with customers are separately presented in accordance
with IFRS 15 in the Consolidated Balance Sheet.
Trade and other receivables
Trade and other receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The Group's
amortised cost financial assets comprise trade and other receivables and cash
and cash equivalents in the Consolidated Balance Sheet.
Trade receivables are initially recorded at fair value, but subsequently at
amortised cost using the effective interest rate method. In accordance with
IFRS 9, the Group assesses on a forward-looking basis the expected credit
losses associated with its financial assets at amortised cost. The Group
applies the simplified model to recognise lifetime expected credit losses for
its trade and other receivables by making an accounting policy election. The
Group assesses expected credit losses based on the ageing of the receivable,
the Group's historical experience adjusted for forward looking information,
and informed credit assessment. The amount of the write-down is determined as
the difference between the asset's carrying amount and the present value of
estimated future cash flows.
Financial liabilities
Financial liabilities are initially recognised at fair value, net of
transaction costs, and subsequently carried at amortised cost using the
effective interest rate method. Financial liabilities arising from contracts
with customers are separately presented in accordance with IFRS 15 in the
Consolidated Balance Sheet. Financial liabilities and equity instruments are
classified according to the substance of the contractual arrangements entered.
An equity instrument is any contract that evidences a residual interest in the
assets of the entity after deducting all its financial liabilities.
Where the contractual obligations of financial instruments (including share
capital) are equivalent to a similar debt instrument, those financial
instruments are classed as financial liabilities.
Financial liabilities are presented as such in the Consolidated Balance Sheet.
Finance costs and gains or losses relating to financial liabilities are
included in the income statement.
Finance costs are calculated to produce a constant rate of return on the
outstanding liability. Where the contractual terms of share capital do not
have any terms meeting the definition of a financial liability then this is
classed as an equity instrument. Dividends and distributions relating to
equity instruments are debited directly to equity.
Accrued income and contract liabilities
Accrued income is recognised when a performance obligation has been satisfied
but has not yet been billed. Accrued income is transferred to receivables when
the right to consideration is unconditional and billed per the terms of the
contractual agreement. The Group is generally paid in arrears for its services
and invoices are typically payable within 120 days. In certain cases, payments
are received from customers prior to satisfaction of performance obligations
and recognised as deferred income. These balances are considered contract
liabilities. There is no significant passage of time between the receipt of
funds from a customer and the delivery of services, or between the delivery of
services to a customer and the receipt of funds when payment is in arrears.
The Group does not enter contractual arrangements with significant financing
components.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease
liability is initially recognised at the present value of the lease payments
to be made over the term of the lease, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the
consolidated entity's incremental borrowing rate. Lease payments comprise of
fixed payments less any lease incentives receivable, variable lease payments
that depend on an index or a rate, amounts expected to be paid under residual
value guarantees, exercise price of a purchase option when the exercise of the
option is reasonably certain to occur, and any anticipated termination
penalties. The variable lease payments that do not depend on an index or a
rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest
method. The carrying amounts are remeasured if there is a change in the
following: future lease payments arising from a change in an index or a rate
used; residual guarantee; lease term; certainty of a purchase option and
termination penalties. When a lease liability is remeasured, an adjustment is
made to the corresponding right-of use asset, or to profit or loss if the
carrying amount of the right-of-use asset is fully written down.
Share capital
Ordinary shares are classified as equity. Equity instruments issued by the
Company are recorded at the proceeds received, net of direct issue costs.
Share premium
Share premium represents the excess over nominal value of the fair value of
consideration received for equity shares, net of direct expenses of the share
issue.
Merger reserve
The merger reserve represents the difference between the parent company's cost
of investment and a subsidiary's share capital and share premium. The merger
reserve in these accounts has arisen from a group reconstruction upon the
incorporation and listing of the parent company that was accounted for as a
common control transaction.
Common control transactions are accounted for using merger accounting rather
than the acquisition method, where this reflects the substance of the
transaction.
Foreign currency translation reserve
The foreign currency translation reserve represents the differences arising
from translation of investments in overseas subsidiaries.
Treasury shares
Where the Company purchases the Company's equity share capital, the
consideration paid is deducted from the total shareholders' equity and
classified as treasury shares until they are cancelled. Where such shares are
subsequently sold or re-issued, any consideration received is included in
total shareholders' equity. No gain or loss is recognised on the purchase,
sale, issue, or cancellation of the Company's own equity instruments.
Significant accounting estimates and judgements
The preparation of the consolidated financial statements requires the
Directors and management to make judgements and estimates in respect of
certain items where the choice of accounting policy and assumptions applied in
determining the judgement or estimate could materially affect the Group's
financial position or results at the reporting date.
Capitalisation of development costs - judgement
The point at which development costs meet the criteria for capitalisation is
critically dependent on management's judgement of the point at which technical
feasibility is demonstrable. Furthermore, the useful economic lives of
capitalised development costs are based on management's knowledge of the life
cycle of the Group's products and technology. The carrying value of
development assets also depends on management's ability to demonstrate the
future economic benefits they will deliver. This judgement requires
assumptions about factors outside the business's control such as short and
medium term economic conditions, technological developments and market
changes. Details are contained in note 8.
Impairment of development costs - judgement and estimate
The Group tests annually whether intangible assets, have been impaired by
reference to expected future generation of cash from the relevant platforms
incorporating the technologies and methodologies developed. In estimating the
cash flows the capitalised development costs may generate the directors make
judgements, based on budgets and forecasts, about the amount of future profits
from the relevant products that will be generated and the timing of when these
will be realised. Furthermore, where new technology is acquired through an
acquisition, management consider the impact this could have on the carrying
value of existing technology, that is similar in nature, when preparing the
budgets and forecasts. The Group has carried out an impairment review and
determined no impairment is required in the year ended 31 March 2024 (31 March
2023: £nil). Details are contained in note 8.
Share-based payments - judgement and estimate
The fair value of options granted under the long-term incentive scheme is
determined using Monte Carlo simulation models. The models require several
estimates and assumptions. The significant inputs into the models are share
price at grant date, exercise price, historic exercise multiples, expected
volatility and the risk-free rate. Volatility is measured at the standard
deviation of expected share price returns based on statistical analysis of
historical share prices. These inputs are provided in Note 12.
In previous years, the Company has sometimes purchased shares arising from the
exercise of share options to minimise shareholder dilution and create
shareholder value. IFRS 2 does not provide guidance on the application of
'substance over form' when evaluating whether a share-based payment should be
accounted for as equity or cash settled.
To determine whether the Company's share options are equity or cash-settled,
consideration needs to be given as to whether the settlement of the share
options through the issue and subsequent repurchase of treasury shares should
be treated as one transaction or as two distinct transactions, and whether the
Company has an obligation to settle in cash.
The Company does not publicise to option holders that option shares may be
repurchased, the decision to repurchase option shares is only made at the
point of option exercise, and there is no contractual or other obligation to
settle in cash. Therefore, it is appropriate to treat the exercise of options
and repurchase of option shares as two separate transactions and account for
the option exercise as equity-settled rather than cash-settled.
In the past the Company has on occasion cash-settled part of long-term
incentive plan equity awards. Despite the repurchase of these equity interests
the Company did not have an obligation to do so and does not have an
obligation, constructive or otherwise to do so in the future. As a result, the
Company continues to account for share-based payments related to its long-term
incentive plans as equity rather than cash-settled.
The 2021 LTIP is subject to Revenue, Profit After Tax and the Company's share
price exceeding certain targets; the full details of which are given in the
Company's Remuneration Report. The measure of the share-based payment charge
is dependent on the estimates made in respect of the probability of those
targets being achieved over the vesting period of the options. The key inputs
into those estimates are the Company's forecasts, revenue volatility and
inflation. Revenue volatility is determined by reference to the share price
volatility used to determine the fair value of the options (with an assumption
that the two will have a high level of correlation). Inflation is determined
by reference to the Bank of England data for the UK in March and April 2024.
Non-market vesting conditions are assessed by reference to the Group's latest
forecasts.
Employee benefits - estimate
The Company has historically operated a sabbatical leave scheme, which
provided 20 days paid leave for each successive period of six years' service.
