TIDMSYS1
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 ful
l 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 ve times its current
value.
It is di cult in these scenarios to nd independent and well
thought through views to guide these decisions.
In that regard, you might nd 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 nd his commentary at 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 The Company's 12 April 2023
losing money. I don't believe trading update announced our
System1 should be losing cash return to profitability for
and how to get to at least H2 and the full year and GBP0.6m
breakeven will be one of the cash generation in Q4. We agree
first questions I pose to James that System1 should not be
[Gregory] and Chris [Willford]." losing money, but the Company
indicated a year ago at the
"Nor did SYS1 talk about the 27 April 2022 Capital Markets
prospect of near-term profitability, Day that expenditure would
which feels like an obvious increase, and margins tighten
oversight given the recent in FY23 as we continued to
H1 loss." invest in the Platform for
Predict Your and Improve Your
products at the increased H2
FY22 run rate.
------------------------------------
"Strong scalability and operational The performance for the second
gearing" of the Data platform half of FY23 (as set out in
have never emerged within the the 12 April 2023 trading update)
financials. 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 The Company's 12 April 2023
a healthy sales pipeline before trading update announced record
his departure: revenue growth of our standard
"Management are three years Predict Your and Improve Your
into their sales approach and products (Platform-based data
it is not working fast enough. and consultancy) to a point
When I stepped back there was where they represented 80%
a sales pipeline that should of revenue in Q4, growing by
have increased sales substantially. 73% on Q4 FY22 and by 38% for
Instead, System1 is flat. Something the financial year.
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 Test Your Ad is our most developed
have Innovation and Brand services, product and proposition that
you won't see anything out there grew by over 20% H2 on H1. However
where they are doing anything Brand and Idea are also important
to sell them. That's why the parts of our product suite,
sales of those areas have lagged. proposition and large growth
The advertising part has grown, opportunities for the Company.
but everything else has collapsed Following the launch of Test
far faster because there is Your Idea Pro in Q2, Innovation
nobody focusing on them. The product revenue increased by
net result is flat-to-declining 28% in H2 versus H1. Brand grew
total revenue." by 12% year on year, helped
by the first full year of Test
Your Brand.
------------------------------------------
Mr Barden believed SYS1 could The recent review of strategic
broaden its sales efforts to options carefully considered
include smaller companies, "national two propositions championed
champions" and fast-growing by Mr Barden and which the Board
start-ups, as well as the the has now chosen to deprioritise
very largest businesses: in favour of higher-yielding
"There's a pyramid of customers opportunities.
and System1 is starting at the The first is that the Company
top, which they do need to get can maximise shareholder value
to, because they need to get by pursuing an opportunity in
to every single level. At the the long tail of small & medium
very top are really competent sized enterprises, as opposed
global players, such as Unilever, to building a franchise with
P&G, Nestle... where the top the world's top 100 spenders
people have a lot of experience on advertising. The idea was
and it's really difficult for deprioritised for direct customer
you to get in there and change acquisition in the near term
their minds" following a review of the economics
(small profit pool) and the
"Imagine a three-by-three matrix. likely poor return and low LTV/CAC.
Columns are headed by product; However, we believe we can access
Advert, Innovation, and Brand. this group of customers in a
The Rows are the key channels. more cost-effective way through
Let's start with just three; our partnerships with for example
Global brand, National brand LinkedIn who already have direct
and Fast growing start-up." access to these smaller businesses.
The second is that there is
"System1 should sell its platform a demand from all customers
equally to all. But today the to purchase and transact all
board seems to focus only on their creative content pre-testing
the top left: Advert testing purely online via the Company's
for global brands. Not only Platform. The Board recognises
that, it seems to sell creative that this way of transacting
advertising support, methodologies could be attractive to the Company
and insight, rather than the as a supplier and will keep
best-in-class prediction platform, the opportunity under review.
which is more accurate, cheaper The consistent feedback from
and quicker than anyone else." our customers as well as our
staff in sales, financial and
"Filling out the matrix, adding legal roles is that most of
extra channels and focusing the customers we deal with are
on also becoming viral rather neither willing nor able currently
than just purely selling relationship to conduct their purchasing
by relationship is the key to of market research solely via
success. I would argue that a supplier's portal.
such an approach is just not "Filling out the matrix" is
in the psyche of the current a nice "white-board" idea, but
board as they have an advertising-agency if the economics do not work,
background and see the platform we will not pursue that opportunity.
only through an agency lens. The Board's approach to becoming
The proposed extra hires will viral centres on our increasingly
only exacerbate this". successful fame-building activities
on both sides of the Atlantic,
including the Ad of the Week
, Uncensored CMO , relationship-building
with marketing influencers such
as Mark Ritson, as well as our
thought leadership work such
as Wise Up! and Feeling Seen
USA .
We set out the Board's platform
and digital credentials in the
Circular , together with our
plans to recruit a team of media
tech advisers in the US
------------------------------------------
"Mr Barden believes the marketing-technology The "winner takes all" hypothesis
sector is a winner-takes-all may or may not turn out to be
opportunity, with SYS1, Zappi right. In the meantime, market
or another competitor one day research is a fragmented market
emerging as the dominant marketing-data with plenty of scope for growth
supplier. by smaller players and for consolidation
I suppose a trade-buyer could to create larger groupings.
also imagine SYS1 (or Zappi The Company is embedding its
or another competitor) becoming data into several partners (including
the Rightmove or Autotrader LinkedIn and ITV) and customers
of the marketing-technology (including adidas).
industry... and pay handsomely This is a clear part of the
for that potential." 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 .
