TIDMSYS1
RNS Number : 1442F
System1 Group PLC
14 July 2021
Press Release 14 July 2021
System1 Group PLC (AIM: SYS1)
("System1" or "the Group" or "the Company")
Financial results to 31 March 2021
System1, today, announces its results for the year ended 31
March 2021.
Highlights
2020/21 2019/20 Change**
Management Basis* GBPm GBPm %
--------------------------------- -------- -------- ---------
Adjusted revenue 22.8 25.3 -10
-------- -------- ---------
Adjusted gross profit 19.2 21.4 -10
Adjusted operating costs ( 16.2) (19.4) -16
-------- -------- ---------
Adjusted profit before taxation 3.0 2.0 46
======== ======== =========
2020/21 2019/20 Change**
Statutory Basis GBPm GBPm %
--------------------------------- -------- -------- ---------
Revenue 22.8 25.5 -11
-------- -------- ---------
Gross profit 19.2 21.6 -11
Operating costs (17.7) (21.3) -17
Other operating income 0.6 - n.m.
-------- -------- ---------
Profit before taxation 2.1 0.3 601
Tax charge (0.4) (0.5) -27
-------- -------- ---------
Profit/(loss) for the financial
year 1.7 (0.2) n.m.
======== ======== =========
Diluted earnings per share 13.1p (1.8)p n.m.
* Management Basis figures for Adjusted Revenue, Adjusted Gross
Profit and Adjusted Profit before Taxation exclude discontinued
Agency business from 2019/20. 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. See note 15 to the
consolidated financial statements for further information.
** Year-on-year percentage change figures are based on unrounded
numbers.
* Adjusted Profit before Taxation rose 46% to GBP3.0m
(Statutory Profit before Taxation up 601% to GBP2.1m)
* Revenue declined 11% to GBP22.8m. H1 down 26%, H2 up
8%
* Operating cost reductions more than offset the
Revenue decline. Adjusted Operating Costs fell 16%
year on year (Statutory Operating Costs: 17% down).
No bonuses were awarded in 2020/21
* Impairment charge related to property lease assets
GBP1.0m, taken in H1 (2019/20 Impairment: GBP0.9m,
related to intangible assets)
* Profit for the financial year up GBP1.9m to GBP1.7m,
helped by GBP0.6m R&D tax credits
* Diluted earnings per share 13.1p (2019/20: Loss per
Share 1.8p)
* Cash net of borrowings (excluding lease liabilities)
increased by GBP2.3m in the period to GBP6.5m,
reflecting strong underlying cash flows, a tax credit
receipt, and US Paycheck Protection Program loan
forgiveness
* As previously announced, we will look to reinstate
the share buyback programme which was suspended in
2020 due to uncertainty over the potential impact of
the Covid pandemic on our business. More information
will be provided on the proposed buyback later in the
year. No final dividend will be declared
* Transition to scalable automated data products is
underway. Data products represented 15% of Revenue in
the final quarter helped by the success of Test Your
Ad which also led to an 18% year-on-year increase in
Comms Revenue
* We continued to invest in our growth strategy,
spending over GBP2m on product development and
restoring headcount to pre-pandemic levels to service
demand in H2
Commenting on the Company's results, John Kearon, Founder and
Executive President, said:
"Over the last year System1 has taken its leading research
intellectual property and created automated prediction products,
with assets to complement our historic consultancy services. We
have been recognised by marketing industry thought leaders and are
firmly becoming the research industry's champion for creativity,
backed by data. As System1 returns to its pre-pandemic level of
revenue, we do so in a position of relative strength. Cash balances
and cash flow are healthy, and we will continue to invest in our
products, data assets and talent. We plan to remain profitable and
to continue to generate cash in the 2021/22 financial year, as we
prioritise scaling our automated prediction products.
Notwithstanding that, we are targeting revenue growth to be at
least matched by the rate of cost growth, due to the
pandemic-related cost reductions in the year just ended."
The Company can be found at system1group.com.
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
For further information, please contact:
System1 Group PLC +44 (0)20 7043 1000
John Kearon Founder & Executive President
Chris Willford Chief Financial Officer
investorrelations@system1group.com
Canaccord Genuity Limited +44 (0)20 7523 8000
Simon Bridges
Andrew Potts
Group Overview
Who We Are
System1 Group has undergone much change over the past three
years. We would like to take this opportunity on behalf of
Management to reaffirm who we are and what we do.
System1 Group PLC was born from the world-leading intellectual
property (IP) created over many years as BrainJuicer PLC. System1
owes a great debt to BrainJuicer for its prediction methodologies,
as well as a strong cash flow which we can invest into turning this
IP into market leading, repeatable, scalable products.
Such is the extent of change in the business that System1 feels
in some respects like a three-year-old start-up. We are now a
product-focussed seller of marketing predictions and improvements -
we believe the best in the world. We leverage data and production
economics, rather than service economics. Data and production
economics point to industry value accruing disproportionately to a
small number of scalable players. We are laser focussed on becoming
one of them.
What We Do
System1 predicts and improves marketing effectiveness. We
'predict' (provide research results) and 'improve' (provide insight
and consultancy on those results) where required on arguably three
of the most critical marketing questions for our customers:
-- Advertising effectiveness
-- Brand effectiveness
-- Innovation effectiveness
We aspire to do these three things better than anyone else.
Our Products
Comms Brand Innovation
------------- ---------------------- ---------------------- ----------------------
Automated Test Your Ad (TYA) Test Your Brand Test Your Idea (TYI)
Predictions ESSENTIAL or PRO (TYB) ESSENTIAL or PRO
ESSENTIAL or PRO
------------- ---------------------- ---------------------- ----------------------
Expert TYA Creative Guidance TYB Creative Guidance TYI Creative Guidance
Guidance EXPRESS or FULL EXPRESS or FULL EXPRESS or FULL
------------- ---------------------- ---------------------- ----------------------
TYA Effectiveness TYB Effectiveness
Audit Audit
------------- ---------------------- ---------------------- ----------------------
Additional TYA dB Free Access TYB Distinctive Concept Test
Products Assets Test
---------------------- ---------------------- ----------------------
TYA dB Premium TYB Key Drivers Pack Test
Analysis
The table above shows System1's standard product set. The
products shown in grey boxes for Comms, Brand, and Innovation
(Idea) are Automated Data products which 'Predict'. The 'Improve
Your' guidance products immediately beneath them are data-enabled,
rapid-turnaround consultancy assignments that utilise the same data
to 'Improve'.
The products shown in the third layer are higher value-add
consultancy 'Improve' products, which are more standardised than
our previous consultancy services. We continue to undertake large,
bespoke consulting assignments for a small number of major
customers but anticipate that this type of offering will decline in
significance for System1 as customers convert to the faster,
cheaper standard products.
We have already created what we believe to be the largest
dataset of advertising predictions in the US and UK, where we test
overnight every advert that breaks in the categories we cover. This
data asset has value in its own right and supports our consultancy
business, helping us build unique relationships with key global
customers. Direct customer access to the database also helpfully
provides some subscription revenues.
So, if that is "who we are" and "what we do", what might we
become?
The Size of the Prize
'Predictions' currently represent less than 20% of the global
research market. We estimate that our target markets of predicting
advert, brand and innovation effectiveness represent about GBP6bn
of the GBP42bn (traditional) research market. ([1]) Currently at
less than 1% share, we believe that System1 can gain 10% global
market share in the next decade-a lower share than the current
market leaders. Whether we can achieve that scale is the management
challenge. But a necessary, if not sufficient, pre-condition to
success is having the vision and a plan.
Reasons to Believe
We believe System1 can credibly become a global winner in
marketing predictions, if we achieve the following:
1. World beating prediction and improvement methodologies
We maintain that our predictions are the most accurate, cheapest
and quickest (24-hour turnaround), and that our guidance to improve
our customers' marketing is the best in the industry. This is the
heart of our sales pitch. Our predictive and improvement
methodologies are the foundation of the success of the company and
were developed by John Kearon (Founder and Executive President) and
Orlando Wood (Chief Innovation Officer) and supported by other key
team members. Every day we demonstrate to customers the enhanced
efficacy of our results over alternative, often well-established
approaches; indeed, customers would not go through the disruptive
change in research partner to us if we could not convince them of
this superiority. We also believe that we have published more
research proving the superior predictability of our methodologies
in this space than any competitor.
2. Unique and step-change improvement in product value for customers
Today many of our Advertising predictions are automated, and we
have challenged ourselves to deliver them at 1/100(th) the cost and
100 x faster than traditional methods. We believe we are far ahead
of traditional competitors in automated predictions and indeed that
some of our competitors' legacy economics will make it difficult
for them to catch up with us. In addition, our pioneering framework
for how advertising works at its best also enables our experts to
provide the very best improvement advice for increasing our
customers' return on their annual advertising investment.
3. Continuous improvement to maintain this product lead
As BrainJuicer we pioneered these research techniques. As
System1 we are commercialising them. However, we do continue to
invest in improving our products every day to maintain and enhance
our lead. We are, for example, working with Warwick University on
UK government grant-funded research looking to harness artificial
intelligence (AI) and our proprietary databases to further improve
our understanding of predictions.
4. Prediction and Improvement market dynamics are favourable
We believe that predictions and improvements are the most
value-enhancing segment of the market research industry, and
together with our improvement advice, we are intent on increasing
the value and size of the segment still further. Some GBP1.9
trillion is spent on marketing worldwide each year, of which
GBP900bn is on advertising. But only GBP0.9bn is spent on
predicting and improving their advertising investment. (one
one-thousandth of total spend). By encouraging customers to test
earlier and more often we can help them achieve a greater return
from their annual advertising investment; from improving their
adverts, to helping identify which adverts in which countries to
put most media money behind.
5. Our business is protected through IP, Branding, Customer and Supplier relationships
Our products are difficult to copy, and the economics of our
business protect us to some extent. This is why we launched
automated Test Your Ad prediction products at low prices last year,
to drive customer penetration and increase volume per customer. We
are building our Brand, first mover advantage in this space, and
our associated Fame. We are also forging valuable industry
partnerships including ITV (the UK's leading commercial broadcaster
[2] ) and LinkedIn (the world's largest B2B marketing solutions
company [3] ). Both of these advertising platforms are working with
System1 to help their advertisers achieve a greater return on their
ad investment. We are also building strong partnerships with some
of the world's top creative agencies.
6. There are some early signs that our plan is working
It is very early days, but we are comfortable with progress. We
believe that we have proved the model and are now redoubling
efforts to scale, which will be key to our future. We are aware
that changing a research provider is not always a burning priority
for CMOs or Insight Directors, and so we sometimes need to wait for
a customer's priorities or personnel to change for them to be
receptive. Many forward-thinking marketeers are engaging strongly
with System1 and converting, and these relationships are important
to us.
7. A challenge for the near term is to grow
We believe that System1 could be worth GBP1 billion eventually.
Management owns 30% of the business, excluding shares under option.
We take every decision with our medium term GBP100m+ Revenue
milestone in mind. Aside from the automated product strategy, our
choices on the calibre of our talent, the workflows in the company,
our supply chain, the IT systems, and much more support achieving
this goal.
In summary, we have a vision, a plan, a leadership team that is
motivated via share ownership, and reasons to believe we can
succeed. The last year demonstrated that life could take many
twists and turns and so nothing is guaranteed other than our
determination to win where we compete and to create value for all
shareholders.
John Kearon Stefan Barden Chris Willford
Founder and Executive Chief Executive Officer Chief Financial Officer
President
Strategic Report
Chairman's Statement
This year for System1, as for the rest of society, has been a
dramatic one dominated by the Covid pandemic and the governmental,
corporate, and personal responses to the unfolding situation.
Whilst a small number of System1 employees across the world
contracted a Covid infection, I am pleased to report that none was
seriously ill, and all have made a full and complete recovery.
Our financial year commenced on 1 April 2020, just four days
after the introduction of the first UK lockdown. The immediate
reaction from companies and our customers in the UK and worldwide
was to find ways to adapt to the new conditions, initially to
conserve funds by cutting expenditure deemed to be discretionary,
and postponing future plans. This inevitably had a significant
impact on System1 Revenue in Q1 as customers' research and
marketing expenditures were cut back.
From Q2 onwards we saw a steady recovery in our order book, but
Revenue was still lower by 26% at the half-year. By contrast the
second half of the year saw a strong sales upturn as our new
products gained support, with H2 Revenue some 8% higher than the
equivalent period in the previous year. This trend gives us
confidence as we face the future. Our full year Revenue declined by
11% overall, however our Adjusted Operating Costs were 16% lower,
leading to an Adjusted Profit before Taxation of GBP3.0m, (2019/20:
GBP2.0m). Statutory Profit before Taxation increased by GBP1.8m to
GBP2.1m, reflecting the growth in the adjusted measure and the
impact of paying no bonuses. The business continues to generate
cash and our financial position remains strong, ending the year
with GBP6.5m cash net of debt, compared with GBP4.2m at last year
end. Consequently, we will look to reinstate the share buyback,
which was suspended in 2020, with details to be announced
later.
System1 had previously operated with some limited use of
employees working from home, and already had effective systems and
technology to facilitate this, which enabled the company to move
rapidly and effectively to 100% home working. This method of
operating was substantially maintained throughout the year, and
great credit must go to all our staff for their flexibility in
adapting to the new circumstances.
We utilised some GBP0.6m of support from the US and UK
government employment subsidy schemes, and senior staff took a 20%
salary deferral, which we were able to pay back in full and
re-instate normal salaries by October 2020. We also used the
opportunity to reduce our office footprint, by closing seven
locations, and economising on rental costs.
Throughout the period we have maintained a high level of contact
with all our customers, not only though video conferencing but with
a variety of very well attended webinars, sometimes with senior
industry figures joining the System1 team, where our products and
ratings tools were showcased.
During the year and despite the new working arrangements,
System1 has maintained its investment in updating and automating
its suite of "Test Your" research products. Led by Test Your Ad, an
automated advertising prediction tool, it has led to increased
take-up by major advertisers and agencies and contributed
significantly to the improved performance in H2. Work continues to
enhance our Test Your Brand and Test Your Idea products which will
give customers a more rapid and less expensive way of testing, and
a stimulus to purchase our added-value guidance on how to improve
the effectiveness of their brands and innovations.
In addition to customer commissioned research, we have leveraged
our thought leadership by entering into partnerships with leading
broadcasters, advertising agencies, and others where they recommend
and integrate the use of our products into their own sales and
business development processes. Our partnership with ITV, which
encourages and incentivises advertisers to create more effective TV
commercials, uses the System1 Test Your Ad measurement. The
LinkedIn platform is another partner offering the System1 research
tool to potential advertisers to refine and improve the
effectiveness of their messages prior to transmission.
In the year ahead, we plan selectively to increase investment in
future product development and IT, with priority given to scaling
our automated prediction products. We also plan for an enhanced
sales and marketing capability to expand our reach and generate new
business.
In June 2020, Stefan Barden and Chris Willford were appointed to
the Board as executive directors. Stefan Barden was subsequently
appointed CEO in March 2021, with John Kearon, our Founder,
becoming Executive President. These changes of title largely
reflected their existing operational responsibilities and
facilitated the recruitment and promotion of several key senior
managers which will significantly strengthen the business.
The new financial year will see some further changes to our
Board composition. Robert Brand, our Senior Independent Director,
will not seek re-election at the Annual General Meeting having
served on the Board since 2012. We have benefited greatly from his
wise counsel, and he leaves with our heartfelt thanks and our best
wishes for the future. He will be succeeded as Senior Independent
Director by Sophie Tomkins, currently Audit Committee Chair. I am
also delighted to welcome Rupert Howell to the Board as an
Independent Director. Rupert joined in February following a long
and illustrious career in advertising, public relations,
television, and publishing, and is proving to be a strong addition
to the team.