There was no proportional entitlement for shorter periods of service. During
the year ended 31 March 2023, the Company modified the terms of the scheme
such that rather than being open to all employees, the scheme was only
available to those individuals who had accrued three or more years of unbroken
service as at 30 September 2022. During the year ended 31 March 2024, the
Company ceased to operate the sabbatical provision in its entirety, with no
previously eligible individuals entitled to any further paid leave under the
scheme or any alternate compensation. Accordingly, the provision has been
released in full. The significant inputs into the model were previously rate
of salary growth and average staff turnover as explained in Note 13.
Leases - estimate and judgement
Management exercises judgement in determining the likelihood of exercising
break or extension options in determining the lease term, and reviews this on
a lease-by-lease basis.
The discount rate used to calculate the lease liability is the rate implicit
in the lease, if it can be readily determined, or the lessee's incremental
borrowing rate if not. Incremental borrowing rates are determined based on the
term, country, currency and start date of the lease, to derive the rate of
interest that the lessee would have to pay to borrow over a similar term, and
with a similar security, the funds necessary to obtain an asset of a similar
value to the right-of-use asset in a similar economic environment. Details of
lease liabilities can be found in note 16.
6. Segment information
The financial performance of the Group's geographic operating units
("Reportable Segments") is set out below. The Group defines its Consultancy
business as a Research and Advertising Agency.
2024 2023
Revenue Revenue
Restated**
£'000 £'000
By location of customer
USA 8,625 7,078
LatAm 2,446 2,350
United Kingdom 12,694 8,895
Rest of Europe 4,815 3,741
APAC 1,439 1,346
30,019 23,410
*Segmental revenue is revenue generated from external customers and so
excludes intercompany revenue and is attributable to geographical areas based
upon the location in which the service is delivered.
**Segment revenues have been restated to present USA and LatAm as separate
business units, consistent with the information presented to the Executive
Directors.
2024 2023
Revenue Revenue
£'000 £'000
By product type
Predict Your (data) 19,776 14,060
Improve Your (data-led consultancy) 5,005 3,311
Standard (platform) revenue 24,781 17,371
Other consultancy (non-platform) 5,238 6,039
Total revenue 30,019 23,410
By product group
Communications (Ad Testing) 22,775 15,879
Brand (Brand Tracking) 4,066 3,669
Innovation 3,178 3,862
30,019 23,410
Consolidated balance sheet information is regularly provided to the Executive
Directors while segment balance sheet information is not. Accordingly, the
Company does not disclose segmental balance sheet information here.
The Company is domiciled in the UK, its consolidated non-current assets, other
than financial instruments and deferred tax assets are as follows:
2024 2023
£'000 £'000
Restated
Non-current assets
United Kingdom 1,643 2,204
Rest of world 160 5
1,803 2,209
7. Property, plant, and equipment
Right-of-use assets Furniture Computer hardware Total
and fixtures
Restated £'000 £'000 £'000
£'000
Cost at 1 April 2022 2,798 33 192 3,023
Additions - - 30 30
Disposals (1,554) (22) (18) (1,594)
Foreign exchange - - 2 2
Cost at 31 March 2023 1,244 11 206 1,461
Depreciation at 1 April 2022 1,400 29 113 1,542
Depreciation charge for the year 620 3 76 699
Disposals (1,554) (22) (18) (1,594)
Foreign exchange - - 1 1
Depreciation at 31 March 2023 466 10 172 648
Carrying amount 31 March 2023 778 1 34 813
Cost at 1 April 2023 1,244 11 206 1,461
Additions 175 - 97 272
Disposals (1,245) (11) - (1,256)
Foreign exchange (2) - - (2)
Cost at 31 March 2024 172 - 303 475
Depreciation at 1 April 2023 466 10 172 648
Depreciation charge for the year 645 1 56 702
Disposals (1,089) (11) - (1,100)
Foreign exchange 2 - (2) -
Depreciation at 31 March 2024 24 - 226 250
Carrying amount 31 March 2024 148 - 77 225
Depreciation charges are included within administrative expenses.
8. Intangible assets
Development costs Software Total
£'000 £'000 £'000
Cost at 1 April 2022 - 525 525
Additions 1,225 - 1,225
Cost at 31 March 2023 1,225 525 1,750
Amortisation at 1 April 2022 - 143 143
Amortisation for the year 101 110 211
Amortisation at 31 March 2023 101 253 354
Carrying value at 31 March 2023 1,124 272 1,396
Cost at 1 April 2023 1,225 525 1,750
Additions 736 - 736
Cost at 31 March 2024 1,961 525 2,486
Amortisation at 1 April 2023 101 253 354
Amortisation for the year 423 131 554
Amortisation at 31 March 2024 524 384 908
Carrying value at 31 March 2024 1,437 141 1,578
Amortisation charges are included within administrative expenses.
The only software cost as at 31 March 2024 is the Group's finance and
operations system that was brought into use October 2020.
Development costs relate to costs capitalised for the development of the "Test
Your" platform (carrying value £464k; 2023: £865k), which completed during
the year ended 31 March 2023, and the Supply Chain Automation platform
(carrying value £930k; 2023: £259k), which enables System1 to interface (via
API) with multiple suppliers of panel respondents, was substantially completed
at the end of the year ended 31 March 2024. Development costs in respect of
completed projects are tested for impairment where impairment indicators
exist. No indicators exist at 31 March 2024 (31 March 2023: none). Development
costs in respect of ongoing projects are tested for impairment at each
reporting date. The carrying value of the assets in each case are assigned to
their respective cash generating units for the purposes of assessing future
cashflows. The principal assumptions used in the forecasts were the timing and
amount of future revenues and cost savings, which were derived from the latest
forecasts approved by the Board. Following the assessment, the Board have
determined that no impairment of assets is required as at 31 March 2024 (31
March 2023: £nil). The headroom in the impairment review exceeds the carrying
value of the asset.
9. Financial risk management
The Group's financial risk management policies and objectives are explained in
the Group Directors' report.
Credit risk
The Group reviews and manages credit risk, arising from trade receivables and
cash and cash equivalents, on a consolidated basis. The vast majority of the
Group's customers are large blue-chip organisations, and the Group has only
ever suffered minimal bad debts. The Group has concentrations of credit risk
as follows.
2024 2023
£'000 £'000
Cash and cash equivalents
HSBC Bank PLC (AA credit rating) 8,588 5,190
Santander 828 349
Deutsche Bank 50 38
UBS 144 142
Other banks - -
9,610 5,719
At 31 March 2024, the Group has cash balances of £40,000 (2023: £42,000)
which are not readily available for use due to ongoing restrictions imposed by
overseas banking institutions. The Group has made full provision against these
balances at the year end.
Market risk - foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk
arising from various currency exposures, primarily with respect to the US
dollar and the Euro. The Group considers foreign exchange risk to be one of
its financial risks and may seek to minimise its effects by using forward
foreign exchange contracts where appropriate. During 2023 and 2024, the Group
did not enter into any forward foreign exchange contracts.
The denominations of the cash and cash equivalents held by the Group were as
follows:
2024 2023
£'000 £'000
Cash and cash equivalents
GBP 1,076 1,926
USD 4,367 1,503
EUR 2,285 1,404
CHF 553 250
AUD 496 249
SGD 6 38
BRL 827 349
9,610 5,719
Financial instruments by category
At the balance sheet date, the Group held the following financial instruments
by category.
2024 2023
£'000 £'000
Restated
Financial assets carried at amortised cost
Finance lease receivables 85 348
Trade and other receivables (excluding prepayments) 6,380 5,918
Cash and cash equivalents 9,610 5,719
16,075 11,985
Other financial liabilities carried at amortised cost
Current liabilities
Trade payables 2,051 1,595
Accruals 3,880 1,676
Lease liabilities 280 1,094
6,211 4,365
Non-current liabilities
Lease liabilities 66 362
66 362
On 22 February 2023, the Company entered into an Overdraft Facility with HSBC.
