REG - System1 Group PLC - INTERIM RESULTS
30/11/2021 07:00
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RNS Number : 9498T System1 Group PLC 30 November 2021
Press Release
30 November 2021
System1 Group PLC (AIM: SYS1)
("System1" or "the Group" or "the Company")
Unaudited interim results for the six months ended 30 September 2021
System1 Group, the marketing decision-making platform, announces its unaudited
interim results for the six months ended 30 September 2021 ("H1").
Sep-21 Sep-20 Change
£m £m %
Management Basis*
Revenue 12.4 10.1 22%
Gross Profit 10.4 8.6 21%
Adjusted Operating Costs (9.1) (8.2) 10%
Adjusted Profit before Taxation 1.3 0.4 252%
Statutory Basis
Revenue 12.4 10.1 22%
Gross Profit 10.4 8.6 21%
Operating Costs (9.2) (9.6) -4%
Other Operating Income 0.1 0.6 -86%
Profit/(Loss) before Taxation 1.3 (0.4) n.m.
Income Tax Expense (0.2) 0.5 n.m.
Profit for the Period 1.1 0.1 1001%
Diluted Earnings per Share 8.8p 1.0p
n.m. = not meaningful
* Adjusted Operating Costs exclude impairment, interest, share based payments,
bonuses, severance costs, and government support related to the Covid
pandemic. Adjusted figures exclude items, positive and negative, that impede
easy understanding of underlying performance.
Highlights
· Continued growth in automated data products which represented 36% of
Revenue in H1 (H1 2020/21: 0%; Q2 2021/22: 46%)
· Revenue (+22%); Adjusted Profitability £0.9m higher than H1 2020/21
· Adjusted Operating Costs (+10%; Statutory -4%); average H1 headcount
+14% to 146 (H1 2020/21: 128)
· £7.5m Net Cash at 30 September 2021 (30 September 20210: £5.1m)
· £0.2m reversal of Right-of-Use Asset impairment (non-cash) under
IFRS 16, following sublease of the NYC office
· R&D tax credit for £0.5m for 2019/20 received in H1 (H1 2020/21:
£0.5m)
· £0.2m charge in connection with IP litigation expenses
· Diluted earnings per share 8.8p (H1 2020/21: 1.0p)
· On market share buy-back intended to commence in December
Commenting on the Company's results, John Kearon, Founder and Executive
President, said:
"We believe that the growth in data revenues signals tangible progress towards
our strategic goals, and that these revenues will in due course more than
offset the expected reduction in bespoke consultancy projects as more
companies adopt our automated data products."
The Company can be found at 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
John Kearon, Founder and Executive President
Chris Willford, Chief Financial Officer
Canaccord Genuity Limited Tel: +44 (0)20 7523 8000
Simon Bridges / Andrew Potts
Interim Statement
The Marketing Decision-Making Platform
Our mission is to be the world's marketing decision making platform. We set
out in the last annual report the reasons to believe that System1 can become a
global winner in marketing predictions.
· World-beating prediction and improvement methodologies
· Unique and step-change improvement in value for customers
· Continuous improvement to maintain product lead
· Prediction and improvement market dynamics are favourable
· Protected through IP, branding, customer and supplier relationships
We acknowledged in the annual report that a challenge in the near term was to
grow revenue which was borne out in the first half-year notwithstanding the
22% top-line revenue growth on a Covid-affected prior year. We have been
delighted by the continuing adoption by both new and existing customers of
System1's repeatable, fast-turnaround and scalable data products as they
displace the historic large bespoke consultancy projects that dominated the
Group's activity until H2 last year. More than half of the Data revenue in H1
came from customers we have acquired since April last year. We believe that
the growth in data revenues signals tangible progress towards our strategic
goals, and that these revenues will in due course more than offset the
reduction in bespoke consultancy projects as more customers adopt our
automated data products. Our commercial strategy is also working well.
Partnerships with broadcasters and platform owners including LinkedIn and ITV
are bearing fruit, bringing our decision-making platform to a wider
international customer base. Aside from partnerships, a focused sales plan
enables scaling of existing customers to their maximum potential through
best-in-class account management practices. In parallel, we are acquiring,
converting and scaling many new customers through marketing activities and
sales outreach.
Growing our Asset and Fame
In collaboration with ITV and DECA, System1 addressed the growing corporate
need for insight on diversity and inclusion in advertising by publishing the
Feeling Seen report in which inclusive advertising was judged by real, diverse
audiences. The report found that brands that get diversity right benefit
hugely. Feeling Seen has since been presented to 40 new prospective customers
and over 1,200 people.