None of our business results this year and our future ambitions
could be achieved without the unswerving support of all our people
across the globe. This year, more than ever, their resilience and
dedication has been outstanding, and on behalf of the Board and our
shareholders, I thank them all for their outstanding efforts.
Graham Blashill
Chairman
Founder and Executive President's Statement
What A Year!
We have already set out System1's market positioning, potential,
and headline financial performance, so I am going to focus on how
we survived the impact of the pandemic and exited the year with
real progress towards our goal of becoming the world leader in
predicting advertising effectiveness.
Shaping Up
As the pandemic hit, many customers understandably pressed the
'pause-button' on their marketing, and our first quarter Revenue
dropped 32%. From a practical point of view, the digitisation of
the business meant we were able to move immediately to remote
working with no loss of productivity and quickly acclimatise to
remote working as the norm.
The drop in sales galvanised our remarkable staff to simplify
everything we were doing and accelerate our plans to reshape the
business, from tailor-made consultancy to automated prediction
products and enhanced creative guidance. In the second half of the
year, the top line revenue exceeded last year's level thanks to
quarter-on-quarter growth from a significantly reshaped
business:
-- Our automated prediction products represented 1% of Revenue
at the half-year, 7% in the December quarter and 15% in the final
quarter (34% for Test Your Ad) and are on track to continue growing
in the coming months.
-- Our Comms Revenue, including Test Your Ad, grew 18% in the
year to become the largest part of the business, with significant
new Test Your Ad customers like adidas, Danone, Sky, Boston Beer,
Carlsberg, Kellogg's, and Globo.
-- Our Partnerships Team won two major advertising platform
customers: ITV and LinkedIn, who are promoting and recommending our
Test Your Ad services to help enhance their advertisers'
returns.
-- Our US business grew quarter on quarter, almost back to early
2019 revenue levels by the end of the period.
-- Our productivity improved, delivering higher Revenue in the
second half with less cost in the business.
By the end of the year, we had shaped our automated prediction
products into the following simple but compelling offerings of what
we believe to be the most predictive methods, at the lowest cost,
fastest turnaround and with the best value-enhancing, creative
guidance:
Test Your Ad Test Your Brand Test Your Idea
------------------------ ---------------------- -------------------------
Essential Predict Your Ad... Predict Your Brand... Predict Your Idea...
Star - long-term Fame -reflects Predicted Acceptance
profit potential current brand share
Speed of Choice
Spike - short-term Feeling - predicts
sales potential future brand share Emotional Pull
Fluency - strength Fluency - creates Star Rating - predicted
of branding brand premium success
Star Rating - brand
performance
Pro Predict Your Ad Predict Your Brand Predict Your Idea
and... and... and...
Custom sample Custom sample as Custom sample as
as well as nat-rep well as nat-rep well as nat-rep
Pro diagnostics Pro diagnostics Pro diagnostics
to explain & improve to explain & improve to explain & improve
Guidance Improve Your Ad... Improve Your Brand... Improve Your Idea...
Expert creative Expert creative Expert creative
guidance to enhance guidance to enhance guidance to enhance
the effectiveness the effectiveness the effectiveness
of your advertising of your brand of your innovation
Subscription Benchmark Your...
Own advertising
effectiveness
Competitor advertising
effectiveness
Against every
US/UK TV ad in
all major categories
(over 50,000 ads)
Progress Towards Global Leadership
To improve the utility of and access to System1 predictions, we
continue to standardise, digitise, and automate our approaches, and
the year saw significant progress in the four progressive goals we
set out three years ago:
1. Build defensible assets
We have now tested over 50,000 ads and have the largest
database, that we are aware of, of validated ad effectiveness data
and spend in the world. We use this asset to continuously enhance
our understanding of ad effectiveness and help prove the value of
creativity to advertisers. The database continues to prove an
invaluable asset in demonstrating and validating the essential
qualities of the most effective advertising. Orlando Wood is
currently using the database in his work with The Institute of
Practitioners in Advertising (IPA) on Lemon II, the working title
of a follow-up publication to the critically acclaimed Lemon (the
IPA's biggest ever selling book), showing how the principles of the
most effective advertising apply as much, if not more, to online
video, as they do in TV advertising. Our approaches have been
critically acclaimed by such industry luminaries as Peter Field,
co-author, The Long and the Short of It, who said,
"The marketing world desperately needs better metrics to
benchmark the long-term growth driving potential of their
advertising; to offset the tsunami of short-term metrics washing
around. So, I welcome System1's new Ad Ratings service, which has
to be an important step in the right direction."
2. Generate fame
Testing every new ad in the categories we cover the day after it
first airs has given us the ability to provide predictive data to
industry publications on ads generating interest or controversy. As
a result, we have been able to generate significantly more System1
coverage than in any previous year.
Our Ad of the Week feature, celebrating the best, most effective
creative from any category in the US or UK, generated significant
industry attention, as well as helping to win a number of
significant new customers. In recent months we have initiated Ad of
the Month, celebrating the best, most effective creative in each of
our international markets: France, Germany, Brazil, Singapore, and
Australia.
Orlando Wood's 2019 Lemon publication continued to generate
significant customer interest and presentations to many thousands
of client marketers and agency influencers alike. As mentioned,
Orlando is working on a new book to provide the industry with a
blueprint for dramatically increasing the effectiveness of the
customer shift in spend towards digital channels.
We have managed to generate industry accolades from leading
industry figures like Mark Ritson, Virtual Marketing Professor, who
said,
"System1 is special because you've looked at creativity in a far
more detailed way. You've balanced the creativity/media thing,
you've done it on an effectiveness basis."
3. Win new customers
Our increased industry effectiveness profile, the automation of
our superior products, together with our enhanced Sales and
Partnership teams, has led to several significant wins, including:
adidas, Expedia, Danone, Sky, Boston Beer, Carlsberg, Kellogg's,
Globo and perhaps most significantly, ITV and LinkedIn, who are
promoting and recommending our Test Your Ad services to help
enhance their advertisers' returns.
4. Generate new revenues
Test Your Ad revenues increased 18% to make ad testing our most
popular product, and accounting for almost half of total revenues.
Part of this growth was a significant increase in customers using
our Test Your Ad platform, to test a total of 2,471 advertising
ideas, at varying stages of development. These tests were using our
basic 'Essential' product, and the recent launch of our enhanced
'Pro' product will offer customers additional diagnostics to
improve their advertising performance. Thirty companies also added
an annual subscription for the competitive data on all ads in their
category, with 1,086 users now accessing the platform for
competitive monitoring and ad performance evaluation. In the case
of adidas, we set up a new Sports Apparel category, in their 4
major markets, including backtesting the last 12 months of ads in
each market. This is something we hope to do for other
multinational customers in the current year, extending their
competitive and performance monitoring outside of the US and UK, to
include additional markets they request.
Over the last three years, we have reshaped the business, begun
to automate our products, generated increasing industry profile and
put together a management team capable of achieving our goal to
become the world leader in predicting advertising effectiveness.
There remains much to do, but we believe that our product set is
further ahead than our competitors. There will be many more
innovations in the coming year, as we continue to automate our
predictions, increase System1's Fame, attract new customers and
drive revenues.
In summary, over the last year System1 has taken its leading
research intellectual property and created automated prediction
products, with assets to complement our historic consultancy
services. We have been recognised by marketing industry thought
leaders and are firmly becoming the research industry's champion
for creativity, backed by data. In the UK, our pilot market, we
have developed partnerships with ITV, the largest retailer of
advertising space, and in the US with LinkedIn, who are on a
mission to do for online B2B advertising what Facebook and Google
have done for online consumer advertising. It bodes well for the
future, but we know there is much still to do.
Finally, a heartfelt thank you to our patient and incredibly
supportive shareholders. And a huge thank you to our wonderfully
creative, hardworking staff.
John Kearon
Founder & Executive President
Financial Review
Overview
2021 2020 Change Change**
GBPm GBPm GBPm %
------- ------- ------- ---------
Adjusted revenue* 22.8 25.3 (2.5) -10
------- ------- ------- ---------
Adjusted gross profit* 19.2 21.4 (2.2) -10
Adjusted operating costs* (16.2) (19.4) 3.2 -16
------- ------- ------- ---------
Adjusted profit before taxation* 3.0 2.0 1.0 46
------- ------- ------- ---------
Statutory profit before taxation 2.1 0.3 1.8 601
Taxation (0.4) (0.5) 0.1 -27
------- ------- ------- ---------
Statutory profit/(loss) for
the financial year 1.7 (0.2) 1.9 n.m.
======= ======= ======= =========
*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. Adjusted Revenue, Cost
and Profit figures are as defined in the Highlights section.
** Year-on-year percentage change figures are based on unrounded
numbers.
Adjusted profit before tax rose 46% to GBP3.0m in the year
despite a 10% decline in adjusted revenue. After a disappointing
first quarter there were three consecutive quarters of top-line
growth, and sales ended the year at a run-rate close to what was
achieved in the first half of FY 2019/20. Adjusted Revenue and
Gross Profit both increased by 8% in the second half-year (first
half 26% lower). Statutory Profit before Taxation increased by
GBP1.8m to GBP2.1m.
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY20 FY20 FY20 FY20 FY21 FY21 FY21 FY21
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------ ------ ------ ------ ------ ------ ------ ------
Adjusted gross profit 5.7 5.7 5.6 4.4 3.9 4.6 5.2 5.5
Adjusted operating
costs 4.8 4.8 4.8 4.9 4.2 4.0 3.8 4.2
Adjusted Operating Costs fell in each of the first three
quarters of the financial year, due mainly to the Company's
precautionary decision to reduce expenditure at the beginning of
the Covid pandemic. To the extent that these reductions were due to
decreased working hours, they had already been reversed by the end
of the third quarter. The Company began recruiting for growth in
the second half-year, ending the financial year with a similar
level of manpower to the previous year.
Profit for the financial year increased by GBP1.9m to GBP1.7m on
the back of improved operating profitability and lower tax payable,
assisted by a GBP0.6m R&D tax credit received in the period.
Diluted Earnings Per Share of 13.1p compared favourably to the
previous year's Loss Per Share of 1.8p.
Product Performance
2021 2020
------------------ ------------------
Gross Gross
Revenue profit Revenue profit
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
By product variant
Data 1,480 1,270 - -
Consultancy 20,561 17,467 23,468 19,976
Other services 797 415 2,008 1,625
-------- -------- -------- --------
22,838 19,152 25,475 21,601
By product group
Communications (Ad Testing) 10,603 9,177 9,002 7,992
Brand (Brand Tracking) 3,796 2,878 4,637 3,428
Innovation 7,642 6,682 9,829 8,555
Other services 797 415 2,008 1,625
-------- -------- -------- --------
22,838 19,152 25,475 21,601
The last year saw the launch of System1's automated "Test
Your..." data products, starting with Test Your Ad, complemented by
the "Improve Your..." standard data-enabled consultancy range of
creative guidance products. For this reason, we now segment our
revenue primarily by product variant rather than product area
(Comms, Brand, Innovation). For continuity, we show both product
variant and product area in this report. The uptake of automated
data products (principally Test Your Ad) accelerated in the second
half and Data represented 15% of Revenue in the final quarter
compared with 6% for the year as a whole. Consultancy declined in
line with the overall Revenue. Within the total, new creative
guidance that provides further insight on the automated data
reports and recommends improvements performed well. Bespoke
consultancy assignments decreased in absolute and relative terms,
in line with our plan to concentrate on standard consultancy
products.
The success of Test Your Ad led to Communications growing in all
geographic regions, representing nearly half the Group's Revenue
for the year. This was offset by declines in our customers'
Innovation spend, particularly in the Americas. The Brand product
area fell back year on year, due mainly to two large brand tracking
customers in Continental Europe scaling back their marketing
operations in the region.
Regional Performance
2021 2020
------------------ ------------------
Gross Gross
Revenue profit Revenue profit
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
By location of
customer
Americas 8,822 7,571 12,790 10,951
United Kingdom 6,780 5,668 5,515 4,688
Rest of Europe 5,233 4,231 5,628 4,630
APAC 2,003 1,682 1,542 1,332
-------- -------- -------- --------
22,838 19,152 25,475 21,601
Revenue in the Americas fell by GBP4m versus a strong prior
year, with all the reduction coming in the first half, partly as a
result of the region's three biggest customers reducing their
spend. Second half revenue in The Americas recovered and was just
above H2 2019/20. The UK was the first to benefit from the Test
Your Ad launch, consistently achieving high revenue growth,
particularly in Comms. Continental Europe revenue fell slightly
year on year, despite achieving double-digit growth in the second
half-year. APAC revenue grew consistently throughout the year on
the back of strong Innovation sales, ending the period a third up
on FY 2019/20.
Operating Expenditure
At the interims we changed the way we report our expenditure in
order to provide clearer information on System1's recurring
operational cost base whilst disclosing separately the
sometimes-significant non-recurring costs and credits. Adjusted
Operating Costs therefore exclude severance, subsidies received,
and bonuses. Adjusted Operating Costs fell by GBP3.2m (16%) in the
year to GBP16.2m due mainly to average headcount that was some 9%
lower. Office rents declined as we continued to vacate offices;
travel and related expenditure also fell sharply as a result of
pandemic travel restrictions. Statutory-basis operating costs fell
by GBP3.6m (17%), due partly to the lack of bonus awards in
FY2020/21. A reconciliation of adjusted operating costs to
statutory operating costs is shown in Note 15 to the Consolidated
Financial Statements. The benefit of the Paycheck Protection
Program in the USA and small pandemic-related subsidies in other
countries is reported as Other Income in the statutory numbers.
In the first half of the year, the Group reviewed its office
estate for lease impairment under IFRS 16 in view of the pandemic
and System1's widespread adoption of new ways of working and
decided to close our offices in Rio, Sydney, Los Angeles,
Rotterdam, Hamburg and Chicago as those leases expired. The review
concluded that a significant reduction in the utilisation of the
New York office required an impairment of the lease asset alongside
much smaller impairments on leases in Chicago, Hamburg, and
Rotterdam. The resulting GBP1.0m non-cash Impairment Charge
(GBP0.9m relating to the New York office) affects the Group's
statutory operating costs and profit before taxation, but is
excluded from the Adjusted figures. As a result of these changes,
annual rental costs are falling by some GBP0.4m. Since the end of
the financial year, we have signed an agreement to sublet the New
York office from July 2021 until the lease expires in 2024, on
terms slightly better than the early termination alternative that
informed the mid-year impairment calculation.
Tax
The Group's effective tax rate fell from 178% to 19% due mainly
to a GBP0.6m research and development tax credit for 2018/19
associated with the development of the AdRatings database and
System1's automated prediction products. We subsequently made a
successful claim for 2019/20 which is being recognised on receipt
in H1 2021/22. We anticipate a claim for FY 2020/21 which is yet to
be quantified or submitted. Excluding the tax credits, the
effective tax rate fell from 178% to 45%.
Funding and Liquidity
The Group began the year with GBP6.7m Cash on the balance sheet
and ended it with GBP9.0m: funding from the GBP2.5m revolving
credit facility is included in both years' balances . The GBP2.3m
cash inflow is attributable to GBP1.9m cash generated from
operations after property lease costs, GBP0.6m subsidies received,
and GBP0.3m net cash tax refund. These inflows were partially
offset by GBP0.2m capital expenditure, loan interest GBP0.1m and a
GBP0.3m adverse translation effect of non-sterling bank balances of
reflecting primarily the strengthening of the pound against the
dollar in the period.