The facility of up to £1,500,000 is secured over the Company's trade
receivables, and incurs interest at 3% above the Bank of England base rate on
drawn balances. The facility has no fixed end date and can be cancelled by
either party at any time. During the year ended 31 March 2024, the Company has
not drawn any amounts under the facility, and no amounts have been drawn to
the date of the signing of these financial statements (amounts drawn in the
year ended 31 March 2023: £nil).
10. Finance lease receivables
: 2024 2023
£'000 £'000
Amounts receivable under finance leases
Year 1 94 284
Year 2 - 94
Total undiscounted lease payments 94 378
Unearned finance income (9) (29)
Net investment in lease 85 349
2024 2023
£'000 £'000
Net investment in the lease analysed as:
Recoverable after 12 months - 93
Recoverable within 12 months 85 256
85 349
Finance lease receivables relate to the sublease of the Group's previous
office in New York, which expires in July 2024. There are no variable payments
within the lease arrangement. At each reporting date the Group estimates the
loss allowance on finance lease receivables. No amounts were past due at 31
March 2023 or 2024, and the Group consider that the finance lease receivable
is not impaired.
11. Trade and other receivables
2024 2023
£'000 £'000
Trade receivables 6,126 5,694
Prepayments and accrued income 899 426
Other receivables 236 224
7,261 6,344
Trade and other receivables are due within one year and are not interest
bearing. The maximum exposure to credit risk at the balance sheet date is the
carrying amount of receivables (detailed in Note 8). The Group does not hold
any collateral as security against trade receivables. The Directors do not
believe that there is a significant concentration of credit risk within the
trade receivables balance.
Impairment of financial assets
The Group has financial assets, primarily trade receivables, which are subject
to the IFRS 9 expected credit loss model, and the Group is required to assess
these assets for expected credit losses. The Group has applied the simplified
approach to measuring expected credit losses as permitted by IFRS 9 and
recognises a loss allowance based on the financial assets' lifetime expected
loss.
The Group assesses on a forward-looking basis, the expected credit losses
associated with its debt instruments carried at amortised cost. assessment.
Trade receivables are grouped for the purposes of the assessment based on
industry sector, entity size and geography. The Group assesses expected credit
losses based on the ageing of the receivable, the Group's historical
experience and informed credit Further credit losses are recognised where the
Group has information that indicates it is unlikely to recover balances in
full.
The Group has no financial assets designated as measured at fair value.
As of 31 March 2024, trade receivables of £1,803,000 (2023: £1,733,000) were
past due but not impaired. The ageing of trade receivables, and the associated
loss allowance, is as follows:
Current 0-3 months due 3-6 months due Over 6 months due Total
£'000 £'000 £'000 £'000 £'000
At 31 March 2024
Gross trade receivables 2,208 3,540 287 171 6,206
Loss provision 19 38 3 20 80
Expected loss rate 1% 1% 1% 12%
At 31 March 2023
Gross trade receivables 4,007 1,260 403 200 5,870
Loss provision 46 24 15 91 176
Expected loss rate 1% 2% 4% 45%
Movements in the impairment allowance for trade receivables are as follows:
2024 2023
£'000 £'000
Provision for impairment of trade receivables
Opening balance 176 110
Charged to the income statement (68) 101
Utilisations and other movements (28) (35)
80 176
As of 31 March 2024, no other receivables or contract costs were impaired
(2023: £Nil).
The carrying amount of the Group's trade and other receivables are denominated
in the following currencies.
2024 2023
£'000 £'000
United States dollar 1,924 1,916
British sterling 3,990 2,607
Euro 547 744
Brazilian real 240 574
Swiss franc 231 233
Australian dollar 152 129
Singapore dollar 177 141
7,261 6,344
12. Share capital
The share capital of System1 Group PLC consists only of fully paid Ordinary
Shares ("Shares") with a par value of one penny each. All Shares are equally
eligible to receive dividends and the repayment of capital and represent one
vote at the Annual General Meeting.
2024 2023
No. £'000 No. £'000
Allotted, called up, and fully paid ordinary shares 13,226,773 132 13,226,773 132
At 1 April and at 31 March
The Company has treasury shares to satisfy the requirements of the Group's
share incentive schemes. The movement in the Company's treasury shares balance
is as follows:
2024 2023
Treasury shares Weighted average exercise price per share Treasury shares Weighted average exercise price per share
No. Pence No. Pence
Shares held by Treasury
At 1 April 547,844 487,151
Purchase of treasury shares - 60,693
Transfer of shares to satisfy options exercise - - - -
At 31 March 547,844 547,844
Share options
Employee share option scheme
The Group issues share options to directors and senior managers under an HM
Revenue and Customs approved Enterprise Management Incentive (EMI) scheme and
under an unapproved scheme.
Options granted in more recent years have been awarded in accordance with
management long-term incentive plans and such options have a zero-exercise
price and are subject to performance criteria. If share options remain
unexercised after a period of ten years from the date of grant, the options
expire. Share options are forfeited in some circumstances if the employee
leaves the Group before the options vest, unless otherwise agreed by the
Remuneration Committee of the Board.
Movements in the number of share options outstanding and their related
weighted average exercise prices are as follows:
2024 2023
Options Weighted average exercise price per share Options Weighted average exercise price per share
No. Pence No. Pence
Share options outstanding
Opening balance 1,260,724 0.7 1,194,590 0.8
Granted - - 198,401 -
Lapsed (7,000) - - -
Replaced - - (132,267) -
Closing balance 1,253,724 - 1,260,724 0.7
Exercisable at year-end 10,144 0.0 17,144 53.7
Weighted average share price at date of options exercised (pence) NA NA
Weighted average fair value of options granted in the year (pence) 0.0 43.3
The Group had the following outstanding options and exercise prices:
2024 2023
Expiry date Options Weighted average exercise price per share Weighted average remaining contractual life Options Weighted average exercise price per share Weighted average remaining contractual life
No. Pence Months No. Pence Months
2024 57,139 - 3.6 64,139 14.4 14.9
2025 - - - - - -
2027 1,196,585 - 29.8 1,196,585 - 39.8
2028 - - - - - -
2029 - - - - - -
2032 - - - - - -
1,253,724 0.0 28.6 1,260,724 0.7 38.5
Long-term incentive scheme
The Company introduced the current 2021 LTIP in October 2021. The 2021 LTIP
was implemented in October 2021 as a modification to the 2019 LTIP. The 2021
LTIP options vest between 12 August 2022 and 12 August 2025, subject to
Revenue, Profit After Tax and the Company's share price exceeding certain
targets. The full details of which are given in the Company's Remuneration
Report. The final vesting date of the 2021 LTIP is 12 August 2025, with the
exercise period ending on 21 March 2027.
At 31 March 2024, the number of options granted under the 2021 LTIP reached
1,130,959 or 8.6% of issued ordinary share capital of maximum capacity at 10%
(2023: 1,130,959 or 8.6% of issued ordinary share capital).
The key inputs into the fair value measurement of the 198,401 options granted
in the year ended 31 March 2023 are as follows:
· Expected Life: 2 years and 7.5 months
· Exercise price: £Nil
· Share price at date of grant: £1.45
· Expected volatility: 53.52%
· Risk free rate: 3.51%
No new option grants were made in the year ended 31 March 2024.
The number of options outstanding under the replaced 2019 LTIP scheme is
54,180 (31 March 2023: 54,180). No charge has been recognised in the year as a
consequence of management's assessment that the probability of non-market
performance conditions being fulfilled is low.
Non-employee option plan
On 17 April 2019, the Company granted Stefan Barden who was then an advisor to
the Board, an equity award comprising 300,000 zero cost options. In the year
ended 31 March 2022, the plan was modified to reflect the same targets as the
2021 LTIP scheme. As at 31 March 2024, Stefan Barden retained 46,995 of his
options, with the remaining 253,005 options cancelled following his
resignation in 2022.
Share-based payment charge
The total charge relating to equity-settled share-based payment plans was
£nil (2023: credit of £153,000); as a consequence of management's assessment
that the probability of non-market performance conditions being fulfilled is
low. The associated charge for social security was £nil. (2023: credit of
28,000).
