REG - System1 Group PLC - Further re Requisitioned General Meeting
13/04/2023 07:00
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RNS Number : 0422W System1 Group PLC 13 April 2023
13 April 2023
System1 Group PLC (AIM: SYS1)
("System1", or "the Company", or "the Group")
Further re Requisitioned General Meeting
As previously announced on 7 March 2023, System1 received an email from Stefan
Barden (former System1 Chief Executive Officer and Board Adviser) and James
Geddes (former System1 Chief Financial Officer) (the "Requisitioning
Shareholders") seeking to requisition a general meeting of the Company (the
"Requisition") unless certain Board changes were agreed to by the Company's
Board of Directors (the "Board").
On 24 March 2023, the Company posted a circular to Shareholders (the
"Circular") in response to the Requisition and a Notice of General Meeting
(the "Notice") convening the requisitioned General Meeting for Shareholders
which is to be held at the offices of Reed Smith LLP at The Broadgate Tower,
20 Primrose Street, London EC2A 2RS at 10:00 a.m. on 21 April 2023.
The Board considers that all the resolutions proposed by the Requisitioning
Shareholders are NOT in the best interest of the Company and the shareholders
as a whole.
The Board will be voting against all of them and unanimously recommends that
you do the same.
On 11 April 2023, the Company received the letter included below from the
Requisitioning Shareholders. The Company have responded to this letter, and
this is also included below.
The Company is today posting to Shareholders a copy of the letter from the
Requisitioning Shareholders and a copy of the Company response to the letter
from the Requisitioning Shareholders.
1. Letter from Requisitioning Shareholders
Dear fellow System1 Group PLC shareholder,
We have requisitioned the resolutions which are to be voted on at the
forthcoming Extraordinary General Meeting, and which we would encourage you to
consider and vote on.
In summary we believe the company has considerable potential but has performed
poorly and needs a change in board composition to fulfil its potential. With
a focus on Data-Platform sales, and proving the value of the platform, we
believe the company can realistically aim for an exit with a value in excess
of five times its current value.
It is difficult in these scenarios to find independent and well thought
through views to guide these decisions.
In that regard, you might find the latest System1 Group PLC update from
Maynard Paton helpful. Maynard is an investor in the company and also an
independent investment commentator and former analyst, who has followed the
company closely over a prolonged period. You can find his commentary at
https://maynardpaton.com (https://maynardpaton.com) .
This is an important time for the company, and we thank you for your time
considering this.
Yours faithfully,
Stefan Barden and James Geddes
2. Company response to letter from Requisitioning Shareholders
Statement from the Board of System1 Group plc ("Company")
In advance of the Company's general meeting convened for 21 April 2023 ("GM"),
the Company has received a communication from Messrs Stefan Barden and James
Geddes ("requisitioning shareholders") that we are required in accordance with
the UK Companies Act to pass on to all Company shareholders.
Rather than set out their arguments directly to shareholders, the
requisitioning shareholders have provided a hyperlink to a 3(rd) party blog
site belonging to Mr Maynard Paton who claims also to be a shareholder in the
Company. The requisitioning shareholders describe Mr Paton as an "independent
investment commentator". The Board does not think the blog post dated 9 April
2023 ("Blog Post") can be described as "independent", firstly because Mr Paton
is a shareholder in the Company and secondly because he did not ask the
Company to verify or comment on any of Mr Barden's assertions that are
reported in the Blog Post.
Mr Paton's Blog Post to over 7,500 words and draws heavily on a recent
interview with Mr Barden. The Blog Post covers a broad range of topics, some
of which are relevant to the Resolutions at the forthcoming GM. The Board is
of the opinion that the Blog Post reports (largely unchallenged) a number of
statements made by Mr Barden in the interview and draws some incorrect
conclusions by linking the coincidental timing of events or trends (positive
and negative) to their alleged causation.
We have summarised below selected points made in the Blog Post, organised by
subject area, alongside your Board's response. It is not always clear in the
Blog Post which points are Mr Paton's and which are those of the
requisitioning shareholders and we have not attempted to clarify the
attribution of the points made.