Some GBP2.5m cash was spent on research and development in the
year, related primarily to the development of new IP, automated
prediction products and the AdRatings database.
No dividends were declared or paid in the year.
Outlook
As System1 returns to its pre-pandemic level of revenue we do so
in a position of relative strength. Cash balances and cash flow are
healthy, and we will continue to invest in our products, data
assets and talent. We will look to reinstate the share buyback
programme which was suspended in 2020 due to uncertainty over the
potential impact of the Covid pandemic on our business. More
information will be provided on the proposed buyback later in the
year. We plan to remain profitable and to continue to generate cash
in the 2021/22 financial year, as we prioritise scaling our
automated prediction products. Notwithstanding that, we are
targeting revenue growth to be at least matched by the rate of cost
growth, due to the pandemic-related cost reductions in the year
just ended.
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
Customers
The success of our customers is at the centre of our purpose as
a company. Our mission is to help every brand owner make effective
advertising, improve their brand equity, and launch successful new
products. Our pursuit of the mission is guided by our core beliefs
and values: Customer Commitment, Creativity, Collaboration and
Conviction. We are single-mindedly focussed on improving the
effectiveness of our customers' marketing budgets by providing
better, faster, and cheaper predictions on the following:
-- Whether their advert will change people's behaviours in the way they intend
-- Whether their brand will grow stronger in the mind of their target customers; and
-- Whether their new product/ service ideas are more or less likely to be successful
-- How we engage with our customers
We invest significant resource in developing and growing deep
customer relationships including highly rated training and
professional development sessions that draw on our behavioural
science expertise. We seek structured feedback from customers on
all our research projects so we can improve and develop our
products and services.
Customer Success Stories
LinkedIn
LinkedIn has been a major success story with their advertising
working with us through every stage of their creative to not only
optimise it but ultimately test it across countries and air it
globally. LinkedIn Plant was tested from script to storyboard to
animatics to finished film with System1. Every stage included
System1 recommended optimisations and System1 will be creating a
case study from this ad which will now be aired globally with a
series of promotions and perfect timing to coincide with the
current job market. Leaning into how taking small steps with the
LinkedIn community can help members to grow and find opportunity.
Following System1's recommendations to lead with emotion; to have a
story with a beginning, middle and end; to testing different
soundtracks to ensuring the highest star score; and finally testing
different endings to ensure as System1 recommends the ad ends with
happiness. Looking forward to many more opportunities with this
partnership account!
adidas
System1 is proudly partnering with adidas in creating effective
advertising. Since early 2021, adidas bought into System1's
thinking, tech-enabled ad products and its consultancy, leveraging
System1's Test Your Ad solution suite at a global scale. adidas'
exciting brand campaigns, such as the Impossible Is Nothing
campaign, and product campaigns are tested throughout the creative
development process in a coherent way with System1's proven metrics
for business effects.
Talent
Our primary focus is on attracting, growing, and retaining world
class talent with a culture of 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
Alongside our corporate values (Customer Commitment, Creativity,
Collaboration and Determination), System1 promotes a set of team
behaviours known as TIDE.
T ruth - always tell the truth... and tell it early
I ntent - always assume good intent...yet resolve issues
D issent - Be obliged to dissent...yet adhere to 'Cabinet
Responsibility'
E lephant - 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 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 departmental head and the Chief
People Officer to agree improvements, actions and owners.
There is a comprehensive programme of employee communication and
engagement sessions, ranging from the monthly Town Hall meetings
with all staff, to fortnightly senior management forums, through to
drop in "coffee meetings". During the past year virtually all of
these have been held online. They give us the opportunity to
connect across the business at different levels, share 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. We have a strong learning and development culture. We
encourage employees to plan their development using the support and
resources we provide (including access to LinkedIn Learning,
internal training programs and professional certifications). We
advertise roles internally and promote inter departmental
opportunities.
Talent engagement outcome
In the depth of the Covid pandemic when our people were forced
to work at home, we surveyed their attitudes towards home-based
versus office-based working, which is informing our plans on
introducing hybrid virtual working. The feedback prompted the
Company to improve and clarify its policy on providing equipment
for home working. The survey feedback is also helping us to
formulate plans to increase employee satisfaction via continued
flexible working whilst reducing our worldwide office footprint and
associated costs.
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
valuable LTIP scheme. They have no cash bonus scheme.
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. In addition,
the Company maintains regular contact with its lender in the
revolving credit facility 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 which shareholders are encouraged to attend
and 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 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".
As we have no foreseeable requirement for additional equity
capital, System1 does not currently hold capital markets days, but
would consider doing so if requested by a sufficient number of
investors.
Suppliers
We work with a small number of trusted suppliers and operate on
a strong partnership basis. 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)
During the year we ran our first virtual Supplier Conference, to
share System1's latest strategy update with current and potential
suppliers. We invited them to help us disrupt the industry by
offering solutions to support us in new ways. It received excellent
feedback and has resulted in deeper partnerships with a better
understanding of our strategy, as well as discussions about
alternative ways of partnering as we scale our digital
solutions.
Community
The ESOMAR Foundation (esomarfoundation.org) is the charity arm
of the Market Research industry. John Kearon has been President of
the Foundation for the last four years. Its purpose is, 'using
Market Research to build a better world' and it is run on a purely
voluntary basis. With a team of six System1 volunteers, together
with five volunteer research industry Board members, the Foundation
provides research training, inspirational case studies, and
support, to help charities anywhere in the world in making a
difference to the communities they serve. The Foundation raises
over GBP100,000 a year, through annual donations from the research
community, to fund these activities.
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 such event that we
are concerned about and seek to manage are:
Risk Area Potential Impact Mitigation
------------------------ ------------------------------ --------------------------------------
Loss of a significant Revenues and profits We work with more than 250
customer fall due to the customers and work hard to
loss of a large earn their loyalty. The percentage
customer of business from our largest
customer in the 12 months
to 31 March 2021 stood at
8% of revenue
Loss of key personnel Key personnel We have a relatively senior
leave the business, team with broad experience
taking knowledge and seek to ensure that System1
and external relationships is as attractive to existing
with them employees as it is 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 provides
a strong motivation to stay
with System1
Loss of a critical The bankruptcy, We have several mission-critical
supplier change of control functions carried out by third-party
or resignation suppliers (such as panel suppliers).
of a strategic For these functions, we seek
supplier leaves to ensure we are not too reliant
the Company unable on any one organisation and
to meet customer typically have three qualified
demand 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, Theft of intellectual We endeavour to protect the
data, intellectual property via unauthorised business from significant
property or illegal access risks, through a combination
to or copying of trademark protection; insurance;
of the Company's information security, and
databases, proprietary our employee, customer and
methods, and algorithms supplier terms and conditions
Litigation risk Legal action is We endeavour to protect the
taken against business from significant
the Company by risks, through our terms and
customers, employees, conditions, trademark protection
suppliers, or and comprehensive professional
other stakeholders indemnity insurance
Risk Area Potential Impact Mitigation
Operational An outage or other All our services are hosted on
risk technical issues a secure external cloud infrastructure
on our survey platform with multiple failover options.
results in delays We continuously monitor system
in delivering customer availability and endeavour to
projects alert the customer to any delays
on the rare occasions where there
is disruption
A cyber-attack causes Our business does not ordinarily
a material breach hold non-employee personal data.
to our infrastructure We have invested in our controls
(including penetration tests),
processes and IT infrastructure
and hold ISO 27001 accreditation
covering information security
* The volume of change initiatives in Sytem1's * All change initiatives are subject to project
transition to a data predictions business could lead governance, and development is run on an "agile"
to a loss of operational control methodology. The Executive Team reviews operation
al
performance every week providing early warning of
potential deviations from plan. The Board reviews
operational performance monthly and strategic
direction annually
--
Financial Failure to manage Due to the straightforward nature
risk credit, currency, of the business, its international
market, interest cost base, the Company's strong
rate or liquidity balance sheet, and the fact that
risk expose the Group most of the Company's customers
to losses are large, credit-worthy organisations,
foreign exchange and credit risks
have historically proved to be
modest. Since February 2020,
the Group has been exposed to
interest rate risk through its
GBP2.5m floating rate revolving
credit facility which always
has been more than matched by
unencumbered cash
Environmental Pandemics - the company's The Company trades principally
and political revenue streams could in Europe the USA and is exposed
risks be affected by customers' to the social and economic impacts
decisions to reduce in those regions. The recent
marketing budgets Covid-19 pandemic demonstrated
the Group's ability to operate
normally without access to its
offices. The main exposure is
to our customers' decisions on
the size of market research budgets
in response to an economic downturn
Political risk through The territories representing
adverse regime or the vast majority of the Group's
regulatory change revenue are socially, politically,
and economically stable. The
impact of Brexit has been negligible
to date. 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
Group Directors' Report
Review of the Business and Future Development
The Group Overview, Chairman's Statement, Founder and Executive
President'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 Founder & Executive President's statements,
Financial Review);
-- its strategy, positioning, and objectives (Group Overview,
Chairman's, and Founder & Executive President's
Statements).
-- its historic financial performance (Chairman's and Founder
& Executive President's statements, Financial Review);
-- an assessment of its future potential (Group Overview,
Chairman's and Founder & Executive President's Statements,
Financial Review);
-- its key performance indicators (Financial Review); and
-- its key business risks (Principal Risks and Uncertainties).
Dividends
The Company has paid the following dividends:
2021 2020
GBP'000 GBP'000
--------- --------
2020 interim dividend paid, 1.1p per share - 138
2019 final dividend paid, 6.4p per share - 805
--------- --------
- 943
The Company did not pay an interim dividend in the year ended 31
March 2021 and does not propose the payment of a final
dividend.
Directors
The following individuals served as directors of the Company,
System1 Group PLC, during the year:
Stefan Barden (Executive) appointed 26 June 2020
John Kearon (Executive)
Chris Willford (Executive) appointed 26 June 2020
Graham Blashill (Non-Executive)
Robert Brand (Non-Executive)
Rupert Howell (Non-Executive) appointed 15 February 2021
Sophie Tomkins (Non-Executive)
Jane Wakely (Non-Executive)
James Geddes (Executive) resigned 20 April 2020
The Remuneration Committee Report sets out directors' interests
in the shares of the Company.
Share capital
At 31 March 2021, the Company had 13,226,773 Shares in issue
(2020: 13,226,773) of which 510,421 were held in treasury (2020:
626,989). The treasury shares will be used to help satisfy the
requirements of the Group's share incentive schemes.
During the year, the Company transferred 116,568 Ordinary
Shares, representing 0.9% of the called-up share capital of the
Company, out of treasury to satisfy the exercise of zero-priced
employee share options of 116,568 shares.
Changes in the share capital of the Company during the year are
given in Note 10 to the financial statement.
Substantial shareholders
As at 1 June 2021, the Company was aware of the following
significant interests in the ordinary issued share capital of the
Company.
% Voting
No. shares
-------------------------------------------- ---------- ---------
John Kearon 2,918,235 22.62
University of Notre Dame Du Lac (USA) 1,200,000 9.30
Invest. fur Langfristige Investoren (Bonn) 1,020,000 7.91
Ruffer (London) 800,000 6.20
Stefan Barden 791,645 6.14
Lazard Freres Gestion (Paris) 685,000 5.31
Motley Fool Asset Mgt (Alexandria) 645,000 5.00
Ennismore Fund Mgt (London) 579,099 4.49
Heritage Capital Mgt UK 424,260 3.29
Financial risk management
The Group's activities expose it to the following financial
risks to a small degree. 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, its US operation generates most of its revenue in US
dollars and incurs most of its costs in US dollars also. Management
does not believe that there would be any long-term benefit in
endeavouring to manage currency risk further, and to avoid the cost
and complexity does not deal in hedging instruments.
Liquidity risk
The Company monitors its cash balances regularly and holds its
cash in immediately available current accounts to minimise
liquidity risk. The Company has a revolving credit 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
Group's capital structure consists of cash and cash equivalents,
bank borrowings and share capital. Towards the end of the year
ended 31 March 2020, the Company arranged and drew down a GBP2.5m
revolving credit facility to provide greater financial flexibility
in a period of uncertainty due to the global pandemic. 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 Covid outbreak has
affected economies across the globe and continues to cause
disruption to markets and businesses. The Company acknowledges that
this presents financial and operational risks in the short term,
and the Directors have considered this in their 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 pandemic,
noting the strong net cash balance at year-end compared to last
year due to stronger performance in the second half of the
year.
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 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 him or
her 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.
On behalf of the Board
Chris Willford
Chief Financial Officer and Company Secretary
14 July 2021
Statement of Directors' Responsibilities
The directors are responsible for preparing the Group Strategic
Report, Group Directors' Report, the Annual 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 required by the AIM Rules of the
London Stock Exchange to prepare the group financial statements in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and to prepare the
company financial statements in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006 and applicable law.
The Group and Company financial statements are required by law
and international accounting standards in conformity with the
requirements of the Companies Act 2006 to present fairly the
financial position of the group and the company and the financial
performance of the group. 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. state whether they have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006;
d. 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.
Chris Willford
Chief Financial Officer and Company Secretary
14 July 2021
Corporate Governance
Strategy
All directors are familiar with the market in which the Company
is operating, the Company'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 Company 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 most of the year ended 31 March 2021. The membership
of the Board is set out in the Directors' Report. We believe that
the directors have the mix of leadership, marketing and financial
skills and experience necessary to oversee the Company and deliver
its strategy for the benefit of the shareholders over the medium to
long-term. The composition of the Board 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
above.
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
PWC on the Company's LTIP. 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, RSM Audit 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 (or in some cases,
no shares);
-- they are not related to any of the Executive Directors; and
-- they have no conflict of interest given their other roles and business activities.
For financial year ended 31 March 2021, the Company Secretary
was also the Chief Financial Officer, as is the case with other
companies of a similar size and complexity. The Group plans to
continue with this combined role and will split the roles when it
reaches a size which warrants it.
The Board schedules regular monthly meetings during the year,
except for July or August, and additional ad hoc meetings as
required. All Directors can allocate sufficient time to the Company
to discharge their responsibilities fully. As a result of the
global pandemic, all board and board committee meetings during the
year were held virtually over Microsoft Teams. The number of
regular meetings that each director attended during the financial
year is set out below:
Board Audit Committee Remuneration
Committee
(11 meetings) (2 meetings) (2 meetings)
------------------ ---------------- ---------------
Graham Blashill 11 2 2
Robert Brand 11 2 2
Rupert Howell (appointed 15
February 2021) 2 n/a 1
Sophie Tomkins 11 2 2
Jane Wakely 11 n/a 2
Stefan Barden 11^ n/a 1*
John Kearon 11 n/a 1*
Chris Willford 11^ 2* 2*
------------------ ---------------- ---------------
^ of which *by invitation
2 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 page 16 .
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 and managers and
overall pay levels of all employees. Its members are:
Graham Blashill - Chairman of the Remuneration Committee
Robert Brand
Rupert Howell
Sophie Tomkins
Jane Wakely
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
Company;
-- ensure that contractual terms on termination of any Director
are fair to the individual and the Company, 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.
Rupert Howell will succeed Graham Blashill as Chairman of the
Remuneration Committee following the 2021 AGM.
The Annual Statement from the Remuneration Committee Chair is
set out in the Remuneration Committee Report.
Audit Committee
The Audit Committee is responsible for ensuring the financial
performance of the Company is properly monitored and reported on to
shareholders, reviewing the Company's financial systems and
controls, and overseeing the Company's risk management. Its members
are:
Sophie Tomkins - Chair of the Audit Committee
Graham Blashill
Robert Brand
Rupert Howell
The Audit Committee's role and responsibilities are to:
-- monitor the integrity of the financial statements of the Group;
-- 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.