13. Provisions
Sabbatical Leasehold dilapidations Total
£'000 £'000 £'000
At 1 April 2022 475 34 509
Provided in the year 75 - 75
Utilised in the year (58) - (58)
Reversals of unused amounts (73) - (73)
Foreign exchange movement - 1 1
At 31 March 2023 419 35 454
Provided in the year 81 - 81
Utilised in the year (52) - (52)
Reversals of unused amounts (446) (28) (474)
Foreign exchange movement (2) (1) (3)
At 31 March 2024 - 6 6
Due within one year - 6 6
Due after one year - - -
The Company has historically operated a sabbatical leave scheme, which
provided 20 days paid leave for each successive period of six years' service.
There was no proportional entitlement for shorter periods of service. During
the year ended 31 March 2023, the Company modified the terms of the scheme
such that rather than being open to all employees, the scheme was only
available to those individuals who had accrued three or more years of unbroken
service as at 30 September 2022. During the year ended 31 March 2024, the
Company ceased to operate the sabbatical provision in its entirety, with no
previously eligible individuals entitled to any further paid leave under the
scheme or any alternate compensation. Accordingly, the provision has been
released in full.
The assumptions previously used in the valuation of the sabbatical provision
is as follows:
2024 2023
Measurement method Project unit credit method
Discount rate, based on 6-year corporate bond yields* NA 5.0%
Annual salary growth rate NA 7%
Staff turnover NA 14%
*The discount rate for the UK has been disclosed, as this accounts for nearly
70% of the total provision.
Dilapidation provisions represent the Group's best estimate of costs required
to meet its obligations under property lease agreements.
14. Trade and other payables
2024 2023
£'000 £'000
Trade payables 2,051 1,595
Social security and other taxes 632 429
Accruals 3.880 1,676
6,563 3,700
Trade and other payables are due within one year and are not interest bearing.
The contractual terms for the payment of trade payables are generally 30-45
days from receipt of invoice.
The contractual maturity of all trade and other payables is within one year of
the balance sheet date.
15. Contract liabilities
2024 2023
£'000 £'000
Contract liabilities 1,137 764
From time to time, payments are received from customers prior to work being
completed. Such payments are recorded in the balance sheet as contract
liabilities.
Included within Revenue is £536,000 relating to contract liabilities
recognised at 1 April 2023 (2022: £816,000). No revenue has been recognised
in the year from performance conditions satisfied, or partially satisfied in
previous periods.
16. Borrowings
The analysis of the maturity of lease liabilities is as follows:
2024 2023
£'000 £'000
Within one year 291 1,031
Later than 1 but no later than 5 years 68 457
More than 5 years - -
Total contractual undiscounted cashflows 359 1,488
Impact of discounting (13) (32)
Total lease liabilities 346 1,456
Lease liabilities are presented in the Consolidated Balance Sheet as follows:
2024 2023
£'000 £'000
Within one year 280 1,094
Later than 1 but no later than 5 years 66 362
More than 5 years - -
346 1,456
There are no contingent payments, purchase options or restrictive covenants in
respect of property leases. Details of loan facilities and balances are given
in note 9.
17. Expenses by nature
2024 2023
£'000 £'000
Restated*
Employee benefit expense** 15,712 12,916
Other research and development costs 1,302 1,602
Capitalised development costs - gross of amortisation (736) (1,225)
Depreciation, amortisation, and impairment 1,249 910
Net foreign exchange (gains)/losses 204 (183)
Lease expense related to short term leases 195 199
Third party direct costs (sample, translation, data processing) 3,898
3,692
Indirect delivery costs 858 769
Other expenses 4,650 3,941
27,332 22,621
*The disaggregation of expenses has been amended in the current year to align
the presentation with figures reported to management. Accordingly, the
comparatives for the year ended 31 March 2023 have been reclassified.
**Included within employee benefit expense is £1,811,000 of costs related to
staff involved in research and development activities (2023: £2,341,000)
which has not been capitalised under IAS 38.
Analysed as:
Cost of sales 3,898 3,692
Administrative expenses 23,434 18,929
27,332 22,621
18. Other income
2024 2023
£'000 £'000
Other income 413 49
413 49
Other operating income includes amounts in relation to the trademark
co-existence agreement. See note 27 for further details.
19. Auditor Remuneration
2024 2023
£'000 £'000
Audit of parent company and consolidated accounts 110 117
Audit-related assurance services - 14
110 131
20. Employee benefit expense
2024 2023
£'000 £'000
Employee benefit expenses (including directors) comprise:
Wages and salaries 13,327 10,784
Social security contributions and similar taxes 1,788 1,437
Defined contribution pension cost 453 458
Long service leave cost - sabbatical provision (417) (61)
Share-based payment expense - (153)
Compensation for loss of office 87 39
Medical benefits 474 412
15,712 12,916
Key management personnel are those persons having authority and responsibility
for planning, directing, and controlling the activities of the Group,
including the 3 (2023: 3) Executive Directors of the company. Details of
directors' emoluments are given in the Remuneration Report on pages 48 and 49.
Compensation to key management is set out as follows:
2024 2023
£'000 £'000
Salaries and benefits in kind 871 725
Bonus 474 -
Social security contributions 175 93
Defined contribution pension cost 28 4
Share-based payment (credit)/expense 41 (30)
1,589 792
The average number of full-time equivalent staff employed by the Group during
the financial year was as follows:
2024 2023
No. No.
Sales and marketing 46 48
Operations 44 43
IT 31 37
Administration 23 23
144 151
21. Finance charges
2024 2023
£'000 £'000
Restated
Interest on finance lease receivables 8 17
Interest on bank deposits 36 -
Finance income 44 17
2024 2023
£'000 £'000
Interest on bank loans - (72)
Other net interest payable (1) -
Interest on lease liabilities (34) (64)
(35) (136)
Net finance income/(expense) 9 (119)
22. Income tax expense
2024 2023
£'000 £'000
Current tax 1,023 209
Deferred tax 51 106
1,074 315
Income tax expense for the year differs from the standard rate of taxation as
follows:
2024 2023
£'000 £'000
Profit on ordinary activities before taxation 3,109 719
Profit on ordinary activities multiplied by standard UK tax rate 777 137
Difference between tax rates applied to Group's subsidiaries 243 264
Net expenses not deductible for tax purposes 57 15
Adjustments to trading losses and brought forward values (3) (395)
Remeasurement of deferred tax for change in tax rates (7) 72
Tax on intra-group management charges (Brazil) 256 188
Receipt of research and development credits (210) -
Adjustment to current tax in respect of prior years (21) 78
Adjustments to foreign and withholding tax 120 (390)
Adjustments to deferred tax in respect of prior and current years (136) 346
1,076 315
The standard tax rate for the years ended 31 March 2024 was 25% (31 March
2023: 19%).
The R&D Tax credits in respect of the years ended 31 March 2021 and 31
March 2022 provided a benefit of £0.2m, which was received and recognised in
the year ended 31 March 2024. The Company is working with its advisors to
submit a claim for a R&D Tax Credit in respect of the year ended 31 March
2023 and 2024. No amounts have been recognised in respect of claims not yet
submitted or approved as their receipt is not considered highly probable.
23. Deferred tax
Deferred tax assets and liabilities are as follows.
2024 2023
£'000 £'000
Deferred tax assets:
- Deferred tax assets to be recovered after more than 12 months 37 118
- Deferred tax assets to be recovered within 12 months 155 85
192 203
Deferred tax liabilities:
- Deferred tax liability to be Incurred within 12 months (41) -
Deferred tax asset (net): 151 203
The gross movement in deferred tax is as follows.
2024 2023
£'000 £'000
Opening balance 203 292
Income statement charge (51) (106)
Foreign exchange movements (1) 17
Closing balance 151 203
The movement in deferred income tax assets and liabilities during the year,
without taking into consideration the offsetting of balances within the same
tax jurisdiction, is as follows:
Deferred tax assets Other provisions Share options Dilapidation provisions Sabbatical provision Accelerated capital allowances Total
£'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2023 76 23 8 86 10 203
Credited/(charged) to income statement 95 (4) (6) (86) (11)
(10)
At 31 March 2024 171 19 2 - - 192
Deferred tax liabilities Accelerated capital allowances
£'000
At 1 April 2023 -
Charged to income statement (41)
At 31 March 2024 (41)
Deferred tax assets are recognised only to the extent that their
recoverability is considered probable.