Disclaimer:
The hyperlink of the Blog Post is being made available at the request of the
requisitioning shareholders. The Board cannot vouch for the accuracy of any
content and is not endorsing or promoting its commentary or any investment
advice related to the Company or other securities included in the Blog Post or
any other posts available on the website that contains the Blog Post
1. Business performance & results
The Blog Post suggests that the Company is not focussed on growing platform
revenue or delivering profit or cash. The Company's latest trading update
provides ample evidence that this is not the case.
Blog Post statement Board response
"The company should not be losing money. I don't believe System1 should be The Company's 12 April 2023 trading update
losing cash and how to get to at least breakeven will be one of the first (https://www.londonstockexchange.com/news-article/SYS1/trading-update/15911878)
questions I pose to James Gregory and Chris Willford ." announced our return to profitability for H2 and the full year and £0.6m cash
generation in Q4. We agree that System1 should not be losing money, but the
Company indicated a year ago at the 27 April 2022 Capital Markets Day that
expenditure would increase, and margins tighten in FY23 as we continued to
"Nor did SYS1 talk about the prospect of near-term profitability, which feels invest in the Platform for Predict Your and Improve Your products at the
like an obvious oversight given the recent H1 loss." increased H2 FY22 run rate.
"Strong scalability and operational gearing" of the Data platform have never The performance for the second half of FY23 (as set out in the 12 April 2023
emerged within the financials. trading update) counter this assertion with significant growth in Platform
revenue and margin improvement at every level. We stand by our original
assertion that the Company will benefit from strong scalability and
operational gearing.
"Mr Barden disclosed SYS1 enjoyed a healthy sales pipeline before his The Company's 12 April 2023 trading update announced record revenue growth of
departure: our standard Predict Your and Improve Your products (Platform-based data and
consultancy) to a point where they represented 80% of revenue in Q4, growing
"Management are three years into their sales approach and it is not working by 73% on Q4 FY22 and by 38% for the financial year.
fast enough. When I stepped back there was a sales pipeline that should have
increased sales substantially. Instead, System1 is flat. Something has clearly
gone wrong."
We note that Mr Barden was either Chief Operating Officer ("COO") or Chief
Executive Officer ("CEO") for most of the three years he refers to here. The
Company has seen record growth in Platform revenue since he has left
2. Strategy - where to win, participation
The review of strategic options, the findings of which were announced on 30
November 2022, determined that pursuing a long tail of small business with a
web-only offering was not currently attractive as it was estimated to generate
poor returns and low lifetime value/ customer acquisition cost ("LTV/CAC"). Mr
Barden disagrees. Similarly, we have learned over the past 3 years that our
most important customers (many of them tech businesses) are not yet ready to
transact online to buy market research.
Blog Post statement Board response
"Apart from mentioning they have Innovation and Brand services, you won't see Test Your Ad (https://system1group.com/test-your-ad) is our most developed
anything out there where they are doing anything to sell them. That's why the product and proposition that grew by over 20% H2 on H1. However Brand
sales of those areas have lagged. The advertising part has grown, but (https://system1group.com/test-your-brand) and Idea
everything else has collapsed far faster because there is nobody focusing on (https://system1group.com/test-your-idea) are also important parts of our
them. The net result is flat-to-declining total revenue." product suite, proposition and large growth opportunities for the Company.
Following the launch of Test Your Idea Pro in Q2, Innovation product revenue
increased by 28% in H2 versus H1. Brand grew by 12% year on year, helped by
the first full year of Test Your Brand.
Mr Barden believed SYS1 could broaden its sales efforts to include smaller The recent review of strategic options carefully considered two propositions
companies, "national champions" and fast-growing start-ups, as well as the the championed by Mr Barden and which the Board has now chosen to deprioritise in
very largest businesses: favour of higher-yielding opportunities.
"There's a pyramid of customers and System1 is starting at the top, which they The first is that the Company can maximise shareholder value by pursuing an
do need to get to, because they need to get to every single level. At the very opportunity in the long tail of small & medium sized enterprises, as
top are really competent global players, such as Unilever, P&G, Nestle… opposed to building a franchise with the world's top 100 spenders on
where the top people have a lot of experience and it's really difficult for advertising. The idea was deprioritised for direct customer acquisition in the
you to get in there and change their minds" near term following a review of the economics (small profit pool) and the
likely poor return and low LTV/CAC. However, we believe we can access this
group of customers in a more cost-effective way through our partnerships with
for example LinkedIn who already have direct access to these smaller
"Imagine a three-by-three matrix. Columns are headed by product; Advert, businesses.