The Annual Report from the Audit Committee Chair is set out in
the Audit Committee Report.
Board evaluation
The Board undertook an annual review of its effectiveness, in
January 2021. The Board will carry out further reviews of its
effectiveness on an annual basis and may use an external advisor.
The objective of this evaluation process is to bring to light
possible changes which could make the Board's activities and
administration more effective and efficient. The Board Evaluation
covered the following areas:
-- the manner in which the Board is run, and operates as a team;
-- the skills, experience, and independence of the Board;
-- the strategy of the business;
-- the risks of the business;
-- the Company's ethical values and behaviours; and
-- engagement with shareholders and other stakeholders.
The exercise identified a number of positive areas particularly
relating to the manner in which the Board is run, and the skills
and experience and independence of the Board, and nearly all the
categories saw improved scores year on year. The main areas
identified for improvement in this second evaluation were minor
administrative matters, which will be monitored between now and the
next review.
In January 2021, a review was carried out by the Senior
Independent Director with respect to evaluating the performance of
the Chairman. All other Directors participated in the review, which
produced both a positive overall outcome and some constructive
suggestions regarding improvements which could be achieved. These
suggestions have already been acted upon. A further review will be
undertaken when appropriate.
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. Key appointments are overseen by the
Remuneration Committee.
The Board
STEFAN BARDEN
CHIEF EXECUTIVE OFFICER,
APPOINTED 26 JUNE 2020
Stefan has over 20 years of General Manager, Managing Director
and CEO experience after graduating from McKinsey Management
Consultancy and Unilever's fast track management development
programme. His previous positions include CEO of Northern Foods,
CEO of Heinz UK and Ireland, as well as more latterly CEO of the
internet business Wiggle which he took from GBP140m to GBP360m in
sales in 3 years.
GRAHAM BLASHILL
INDEPENT NON-EXECUTIVE CHAIRMAN,
APPOINTED ON 18 JULY 2012
(BECAME CHAIRMAN ON 25 JULY 2018);
Graham Blashill joined System1 Group in 2012 as a Non-Executive
Director. He was previously a main board director of Imperial
Tobacco Group pie (a FTSE 100 company) where he spent the majority
of his career. He joined W.D. & H.O. Wills (a division of
Imperial Tobacco) in 1968 and became Managing Director of Imperial
Tobacco UK in 1995. In 2003, he became Regional Director for
Western Europe, and in 2005 was appointed Group Sales and Marketing
Director responsible for Imperial Tobacco's global trading
operations.
ROBERT BRAND
INDEPENT NON-EXECUTIVE DIRECTOR, APPOINTED ON 5 JANUAR Y
2012
(BECAME SENIOR INDEPENT DIRECTOR ON 25 JULY 2018);
Robert Brand joined System1 Group in 2012 as a Non- Executive
Director. He began his career in 1977, initially as a research
analyst and subsequently as Managing Director of UK Equity research
at BZW, then the investment banking di- vision of Barclays Bank. In
1990 he joined Makinson Cowell, a capital markets advisory firm, as
a director and partner. Over a period of 18 years, he advised a
range of FTSE 100 and FTSE 250 companies, focusing on their link
with institutional investors. He retired in 2008.
RUPERT HOWELL
INDEPENT NON-EXECUTIVE DIRECTOR, APPOINTED ON 15 FEBRUARY
2021
Rupert has an extensive career of around 40 years in the
advertising and media sector. He was the co-founder of Howell Henry
Chaldecott Lury, a UK-based advertising agency, where he worked
from 1987 until 1997 when it was acquired by Chime Communications
plc, where he became Chief Executive Officer in 1997. He held
several roles at McCann Erickson from 2003 to 2007, including
President of EMEA, Chairman of the UK & Ireland Group and
Regional Director of EMEA Operations. He was Managing Director of
the Broadcast and Online division and a board director of ITV plc
from 2007 to 2010. He joined Trinity Mirror plc (now Reach plc) as
group development director, from 2013 to 2020. He is chairman of
Roxi, the music streaming service, pinwheel, a green energy and
sustainable living app start-up and is chairman of the advisory
board of Empresa Cura Medicinal, LDA.
JOHN KEARON
FOUNDER AND EXECUTIVE PRESIDENT
John founded the Company in 1999 and remains its largest
shareholder. Previously he founded innovation agency Brand
Genetics, which invented new products and services for large
consumer companies. Before this, he was a planning director at
Publicis (the leading advertising agency), having started his
career at Unilever where he rose to become a senior marketer at
Elida Gibbs. His role in establishing and developing the Company
made him Ernst & Young's " Emerging Entrepreneur of the Year"
in 2006.
SOPHIE TOMKINS
INDEPENT NON-EXECUTIVE DIRECTOR,
APPOINTED ON 11 JUNE 2018
Sophie joined the Board as Non-Executive Director in June 2018.
Her career has included nearly two decades as a London-based
stockbroker, focusing mainly on high growth small to mid-cap
companies. She started at established firm Cazenove & Co, and
became more entrepreneurial, at both Collins Stewart, and then
Fairfax. As City Analyst, and latterly Head of Equities, she has
analysed and advised numerous companies and Boards, and been
involved with a huge range of transactions, notably several
high-profile IPOs and M&A deals. She became a portfolio
Non-Executive Director in 2012, and is currently Non-Executive
Director and Audit Committee Chair of Hotel Chocolat Group PLC
(retail and manufacturing), Cloudcall Group PLC (software), and
Virgin Wines UK PLC (online retail). She is also a qualified
Chartered Accountant and a fellow of the Chartered Institute for
Securities and Investment.
JANE WAKELY
INDEPENT NON-EXECUTIVE DIRECTOR, APPOINTED ON 24 JULY 2018
Jane joined System1 Group in July 2018 as a Non-Executive
Director. Passionate about creativity, innovation and driving
profitable growth that transforms categories and brands, she has
had the privilege of working for world leading CPG companies such
as Mars Incorporated, Procter & Gamble and Unilever, across
categories as diverse as cosmetics, beauty care, healthcare, food,
confectionery, and pet care. She is Global Chief Marketing Officer
for the Pet Nutrition business and Lead Chief Marketing Officer for
Mars Inc. Previously, Jane was the Global Chief Marketing Officer
of the Chocolate business at Mars and has been part of the Mars
drive to innovate digitally and creatively, leading to Mars being
recognised creatively as one of the most awarded companies in the
world. She is also a Chartered Management Accountant and holds a
BSc (Hons) in Business Administration from Bath Spa University.
CHRIS WILLFORD
CHIEF FINANCIAL OFFICER AND COMPANY SECRETARY, APPOINTED 26 JUNE
2020
Chris, a Chartered Management Accountant, 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, Chris worked as a consultant
with a portfolio of scale up media and tech businesses.
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 29 of the
Corporate Governance Report. Sophie Tomkins took over from Robert
Brand as Chair in January 2019, and Rupert Howell joined the
Committee on his appointment in February 2021. 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 Hotel
Chocolat plc, Cloudcall Group plc, and Virgin Wines UK 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 2 7. During 2019/20 there was
additional Audit Committee contact with the Auditor due to the
change of Auditor. In 2020/21, this reverted to a more standard
audit cycle. During 2020/21, two formal meetings were held, with
additional meetings to discuss system change and audit
planning.
Duties
The main duties of the Audit Committee are set out in its terms
of reference, which are summarised on page 29 and available on the
Group's website (system1group.com/investors).
The work carried out by the Audit Committee during 2020/21
comprised the following:
-- ensuring the financial performance of the Company is being
properly measured and reported on;
-- review of the 2020/21 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.
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. RSM's fees for the financial year to
31 March 2021 relate primarily to the Audit and Interim review,
with additional work performed on the Group's transition to a new
finance system during the year.
The Audit Committee also assesses the auditor' s
performance.
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 (such
as Covid-19) and other matters of audit relevance are regularly
communicated.
Change of auditor in prior year
The Board appointed RSM UK Audit LLP as the Company's auditor
from the financial year ending 31 March 2020 and the Audit
Committee oversaw the transition with nothing to report. 2020/21
has been the second financial year audited by RSM.
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. 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, Graham
Blashill
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, in particular the long-term
incentive plan ("LTIP"), and the key factors that were considered
in setting the policy. The directors' remuneration policy is not
subject to a shareholder vote at the 2021 AGM, since the main
variable element (the LTIP) was approved by shareholders at the
Annual General Meeting on 31 July 2019.
2. The annual report on remuneration sets out payments and
awards made to the directors for the year to 31 March 2021.
There are three elements in director remuneration:
-- Base salary
-- LTIP
-- Benefits
Historically, the Company's LTIPs have been established in
three-to-four-year cycles. The current LTIP was established in
September 2019 with vesting due on 12 August 2024 (the "2019
LTIP").
We are proposing some amendments to the 2019 LTIP for
shareholder approval at the 2021 AGM. Further information on the
changes is provided later in this section.
We endeavour to keep our director remuneration arrangements
simple and correlated to increases in long term business growth. As
a small Company we are also acutely aware of the dilutive impacts
of equity awards, and when designing our LTIPs, we ensure that
vesting only occurs when there is a substantial increase in
shareholder value (after accounting for the dilution).
For levels below the participants in the 2019 LTIP, the
remuneration ordinarily comprises:
-- Base salary
-- Bonus and profit share
-- Benefits
The Executive Directors and other senior executives who
participate in an LTIP forgo annual bonus and profit share.
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 four years beginning in the 2019/20 financial
year to 31 March 2024 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. However, there is
no intention to revise the policy more frequently than every four
years.
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.
Long-term incentives are to motivate and reward them for making the
Company successful on a sustainable basis.
Base salary and benefits
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 Company'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.
The current long-term incentive plan
The Company introduced the current LTIP in September 2019 (the
"2019 LTIP"). It was approved by shareholders at the Annual General
Meeting on 31 July 2019 and covers the period ending 31 March
2024.
The 2019 LTIP was implemented as a replacement for the 2017
LTIP. The company introduced the 2017 LTIP in March 2017 and this
scheme covered the four-year period ending 31 March 2021. Of the
total 1,058,135 options originally granted under the 2019 LTIP,
462,934 of these were granted as replacements for awards made under
the 2017 scheme. Of the additional 595,201 options, 198,400 were
granted to John Kearon, in lieu of his previous bonus arrangement.
The remainder were granted to members of senior management who had
joined the company subsequent to the 2017 LTIP grant. By 31 March
2021, the number of options granted under the LTIP had risen to
1,124,274, the maximum level currently permitted.
The final performance period of the 2019 LTIP is the Company's
2023/24 financial year, and the lapse date is 12 August 2024.
The 2019 LTIP also allows that vesting may occur as and when the
performance targets are met. Therefore, from 12 August 2020
onwards, some partial vesting may occur earlier than the lapse
date, and then further vesting later (provided that no vesting
could occur in relation to financial periods after the Company's
2023/24 financial year).
The awards have taken the form of zero-cost stock options. The
performance targets are unchanged from the 2017 LTIP and are based
on gross profit growth (the Company's main top line performance
indicator), with profit after tax and share price underpins.
The performance targets and vesting levels for the 2017 LTIP
were set with growth levels of between 10% and 30% pa in mind. At
the 10% pa growth level, the gross profit would be GBP39.5m, and at
the 30% pa growth level, GBP77.1m. The specific vesting levels are
set out in the following table.
Equity level Gross profit target
-------------------- ------------------------- --------------------
Executive Directors 144,667 shares (1.09% of GBP39.5m
issued shares)
144,667 shares (1.09% of GBP56.0m
issued shares)
124,001 shares (0.94% of GBP77.1m
issued shares)
-------------------------
Total awards 330,669 shares (3.12% of
issued shares)
Senior Managers 248,829 shares (1.88% of GBP39.5m
issued shares)
248,829 shares (1.88% of GBP56.0m
issued shares)
213,282 shares (1.61% of GBP77.1m
issued shares)
-------------------------
Total awards 710,393 shares (5.38% of
issued shares)
The vesting levels allow that at the lower gross profit target,
35% of awards vest. At the central gross profit target, a further
35% of awards vest, to a cumulative vesting total of 70%, and at
GBP77.1m; the awards vest in full.
There will be proportionate vesting if gross profit is between
GBP39.5m and GBP56.0m pa or between GBP56.0m and GBP77.1m pa.
No awards will vest unless profit after tax ("PAT") is at least
GBP7.0m and the average share price of the Company during the month
of July in the year in which the awards vest is at least GBP9.945
(30% higher than the share price on 22 March 2017, the date of the
2017 LTIP grant). For the higher levels of vesting triggered by
gross profit above GBP56.0m, the PAT underpin increases to
GBP9.9m.
For the purpose of these performance targets PAT is calculated
before deducting share-based payments (to avoid any circular
argument problem when performing the calculations).
The gross profit and PAT targets are designed to relate to
organic growth, and the Committee has the right to adjust the
targets if a material acquisition or other corporate event occurs
(and will ordinarily exercise such right).
During the year, there were three Executive Director
participants in the 2019 LTIP (James Geddes, John Kearon, and Chris
Willford) and six senior manager participants. John Kearon did not
participate in the 2017 LTIP, but instead, had an annual bonus
potential for each of the 4 years to 31 March 2021 of between
25-75% of annual salary based on the growth targets and underpins
above. John Kearon's award under the 2019 LTIP replaces his
previous bonus scheme.
Participants in the 2019 LTIP do not participate in the
Company's annual bonus or profit share scheme and have no other
short-term incentive plan. This is to ensure decision-making focus
is primarily on achieving long-term growth. Therefore, over the
period to March 2021, the only remuneration that they will receive
will be base salary and benefits, unless the Remuneration Committee
determine awards in exceptional circumstances (at their sole
discretion).
In April 2019, the Committee granted Stefan Barden, then an
advisor to the Board, a separate equity award, comprising 300,000
zero-cost stock options in three tranches of 100,000, with the
following performance conditions:
-- 100,000 zero-priced stock options
o Vest: when audited Gross Profit in any financial year exceeds
GBP45m, subject to the Company's share price exceeding GBP5.00 per
share for a 30-day consecutive period prior to the lapse date;
o Lapse: on 30 July 2024.
-- 100,000 zero-priced stock options
o Vest: when audited Gross Profit in any financial year exceeds
GBP68m, subject to the Company's share price exceeding GBP7.50 per
share for a 30-day consecutive period prior to the lapse date;
o Lapse: on 30 July 2029.
-- 100,000 zero-priced stock options
o Vest: when audited Gross Profit in any financial year exceeds
GBP90m subject to share price exceeding GBP10.00 per share for a
30-day consecutive period prior to the lapse date;
o Lapses: on 30 July 2032.
Stefan Barden has subsequently joined the Board of Directors and
retains this separate equity option award.
The Committee has taken advice from PWC in relation to these
equity incentives and consulted with major shareholders.
Dilution
Vested stock options are set out below.
No. %
----------- -----
Voting shares as at 31 March 2021 12,716,352 100%
2006 employee share option scheme (now
closed) 7,000 0.1%
2010-2014 LTIP - vested on 28 May 2014 75,520 0.6%
2014-2016 LTIP - vested on 30 April 2017 116,568 0.9%
----------- -----
199,088 1.6%
Unvested options comprise options granted under the 2019 LTIP
and the equity awards to Stefan Barden, described above. The
maximum aggregate dilution under both schemes is 11.2% of the
Company's voting shares.
Proposed changes to the 2019 LTIP
The LTIP is the cornerstone element of our remuneration package
for motivating and attracting top talent to drive our new strategy
and deliver long-term value for our shareholders. Given the
fundamental changes to our business strategy, the Board believes
that it is simpler and more efficient to amend existing awards
(primarily through changing performance conditions and the vesting
timeframe) and adopt a consistent framework for equity grants to
new hires rather than introduce a new plan and lapse in-flight
awards which contain measures which are at odds with our new
strategic priorities. Changes to the scheme that require
shareholder approval will be voted on at the AGM.