The deferred tax asset in respect of the Company's share option plans relates
to corporate tax deductions available on exercise of employee share options.
24. Earnings per share
2024 2023
Profit attributable to equity holders of the Company, in £'000 2,033 404
Weighted average number of Ordinary Shares in issue 12,678,929 12,698,398
Basic earnings per share 16.0p 3.2p
Profit attributable to equity holders of the Company, in £'000 2,033 404
Weighted average number of Ordinary Shares in issue 12,678,929 12,698,398
Share options 10,144 12,888
Weighted average number of Ordinary Shares for diluted earnings per share 12,689,073 12,711,286
Diluted earnings per share 16.0p 3.2p
Basic earnings per share is calculated by dividing the profit or loss
attributable to equity holders of the Company by the weighted average number
of Ordinary Shares in issue during the year.
Diluted earnings per share is calculated by adjusting the weighted average
number of shares outstanding assuming conversion of all dilutive share options
to Ordinary Shares. Options are included in the determination of diluted
earnings per share if the required performance thresholds would have been met
based on the Group's performance up to the reporting date, and to the extent
that they are dilutive. Accordingly, employee options of 1.3 million (2023:
1.3 million) have not been included in the calculation of diluted EPS because
their exercise is contingent on the satisfaction of certain criteria that had
not been met at 31 March 2024 and 31 March 2023. The total number of options
in issue is disclosed in Note 12.
25. Dividends
The Company did not pay a dividend in the year ended 31 March 2024 and
proposes to pay a dividend of 5.0p per share. The record date is 27 September
2024, and the payment date is 18 October 2024.
No dividends were paid to directors in the years ended 31 March 2024 and 31
March 2023.
26. Net cash generated from operations
2024 2023
£'000 £'000
Profit before taxation 3,108 719
Depreciation and impairment of property, plant, and equipment 702 699
Amortisation and impairment of intangible assets 553 211
Profit on disposal of right-of-use assets (8) -
Interest received (36) -
Interest paid 35 136
Share-based payment credit - (153)
(Increase)/decrease in contract assets (78) 96
Decrease in finance lease receivables 263 225
Increase in trade and other receivables (917) (1,853)
Increase in trade and other payables 2,863 146
Increase/(decrease) in contract liabilities 372 (227)
Decrease in provisions (445) (55)
Exchange differences on operating items 18 (31)
6,430 (87)
27. Contingent asset
On 27 September 2021, the Company filed a complaint for trademark
infringement, unfair competition and deceptive trade practices at the United
States District Court Southern District of New York against System1 LLC
("LLC"), since renamed System1 Inc., an omnichannel customer acquisition
marketing provider, over their infringing use of the mark "SYSTEM1". On 30
June 2023 the Company announced that a settlement had been reached with LLC.
The parties have signed a global agreement which governs the co-existence of
their respective use of the "System1" mark in connection with their
operations. As part of this agreement, the Company is receiving a fixed
undisclosed payment payable in instalments through to November 2024. Amounts
received under this arrangement are included as part of other income. The
potential quantum of future cashflows under this arrangement cannot be
disclosed under the terms of the legal settlement.
28. Related party transactions
The following transactions took place between entities within the Group, all
of which are consolidated in these financial statements, and are related
parties by virtue of the common control of the Company.
Overhead charges Royalties Amounts due from/(to) related parties
£'000 £'000 £'000
2024
System1 Group PLC 8,762 2,755 2,135
System1 Research Limited (4,030) (1,267 424
System1 Research, Inc. (2,743) (862) (1,835)
System1 Research B.V. (177) (56) 315
System1 Research Sarl (407) (128) (501)
System1 Research GmbH (418) (131) (917)
System1 Marketing Consulting (Shanghai) Co. Limited - - -
System1 Research Do Brazil Servicos de Marketing Ltda. - - 54
System1 Research France Sarl (530) (167) 309
System1 Market Research Pte Ltd (123) (39) (511)
System1 Research Pty Ltd. (335) (105) 471
System1 Agency Limited - - 55
System1 AdRatings Limited - - -
2023
System1 Group PLC 6,801 2,107 2,035
System1 Research Limited (2,860) (886) (583)
System1 Research, Inc. (2,304) (714) (1,065)
System1 Research B.V. (116) (36) (327)
System1 Research Sarl (332) (103) 35
System1 Research GmbH (285) (88) (557)
System1 Marketing Consulting (Shanghai) Co. Limited - - 178
System1 Research Do Brazil Servicos de Marketing Ltda. - - 108
System1 Research France Sarl (470) (146) 488
System1 Market Research Pte Ltd (131) (41) (315)
System1 Research Pty Ltd. (304) (94) 0
System1 Agency Limited - - 5
System1 AdRatings Limited - - (4)
During the year, purchases of £136,374 (2023: £141,181) were made from Merit
Data &Technology Limited, a related party by virtue of the common
directorship of Philip Machray. At the year end, an amount of £16,800 was
owed (2023: £nil). Of the purchases made, £37,000 was capitalised within
development costs in the year ended 31 March 2024 (2023: £19,094.14). During
the year, sales of £5,000 (2023: £nil) were made to Virgin Wines Online
Limited, a related party by virtue of common directorship of Sophie Tomkins.
At the year end, an amount of £nil was due (2023: £nil).
29. Audit exemption
System1 Research Limited (company number 03900547), System1 Agency Limited
(company number 09829202) and System1 Ad Ratings Limited (company number
11313402) are exempt from the requirements of the Companies Act 2006 relating
to the audit of accounts under section 479A. System1 Group PLC has given a
parental guarantee for all entities above under section 479C of the Companies
Act 2006.
Company Balance Sheet
as at 31 March 2024
Registered Company No. 05940040
2024 2023
Note £'000 £'000
Fixed assets
Intangible assets 2 1,578 1,396
Tangible assets 3 65 808
Investments in subsidiaries 4 581 581
2,224 2,785
Debtors due after one year 5 - 26
Current assets
Debtors due within one year 5 6,047 5,924
Cash and cash equivalents 1,908 1,242
7,955 7,166
Creditors: amounts due within one year 6 5,889 5,182
Net current assets 2,066 1,984
Total assets less current liabilities 4,290 4,795
Creditors: amounts due after one year 6 - 163
Provisions for liabilities 7 40 194
Net assets 4,250 4,438
Capital and reserves
Share capital 9 132 132
Share premium account 1 1,601 1,601
Retained earnings 1 2,517 2,705
Shareholders' funds 4,250 4,438
As permitted by Section 408 of the Companies Act 2006, the Company's profit
and loss account has not been included in these financial statements. The
Company's loss after tax was £62,000 (2023: profit of £287,000).
The notes on pages 96 to 109 are an integral part of these company financial
statements.
These financial statements were approved by the directors on 3 July 2023 and
are signed on their behalf by:
James Gregory Chris Willford
Director
Director
Company Statement of Changes in Equity
for the year ended 31 March 2024
Share capital Share premium Retained earnings Total
£'000 £'000 £'000 £'000
At 1 April 2022 132 1,601 2,706 4,439
Profit for the financial period and total comprehensive income attributable to - - 287 287
the equity holders
Transactions with owners:
Employee share option scheme:
- value of employee services - - (153) (153)
Purchase of treasury shares (135) (135)
- - (288) (288)
At 31 March 2023 132 1,601 2,705 4,438
Profit for the financial period - - (62) (62)
Total comprehensive income attributable to the equity holders - - (62) (62)
Transactions with owners:
Employee share option scheme:
- value of employee services - - (126) (126)
Purchase of treasury shares - - - -
- - (126) (126)
At 31 March 2024 132 1,601 2,517 4,250
The notes on pages 96 to 109 are an integral part of these company financial
statements.
Notes to the Company Financial Statements
for the year ended 31 March 2024
1. Accounting policies
Statement of compliance
The separate financial statements of the Company are presented in accordance
with Financial Reporting Standard 101 - 'The Reduced Disclosure Framework'.