Earlier this month we launched our Chief Innovation Officer Orlando Wood's
latest book on advertising effectiveness, Look out., which was published by
the Institute of Practitioners in Advertising. Look out. argues that to create
effective and memorable advertising that builds brands, the advertising
industry must capture the 'broad-beam' attention of audiences; to achieve this
the industry must shift its attentional plane-it must look out. The new book
explains the behavioural science that underpins the methodology behind Test
Your Ad and has been hailed by CMOs and advertising industry leaders. Look
out. is being "road-showed" in the USA and Europe over the next quarter.
During the period we increased our investment in the AdRatings database to
include additional categories such as Food Retail, Business Software, and
Entertainment, reflecting the growth of System1's customer base beyond its
traditional FMCG core.
Financial Performance
Revenue increased 22% on the comparable period last year, with strong growth
in the Americas, UK and Europe. Data products generated £4.5m revenue in the
first half (H1 2020/21: £0.1m), representing 36% of the total. In line with
our strategy, Consultancy revenues declined in importance, in particular
bespoke projects. We now have a suite of standard consultancy offerings that
leverage the automated marketing predictions from the "Test Your" platform. In
future reporting periods we will report the revenue from standard consultancy
separately from the complex bespoke projects. The Communications product group
grew by 80% year on year due to the success of the automated Test Your Ad
product that was launched in the third quarter of last year. Brand and
Innovation declined by 4% and 15% respectively due in part to the greater
focus on the Test Your Ad Data Communications products this year.
Adjusted Operating Costs increased by 10% compared with H1 2020/21, broadly in
line with the year-on-year growth in average employee numbers (H1 2021/22:
146; H1 2020/21: 128). Growth in employee numbers resulted from investment in
sales and marketing (headcount +37%) and IT (headcount +27%) to accelerate the
development of our automated data products and their commercialisation through
partnerships and platform. Statutory Operating Costs fell by 4% due mainly to
the IFRS 16 impairment charge in the prior year. The first half year
Statutory Operating Costs include a £0.2m reversal in the IFRS 16 lease asset
impairment owing to a sublease arrangement on the Company's New York office.
Rental revenue from the sublease is recognised in Other Income.
Intellectual Property Litigation
On 27 September 2021, our US and UK subsidiaries, System1 Research Inc. and
System1 Research Limited, filed a complaint for trademark infringement, unfair
competition, and deceptive trade practices at the United States District Court
for the Southern District of New York against System1 LLC over their
infringing use of the mark "SYSTEM1". The Company is being advised in this
matter by Norton Rose Fulbright, an international law firm. System1 LLC
continues to use the "SYSTEM1" name and mark and has announced that it
proposes to expand such use by becoming a NYSE-listed company through a
business combination with Trebia Acquisition Corp.
The Company takes the protection of its unique intellectual property very
seriously and believes such ongoing and expanding use by System1 LLC is likely
to cause significant confusion with System1 Group PLC and its registered marks
and, moreover, constitutes intentional infringement, in violation of relevant
US federal and state trademark laws as well as trademark laws in the UK, the
EU and other countries.
IP litigation costs related to this case are excluded form Adjusted Operating
Costs and have been recognised in the Statutory Operating Costs. The Board
believes that the Company's case against the Opposing Party is compelling and
will issue further updates in due course.
Proposed Share Buyback
As previously indicated, we will initiate a share buyback programme from
December 2021 to repurchase shares over an extended period, in order to
enhance shareholder returns and to satisfy obligations in relation to employee
share schemes. Shares will be repurchased via ongoing on-market purchases. The
relative illiquidity of System1's shares makes it difficult to predict the
level and speed of uptake, and the board will formally review the
effectiveness of the buyback programme at the end of the current financial
year.
Dividend
No interim dividend will be paid (2020/21: £nil).
Tax
The Company has recognised a tax charge of £0.1m in the six months to 30
September 2021 (H1 2020/21: tax credit of £0.5m), due mainly to the profit
realised in the half year. Both periods include £0.5m of tax credits in
respect of R&D claims.
Earnings Per Share
Diluted Earnings per Share rose from 1.0p to 8.8p on the back of the steep
increase in first-half earnings.
Cash
The Company ended the period with cash balances of £10.0m, £7.5m net of
borrowings (H1 2020/21: £5.1m). Operating cash flow before debt financing and
after all property lease costs amounted to £1.1m in the first half (H1
2022/21: £1.0m).