The principal proposals for change are:
-- Extend the performance period by one year (with the final
vesting date being 12 August 2025) to reflect the impact of
Covid-19 in 2020/21 and align with the strategic time horizon.
-- Increase the overall plan limit from 8.5% to 10% of issued
ordinary share capital as at 1 January 2017 to allow for the
inclusion of John Kearon (added in 2019, not foreseen in the
original 2017 scheme) and for awards to be made to potential
incoming members of the executive management team.
-- Extend the life of the plan during which new awards can be
granted for a further 4 years from 22 March 2021 to 22 March 2025
so that all executives' interests are aligned.
-- The share price underpins for vesting of awards to occur will
be reduced from c.GBP9.95 to GBP4.00. The Company's share price
when the original target was set was c.GBP7.65 with the target set
at 30% above this. The share price at the time the new proposals
were designed was c.GBP1.90 and therefore the revised underpin of
GBP4.00 represented a > 100% increase on the Company's current
share price which has since risen slightly to GBP2.27 at the
beginning of June.
-- The Gross Profit performance measure will be replaced with
Revenue. The Revenue required for threshold performance is proposed
to be GBP45m and the Revenue required for stretch performance is
proposed to be GBP88m.
-- Given our change in business model and valuation, the Profit
After Tax underpin will be replaced with the Remuneration Committee
considering the level of profitability in the year of vesting and
the overall corporate and share price performance over the
period.
The Board believes that the proposed changes are in the best
interest of all our shareholders and stakeholders for the following
reasons:
-- Focus on recovering and enhancing shareholder value - we
believe that a key measure of the success of the implementation of
the new strategy is that it leads to the recovery and enhancement
of the share price over the next period.
-- Focus on long-term sustainable performance - it is critical
at this point that the management team and staff are focussed on
ensuring the long-term sustainable performance of the Company. The
implementation of the new strategy is unlikely to be linear and the
management team needs to be flexible and nimble on their feet to
exploit opportunities as and when they arise.
-- Alignment to shareholder experience - the Board feels it is
important that the management team members are fully aligned with
the experience of shareholders. It is for this reason that the
long-term incentive plan is their sole incentive in the business.
The Company does not have an annual bonus plan for executives as it
strongly believes that the long-term holding of equity creates the
strongest alignment with the Company strategy and shareholder
interests.
-- Retention - as our sole incentive program, the long-term
incentive plan must be retentive as well as motivating. As we
implement the change in strategy and look to deliver the proposed
growth, we feel that the retention of our management team and key
members of staff is vital for successful execution. Were we to
leave the 2019 LTIP as per the original design, we believe we could
disincentivise the management team and participants due to the fact
that the performance criteria are set at a level that is almost
impossible to achieve given the Company's current strategy,
performance and planned growth.
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, excepting those participating in the 2019 LTIP,
are entitled to base salary, benefits, and a discretionary annual
bonus or profit share. 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 or 12 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 2021 (audited)
Salary Benefits Pension Options Comp for loss of office Total
Exercised
GBP GBP GBP GBP GBP GBP
-------- --------- -------- ----------- ------------------------ --------
Stefan Barden 193,968 - - - - 193,968
John Kearon 232,500 7,866 3,200 - - 243,566
Chris Willford 161,641 3,919 - - - 165,560
-------- --------- -------- ----------- ------------------------ --------
Total 588,109 11,785 3,200 - - 603,094
Compensation for loss of office for James Geddes was recognised
in the last financial year and paid in April 2020.
Year ended 31 March 2020 (audited)
Salary Benefits Pension Options Comp for loss of office Total
Exercised
GBP GBP GBP GBP GBP GBP
-------- --------- -------- ----------- ------------------------ --------
John Kearon 200,000 20,051 - - - 220,051
James Geddes 190,000 6,187 11,400 - 220,000 427,587
-------- --------- -------- ----------- ------------------------ --------
Total 390,000 26,238 11,400 - 220,000 647,638
The Executive Directors are not eligible for an annual cash
bonus and received no bonus payments in either of the past two
financial years.
Directors' interests in shares and options
Directors' interests in the shares of the Company at year-end
are shown below:
2021 2020
No. No.
---------- ----------
John Kearon 2,918,235 2,961,235
Stefan Barden 815,639 716,062
Chris Willford 27,000 -
James Geddes *263,178 263,178
Robert Brand 30,000 30,000
Graham Blashill 10,000 10,000
Sophie Tomkins 8,000 -
---------- ----------
Total 4,072,052 3,980,475
*James Geddes holdings are only known to the Company insofar as
to the number on the date of his resignation from the Board.
Directors' interests in options over shares and conditional
shares of the Company are shown below.
Date of Earliest Exercise No. at Granted Exercised Cancelled No. at 31
grant exercise price 1 Apr in year in year in year Mar
date 2020 2021
---------- ------------- ------------ --------- ---------- ---------- ---------- ---------- ------------
John
Kearon 16/01/2015 01/05/2018 0.0p *56,568 - - - 56,568
22/07/2015 01/05/2018 0.0p *60,000 - - - *60,000
04/09/2019 12/08/2020 0.0p **198,400 - - - **198,400
---------- ------------- ------------ --------- ---------- ---------- ---------- ---------- ------------
314,968 - - - 314,968
------------- ----------------------- --------- ---------- ---------- ---------- ---------- ------------
Stefan
Barden 17/04/2019 - 0.0p 100,000 - - - 100,000
17/04/2019 - 0.0p 100,000 - - - 100,000
17/04/2019 - 0.0p 100,000 - - - 100,000
------------- ----------------------- --------- ---------- ---------- ---------- ---------- ------------
300,000 - - - 300,000
------------- ----------------------- --------- ---------- ---------- ---------- ---------- ------------
Chris 27/11/2020 12/08/2021 0.0p - **132,267 - - **132,267
Willford
---------- ------------- ------------ --------- ---------- ---------- ---------- ---------- ------------
- 132,267 - - 132,267
James
Geddes 22/07/2015 01/05/2018 0.0p *60,000 - (60,000) - -
04/09/2019 12/08/2020 0.0p **198,400 - - (115,733) **82,667
------------ ------------- --------- ---------- ---------- ---------- ---------- ----------
258,400 (60,000) (117,733) 82,667
* Options granted under the previous LTIP. They were granted in
two tranches of 137,040 and 60,000 option shares (totalling
197,040) to each director. They were subject to performance
conditions, under which 116,568 of each Director's options vested
on 30 April 2017. The remaining 80,472 of each director's options
lapsed.
** Options and conditional shares granted under the current
LTIP, as described in the directors' remuneration policy. These
options can vest at any time between 12 August 2020 and 12 August
2024, 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.
2021 2020
GBP GBP
-------- --------
Graham Blashill 40,000 40,000
Robert Brand 38,000 38,000
Rupert Howell 6,000 -
Sophie Tomkins 36,000 36,000
Jane Wakely 36,000 36,000
-------- --------
Total 156,000 150,000
Graham Blashill
Chair, Remuneration Committee
Independent Auditor's 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 2021 which comprise of the consolidated income
statement, consolidated statement of comprehensive income,
consolidated and Company balance sheets, consolidated and Company
cash flow statements and consolidated and Company statements of
changes in equity, and notes to the financial statements, including
significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and
International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and, as regards the parent
company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
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 2021 and of the group's profit for the year then ended;
-- the group financial statements have been properly prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006;
-- the parent company financial statements have been properly
prepared in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006 and as
applied in accordance with the Companies Act 2006; and
-- the financial statements 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
and parent company 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.
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. For an
explanation of how we evaluation management's assess of the group's
and parent company's ability to continue to adopt the going concern
basis of accounting and our key observations arising in respect to
that evaluation, please see the going concern key audit matter.
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 or the parent company'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.
Summary of our audit approach
Key audit matters Group
* Going concern and the impact of COVID-19
* Valuation of sabbatical provision
* Impairment of intercompany receivable
================== ==================================================================
Materiality Group
* Overall materiality: GBP101,000 (2020: GBP145,000)
* Performance materiality: GBP75,900 (2020: GBP109,000)
Parent Company
* Overall materiality: GBP50,000 (2020: GBP72,500)
* Performance materiality: GBP37,500 (2020: GBP54,300)
================== ==================================================================
Scope Our audit procedures covered 100% of revenue,
total assets and profit before tax.
------------------ ------------------------------------------------------------------
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the group and
parent company 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 group and parent company financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Going concern and the impact of COVID-19
Key audit matter description
The Group has set out its analysis of the potential impact on
its operations and financial position of the COVID-19 pandemic in
business risk review on page 19 and the going concern statement on
page 23 . The potential risks to the Group include loss of a
significant clients, a decline in the advertising market resulting
in a reduced demand, and market conditions resulting in a reduced
ability to borrow and comply with bank covenants. In the event of a
material loss of, or delay to, incoming cash resources, the Group
could suffer cash pressure or default against borrowing covenants.
The assessment of these risks in an uncertain economic environment
requires judgement, and a risk of material misstatement arises in
respect of an incorrect application of the going concern basis of
preparation or the failure to disclose a material uncertainty. As a
result, the potential impact of the COVID-19 outbreak on going
concern was considered to be one of most significance in the audit
and was therefore determined to be a key audit matter.
How the matter was addressed in the audit.
We audited the Group's assessment of the application of the
going concern basis of preparation. Our work included:
-- Checking the integrity and accuracy of the cash flow
forecasts and covenant calculation's provided by management for the
period to December 2023.
-- We have reviewed the FY22 budget and challenged management on
the assumptions and inputs included in this budget.
-- Management have provided us with various contingency plans
and scenarios should the business not increase sales and meet
budgeted targets as expected.
-- We have tested the compliance with covenants post year end
through recalculation of the covenant against the compliance
requirements noted in the signed HSBC agreement. No issues with the
compliance has been noted in the budgeted scenario. However, in the
worst-case scenario, we note that covenants are breached and
repayment of the loan is factored into the cash flows therein. We
note that in these cases, there is still a positive forecasted cash
position at 12 months from anticipated sign-off.
-- We have reviewed the disclosure surrounding going concern within the financial statements;
-- We have reviewed management's worst-case scenario, in which
bank covenants are noted to be breached. Repayments of the loan due
to this breach is incorporated into the cash flow forecasts
therein. We note that in these cases, there is still a positive
forecasted cash position at 12 months from anticipated
sign-off;
-- Discussing our findings with the Audit Committee;
-- Auditing the accuracy and completeness of disclosures made in
the finance statements in respect of risks, going concern and post
balance sheet events;
-- The impact of the Coronavirus has created a significant
uncertainty for the entire economy. Such is the scale and speed of
developments of this virus that it is not possible to predict with
any degree of certainty what the effects will be on businesses and
therefore on cash flows. We have therefore included going concern
as a key audit matter in the audit report. Whilst uncertainty
exists, our audit work over going concern has provided sufficient
assurance that we do not believe a material uncertainty exists.
Valuation of sabbatical provision
Key audit matter description
The group has a sabbatical leave scheme, open to all employees,
which provides 20 days paid leave for each six years' of service.
The carrying amount of the provision at 31 March 2021 was
GBP688,000, which is included within note 11 of the notes to the
financial statements. The provision for liabilities under the
scheme is measured using the projected unit credit method. This
model requires a number of estimates and assumptions. The
significant inputs into the model are rate of salary growth and
average staff turnover. The employee retention rate is very
sensitive in the calculation and a small percentage swing can cause
a material movement in the provision.
The above was considered to be key audit matters due to the
level of judgement and estimation involved alongside the material
nature of the balances financially.
How the matter was addressed in the audit
We have performed the following testing and concluded as
below:
-- We have checked the closing provision at 31 March 2021 to the
valuation performed by PwC. No variances were noted in the
financial statements.
-- We have checked the inputs used in the sabbatical provision
calculation. The inputs included within the calculation are:
o Salary growth
o Bonuses
o Employee retention rate
o Discount rate
-- We challenged the use of historical values used by management
given the current economic situation. When sensitised the movement
in employee retention rate caused the biggest change provision
value.
-- We have checked the number of staff included in the
provisions calculation to payroll records provided by HR. Given the
calculated provision is highly sensitive to the employee retention
rate estimated by management, the rate used is a critical
accounting estimate and we recommended management disclose this is
in the accounting policies along with a sensitivity analysis.
Impairment of intercompany receivable
Key audit matter description
System1 Group Plc has c.GBP5.3m amounts due from subsidiaries at
the year-end. This is included within the Company notes to the
financial statements within the debtors note. Under IFRS 9,
Financial Instruments, management are required to perform a
calculation of impairment based on the IFRS 9 'expected loss' model
against intercompany receivables, for subsidiaries that do not have
sufficient liquid resources to repay the balance at the end of the
reporting period. There is judgement involved in the estimates used
to calculate the expected loss provision in respect of intercompany
receivables. This includes both assessing the scenarios of
recoverability and probabilities applied to each scenario and
because of this it was considered to be one of most significance in
the audit and was therefore determined to be a key audit
matter.
How the matter was addressed in the audit
We have reviewed management's assessment in respect of each
balance due from its subsidiary undertakings. This included a
review as to whether the assessment is in line with forecasts and
budgets reviewed elsewhere in our audit work.
We have additionally reviewed the disclosures in the parent
company financial statements and consider further for
reasonableness.
It should be noted that this has no impact on the consolidated
plc Annual Report as all intercompany balances are eliminated at
the group level.
Our application of materiality
When establishing our overall audit strategy, we set certain
thresholds which help us to determine the nature, timing and extent
of our audit procedures. When evaluating whether the effects of
misstatements, both individually and on the financial statements as
a whole, could reasonably influence the economic decisions of the
users we take into account the qualitative nature and the size of
the misstatements. Based on our professional judgement, we
determined materiality as follows:
Group Parent company
--------------------------- ------------------------------- -------------------------------
Overall materiality GBP101,000 (2020: GBP145,000) GBP50,000 (2020: GBP72,500)
=========================== =============================== ===============================
Basis for determining 5% of profit before 2% of net assets
overall materiality tax
=========================== =============================== ===============================
Rationale for benchmark Profit measure used Parent Company is the
applied for the trading activities main trading component
of the Group. therefore Group materiality
applied for the purpose
of calculating an appropriate
component materiality.
=========================== =============================== ===============================
Performance materiality GBP75,900 (2020: GBP109,000) GBP37,500 (2020: GBP54,300)
=========================== =============================== ===============================
Basis for determining 75% of overall materiality 75% of overall materiality
performance materiality
=========================== =============================== ===============================
Reporting of misstatements Misstatements in excess Misstatements in excess
to the Audit Committee of GBP5,060 and misstatements of GBP2,500 and misstatements
below that threshold below that threshold
that, in our view, warranted that, in our view,
reporting on qualitative warranted reporting
grounds. on qualitative grounds.
--------------------------- ------------------------------- -------------------------------
An overview of the scope of our audit
The group consists of 13 components, located in:
-- United Kingdom;
-- Netherlands;
-- United States of America ("USA");
-- Switzerland;
-- Germany;
-- China;
-- Brazil;
-- France;
-- Singapore; and
-- Australia.
A full scope audit was performed on the component in the United
Kingdom and specified audit procedures were applied to the other
components, achieving 100% coverage by our audit procedures.
Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report. 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.
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 course of 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 this gives rise to a material misstatement in the financial
statements themselves. 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 year 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 their 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 set out on page 26, 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.