They have been prepared under the historical cost convention. The principal
accounting policies adopted in the preparation of these financial statements
are set out below. These policies have been applied consistently throughout
the year.
This Company is included in the consolidated financial statements of System1
Group PLC for the year ended 31 March 2024. These accounts are available from
the registered office address of the Company, and at
system1group.com/investors.
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all
disclosure exemptions available under FRS 101. Therefore, these financial
statements do not include:
a) a statement of cash flows and related notes;
b) the requirements of IAS 24 Related Party Disclosures to disclose
related party transactions entered between two or more wholly owned members of
the group;
c) disclosure of key management personnel compensation;
d) capital management disclosures;
e) disclosure of leases as required by paragraph 52 of IFRS 16 "Leases"
f) presentation of a comparative reconciliation of the number of shares
outstanding at the beginning and at the end of the period;
g) the effect of future accounting standards not adopted;
h) disclosures in respect of share-based payments
i) disclosures in respect of financial instruments and fair value
measurement.
As permitted by the Companies Act 2006 section 408, the Company does not
present a profit and loss account.
Research and development - internally generated intangible assets
All on-going research expenditure is expensed in the year in which it is
incurred. Where no internally generated intangible asset can be recognised,
development expenditure is charged to administrative expenses in the period in
which it is incurred.
Costs relating to the research phase of the product, amounting to £2.4m were
expensed in the year to 31 March 2024 (31 March 2023: £2.7m). Development
costs include professional fees and directly attributable employee costs
required to bring the software into working condition.
Notes to the Company Financial Statements
for the year ended 31 March 2024
Furthermore, internally generated software and product development costs are
recognised as an intangible asset only if the Company can demonstrate all the
following conditions:
a) the technical feasibility of completing the intangible asset so that it
will be available for use or sale;
b) its intention to complete the intangible asset and use or sell it;
c) its ability to use or sell the intangible asset;
d) how the intangible asset will generate probable future economic
benefits; among other things, the Company can demonstrate the existence of a
market for the output of the intangible asset or the intangible asset itself
or, if it is to be used internally, the usefulness of the intangible asset;
e) the availability of adequate technical, financial and other resources
to complete the development and to use or sell the intangible asset;
f) its ability to measure reliably the expenditure attributable to the
intangible asset during its development.
Amortisation
Acquired computer software licences are amortised on a straight-line basis
over their estimated useful economic life of five years.
Capitalised development costs are amortised on a straight-line basis over
their estimated useful economic life of three years.
Amortisation and impairment on all intangible assets are charged to
administrative expenses.
Investments
Fixed asset investments comprise investments by the Company in the shares of
subsidiary undertakings. The carrying value of is reviewed for indicators of
impairment on an annual basis. Where such indicators are present, a quantified
impairment test is required and the value in use calculated based upon a
discounted cash flow methodology using the most recent forecasts prepared by
management. No impairment indicators were identified at 31 March 2024 or 31
March 2023.
Tangible assets and right-of-use assets
Property, plant and equipment are stated at historical cost less accumulated
depreciation and accumulated impairment losses. Depreciation is provided to
write off the cost of all property, plant and equipment to its residual value
on a straight-line basis over its expected useful economic lives, which are as
follows:
Furniture, fittings and equipment 5 years
Computer hardware
2 to 3 years
The residual value and useful life of each asset is reviewed and adjusted, if
appropriate, at each balance sheet date. Depreciation is charged to
administrative expenses in the income statement.
Right-of-use assets are measured at cost to include the lease liability,
direct and restoration cost and are generally depreciated over the shorter of
the asset's useful life and the lease term on a straight-line basis. Payments
associated with short term leases of equipment and vehicles and all leases of
low value assets are recognised on a straight-line basis as an expense in the
profit and loss.
Notes to the Company Financial Statements
for the year ended 31 March 2024
Impairment of property, plant and equipment and intangible assets
At each balance sheet date, the Company reviews the carrying amount of its
property, plant and equipment and intangible assets for any indication that
those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated to determine the extent of
the impairment loss, if any. Intangible assets not available for use are
tested for impairment on at least an annual basis. The recoverable amount is
the higher of the fair value less costs to sell and value in use.
Cash at bank
Cash at bank comprises cash in hand and bank deposits available on demand.
Income taxes
Current income tax liabilities comprise those obligations to fiscal
authorities relating to the current or prior reporting period, which are
unpaid at the balance sheet date. They are calculated according to the tax
rates and tax laws that have been enacted or substantively enacted at the
reporting date applicable to the fiscal periods to which they relate, based on
the taxable profit for the year. All changes to current tax assets or
liabilities are recognised as a component of tax expense in the income
statement, except where it relates to items charged or credited to other
comprehensive income or directly to equity.
Deferred income taxes are calculated using the liability method on temporary
differences. This involves the comparison of the carrying amounts of assets
and liabilities in the consolidated financial statements with their respective
tax bases. In addition, tax losses available to be carried forward as well as
other income tax credits to the Company are assessed for recognition as
deferred tax assets.
Deferred tax liabilities are always provided for in full. Deferred tax assets
are recognised to the extent that it is probable that the underlying
deductible temporary differences will be able to be offset against future
taxable income. Deferred tax assets and liabilities are calculated, without
discounting, at tax rates that are expected to apply to their respective
period of realisation, provided they are enacted or substantively enacted at
the balance sheet date. Deferred tax is recognised as a component of tax
expense in the income statement, except where it relates to items charged or
credited to other comprehensive income or directly to equity.
Employee benefits
All accumulating employee-compensated absences that are unused at the balance
sheet date are recognised as a liability.
The Company operates a defined contribution pension plan. The Company pays
contributions to the plan based upon the contractual terms agreed with each
employee. The Company has no further payment obligations once the
contributions have been paid. The contributions are recognised as employee
benefit expense when they are due. Any amounts outstanding at the reporting
date are recognised in liabilities within accruals.
Notes to the Company Financial Statements
for the year ended 31 March 2024
Share-based payments
Equity-settled, share-based payments are measured at fair value at the date
of grant. Equity-settled, share-based payments that are made available
to employees of the Company's subsidiaries are treated as increases in equity
over the vesting period of the award, with a corresponding increase in the
Company's investments in subsidiaries, based on an estimate of the number of
shares that will eventually vest.
Provisions
Provisions are recognised when: the Company has a legal or constructive
obligation because of past events; it is probable that an outflow of resources
will be required to settle the obligation; and the amount has been reliably
estimated. Where material, the increase in provisions due to passage of time
is recognised as interest expense.
The provision for sabbatical leave is measured using the projected unit credit
method.
The provision for dilapidations is measured at the present value of
expenditures expected to be required to settle those obligations.
Financial instruments
The Company's financial assets comprise trade and other receivables held at
amortised cost. The Company does not possess assets held at fair value through
profit or loss. The classification is determined by management at initial
recognition, being dependent upon the business model and the contractual cash
flows of the assets. Financial assets are derecognised when the rights to
receive cash flows from the investments have expired or have been transferred
and the Company has transferred substantially all risks and rewards of
ownership. Financial assets arising from contracts with customers are
separately presented in accordance with IFRS 15 'Revenue from Contracts with
Customers' in the Balance Sheet.
Trade and other receivables
Trade and other receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. The Company's
amortised cost financial assets comprise trade and other receivables and cash
and cash equivalents in the balance sheet.
Trade receivables are initially recorded at fair value, but subsequently at
amortised cost using the effective interest rate method. In accordance with
IFRS 9, the Company assesses on a forward-looking basis, the expected credit
losses associated with its financial assets carried at amortised cost. This
assessment considers the age of the debt, as well as historical experience.
The amount of the write-down is determined as the difference between the
asset's carrying amount and the present value of estimated future cash flows.
Notes to the Company Financial Statements
for the year ended 31 March 2024
Financial liabilities
Financial liabilities are initially recognised at fair value, net of
transaction costs, and subsequently carried at amortised cost using the
effective interest rate method. Financial liabilities and equity instruments
are classified according to the substance of the contractual arrangements
entered. An equity instrument is any contract that evidences a residual
interest in the assets of the entity after deducting all its financial
liabilities.