Balance Sheet
Total equity increased to £8.5m (H1 2020/21: £5.8m). Property assets grew by
£0.3m due mainly to the recognition of the sublease arrangement of the New
York office leading to a reduction in IFRS 16 right-of-use asset impairment
from H1 2020/21 and the removal of an assumed early break on that lease. There
has been a corresponding increase in non-current lease liabilities. The
Company's borrowings consist of a £2.5m revolving credit facility that has
been in place since February 2020.
Outlook
The rapid adoption of our automated data products by existing and new
customers in the first half of the year augurs well for the future of our
platform strategy and is expected to be partially offset in the near term by
the continuing reduction in our legacy bespoke consultancy assignments that
previously formed the core of our historic BrainJuicer business. Focussed
investment in people and the platform will continue for the rest of the year,
which we believe will enable future accelerated growth.
John Kearon Stefan Barden Chris Willford
Founder and Executive President Chief Executive Officer Chief Financial Officer
Condensed Consolidated Income Statement
for the 6 months ended 30 September 2021
Note Sep-21 Sep-20
£'000 £'000
Revenue 3 12,355 10,133
Cost of sales (1,983) (1,572)
Gross profit 3 10,372 8,561
Administrative expenses (9,124) (9,459)
Other operating income 85 620
Operating profit/(loss) 1,333 (278)
Finance expense (80) (123)
Profit before taxation 1,253 (401)
Income tax expense (122) 528
Profit for the period 1,131 127
Attributable to the equity holders of the Company 1,131 127
Earnings per share attributable to equity holders of the Company
Basic earnings per share 4 8.8p 1.0p
Diluted earnings per share 4 8.8p 1.0p
Consolidated Statement of Comprehensive Income
for the 6 months ended 30 September 2021
Sep-21 Sep-20
£'000 £'000
Profit for the period 1,131 127
Other comprehensive income:
Items that may be subsequently reclassified to profit/(loss)
Currency translation differences on translating foreign operations 92 (130)
Other comprehensive income/(loss) for the period, net of tax 92 (130)
Total comprehensive income/(loss) for the period attributable to equity 1,223 (3)
holders of the Company
Consolidated Balance Sheet
as at 30 September 2021
Registered no. 05940040
Note Sep-21 Mar-21
£'000 £'000
ASSETS
Non-current assets
Property, plant, and equipment 7 1,730 1,435
Intangible Assets 424 418
Deferred tax asset 286 286
2,440 2,139
Current assets
Contract assets 336 318
Trade and other receivables 6,468 5,880
Cash and cash equivalents 10,044 9,008
16,848 15,206
Total assets 19,288 17,345
EQUITY
Attributable to equity holders of the Company
Share capital 9 132 132
Share premium account 1,601 1,601
Merger reserve 477 477
Foreign currency translation reserve (55) (146)
Retained earnings 6,319 5,170
Total equity 8,474 7,234
LIABILITIES
Non-current liabilities
Provisions 566 560
Borrowings 8 2,500 2,500
Lease liabilities 8 1,188 928
4,254 3,988
Current liabilities
Provisions 283 200
Lease liabilities 8 1,247 1,647
Contract liabilities 781 803
Income taxes payable 860 334
Trade and other payables 3,389 3,139
6,560 6,123
Total liabilities 10,814 10,111
Total equity and liabilities 19,288 17,345
Consolidated Statement of Cash Flows
for the 6 months ended 30 September 2021
Note Sep-21 Sep-20
£'000 £'000
Net cash generated from operations 10 1,501 1,189
Tax received 377 546
Net cash generated from operating activities 1,878 1,735
Cash flows from investing activities
Purchases of property, plant, and equipment 7 (72) -
Purchase of intangible assets (53) (93)
Net cash used by investing activities (125) (93)
Net cash flow before financing activities 1,753 1,642
Cash flows from financing activities
Interest paid (80) (123)
Property lease liability payments (599) (571)
Proceeds from borrowings - 493
Net cash used by financing activities (679) (201)
Net increase in cash and cash equivalents 1,074 1,441
Cash and cash equivalents at beginning of period 9,008 6,650
Exchange loss on cash and cash equivalents (38) (44)
Cash and cash equivalents at end of period 10,044 8,047
Sep-21 Sep-20
£'000 £'000
Net cash flow before financing activities 1,753 1,642
Net cash flow for property leases (644) (626)
Operating cash flow 1,109 1,016
Consolidated Movements in Net Cash/(Debt)
Cash and cash equivalents Borrowings Lease liabilities Total
£'000 £'000 £'000 £'000
At 1 April 2021 9,008 (2,500) (2,575) 3,933
Cash flows 1,196 - 644 1,840
Non-cash charges
Interest on lease liabilities - - (45) (45)
New lease liabilities - - (459) (459)
Exchange and other non-cash movements (160) - - (160)