Innovation, and Brand. The Rows are the key channels. Let's start with just
three; Global brand, National brand and Fast growing start-up." The second is that there is a demand from all customers to purchase and
transact all their creative content pre-testing purely online via the
Company's Platform. The Board recognises that this way of transacting could
be attractive to the Company as a supplier and will keep the opportunity under
"System1 should sell its platform equally to all. But today the board seems to review. The consistent feedback from our customers as well as our staff in
focus only on the top left: Advert testing for global brands. Not only that, sales, financial and legal roles is that most of the customers we deal with
it seems to sell creative advertising support, methodologies and insight, are neither willing nor able currently to conduct their purchasing of market
rather than the best-in-class prediction platform, which is more accurate, research solely via a supplier's portal.
cheaper and quicker than anyone else."
"Filling out the matrix" is a nice "white-board" idea, but if the economics do
not work, we will not pursue that opportunity.
"Filling out the matrix, adding extra channels and focusing on also becoming The Board's approach to becoming viral centres on our increasingly successful
viral rather than just purely selling relationship by relationship is the key fame-building activities on both sides of the Atlantic, including the Ad of
to success. I would argue that such an approach is just not in the psyche of the Week (https://system1group.com/aotw) , Uncensored CMO
the current board as they have an advertising-agency background and see the (https://system1group.com/uncensored-cmo) , relationship-building with
platform only through an agency lens. The proposed extra hires will only marketing influencers such as Mark Ritson, as well as our thought leadership
exacerbate this". work such as Wise Up! (https://system1group.com/wise-up) and Feeling Seen
USA (https://system1group.com/feeling-seen-usa) .
We set out the Board's platform and digital credentials in the Circular
(https://system1group.com/wp-content/uploads/2023/03/General-Meeting-Notice-April-2023.pdf)
, together with our plans to recruit a team of media tech advisers in the US
"Mr Barden believes the marketing-technology sector is a winner-takes-all The "winner takes all" hypothesis may or may not turn out to be right. In the
opportunity, with SYS1, Zappi or another competitor one day emerging as the meantime, market research is a fragmented market with plenty of scope for
dominant marketing-data supplier. growth by smaller players and for consolidation to create larger groupings.
The Company is embedding its data into several partners (including LinkedIn
I suppose a trade-buyer could also imagine SYS1 (or Zappi or another and ITV) and customers (including adidas).
competitor) becoming the Rightmove or Autotrader of the marketing-technology
industry… and pay handsomely for that potential." This is a clear part of the strategy that the Board set out in the findings
from the review of strategic options and is achieving success in its
execution. We would note the quotations from selected customers in the
Circular
(https://system1group.com/wp-content/uploads/2023/03/General-Meeting-Notice-April-2023.pdf)
.
3. Strategy - how to win, marketing
Mr Barden describes the Company as an "agency". We do not. We want to give our
chief marketing officers ("CMOs") and insights customers confidence in their
creative marketing decisions on innovation, advertising and brand identity.
Blog Post statement Board response
System1 should be selling marketing predictions. What System1 should not be We do not consider that Platform and creativity need to be mutually exclusive.
doing is selling advertising creativity. And this is the fundamental issue, We are selling predictions (product, feature) whilst at the same time selling
the creativity side has taken over and pushed the platform thinking out… the important benefit of creative confidence to our customers.
rather than publishing books such as Look Out.
System1 should be talking about its marketing predictions being the best, the We understand that the competitor research platform companies that are
cheapest and the quickest" mentioned in the Blog Post also provide a combination of data, insight through
consultancy, and thought leadership.
Note, Mr Barden was CEO at the time of the publication of Look Out
(https://system1group.com/look-out-launch) . It is unclear why he now regrets
his marketing strategy while he was CEO.
From what I can tell: The Board does not recognise the dichotomy set out here. We wish to sell all
our products to as broad a range of businesses as is commercially attractive.