The extent to which the audit was considered capable of
detecting irregularities, including fraud
Irregularities are instances of non-compliance with laws and
regulations. The objectives of our audit are to obtain sufficient
appropriate audit evidence regarding compliance with laws and
regulations that have a direct effect on the determination of
material amounts and disclosures in the financial statements, to
perform audit procedures to help identify instances of
non-compliance with other laws and regulations that may have a
material effect on the financial statements, and to respond
appropriately to identified or suspected non-compliance with laws
and regulations identified during the audit.
In relation to fraud, the objectives of our audit are to
identify and assess the risk of material misstatement of the
financial statements due to fraud, to obtain sufficient appropriate
audit evidence regarding the assessed risks of material
misstatement due to fraud through designing and implementing
appropriate responses and to respond appropriately to fraud or
suspected fraud identified during the audit.
However, it is the primary responsibility of management, with
the oversight of those charged with governance, to ensure that the
entity's operations are conducted in accordance with the provisions
of laws and regulations and for the prevention and detection of
fraud.
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud, the group audit
engagement team:
-- obtained an understanding of the nature of the industry and
sector, including the legal and regulatory framework that the group
and parent company operates in and how the group and parent company
are complying with the legal and regulatory framework;
-- inquired of management, and those charged with governance,
about their own identification and assessment of the risks of
irregularities, including any known actual, suspected or alleged
instances of fraud;
-- discussed matters about non-compliance with laws and
regulations and how fraud might occur including assessment of how
and where the financial statements may be susceptible to fraud.
All relevant laws and regulations identified at a Group level
and areas susceptible to fraud that could have a material effect on
the financial statements were communicated to component auditors.
Any instances of non-compliance with laws and regulations
identified and communicated by a component auditor were considered
in our audit approach.
The most significant laws and regulations were determined as
follows:
Legislation Additional audit procedures performed by the
/ Regulation Group audit engagement team included:
---------------- -------------------------------------------------------
IFRS/UK-adopted Review of the financial statement disclosures
IAS, Companies and testing to supporting documentation;
Act 2006 and Completion of disclosure checklists to identify
AIM rules areas of non-compliance.
================ =======================================================
Tax compliance Consideration of whether any matter identified
regulations during the audit required reporting to an appropriate
authority outside the entity
---------------- -------------------------------------------------------
The areas that we identified as being susceptible to material
misstatement due to fraud were:
Risk Audit procedures performed by the audit engagement
team:
------------- ------------------------------------------------------
Management Testing the appropriateness of journal entries
override of and other adjustments;
controls Assessing whether the judgements made in making
accounting estimates are indicative of a potential
bias; and
Evaluating the business rationale of any significant
transactions that are unusual or outside the
normal course of business.
------------- ------------------------------------------------------
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at:
http://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.
RICHARD BARTLETT-RAWLINGS (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
The Pinnacle,
170 Midsummer Boulevard,
Milton Keynes,
Buckinghamshire,
MK9 1BP
14 July 2021
Consolidated Income Statement
for the year ended 31 March 2021
Note 2021 2020
GBP'000 GBP'000
------------------ --------------------
Revenue 5 22,838 25,475
Cost of sales 15 (3,686) (3,874)
------------------ --------------------
Gross profit 5 19,152 21,601
Administrative expenses 15 (17,517) (21,183)
Other operating income 652 -
Operating profit 2,287 418
Finance expense 18 (211) (122)
Profit before taxation 16 2,076 296
Income tax expense 19 (386) (527)
Profit/(loss) for the financial
year 1,690 (231)
================== ====================
Attributable to the equity
holders of the Company 1,690 (231)
------------------ --------------------
Earnings per share attributable
to equity holders of the Company
Basic (losses)/earnings per
share 21 13.4p (1.8)p
Diluted (losses)/earnings per
share 21 13.1p (1.8)p
The notes on pages 55 to 80 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 2021
2021 2020
GBP'000 GBP'000
=========== ============
Profit/(loss) for the financial year 1,690 (231)
=========== ============
Other comprehensive income:
Items that may be subsequently reclassified to profit/(loss)
Currency translation differences on translating
foreign operations (278) (91)
----------- ------------
Other comprehensive loss for the period, net of
tax (278) (91)
Total comprehensive income/(loss) for the period
attributable to equity holders of the Company 1,412 (322)
=========== ============
The notes on pages 55 to 80 are an integral part of these
consolidated financial statements.
Consolidated Balance Sheet
as at 31 March 2021
Registered company no. 05940040
Note 2021 2020
GBP'000 GBP'000
------------- -------------
ASSETS
Non-current assets
Property, plant, and equipment 6 1,435 3,971
Intangible Assets 7 418 368
Deferred tax asset 20 286 627
------------- -------------
2,139 4,966
Current assets
Contract assets 318 217
Trade and other receivables 9 5,880 5,423
Income taxes receivables - 21
Cash and cash equivalents 8 9,008 6,650
------------- -------------
15,206 12,311
Total assets 17,345 17,277
============= =============
EQUITY
Attributable to equity holders of the Company
Share capital 10 132 132
Share premium account 1,601 1,601
Merger reserve 477 477
Foreign currency translation reserve (146) 132
Retained earnings 5,170 3,416
------------- -------------
Total equity 7,234 5,758
------------- -------------
LIABILITIES
Non-current liabilities
Provisions 11 560 565
Borrowings 8 2,500 2,500
Lease liabilities 8, 14 928 3,273
------------- -------------
3,988 6,338
Current liabilities
Provisions 11 200 300
Lease liabilities 8, 14 1,647 1,001
Contract liabilities 13 803 671
Income taxes payable 334 -
Trade and other payables 12 3,139 3,209
------------- -------------
6,123 5,181
Total liabilities 10,111 11,519
Total equity and liabilities 17,345 17,277
============= =============
The notes on pages 55 to 80 are an integral part of these
consolidated financial statements.
These financial statements were approved by the directors on 14
July 2021 and are signed on their behalf by:
John Kearon Chris Willford
Director Director
Consolidated Statement of Cash Flows
for the year ended 31 March 2021
Note 2021 2020
GBP'000 GBP'000
------------ ------------
Net cash generated from operations 23 3,791 3,180
Tax paid 332 (463)
------------ ------------
Net cash generated from operating activities 4,123 2,717
Cash flows from investing activities
Purchases of property, plant, and equipment 6 (102) (102)
Purchase of intangible assets 7 (96) (814)
------------ ------------
Net cash used by investing activities (198) (916)
Net cash flow before financing activities 3,925 1,801
Cash flows from financing activities
Interest paid (211) (122)
Property lease liability payments (1,093) (892)
Lease liability payments - (47)
Proceeds from sale of treasury shares 10 - 30
Proceeds from borrowings - 2,500
Dividends paid to owners 22 - (943)
------------ ------------
Net cash used by financing activities (1,304) 526
Net increase in cash and cash equivalents 2,621 2,327
Cash and cash equivalents at beginning of year 6,650 4,315
Exchange (loss)/gain on cash and cash equivalents (263) 8
Cash and cash equivalents at end of year 9,008 6,650
============ ============
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:
2021 2020
GBP'000 GBP'000
----------- -----------
Net cash flow before financing
activities 3,924 1,801
Net cash flow for property leases (1,229) (1,014)
----------- -----------
Operating cash flow 2,695 787
----------- -----------
2021 2020
GBP'000 GBP'000
----------- -----------
Net cash flow before financing activities 3,925 1,801
Net cash flow for property leases (1,229) (1,014)
----------- -----------
Operating cash flow 2,696 787
----------- -----------
The notes on pages 55 to 80 are an integral part of these
consolidated financial statements.
Consolidated Movements in Net Cash/(Debt)
Cash and Lease
cash equivalents Borrowings liabilities Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------ ----------- ------------- --------
At 1 April 2020 6,650 (2,500) (4,273) (123)
Cash flows 2,620 - 1,093 3,713
Non-cash charges -
Interest on lease liabilities - - (136) (136)
New lease liabilities - - (46) (46)
Disposal of lease liabilities 605 605
Exchange and other non-cash movements (262) - 182 (80)
At 31 March 2021 9,008 (2,500) (2,575) 3,933
================== =========== ============= ========
Consolidated Statement of Changes in Equity
for the year ended 31 March 2021
Foreign
Share currency
Share premium Merger translation Retained
Note capital account reserve reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ------------- ---------- --------
At 31 March 2019 132 1,601 477 223 4,635 7,068
Loss for the financial
year - - - - (231) (231)
Other comprehensive income:
- currency translation
differences - - - (91) - (91)
Total comprehensive income 132 1,601 477 132 4,404 6,746
Transactions with owners:
Employee share options:
- value of employee services 10 - - - - (60) (60)
- current tax credited
to equity 20 - - - - (31) (31)
- deferred tax credited
to equity 20 - - - - 16 16
Dividends paid to owners 22 - - - - (943) (943)
Sale of treasury shares 10 - - - - 30 30
At 31 March 2020 132 1,601 477 132 3,416 5,758
========= ========= ========= ============= ========== ========
Profit for the financial
year - - - - 1,690 1,690
Other comprehensive income:
- currency translation
differences - - - (278) - (278)
Total comprehensive income 132 1,601 477 (146) 5,106 7,170
Transactions with owners:
Employee share options:
- value of employee services 10 - - - - 22 22
- deferred tax credited
to equity 20 - - - - 25 25
- adjustments with respect
to prior year - - - - 17 17
At 31 March 2021 132 1,601 477 (146) 5,170 7,234
========= ========= ========= ============= ========== ========
The notes on pages 55 to 80 are an integral part of these
consolidated financial statements.
Notes to the Consolidated Financial Statements
for the year ended 31 March 2021
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 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
marketing and market research consultancy services. The Chairman's
Statement, the Chief Executive's Statement and the Business and
Finance Review provide further detail of the Group's operations and
principal activities.
The Board of Directors approved these financial statements for
the year ended 31 March 2021 (including the comparatives for the
year ended 31 March 2020) on 14 July 2021.
2. Basis of preparation
The Group has prepared its consolidated financial statements in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and applicable law.
The consolidated financial statements 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. It also requires
management to exercise its judgement in the process of applying the
Group's accounting policies. The areas involving a high degree of
judgement or complexity, or areas where estimates and judgements
are significant to the consolidated financial statements are
disclosed in Note 4 .
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. Going concern
The Group has prepared its financial statements on a going
concern basis.
As noted in the Financial Review, the Group has had a solid
close to 2020/21 in light of a challenging first half-year, partly
as a result of the Covid pandemic. Cash balance (gross of GBP2.5m
borrowings) was at GBP9.0m, net assets were GBP7.1m after GBP1.0m
of lease asset impairment, and revenues were returning to
pre-pandemic levels.
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, as with
last year's Covid pandemic.
Contrary to many businesses at the onset of the pandemic last
year, the Group is a lot more confident about how 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 June 2022 and beyond.
4. Principal accounting policies
The principal accounting policies adopted are consistent with
those of the financial statements for the year ended 31 March
2021.
Standards, amendments, and interpretations in issue but not yet
effective
Certain new accounting standards and interpretations have been
published that are not mandatory for
31 March 2021 reporting periods and have not been early adopted
by the Group. The only amendment identified as applicable to the
Group is as follows:
Amendments to IAS 1 and IAS 8 - Definition of material
The IASB has made amendments to 'IAS 1 Presentation of Financial
Statements' and 'IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors which use a consistent definition of
materiality' throughout International Financial Reporting Standards
and the Conceptual Framework for Financial Reporting, clarify when
information is material and incorporate some of the guidance in IAS
1 about immaterial information. These amendments clarify the
guidance on the application of materiality and the definition of
'primary users of general purpose financial statements'.
This amendment is not expected to have a material impact on the
entity in the current or future reporting periods or on foreseeable
future transactions.
Basis of consolidation
The Group financial statements consolidate those of the Company
and all its subsidiary undertakings drawn up to 31 March 2021.
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 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 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, except where included in the cost of inventories, 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 2021 or
2020.
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.
Intangible assets
Software
Acquired computer software licenses are capitalised at the cost
of acquisition.
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.
Development costs incurred in the development of the Company's
AdRatings product were fully impaired in the year ending 31 March
2020 as the Company viewed that it will no longer generate
substantive future economic benefits. Accordingly, all AdRatings
development costs incurred since the impairment, such as
professional fees and directly attributable employee costs required
to bring the software into working condition, have been charged to
administrative expenses.
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;
e) 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;
f) the availability of adequate technical, financial, and other
resources to complete the development and to use or sell the
intangible asset;
g) 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 2 years
Internally generated intangible Estimated economic life
assets
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 and cash equivalents
Cash and cash equivalents comprise cash in hand and bank
deposits available on demand.
Contract costs
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, that 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.
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 from the delivery of research
services. Revenue from all of the Group's research product lines
(Communications, Brand, Innovation, and other research products)
and its advertising agency 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.
Revenue is recognised only after the final written debrief or
creative content (in respect of our Agency business) 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. 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.
Other operating income
During the year in response to Covid, the Group participated in
some government employment support schemes and other support
schemes to mitigate our staff and property costs. These government
grants were not a part of the Group's usual operations, and the
staff and lease costs would have been incurred regardless of the
schemes.
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.
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.
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.
Provisions
Provisions for sabbatical leave and dilapidations are recognised
when: (i) the Group has a legal or constructive obligation because
of past events; (ii) it is probable that an outflow of resources
will be required to settle the obligation; and (iii) 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.
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, 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 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
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 assesses expected
credit losses based on the ageing of the receivable, the Group's
historical experience 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 Statement of Financial
Position. 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.
Accrued and deferred income
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 60 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
Share-based payments - judgement
The fair value of options granted is determined using a Black
Scholes based Employee Stock Option Valuation model (for the
employee share option scheme) and a Monte Carlo simulation model
(for the long-term incentive scheme). These 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 10 .
Under IFRS 16, a contract is, or contains, a lease if the
contract conveys the right to control the use of an identified
asset for a period in exchange for consideration. The lease
liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted by
using the rate implicit in the lease. If this rate cannot be
readily determined, the Group uses its incremental borrowing rate.
The weighted average incremental borrowing rate applied to lease
liabilities is 4.30%.
In previous years, the Company has often purchased shares to
satisfy 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.
Employee benefits - estimate
The Group has a sabbatical leave scheme, open to all employees,
which provides 20 days paid leave for each six years of service.
The provision for liabilities under the scheme is measured using
the projected unit credit method. This model requires several
estimates and assumptions. The significant inputs into the model
are rate of salary growth and average staff turnover as explained
in Note 11 .
Capitalisation of AdRatings platform - estimate
The Group tests capitalised development costs for impairment on
an annual basis by reference to expected future cash generation
from the AdRatings product. In estimating future cash generation,
management make judgements by reference to budgets and forecasts
about the amount and timing of future profits. As a result of the
impairment testing performed for the year ended 31 March 2020,
management have determined that future attributable revenues are
not forecast to be sufficient to supporting the carrying value of
the capitalised development costs and a charge of GBP921,000 had
been recognised in the year ended 31 March 2020 to impair the asset
in full. Details are contained in Note 7 .
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.
5. 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.
2021 2020
------------------ ------------------
Gross Gross
Revenue profit Revenue profit
GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- --------
By location of
customer
Americas 8,822 7,571 12,790 10,951
United Kingdom 6,780 5,668 5,515 4,688
Rest of Europe 5,233 4,231 5,628 4,630
APAC 2,003 1,682 1,542 1,332
-------- -------- -------- --------
22,838 19,152 25,475 21,601
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.
Consolidated balance sheet information is regularly provided to
the Executive Directors while segment balance sheet information is
not. Accordingly, the Company does not disclose segment balance
sheet information here.