At 30 September 2021 10,044 (2,500) (2,435) 5,109
Consolidated Statement of Changes in Equity
for the 6 months ended 30 September 2021
Share capital Share premium account Merger reserve Foreign currency translation reserve Retained earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2020 132 1,601 477 132 3,416 5,758
Profit for the period - - - - 127 127
Other comprehensive income:
- currency translation differences - - - (130) - (130)
Total comprehensive income 132 1,601 477 2 3,543 5,755
Transactions with owners:
Employee share options:
- value of employee services - - - - 17 17
- deferred tax credited to equity - - - - (5) (5)
At 30 September 2020 132 1,601 477 2 3,555 5,767
At 1 April 2021 132 1,601 477 (146) 5,170 7,234
Profit for the period - - - - 1, 131 1,131
Other comprehensive income:
- currency translation differences - - - 91 1 92
Total comprehensive income 132 1,601 477 (55) 6,302 8,457
Transactions with owners:
Employee share options:
- value of employee services - - - - 17 17
At 30 September 2021 132 1,601 477 (55) 6,319 8,474
Notes to the Condensed Consolidated Financial Statements
for the 6 months ended 30 September 2021
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 52 Bedford
Row, Holborn, London, England, WC1R 4LR. The Company's shares are listed on
the Alternative Investment Market of the London Stock Exchange ("AIM").
The Company and its subsidiaries (together the "Group") provide predictive
marketing data and market research consultancy.
The Board of Directors approved these interim financial statements for the six
months ended 30 September 2021 for issuance on 30 November 2021.
The financial information set out in this interim report does not constitute
statutory accounts as defined in Section 434 of the Companies Act 2006 and is
unaudited. The Group's latest statutory financial statements were for the year
ended 31 March 2021 and these have been filed with the Registrar of Companies.
The auditor's report on those financial statements was unqualified and did not
contain an emphasis of matter paragraph and any statement under Section 498 of
the Companies Act 2006.
1. Basis of Preparation
This condensed consolidated interim financial information has been prepared in
accordance with UK adopted IAS 34 Interim Financial Reporting and on the going
concern basis. This financial information should be read in conjunction with
the financial statements for the year ended 31 March 2021, which have been
prepared under the historical cost convention.
The preparation of financial statements in accordance with International
Financial Reporting Standards ("IFRS") requires the use of certain critical
accounting estimates.
2. Principal accounting policies
The principal accounting policies adopted are consistent with those of the
financial statements for the year ended 31 March 2021.
3. Segment Information
The financial performance of the Group's geographic operating units
("Reportable Segments") is set out below.
Sep-21 Sep-20
Revenue Gross profit Revenue Gross profit
£'000 £'000 £'000 £'000
By location of customer
Americas 4,483 3,885 3,618 3,096
United Kingdom 3,980 3,110 2,983 2,587
Rest of Europe 2,906 2,498 2,536 2,057
APAC 986 879 996 821
12,355 10,372 10,133 8,561
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.
Sep-21 Sep-20
Revenue Gross profit Revenue Gross profit
£'000 £'000 £'000 £'000
By product variant
Data 4,495 3,826 56 56
Consultancy 7,725 6,520 9,591 8,179
Other services 135 26 486 326
12,355 10,372 10,133 8,561
By product group
Communications (Ad Testing) 7,313 6,178 4,054 3,487
Brand (Brand Tracking) 1,632 1,237 1,701 1,300
Innovation 3,283 2,931 3,864 3,370
Other services 127 26 514 404
12,355 10,372 10,133 8,561
4. Earnings Per Share
Sep-21 Sep-20
Profit attributable to equity holders of the Company, in £'000 1,131 127
Weighted average number of Ordinary Shares in issue 12,806,391 12,633,227
Basic earnings per share 8.8p 1.0p
Profit attributable to equity holders of the Company, in £'000 1,131 127
Weighted average number of Ordinary Shares in issue 12,806,391 12,633,227
Share options 12,299 250,482
Weighted average number of Ordinary Shares for diluted earnings per share 12,818,690 12,883,709
Diluted earnings per share 8.8p 1.0p
5. Headcount
The average number of staff employed by the Group during the period was as
follows:
Sep-21 Sep-20
No. No.
Sales and marketing 39 29
Operations 52 53
IT 34 27
Administration 21 20
146 128
6. Dividends
The Company did not pay dividends in the six months ended 30 September 2021
and 30 September 2020. The Company does not propose the payment of an interim
dividend.
No dividends were paid to the Company's directors.