------------------------------------------
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 We do not consider that Platform
predictions. What System1 should and creativity need to be mutually
not be doing is selling advertising exclusive. We are selling predictions
creativity. And this is the (product, feature) whilst at
fundamental issue, the creativity the same time selling the important
side has taken over and pushed benefit of creative confidence
the platform thinking out... to our customers.
rather than publishing books
such as Look Out. We understand that the competitor
System1 should be talking about research platform companies
its marketing predictions being that are mentioned in the Blog
the best, the cheapest and the Post also provide a combination
quickest" of data, insight through consultancy,
and thought leadership.
Note, Mr Barden was CEO at the
time of the publication of Look
Out. It is unclear why he now
regrets his marketing strategy
while he was CEO.
---------------------------------------
From what I can tell: The Board does not recognise
Mr Kearon wishes to sell SYS1's the dichotomy set out here.
creative-advertising services We wish to sell all our products
to marketing people who develop/commission to as broad a range of businesses
adverts, while; as is commercially attractive.
Mr Barden wishes to sell SYS1's In practice, we have found that
platform-prediction services ad testing is the best way to
to marketing and 'insights' initiate a new relationship
people, as well as innovation with a large business, because
and creative agencies. Everyone advertising is one of their
in fact. largest and therefore most important
annual investment. That's why
Test Your Ad is the product
we lead with, and then target
to sell in Test Your Idea and
Test Your Brand once we have
won the relationship with the
CMO and Head of 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 This is a clear part of our
its marketing predictions being marketing messaging. E.g. the
the best, the cheapest and the Test Your Ad webpage images
quickest." 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 The Board stands by all of the
arguments against Mr Barden arguments in the 24 March 2023
- notably his Behaviorally chairmanship, Circular , all of which were
potential pay and that 53% staff subjected to verification by
rating - did not really stand external advisers - a different
up to scrutiny. level of scrutiny than applies
to blog posts.
---------------------------------------
"This vote is not about personalities The Board agrees which is why
because a good business is greater it is unanimously recommending
than any individual." shareholders not to change 3
individuals for 1 ( Mr Barden).
---------------------------------------
This may be very simplistic, The Board is of the opinion
but a pattern seems to have that this is a grossly simplistic
emerged: and unreliable conclusion. There
* Mr Barden takes on executive is often a time lag of 6 months
board duties, and SYS1 turns or more from product launches
from loss to profit, and; or marketing activity and visible
* Mr Barden relinquishes executive sales results, which would undermine
board duties, and SYS1 turns what Mr Barden and Mr Paton
from profit to loss. claim.
"...Mr Barden's skillset looks
to be required once again to Mr Barden worked in the Company
stem the losses and return the from mid-2017, was a member
group to profit" of the senior management in
the business from early 2018,
attending Board meetings from
that 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 until 31 January
2022. Similarly, the downturn
in profitability during 2022
was not related to Mr Barden's
departure in Q4 of FY22. 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 During Mr Barden's period as
Mr Barden's boardroom tenure an adviser/employee the s hare
prompted the share price to price range d f rom GBP9.69
increase from approximately at the beginning ( end-May 2017)
100p to more than 400p: to GBP3.05 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 The Board are open to maximising
short timescale for a potential shareholder value and are mindful
trade-sale exit: of their fiduciary obligations.
"I believe it should take up Notwithstanding that the Board
to three years to prove the believes that three years is
value." a realistic timescale to "prove
Stefan Barden: potential GBP100m-plus the value" of the Company under
valuation and $1 billion ambition its new CEO, James Gregory.
What could SYS1 be worth to
a potential acquirer? Mr Barden The Board shares Mr Barden's
suggested potential 5-bagger view of the potential future
upside from SYS1's recent GBP20m value of the Company and shares
market cap: his ambition to create shareholder
"I think this business is worth value.
GBP100m at least, GBP8 a share,
if not GBP150m, GBP12 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 The Board believe that none
of building strong teams. I of the Executive or Senior Management
brought in many of the current team have been contacted by
senior team. I am not looking Mr Barden recently, and it is
to exit anyone. I do however therefore unclear why this statement
know that many in the current is made. Everyone in the business
team are excited by a renewed is already delivering a Platform
platform focus, but if anyone focus, with Platform sales at
is not excited by the platform 80% of total revenue in Q4 and
opportunity then they should are looking forward to building
leave." on the successful H2 revenue
growth into FY24 and onwards,
under the existing Board.
---------------------------------------
"SYS1's statement included this During Mr Barden's tenure as
somewhat unseemly remark about CEO, the 53% staff satisfaction
53% staff-motivation levels rate for the entire business
... Mr Barden disclosed the can be attributed solely to
survey under his areas of responsibility him, not John Kearon.
had "above-average levels of It is worth noting that satisfaction
satisfaction", with "the real levels have significantly improved
issue" arising "in the sales across the Company since Mr
team that John Kearon controlled", Barden left the Company, including
in which the newly recruited in the operational areas that
platform sales team "did not were managed directly by Mr
feel properly supported". Barden.
---------------------------------------
RECOMMENDATION
The revenue trends in the trading update 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 .
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 Tel: +44 (0)20 7523
& Broker) 8000
Simon Bridges / Andrew Potts / Harry Rees
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END
MSCGZGMDMZMGFZZ
(END) Dow Jones Newswires
April 13, 2023 02:00 ET (06:00 GMT)
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