2021 2020
-------------------- --------------------
Gross Gross
Revenue profit Revenue profit
GBP'000 GBP'000 GBP'000 GBP'000
--------- --------- --------- ---------
By product variant
Data 1,480 1,270 - -
Consultancy 20,561 17,467 23,468 19,976
Other services 797 415 2,008 1,625
--------- --------- --------- ---------
22,838 19,152 25,475 21,601
By product group
Communications (Ad Testing) 10,603 9,177 9,002 7,992
Brand (Brand Tracking) 3,796 2,878 4,637 3,428
Innovation 7,642 6,682 9,829 8,555
Other services 797 415 2,008 1,625
--------- --------- --------- ---------
22,838 19,152 25,475 21,601
AdRatings revenues and gross profit were GBPnil in the year
(2020: GBP53,000). With no projections of further performance that
led to the impairment in the year ended 2020, the balance has been
aggregated into "Other services".
As the Company is domiciled in the UK, its consolidated
non-current assets, other than financial instruments and deferred
tax assets are as follows:
2021 2020
GBP'000 GBP'000
--------- ---------
Non-current assets
United Kingdom 1,778 2,462
Rest of world 75 1,877
--------- ---------
1,853 4,339
In the year ended 31 March 2021, the Group earned revenue of
GBP1,861,000 (2020: GBP2,596,000) from its largest customer based
in the Americas, representing 8% of its consolidated revenue (2020:
10%).
6. Property, plant, and equipment
Right-of-use Furniture Computer
assets and fixtures hardware Total
GBP'000 GBP'000 GBP'000 GBP'000
------------- ------------- -------------- -------------
At 1 April 2019
Cost 5,286 553 1,285 7,124
Accumulated depreciation (2,666) (422) (1,189) (4,277)
------------- ------------- -------------- -------------
Net book value 2,620 131 96 2,847
Net book value, at 1 April 2019 2,620 131 96 2,847
Additions 2,336 - 102 2,438
Disposals (54) (13) - (67)
Foreign exchange 88 3 - 91
Depreciation charge for the year (1,183) (74) (81) (1,338)
------------- ------------- -------------- -------------
Net book value, at 31 March 2020 3,807 47 117 3,971
At 31 March 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
============= ============= ============== =============
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 46 4 52 102
Disposals (516) (5) (11) (532)
Foreign exchange (104) (2) (1) (107)
Depreciation charge for the year (951) (27) (84) (1,062)
Impairment charge (937) - - (937)
------------- ------------- -------------- -------------
Net book value, at 31 March 2021 1,345 17 73 1,435
At 31 March 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
============= ============= ============== =============
7. Intangible assets
Development Software
costs (AdRatings) licenses Software Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------- ---------- ----------- -----------
At 1 April 2019
Cost 923 697 1,672 3,292
Accumulated amortisation (110) (696) (1,672) (2,478)
------------------- ---------- ----------- -----------
Net book value 813 1 - 814
Net book value, at 1 April
2019 813 1 - 814
Additions 446 - 368 814
Amortisation for the
year (338) (1) - (339)
Impairment charge (921) - - (921)
------------------- ---------- ----------- -----------
Net book value, at 31 March
2020 - - 368 368
At 31 March 2020
Cost 1,369 697 2,040 4,106
Accumulated depreciation (1,369) (697) (1,672) (3,738)
------------------- ---------- -----------
Net book value - - 368 368
=================== ========== =========== ===========
At 1 April 2020
Cost 1,369 697 2,040 4,106
Accumulated amortisation (1,369) (697) (1,672) (3,738)
------------------- ---------- ----------- -----------
Net book value - - 368 368
Net book value, at 1 April
2020 - - 368 368
Additions - - 96 96
Disposals - - - -
Amortisation for the
year - - (46) (46)
------------------- ---------- ----------- -----------
Net book value, at 31 March
2021 - - 418 418
At 31 March 2021
Cost - - 464 464
Accumulated depreciation - - (46) (46)
------------------- ---------- ----------- -----------
Net book value - - 418 418
=================== ========== =========== ===========
The only software cost as at 31 March 2021 is the Group's new
finance and operations system that was brought into use October
2020. As historical items such as the AdRatings product and other
software licences were fully impaired or amortised as at 31 March
2020, their respective costs and accumulated amortisation have been
removed this year.
The carrying value of the AdRatings product was tested for
impairment at as 31 March 2020. The carrying value of the asset was
allocated to the AdRatings cash generating unit ('CGU') for the
purposes of assessing future cashflows. The principal assumptions
used in the forecast were the timing and amount of future revenues
and profit margins, which were derived from the latest forecasts
approved by the Board. As a result of this review and considering
the continuing modest AdRatings revenues of GBP0.05m in 2019/20,
the carrying value of the asset was fully impaired; the
amortisation charge included impairment charges of GBP0.9m.
8. 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.
2021 2020
GBP'000 GBP'000
-------- --------
Cash and cash equivalents
HSBC Bank PLC (AA credit rating) 8,458 6,135
Santander 368 360
Deutsche Bank 74 84
UBS 90 64
Other banks 18 7
-------- --------
9,008 6,650
Trade receivables
Largest customer by revenue 666 390
Financial instruments by category
At the balance sheet date, the Group held the following
financial instruments by category.
2021 2020
GBP'000 GBP'000
------------- ------------
Financial assets carried at amortised cost
Trade and other receivables (excluding prepayments
and accrued income) 5,568 5,072
Cash and cash equivalents 9,008 6,650
------------- ------------
14,576 11,722
Other financial liabilities carried at amortised cost
Current liabilities
Trade payables 845 1,005
Accruals 1,871 2,086
Lease liabilities 1,647 1,001
------------- ------------
4,363 4,092
Non-current liabilities
Borrowings 2,500 2,500
Lease liabilities 928 3,273
------------- ------------
3,428 5,773
The application of IFRS 16 has resulted in the recognition of
lease liabilities in respect of property leases previously treated
as operating leases and expensed in the income statement on a
straight-line basis. The payment of the Group's financial
liabilities will be financed from existing cash to their fair
value.
On 10 February 2020, the Company entered a 3-year revolving
credit facility with HSBC. The agreement allows the Company to draw
down up to GBP2,500,000 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.
9. Trade and other receivables
2021 2020
GBP'000 GBP'000
----------- -----------
Trade receivables 5,265 4,678
Prepayments and accrued income 312 351
Other receivables 303 394
----------- -----------
5,880 5,423
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
above). 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,
that 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. The Group 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 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 2021, trade receivables of GBP1,716,000 (2020:
GBP1,352,000) were past due but not impaired. The ageing of trade
receivables, and the associated loss allowance, is as follows:
Over
0-3 months 3-6 months 6 months
Current due due due Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- ----------- ----------- ---------- --------
At 31 March 2021
Gross trade receivables 3,610 1,576 106 93 5,385
Loss provision 61 53 4 2 120
Expected loss rate 2% 3% 4% 2%
-------- ----------- ----------- ---------- --------
At 31 March 2020
Gross trade receivables 3,326 1,274 117 72 4,789
Loss provision - - 39 72 111
Expected loss rate 0% 0% 33% 100%
-------- ----------- ----------- ---------- --------
Movements in the impairment allowance for trade receivables are
as follows:
2021 2020
GBP'000 GBP'000
-------- --------
Provision for impairment of trade receivables
Opening balance 111 64
Charged to the income statement 131 99
Utilisations and other movements (122) (52)
-------- --------
120 111
As of 31 March 2021, no other receivables or contract costs were
impaired (2020: GBPNil).
The carrying amount of the Group's trade and other receivables
are denominated in the following currencies.
2021 2020
GBP'000 GBP'000
--------- ---------
United States dollar 2,004 2,350
British sterling 1,527 1,397
Euro dollar 654 893
Brazilian real 263 257
Swiss franc 465 281
Chinese yuan - 35
Canadian dollar - 16
Australian dollar 118 144
Singapore dollar 597 50
--------- ---------
5,628 5,423
10. 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.
2021 2020
--------------------- ---------------------
No. GBP'000 No. GBP'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:
2021 2020
------------------------ -----------------------
Weighted Weighted
average average
exercise exercise
Treasury price Treasury price
shares per share shares per share
No. Pence No. Pence
----------- ----------- ---------- -----------
Shares held by Treasury
At 1 April 626,989 650,156
Transfer of shares to satisfy
options exercise (116,568) - (23,167) 131.5
----------- ----------
At 31 March 510,421 626,989
Share options
Employee share option scheme
The Group issues share options to directors and to employees
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:
2021 2020
------------------------ ------------------------
Weighted Weighted
average average
exercise exercise
price price
Options per share Options per share
No. Pence No. Pence
----------- ----------- ----------- -----------
Share options outstanding
Opening balance 1,685,237 0.5 962,470 6.4
Granted 380,780 - 1,358,135 -
Lapsed - - (17,000) 131.5
Replaced - - (462,934) -
Cancelled (326,087) - (132,267) 0.0
Exercised (116,568) - (23,167) 131.5
----------- -----------
Closing balance 1,623,362 0.6 1,685,237 0.5
Exercisable at year-end 199,088 4.6 315,656 2.9
Weighted average share price at date
of options exercised 133.7 204.0
The Group had the following outstanding options and exercise
prices:
2021 2020
--------------------------------------- --------------------------------------
Weighted Weighted Weighted Weighted
average average average average
exercise remaining exercise remaining
Expiry price per contractual price per contractual
date Options share life Options share life
No. Pence Months No. Pence Months
----------- ----------- ------------- ---------- ----------- -------------
2020 - - - 10,144 - 1.9
2024 182,520 5.0 38.9 172,376 5.3 50.9
2025 116,568 - 48.8 233,136 - 60.8
2027 743,494 - 71.7 1,069,581 - 83.7
2028 264,534 - 83.7 - - -
2029 216,246 - 97.7 100,000 - 112.0
2032 100,000 - 136.1 100,000 - 148.1
1,623,362 0.6 75.8 1,685,237 0.5 82.2
Long-term incentive scheme
During the past year, 380,780 new options were granted and
326,087 were cancelled, a net increase of 54,693 that leaves the
capacity of the 2019 scheme fully utilised. The options vest
between 12 August 2020 and 12 August 2024, subject to Gross Profit,
Profit After Tax and the Company's share price exceeding certain
targets. These targets are the same as those set under the 2017
LTIP scheme, full details of which are given in the Company's
Remuneration Report. The final performance period of the 2019 LTIP
is the Company's 2023/24 financial year, and the lapse date is 12
August 2024.
The number of options outstanding under the 2019 LTIP scheme is
1,124,274 (31 March 2020: 1,058,135). Full details of the LTIP can
be found in the Remuneration Committee Report, including some
proposed changes to the scheme.
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 at a weighted average fair value at date of grant of
37 pence per share. These options vest in three tranches of 100,000
each subject to Gross Profit and the Company's share price
exceeding certain targets. The three tranches lapse on 30 July
2024, 30 July 2029, and 30 July 2032 respectively. Full details of
the grant can be found in the Remuneration Committee Report.
Share-based payment charge
The total charge relating to equity-settled share-based payment
plans was GBP22,000 (2020: credit GBP60,000). The associated charge
for social security was GBP53,000 (2020: credit GBP23,000).
11. Provisions
Leasehold
Sabbatical dilapidations Total
GBP'000 GBP'000 GBP'000
----------- --------------- ---------
At 1 April 2019 753 82 835
Provided in the year 12 59 71
Utilised in the year (41) - (41)
----------- --------------- ---------
At 31 March 2020 724 141 865
Utilised in the year (11) (63) (74)
Reversals of unused
amounts (25) - (25)
Foreign exchange movement - (6) (6)
----------- --------------- ---------
At 31 March 2021 688 72 760
=========== =============== =========
Due within one year 155 45 200
Due after one year 533 27 560
The Group has a sabbatical leave scheme, open to all employees.
The scheme provides 20 days paid leave for each successive period
of six years' service. There is no proportional entitlement for
shorter periods of service. The assumptions used in the sabbatical
provision are as follows:
2021 2020
---------- ----------
Project unit credit
Measurement method method
Discount rate, based on 6-year corporate
bond yields 1.2% 2.1%
Annual salary growth rate 7% 7%
GBP'000
---------
Changes to the assumptions will increase the provision by:
0.25% decrease to discount rate 6
10% increase to salary increase assumption 84
3% decrease to staff turnover assumption 78
Dilapidation provisions represent GBPNil (2020: GBP63,000) in
relation to agreed settlements and the remainder represents the
Group's best estimate of costs required to meet its obligations
under property lease agreements.
12. Trade and other payables
2021 2020
GBP'000 GBP'000
--------- ---------
Trade payables 845 1,005
Social security and other taxes 423 118
Accruals and deferred income 1,871 2,086
--------- ---------
3,139 3,209
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.
13. Contract liabilities
2021 2020
GBP'000 GBP'000
-------- --------
Contract liabilities 803 671
-------- --------
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.
14. Borrowings
The analysis of the maturity of lease liabilities is as
follows:
2021 2020
GBP'000 GBP'000
--------- ---------
Within one year 1,720 1,208
Later than 1 but no later than 5 years 943 3,405
More than 5 years - -
--------- ---------
Minimum lease payments 2,663 4,613
Future finance charges (88) (339)
--------- ---------
Recognised as a liability 2,575 4,274
The present value of finance lease liabilities is as
follows:
2021 2020
GBP'000 GBP'000
--------- ---------
Within one year 1,647 1,001
Later than 1 but no later than 5 years 928 3,273
More than 5 years - -
--------- ---------
2,575 4,274
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 8.
15. Expenses by nature
2021 2020
GBP'000 GBP'000
--------------- -----------------
Employee benefit expense 9,105 11,774
Employee benefit expense - research and
development 1,456 777
Other research and development costs 1,054 1,313
Depreciation, amortisation, and impairment 1,108 2,598
Impairment on right-of-use asset 937 -
Net foreign exchange losses/(gains) 57 (21)
Other expenses 7,486 8,616
--------------- -----------------
21,203 25,057
=============== =================
Analysed as:
Cost of sales 3,686 3,874
Administrative expenses 17,517 21,183
--------------- -----------------
21,203 25,057
=============== =================
Reconciliation between Operating Costs and Adjusted Operating
Costs:
2021 2020
GBP'000 GBP'000
----------------- -----------------
Administrative expenses 17,517 21,183
Finance expense 211 122
----------------- -----------------
Total Operating Costs 17,728 21,305
================= =================
Less: Adjusting items
Impairment 990 921
Compensation for loss of
office 564 498
Bonus expense (161) 296
Share-based payment expense 75 (84)
Other interest expense 75 122
Other staff costs (31) -
Movement in provisions - 11
Advertising Agency - 174
----------------- -----------------
1,512 1,938
Adjusted Operating Costs 16,216 19,367
================= =================
16. Auditor Remuneration
2021 2020
GBP'000 GBP'000
-------- --------
Audit of parent company and consolidated
accounts 62 58
Audit-related assurance services 10 10
-------- --------
72 68
17. Employee benefit expense
2021 2020
GBP'000 GBP'000
--------- ---------
Employee benefit expenses (including directors)
comprise:
Wages and salaries 8,086 10,134
Social security contributions and
similar taxes 1,119 1,131
Defined contribution pension cost 302 361
Long service leave cost - sabbatical
provision (16) (29)
Share-based payment expense 75 (60)
Compensation for loss of office 564 521
Medical benefits 431 493
--------- ---------
10,561 12,551
Key management personnel are those persons having authority and
responsibility for planning, directing, and controlling the
activities of the Group, including the 3 Executive Directors of the
company. Details of directors' emoluments are given in the
Remuneration Report.