Where the contractual obligations of financial instruments (including share
capital) are equivalent to a similar debt instrument, those financial
instruments are classed as financial liabilities. Financial liabilities are
presented as such in the balance sheet. Finance costs and gains or losses
relating to financial liabilities are included in the income statement.
Finance costs are calculated to produce a constant rate of return on the
outstanding liability. Where the contractual terms of share capital do not
have any terms meeting the definition of a financial liability then this is
classed as an equity instrument. Dividends and distributions relating to
equity instruments are debited directly to equity.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease
liability is initially recognised at the present value of the lease payments
to be made over the term of the lease, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the
consolidated entity's incremental borrowing rate. Lease payments comprise of
fixed payments less any lease incentives receivable, variable lease payments
that depend on an index or a rate, amounts expected to be paid under residual
value guarantees, exercise price of a purchase option when the exercise of the
option is reasonably certain to occur, and any anticipated termination
penalties. The variable lease payments that do not depend on an index or a
rate are expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the effective interest
method. The carrying amounts are remeasured if there is a change in the
following: future lease payments arising from a change in an index or a rate
used; residual guarantee; lease term; certainty of a purchase option and
termination penalties. When a lease liability is remeasured, an adjustment is
made to the corresponding right-of use asset, or to profit or loss if the
carrying amount of the right-of-use asset is fully written down.
Share capital
Ordinary shares are classified as equity. Equity instruments issued by the
Company are recorded at the proceeds received, net of direct issue costs.
Share premium
Share premium represents the excess over nominal value of the fair value of
consideration received for equity shares, net of expenses of the share issue.
Treasury shares
Where the Company purchases the Company's equity share capital, the
consideration paid is deducted from the total shareholders' equity and
classified as treasury shares until they are cancelled. Where such shares are
subsequently sold or re-issued, any consideration received is included in
total shareholders' equity. No gain or loss is recognised on the purchase,
sale, issue or cancellation of the Company's own equity instruments.
Notes to the Company Financial Statements
for the year ended 31 March 2024
Significant accounting estimates and judgements
Capitalisation of development costs - judgement
The point at which development costs meet the criteria for capitalisation is
critically dependent on management's judgement of the point at which technical
feasibility is demonstrable. Furthermore, the useful economic lives of
capitalised development costs are based on management's knowledge of the life
cycle of the Group's products and technology. The carrying value of
development assets also depends on management's ability to demonstrate the
future economic benefits they will deliver. This judgement requires
assumptions about factors outside the business's control such as short and
medium term economic conditions, technological developments and market
changes. Details are contained in note 2.
Impairment of development costs - judgement and estimate
The Group tests annually whether intangible assets, have been impaired by
reference to expected future generation of cash from the relevant platforms
incorporating the technologies and methodologies developed. In estimating the
cash flows the capitalised development costs may generate the directors make
judgements, based on budgets and forecasts, about the amount of future profits
from the relevant products that will be generated and the timing of when these
will be realised. Furthermore, where new technology is acquired through an
acquisition, management consider the impact this could have on the carrying
value of existing technology, that is similar in nature, when preparing the
budgets and forecasts. The Group has carried out an impairment review and
determined no impairment is required in the year ended 31 March 2024 (31 March
2023: £nil). Details are contained in note 2.
Share-based payments - judgement and estimate
In the past the Company has on occasion cash-settled part of long-term
incentive plan equity awards. Despite the repurchase of these equity interests
the Company did not have an obligation to do so and does not have an
obligation, constructive or otherwise to do so in the future. As a result, the
Company continues to account for share-based payments related to its long-term
incentive plans as equity rather than cash-settled.
The 2021 LTIP is subject to non-market conditions of Revenue, Profit After Tax
and a market condition of the Company's share price exceeding certain targets;
the full details of which are given in the Company's Remuneration Report. The
measure of the share-based payment charge is dependent on the estimates made
in respect of the probability of those targets being achieved over the vesting
period of the options. The key inputs into those estimates are the Company's
forecasts, revenue volatility and inflation. Revenue volatility is determined
by reference to the share price volatility used to determine the fair value of
the options (with an assumption that the two will have a high level of
correlation). Inflation is determined by reference to the Bank of England data
for the UK in March and April 2024. Non-market vesting conditions are assessed
by reference to the Group's latest forecasts. Following management's
assessment that the probability of the non-market vesting conditions being met
is low, the cumulative share option charge of £126,000 has been reversed in
FY24.
Notes to the Company Financial Statements
for the year ended 31 March 2024
Employee benefits - estimate
The Company has historically operated a sabbatical leave scheme, which
provided 20 days paid leave for each successive period of six years' service.
There was no proportional entitlement for shorter periods of service. During
the year ended 31 March 2023, the Company modified the terms of the scheme
such that rather than being open to all employees, the scheme was only
available to those individuals who had accrued three or more years of unbroken
service as at 30 September 2022. During the year ended 31 March 2024, the
Company ceased to operate the sabbatical provision in its entirety, with no
previously eligible individuals entitled to any further paid leave under the
scheme or any alternate compensation. Accordingly, the provision has been
released in full. The significant inputs into the model were previously rate
of salary growth and average staff turnover as explained in Note 7.
The average number of staff employed by the Company during the year ended 31
March 2024 was 65 (2023: 64) and total employment costs were £7,785,000
(2023: £6,072,000).
Leases - estimate and judgement
Management exercises judgement in determining the likelihood of exercising
break or extension options in determining the lease term, and reviews this on
a lease-by-lease basis.
The discount rate used to calculate the lease liability is the rate implicit
in the lease, if it can be readily determined, or the lessee's incremental
borrowing rate if not. Incremental borrowing rates are determined based on the
term, country, currency and start date of the lease, to derive the rate of
interest that the lessee would have to pay to borrow over a similar term, and
with a similar security, the funds necessary to obtain an asset of a similar
value to the right-of-use asset in a similar economic environment.
Notes to the Company Financial Statements
for the year ended 31 March 2024
2. Intangible assets
Development costs Software Total
£'000 £'000 £'000
Cost at 1 April 2022 - 525 525
Additions 1,225 - 1,225
Cost at 31 March 2023 1,225 525 1,750
Amortisation at 1 April 2022 - 143 143
Amortisation for the year 101 110 211
Amortisation at 31 March 2023 101 253 354
Carrying value at 31 March 2023 1,124 272 1,396
Cost at 1 April 2023 1,225 525 1,750
Additions 736 - 736
Cost at 31 March 2024 1,961 525 2,486
Amortisation at 1 April 2023 101 253 354
Amortisation for the year 423 131 554
Amortisation at 31 March 2024 524 384 908
Carrying value at 31 March 2024 1,437 141 1,578
Amortisation charges are included within administrative expenses.
The only software cost as at 31 March 2024 is the Group's finance and
operations system that was brought into use October 2020.
Development costs relate to costs capitalised for the development of the "Test
Your" platform (carrying value £464k; 2023: £865k), which completed during
the year ended 31 March 2023, and the Supply Chain Automation platform
(carrying value £930k 2023: £259k), which was substantially completed at the
end of the year ended 31 March 2024. Development costs in respect of completed
projects are tested for impairment where impairment indicators exist. No
indicators exist at 31 March 2024 (31 March 2023: none). Development costs in
respect of ongoing projects are tested for impairment at each reporting date.
The carrying value of the assets in each case are assigned to their respective
cash generating units for the purposes of assessing future cashflows. The
principal assumptions used in the forecasts were the timing and amount of
future revenues and cost savings, which were derived from the latest forecasts
approved by the Board. Following the assessment, the Board have determined
that no impairment of assets is required as at 31 March 2024 (31 March 2023:
£nil). The headroom in the impairment review exceeds the carrying value of
the asset.