7. Properly, Plant, and Equipment
Right-of-use assets Furniture and fixtures Computer hardware Total
£'000 £'000 £'000 £'000
At 1 April 2020
Cost 5,532 452 1,398 7,382
Accumulated depreciation (1,725) (405) (1,281) (3,411)
Net book value 3,807 47 117 3,971
Net book value, at 1 April 2020 3,807 47 117 3,971
Additions 20 - - 20
Disposals (531) (4) (11) (546)
Foreign exchange (50) (3) 1 (52)
Depreciation charge for the year (1,525) (14) (43) (1,582)
Net book value, at 30 September 2020 1,721 26 64 1,811
At 30 September 2020
Cost 4,951 142 175 5,268
Accumulated depreciation (3,230) (116) (111) (3,457)
Net book value 1,721 26 64 1,811
At 1 April 2021
Cost 4,691 140 224 5,055
Accumulated depreciation (3,346) (123) (151) (3,620)
Net book value 1,345 17 73 1,435
Net book value, at 1 April 2021 1,345 17 73 1,435
Additions - - 29 29
Impairment reversal 740 - - 740
Foreign exchange - - (1) (1)
Depreciation charge for the year (425) (9) (39) (473)
Net book value, at 30 September 2021 1,660 8 62 1,730
At 30 September 2021
Cost 2,482 31 142 2,655
Accumulated depreciation (822) (23) (80) (925)
Net book value 1,660 8 62 1,730
Included within depreciation charges for the six months ended 30 September
2020 is £920,000 of impairment charges on right-of-use assets. During the six
months to 30 September 2020, the financial effect of revising lease terms to
reflect the actual and expected effect of exercising extension and termination
options in lease arrangements is a reduction in right-of use assets and lease
liabilities of £531,000 which is included in the disposals figure in the
table above.
In the six months ended 30 September 2021, the Group added a new right-of-use
asset for a sublease in regards to the aforementioned fully impaired lease.
The value of the sublease was for £740,000 of which £43,000 was a cash
settlement. This in turn has led to a re-recognition of the lease liability of
the head lease of £459,000 with corresponding reversal of £230,000 relating
to the impairment from 30 September 2020.
8. Borrowings
In February 2020, the Company entered a 3-year revolving credit facility with
HSBC. The agreement allows the Company to draw down up to £2,500,000 for the
purposes of funding general corporate and working capital requirements. The
facility is secured over the assets of those Group companies domiciled in the
United Kingdom and the United States. The loan accrues interest at a rate of
2.5% above LIBOR and is subject to leverage and interest covenants. The
Company will transition the reference rate from LIBOR to SONIA by 31 December
2021.
The analysis of the maturity of lease liabilities is as follows:
Sep-21 Mar-21
£'000 £'000
Within one year 1,323 1,720
Later than 1 but no later than 5 years 1,231 943
More than 5 years - -
Minimum lease payments 2,554 2,663
Future finance charges (119) (88)
Recognised as a liability 2,435 2,575
The present value of finance lease liabilities is as follows:
Sep-21 Mar-21
£'000 £'000
Within one year 1,247 1,647
Later than 1 but no later than 5 years 1,188 928
More than 5 years - -
2,435 2,575
9. 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.
Sep-21 Sep-20
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 30 September
Sep-21 Sep-20
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 510,421 626,989
Transfer of shares to satisfy options exercise (181,944) - (60,000) -
At 30 September 328,477 566,989
10. Net Cash Generated from Operations
Sep-21 Sep-20
£'000 £'000
Profit/(loss) before taxation 1,253 (401)
Depreciation of property, plant, and equipment 472 1,582
Amortisation and impairment of intangible assets 47 -
Loss on disposal of property, plant, and equipment - 16
Interest paid 80 17
Share-based payment expense 17 123
(Increase)/decrease in contract assets (18) 100
(Increase)/decrease in trade and other receivables (588) 371
Increase/(decrease) in trade and other payables 277 (334)
Increase/(decrease) in deferred income (22) (240)
Increase/(decrease) in provisions 89 -
Exchange differences on operating items (106) (44)
1,501 1,190
11. Post Balance Sheet Events
Long Term Incentive Plan
Following approval by shareholders at the Company's 2021 Annual General
Meeting for certain amendments to the System1 Long Term Incentive Plan (the
"LTIP") the Company announced that on 27 October 2021 it granted awards under
the LTIP. In aggregate, awards (structured as nil cost options) were granted
to a number of executives over 793,603 ordinary shares of the Company, of
which 645,314 replaced options awarded under the previous arrangements and
148,289 were new awards.
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