Mr Kearon wishes to sell SYS1's creative-advertising services to marketing In practice, we have found that ad testing is the best way to initiate a new
people who develop/commission adverts, while; relationship with a large business, because advertising is one of their
largest and therefore most important annual investment. That's why Test Your
Mr Barden wishes to sell SYS1's platform-prediction services to marketing and Ad is the product we lead with, and then target to sell in Test Your Idea and
'insights' people, as well as innovation and creative agencies. Everyone in Test Your Brand once we have won the relationship with the CMO and Head of
fact. Insight. We deal with insights people every day; the CMO relationship is
something we have developed very successfully in the last 3 years and has
often helped us gain a foothold in customers that we had not previously
managed to win via the insights department.
Separately, John Kearon's role is to develop new business wherever
opportunities arise and particularly in the US, because of the scale and
opportunity in the that market. James Gregory as CEO is leading the executive
team and executing the strategy agreed by the Board.
The Company does not describe itself as an agency and questions why Mr Barden
continues to do so.
"System1 should be talking about its marketing predictions being the best, the This is a clear part of our marketing messaging. E.g. the Test Your Ad
cheapest and the quickest." (https://system1group.com/test-your-ad) webpage images below:
4. Track record/ fact check
The Board noted some comments in the Blog Post that are not correct and where
we wish to set the record straight.
Blog Post statement Board response
I was disappointed many of SYS1's arguments against Mr Barden - notably his The Board stands by all of the arguments in the 24 March 2023 Circular
Behaviorally chairmanship, potential pay and that 53% staff rating - did not (https://system1group.com/wp-content/uploads/2023/03/General-Meeting-Notice-April-2023.pdf)
really stand up to scrutiny. , all of which were subjected to verification by external advisers - a
different level of scrutiny than applies to blog posts.
"This vote is not about personalities because a good business is greater than The Board agrees which is why it is unanimously recommending shareholders not
any individual." to change 3 individuals for 1 (Mr Barden).
This may be very simplistic, but a pattern seems to have emerged: The Board is of the opinion that this is a grossly simplistic and unreliable
conclusion. There is often a time lag of 6 months or more from product
* Mr Barden takes on executive board duties, and SYS1 turns from loss to launches or marketing activity and visible sales results, which would
profit, and; undermine what Mr Barden and Mr Paton claim.
* Mr Barden relinquishes executive board duties, and SYS1 turns from profit to
loss.
Mr Barden worked in the Company from mid-2017, was a member of the senior
"...Mr Barden's skillset looks to be required once again to stem the losses management in the business from early 2018, attending Board meetings from that
and return the group to profit" time, and exerting material influence in the business throughout. He was
eventually appointed to the Board in June 2020, at the end of the worst-hit
quarter in the pandemic. Profit did indeed return immediately after his
appointment as a director, but the bounce at that time was not because of Mr
Barden (although he played a valuable role helping the business mitigate the
losses at the start of the pandemic).
Mr Barden served as CEO from 30 March 2021
(https://irpages2.equitystory.com/websites/rns_news/English/1100/news-tool---rns---eqs-group.html?company=brainjuicer&article=31740678)
until 31 January 2022
(https://irpages2.equitystory.com/websites/rns_news/English/1100/news-tool---rns---eqs-group.html?article=32368907&company=brainjuicer)
. Similarly, the downturn in profitability during 2022 was not related to Mr
Barden's departure in Q4 of FY22
(https://irpages2.equitystory.com/websites/rns_news/English/1100/news-tool---rns---eqs-group.html?company=brainjuicer&article=32547250)
. Rather, it was largely influenced by the impact of Russian invasion of
Ukraine and the resulting reduction in market research budgets from a few key
customers with exposure to Russia. The Board believes it was also a
consequence of Mr Barden's decisions while he was CEO, to switch off bespoke
research, in favour of email marketing initiatives, which yielded no leads
that converted to new customer wins.
5. Shareholder value
The Board is aligned with Mr Barden's aspirations for value accretion,
including the timescales. Based on history, we do not believe that adding Mr
Barden to the Board would increase shareholder value.
Blog Post statement Board response
The return to profit during Mr Barden's boardroom tenure prompted the share During Mr Barden's period as an adviser/employee the share price ranged from
price to increase from approximately 100p to more than 400p: £9.69 at the beginning (end-May 2017) to £3.05 at the end (31 March 2022).
The Board believes the dip to 90p in mid-2020 was pandemic related. Mr Barden
had already been working in the Company for 3 years at that point.