Notes to the Company Financial Statements
for the year ended 31 March 2024
3. Tangible assets
Right-of-use assets Furniture Computer hardware Total
and fixtures
£'000 £'000 £'000 £'000
Cost at 1 April 2022 2,682 10 165 2,857
Additions - 1 23 24
Disposals (1,437) - - (1,437)
Cost at 31 March 2023 1,245 11 188 1,444
Depreciation at 1 April 2022 1,283 7 103 1,393
Depreciation charge for the year 621 2 57 680
Disposals (1,437) - - (1,437)
Depreciation at 31 March 2023 467 9 160 636
Carrying amount 31 March 2023 778 2 28 808
Cost at 1 April 2023 1,245 11 188 1,444
Additions - - 85 85
Disposals (1,245) (11) - (1,256)
Cost at 31 March 2024 - - 273 273
Depreciation at 1 April 2023 467 9 160 636
Depreciation charge for the year 622 2 48 672
Disposals (1,089) (11) - (1,100)
Depreciation at 31 March 2024 - - 208 208
Carrying amount 31 March 2024 - - 65 65
Notes to the Company Financial Statements
for the year ended 31 March 2024
4. Investments
£'000
Cost and net book amount at 1 April 2023 and 31 March 2024 581
Subsidiary undertakings
Details of subsidiary undertakings, registered office and country of
incorporation of each, at 31 March 2024 are as follows:
Subsidiary undertaking Registered office Country of incorporation
System1 Research Limited 4 More London Riverside, London, England, SE1 2AU UK
System1 Research B.V. Conradstraat 38 D2. 138, 3013AP Rotterdam Netherlands
System1 Research, Inc. 251 Little Falls Drive, Wilmington, DE 19808, New Castle County, Delaware USA
System1 Research Sarl Avenue Gratta Paille 2, 1018 Lausanne, Switzerland Switzerland
System1 Research GmbH Kleine Seilerstrasse 1 D-20359 Hamburg Germany
System1 Research Do Brazil Servicos de Marketing Ltda. Avenida das Nacoes Unidas 14261 - Conj. 25-126B - Cond. WT Morumbi, CEP Brazil
04794-000, Vila Gertrudes, São Paulo
System1 Research France Sarl 17 Rue de Turbigo, 75002 Paris France
System1 Market Research Pte Ltd 30 Cecil Street, #19-08 Prudential Tower, 049712 Singapore
System1 Research Pty Ltd. Suite 1, Level 11, 60 Castlereagh Street, Sydney, NSW 2000 Australia
System1 Agency Limited 4 More London Riverside, London, England, SE1 2AU UK
System1 AdRatings Limited 4 More London Riverside, London, England, SE1 2AU UK
System1 Research Limited, System1 Agency Limited, and System1 AdRatings
Limited are wholly owned direct subsidiaries of System1 Group PLC. The
remaining subsidiaries are each wholly owned direct subsidiaries of System1
Research Limited. The activities of all companies are the provision of market
research data and insight services, apart from System1 Agency Limited and
System1 AdRatings Limited, which are dormant.
Notes to the Company Financial Statements
for the year ended 31 March 2024
5. Debtors
2024 2023
£'000 £'000
Due within one year
Trade debtors 1 12
Trade debtors from group companies 4,873 5,131
Amounts due from group companies 81 126
Other debtors 84 92
VAT recoverable 211 203
Corporation tax recoverable 15 2
Deferred tax asset - -
Prepayments 782 358
6,047 5,924
Due after one year
Deferred tax asset - 26
The Company assesses on a forward-looking basis, the expected credit losses
associated with its debt instruments carried at amortised cost. The Company
assesses expected credit losses based on the ageing of the receivable, the
Group's historical experience and informed credit assessment. Further credit
losses are recognised where the Company has information that indicates it is
unlikely to recover balances in full.
The Company is part of a VAT group with its wholly owned subsidiary, System1
Research Limited. As at 31 March 2024, System1 Research Limited had a VAT
liability of £473,000, therefore the net exposure of the two entities is
£262,000 (2023: creditor of £211,000).
6. Creditors
2024 2023
£'000 £'000
Due within one year
Trade creditors 693 741
Social security and other taxes 181 -
Amounts due to group companies 2,818 3,220
Lease liabilities - 630
Accruals 2,197 591
5,889 5,182
Due after one year
Lease liabilities - 163
- 163
Notes to the Company Financial Statements
for the year ended 31 March 2024
7. Provisions for liabilities
Deferred tax Sabbatical Leasehold dilapidations Total
£'000 £'000 £'000 £'000
At 1 April 2022 - 254 10 264
Provided in the year - (11) - (11)
Reversal of unused amounts - (59) - (59)
At 31 March 2023 - 184 10 194
Provided in the year 38 - - 38
Utilised in the year - (12) - (12)
Reversal of unused amounts - (172) (8) (180)
At 31 March 2024 38 - 2 40
Due within one year - - 2 2
Due after one year 38 - - 40
The Company has historically operated a sabbatical leave scheme, which
provided 20 days paid leave for each successive period of six years' service.
There was no proportional entitlement for shorter periods of service. During
the year ended 31 March 2023, the Company modified the terms of the scheme
such that rather than being open to all employees, the scheme was only
available to those individuals who had accrued three or more years of unbroken
service as at 30 September 2022. During the year ended 31 March 2024, the
Company ceased to operate the sabbatical provision in its entirety, with no
previously eligible individuals entitled to any further paid leave under the
scheme or any alternate compensation. Accordingly, the provision has been
released in full.
The assumptions previously used in the valuation of the sabbatical provision
is as follows:
2024 2023
Measurement method Project unit credit method
Discount rate, based on 6-year corporate bond yields NA 5.0%
Annual salary growth rate NA 7%
Staff turnover NA 14%
£'000
Changes to the assumptions made in 2023 would have increased the provision by:
0.25% decrease to discount rate -
10% increase to salary increase assumption 8
5% decrease to staff turnover assumption 12
10% of salary paid as bonus to all members 39
Notes to the Company Financial Statements
for the year ended 31 March 2024
8. Deferred tax
Deferred tax assets and liabilities are as follows:
2024 2023
£'000 £'000
Deferred tax assets:
- Deferred tax assets to be recovered after more than 12 months - 70
- Deferred tax assets to be recovered within 12 months 33 26
33 96
Deferred tax liabilities:
- Deferred tax liability to be recovered within 12 months (71) (70)
Deferred tax (liability)/asset (net): (38) 26
The gross movement in deferred tax is as follows.
2024 2023
£'000 £'000
Opening balance 26 19
Income statement (charge)/credit (64) 7
Closing balance (38) 26
The movement in deferred income tax assets and liabilities during the year,
without taking into consideration the offsetting of balances within the same
tax jurisdiction, is as follows:
Deferred tax assets Other provisions Share options Sabbatical provision Total
£'000 £'000 £'000 £'000
At 1 April 2023 28 22 46 96
Credited/(charged) to income statement (6) (11) (46) (63)
At 31 March 2024 22 11 - 33
Deferred tax liabilities Accelerated capital allowances
£'000
At 1 April 2023 (71)
Credited to income statement -
At 31 March 2024 (71)
Notes to the Company Financial Statements
for the year ended 31 March 2024
9. Share capital
2024 2023
No. £'000 No. £'000
Allotted, called up, and fully paid ordinary shares
At 1 April and at 31 March 13,226,773 132 13,226,773 132
Included within issued share capital are 547,844 ordinary shares held in
treasury.
10. Related party transactions
During the year, purchases of £136,374 (2023: £141,181) were made from Merit
Data &Technology Limited, a related party by virtue of the common
directorship of Philip Machray. At the year end, an amount of £16,800 was
owed (2023: £nil). Of the purchases made, £37,000 was capitalised within
development costs in the year ended 31 March 2024 (2023: £19,094.14). During
the year, sales of £5,000 (2023: £nil) were made to Virgin Wines Online
Limited, a related party by virtue of common directorship of Sophie Tomkins.
At the year end, an amount of £nil was due (2023: £nil).
Company Information
Company Secretary
Renata Ziolko-Nishikant
Registered Office
4 More London Riverside
London
England
SE1 2AU
United Kingdom
Registered Number
05940040
Independent Auditor
Haysmacintyre LLP
Statutory Auditor
Chartered Accountants
10 Queen Street Place
London
EC4R 1AG
Registrars
Link Asset Services
34 Beckenham Road
Beckenham
Kent
BR3 4TU
United Kingdom
Nominated Adviser & Broker
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
United Kingdom
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