And Mr Barden signalled a relatively short timescale for a potential The Board are open to maximising shareholder value and are mindful of their
trade-sale exit: fiduciary obligations. Notwithstanding that the Board believes that three
years is a realistic timescale to "prove the value" of the Company under its
"I believe it should take up to three years to prove the value." new CEO, James Gregory.
Stefan Barden: potential £100m-plus valuation and $1 billion ambition
What could SYS1 be worth to a potential acquirer? Mr Barden suggested The Board shares Mr Barden's view of the potential future value of the Company
potential 5-bagger upside from SYS1's recent £20m market cap: and shares his ambition to create shareholder value.
"I think this business is worth £100m at least, £8 a share, if not £150m,
£12 a share."
We are focused on growing the Company profitably by becoming an indispensable
business partner to the world's largest media platforms, advertisers and
marketing spenders. We believe that this route to market is the Company's best
way to scale profitably and the principal platform for creating shareholder
value.
6. Talent and employee motivation
The Board wishes to confirm that statements in the Circular related to
employee satisfaction are based on quarterly staff surveys which show that
employee motivation has improved consistently since Mr Barden left the
Company.
Blog Post statement Board response
"I have a good track record of building strong teams. I brought in many of the The Board believe that none of the Executive or Senior Management team have
current senior team. I am not looking to exit anyone. I do however know that been contacted by Mr Barden recently, and it is therefore unclear why this
many in the current team are excited by a renewed platform focus, but if statement is made. Everyone in the business is already delivering a Platform
anyone is not excited by the platform opportunity then they should leave." focus, with Platform sales at 80% of total revenue in Q4 and are looking
forward to building on the successful H2 revenue growth into FY24 and onwards,
under the existing Board.
"SYS1's statement included this somewhat unseemly remark about 53% During Mr Barden's tenure as CEO, the 53% staff satisfaction rate for the
staff-motivation levels … Mr Barden disclosed the survey under his areas of entire business can be attributed solely to him, not John Kearon.
responsibility had "above-average levels of satisfaction", with "the real
issue" arising "in the sales team that John Kearon controlled", in which the It is worth noting that satisfaction levels have significantly improved across
newly recruited platform sales team "did not feel properly supported". the Company since Mr Barden left the Company, including in the operational
areas that were managed directly by Mr Barden.
RECOMMENDATION
The revenue trends in the trading update
(https://www.londonstockexchange.com/news-article/SYS1/trading-update/15911878)
published by the Company on 12 April 2023 suggest that the requisitioning
shareholders are out of touch with the Company's performance and the growth
that they are seeking is already being delivered. The Board's recommendation
for the General Meeting on 21 April 2023 remains that you should VOTE AGAINST
ALL FOUR RESOLUTIONS for the following reasons.
1. We have the right Board for the next phase of the Company's growth
2. The US is key to success - a distinguished and tech-savvy US advisory team,
assembled by Non-Executive Chair Rupert Howell, is ready to start work after
the General Meeting
3. The Board has a clearly defined plan for the Company that is starting to
work
4. Customers support our go-to-market strategy
5. The Requisitioning Shareholders have not articulated an alternative
strategy beyond re-appointing Mr. Barden to the Board
6. We need expertise in business-to-business sales and marketing - a different
skillset from Mr. Barden's
7. The Board does not believe having an Executive Chair would be in the
interest of all shareholders, and Mr. Barden is conflicted by holding a
Non-Executive Chair position at Behaviorally, a market research platform
business
8. We will lose our Founder and President, John Kearon, who holds 22% of the
Company's voting rights and has advised the Board he will not remain a
director on the terms proposed by the Requisitioning Shareholders
9. Unless the proposed resolutions are defeated, there is a risk of serious
business disruption if the executive leadership and senior team members decide
not to serve under Mr. Barden
10. It is not the right time to change the leadership - we have very recently
appointed a new Non-Executive Chair and CEO. The current Board deserves more
time to deliver the growth agenda
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, Chief Executive Officer
Chris Willford, Chief Financial Officer
Canaccord Genuity Limited (Nominated Adviser & Broker) Tel: +44 (0)20 7523 8000
Simon Bridges / Andrew Potts / Harry Rees
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