Compensation to key management is set out as follows:
2021 2020
GBP'000 GBP'000
------------- -------------
Salaries and benefits in kind 875 949
Social security contributions 109 78
Compensation for loss of office - 220
Defined contribution pension cost 3 11
Long-term bonus plan - (7)
Share-based payment expense 3 (24)
------------- -------------
990 1,227
The average number of staff employed by the Group during the
financial year was as follows:
2021 2020
No. No.
------- -------
Sales and marketing 31 36
Operations 55 67
IT 27 19
Administration 21 24
------- -------
134 146
18. Finance expenses
2021 2020
GBP'000 GBP'000
-------- --------
Other net interest payable 75 4
Finance charges on property leases 136 118
-------- --------
211 122
19. Income tax expense
2021 2020
GBP'000 GBP'000
------------ -----------
Current tax 95 886
Deferred tax 291 (359)
------------ -----------
386 527
2021 2020
GBP'000 GBP'000
------------ -----------
Current tax 88 886
Deferred tax 339 (359)
------------ -----------
427 527
Income tax expense for the year differs from the standard rate
of taxation as follows:
2021 2020
GBP'000 GBP'000
------------- --------
Profit on ordinary activities before
taxation 2,076 296
------------- --------
Profit on ordinary activities multiplied
by standard UK tax rate 387 56
Difference between tax rates applied
to Group's subsidiaries 7 265
Net expenses not deductible for tax
purposes 165 7
Adjustments to trading losses and brought
forward values 110 84
Tax on intra-group management charges
(Brazil and China) (6) 113
Receipt of research and development
credits (581) -
Adjustment to current tax in respect
of prior years (48) (41)
Adjustments to foreign and withholding
tax (2) 45
Adjustments to deferred tax in respect of prior
and current years 354 -
Credit on exercise of share options
taken to income statement - (2)
386 527
============= ========
2021 2020
GBP'000 GBP'000
------------- -------------
Profit on ordinary activities before
taxation 3,871 296
------------- -------------
Profit on ordinary activities multiplied
by standard UK tax rate 736 56
Difference between tax rates applied
to Group's subsidiaries 74 265
Net expenses not deductible for tax
purposes 193 7
Adjustments to trading losses and brought
forward values (25) 113
Tax on intra-group management charges
(Brazil and China) - (41)
Adjustment to current tax in respect
of prior years (580) 45
Adjustments to foreign and withholding
tax (279) 84
Adjustments to deferred tax in respect
of prior years 387
Deferred tax (77) -
Credit on exercise of share options
taken to income statement (2)
427 527
============= =============
The standard tax rate for the years ended 31 March 2021 and 2020
was 19%.
The R&D Tax Credit in respect of the year ended 31 March
2019 provided a benefit of approximately GBP0.6m and was received
and recognised in this year. The R&D Tax Credit in respect of
the year ended 31 March 2020 provided a benefit of approximately
GBP0.5m, which was received and recognised subsequent to year-end.
The Company is working with its advisors to submit a claim for a
Research & Development Tax Credit ("R&D Tax Credit") in
respect of the year ended 31 March 2021.
20. Deferred tax
Deferred tax assets and liabilities are as follows.
2021 2020
GBP'000 GBP'000
------------- -------------
Deferred tax assets:
- Deferred tax assets to be recovered after
more than 12 months 306 570
- Deferred tax assets to be recovered within
12 months 43 79
------------- -------------
349 649
Deferred tax liabilities:
- Deferred tax liability to be recovered
within 12 months (63) (22)
Deferred tax asset (net): 286 627
============= =============
The gross movement in deferred tax is as follows.
2021 2020
GBP'000 GBP'000
------------- -------------
Opening balance 627 299
Income statement credit/(charge) (316) 359
Tax (debited)/credited directly to equity (25) (31)
Closing balance 286 627
============= =============
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:
Trading Other Share Dilapidation Sabbatical
Deferred tax assets losses provisions options provisions provision Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- ------------ --------- ------------- ----------- ------------
At 1 April 2020 377 28 87 27 130 649
Credited/(charged)
to income statement (277) 15 (17) (15) (2) (296)
Adjustments with respect
to prior year 20 - - - - 20
Debited directly to
equity - - (25) - - (25)
At 31 March 2021 120 43 45 12 128 348
======== ============ ========= ============= =========== ============
Accelerated
capital
Deferred tax liabilities allowances
GBP'000
------------
At 1 April 2020 (22)
Charged to income
statement 20
Adjustments with respect
to prior year (60)
------------
At 31 March 2021 (62)
============
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.
21. Earnings per share
2021 2020
----------- -------------
Profit/(loss) attributable to equity holders
of the Company, in GBP'000 1,690 (231)
Weighted average number of Ordinary Shares
in issue 12,657,318 12,582,934
Basic earnings/(losses) per share 13.4p (1.8)p
Profit/(loss) attributable to equity holders
of the Company, in GBP'000 1,690 (231)
Weighted average number of Ordinary Shares
in issue 12,657,318 12,582,934
Share options 193,768 NA
----------- -------------
Weighted average number of Ordinary Shares
for diluted earnings per share 12,851,086 12,582,934
Diluted earnings/(losses) per share 13.1p (1.8)p
Basic earnings/(losses) 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/(losses) 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.
Employee options of 1.4 million (2020: 1.2 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 2021. The total number of options in
issue is disclosed in note 10.
22. Dividends
2021 2020
GBP'000 GBP'000
--------- --------
2020 interim dividend paid, 1.1p per share - 138
2019 final dividend paid, 6.4p per share - 805
--------- --------
- 943
The Company did not pay an interim dividend in the year ended 31
March 2021 and does not propose the payment of a final
dividend.
On 13 December 2019, the Company paid an interim dividend of 1.1
pence per share, amounting to GBP138,000, in respect of the year
ended 31 March 2020.
23. Net cash generated from operations
2021 2020
GBP'000 GBP'000
------------ -------------
Profit before taxation 2,076 296
Depreciation and impairment of property,
plant, and equipment 1,999 1,338
Amortisation and impairment of intangible
assets 46 1,260
Loss on disposal of property, plant, and
equipment (73) 66
Interest paid 211 122
Share-based payment expense 40 (60)
Increase in contract assets (109) (8)
(Increase)/decrease in trade and other receivables (450) 1,484
Decrease in trade and other payables (71) (1,265)
Increase in contract liabilities 131 137
Decrease in provisions (104) -
Exchange differences on operating items 94 (190)
3,791 3,180
============ =============
24. Related party transactions
Dividends paid to directors were as follows:
2021 2020
GBP GBP
-------- ----------
John Kearon - 222,093
James Geddes (resigned 20 April 2020) - 19,738
Robert Brand - 2,250
Graham Blashill - 750
------- ----------
- 244,831
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.
Amounts
Revenues/ due from/(to)
(direct Overhead related
costs) charges Royalties parties
GBP'000 GBP'000 GBP'000 GBP'000
---------- ---------- ---------- ---------------
2021
System1 Group PLC (32) 5,893 2,176 3,877
System1 Research Limited (37) (1,809) (670) (465)
System1 Research, Inc. 61 (2,106) (774) (2,587)
System1 Research B.V. - (226) (82) (317)
System1 Research Sarl (11) (645) (241) (177)
System1 Research GmbH 22 (230) (87) 234
System1 Marketing Consulting
(Shanghai) Co. Limited - - - 70
System1 Research Do Brazil
Servicos de Marketing Ltda. - - - (18)
System1 Research France Sarl (5) (329) (122) 17
System1 Market Research Pte
Ltd 2 (274) (80) (180)
System1 Research Pty Ltd. - (273) (120) (361)
System1 Agency Limited - - - (32)
System1 AdRatings Limited - - - (62)
2020
System1 Group PLC 2 6,090 2,403 351
System1 Research Limited (190) (1,371) (557) (78)
System1 Research, Inc. (169) (2,858) (1,120) (416)
System1 Research B.V. (88) 271 (113) (51)
System1 Research Sarl 219 (489) (188) 465
System1 Research GmbH - (410) (158) (211)
System1 Marketing Consulting
(Shanghai) Co. Limited - - - 254
System1 Research Do Brazil
Servicos de Marketing Ltda. - - - (6)
System1 Research France Sarl 88 (291) (112) 223
System1 Market Research Pte
Ltd 45 (116) (45) (52)
System1 Research Pty Ltd. 11 (284) (109) 182
System1 Agency Limited 84 - - (661)
25. 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 2021
Registered Company No. 05940040
2021 2020
Note GBP'000 GBP'000
----------- -----------
Fixed assets
Intangible assets 2 418 368
Tangible assets 3 1,356 2,076
Investments 4 581 581
----------- -----------
2,355 3,025
Debtors due after one year 5 - 385
Current assets
Debtors due within one year 5 6,046 2,075
Cash and cash equivalents 514 3,966
6,560 6,041
Creditors: amounts due within one
year 6 2,246 2,678
Net current assets 4,314 3,363
Total assets less current liabilities 6,669 6,773
Creditors: amounts due after one
year 6 3,330 4,101
Provisions for liabilities 7 299 270
Net assets 3,040 2,402
=========== ===========
Capital and reserves
Share capital 132 132
Share premium account 1,601 1,601
Retained earnings 1,307 669
Shareholders' funds 3,040 2,402
=========== ===========
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 profit/(loss) after tax was
GBP573,000 (2020: GBP(663,000)).
The notes on pages 84 to 95 are an integral part of these
company financial statements.
These financial statements were approved by the directors on 14
July 2021 and are signed on their behalf by:
John Kearon Chris Willford
Director Director
Company Statement of Changes in Equity
for the year ended 31 March 2021
Share Share Retained
capital premium earnings Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------- -------------- ------------- -------------
At 1 April 2019 132 1,601 2,338 4,071
Loss for the financial period
and total comprehensive income
attributable to the equity holders - - (663) (663)
-------------- -------------- ------------- -------------
Transactions with owners:
Employee share option scheme:
- value of employee services - - (60) (60)
- deferred tax credited to equity - - (33) (33)
Dividends paid to owners - - (943) (943)
Sale of treasury shares - - 30 30
- - (1,006) (1,006)
At 31 March 2020 132 1,601 669 2,402
Profit for the financial period
and total comprehensive income
attributable to the equity holders - - 573 573
-------------- -------------- ------------- -------------
Transactions with owners:
Employee share option scheme:
- value of employee services - - 22 22
- deferred tax credited to equity - - 25 25
- adjustments with respect to
prior year - - 18 18
- - 65 65
At 31 March 2021 132 1,601 1,307 3,040
============== ============== ============= =============
Notes to the Company Financial Statements
for the year ended 31 March 2021
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 2021.
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) as permitted by the Companies Act 2006 section 408, the Company's profit and loss account;
b) a statement of cash flows and related notes;
c) the requirement to produce a balance sheet at the beginning
of the earliest comparative period;
d) the requirements of IAS 24 Related Party Disclosures to
disclose related party transactions entered between two or more
wholly owned members of the group;
e) disclosure of key management personnel compensation;
f) capital management disclosures;
g) presentation of a comparative reconciliation of the number of
shares outstanding at the beginning and at the end of the
period;
h) the effect of future accounting standards not adopted;
i) disclosures in respect of financial instruments and fair value measurement.
Research and development - internally generated intangible
assets
All on-going research expenditure is expensed in the year in
which it is incurred. Development costs incurred in the development
of the Company's new AdRatings product are capitalised as an
internally generated asset when all criteria for capitalisation are
met. The AdRatings product comprises the product platform and the
data available to product subscribers.
Costs relating to the research phase of the product, amounting
to GBP2.11m were expensed in the year to 31 March 2020. Development
costs include professional fees and directly attributable employee
costs required to bring the software into working condition. 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
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;
e) 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;
f) the availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset;
g) 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
two years.
Internally generated intangible assets are amortised on a
straight-line basis over their useful economic lives.
The AdRatings platform and the cost of data being made available
to subscribers were being amortised over a period of 3 years on a
straight-line basis, prior to impairment in full in the year ended
31 March 2020.
Amortisation and impairment on all intangible assets are charged
to administrative expenses.
Tangible 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.
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, that 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.
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 for sabbatical leave 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 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 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.
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.
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.
Significant accounting estimates and judgements
Share-based payments - judgement
The fair value of options granted is determined using a Black
Scholes based Employee Stock Option Valuation model (for the
employee share option scheme) and a Monte Carlo simulation model
(for the long-term incentive scheme). These 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.
In previous years, the Company has often 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
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 a present obligation to settle in cash. The Company
does not publicise to option holders that treasury shares may be
repurchased and the decision to do so is only made at the point of
option exercise. Consequently, for subsequent settlements treasury
shares issued may not be purchased. For this reason, treating the
transaction as a whole would not reflect the transaction's
substance. There is no present obligation to settle in cash given
that the Company does not have a policy of repurchasing treasury
shares and has not advertised to employees that this option will be
open to them until the point of exercise. As a result, the
Company's share options continue to be accounted for as equity
rather than cash-settled.
In prior periods 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.
Employee benefits - estimate
The Company has a sabbatical leave scheme, open to all
employees, which provides 20 days paid leave for each six years of
service. The provision for liabilities under the scheme is measured
using the projected unit credit method. This model requires several
estimates and assumptions. The significant inputs into the model
are 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 2021 was 53 (2020: 49) and total employment
costs were GBP4,763,000 (2020: GBP5,343,000)
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.
Under IFRS 16, a contract is, or contains, a lease if the
contract conveys the right to control the use of an identified
asset for a period in exchange for consideration. The lease
liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted by
using the rate implicit in the lease. If this rate cannot be
readily determined, the Company uses its incremental borrowing
rate. The weighted average incremental borrowing rate applied to
lease liabilities is 3.5%.
Capitalisation of AdRatings platform - estimate
The Company tests capitalised development costs for impairment
on an annual basis by reference to expected future cash generation
from the AdRatings product. In estimating future cash generation,
management make judgements by reference to budgets and forecasts
about the amount and timing of future profits.
2. Intangible assets
Development Software
costs (AdRatings) licenses Software Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------- ---------- ---------- ----------
At 1 April 2019
Cost 923 499 1,672 3,094
Accumulated amortisation (110) (498) (1,672) (2,280)
------------------- ---------- ---------- ----------
Net book value 813 1 - 814
Net book value, at 1 April
2019 813 1 - 814
Additions 446 - 368 814
Amortisation for the
year (338) (1) - (339)
Impairment charge (921) - - (921)
------------------- ---------- ---------- ----------
Net book value, at 31 March
2020 - - 368 368
At 31 March 2020
Cost 1,369 499 2,040 3,908
Accumulated depreciation (1,369) (499) (1,672) (3,540)
------------------- ---------- ----------
Net book value - - 368 368
=================== ========== ========== ==========
At 1 April 2020
Cost 1,369 499 2,040 3,908
Accumulated amortisation (1,369) (499) (1,672) (3,540)
------------------- ---------- ---------- ----------
Net book value - - 368 368
Net book value, at 1 April
2020 - - 368 368
Additions - - 96 96
Disposals - - - -
Amortisation for the
year - - (46) (46)
------------------- ---------- ---------- ----------
Net book value, at 31 March
2021 - - 418 418
At 31 March 2021
Cost - - 464 464
Accumulated depreciation - - (46) (46)
------------------- ---------- ---------- ----------
Net book value - - 418 418
=================== ========== ========== ==========
The only software cost as at 31 March 2021 is the Company's new
finance and operations system that was brought into use October
2020. As historical items such as the AdRatings product and other
software licences were fully impaired or amortised as at 31 March
2020, their respective costs and accumulated amortisation have been
removed this year.
The carrying value of the AdRatings product was tested for
impairment at as 31 March 2020. The carrying value of the asset was
allocated to the AdRatings cash generating unit ('CGU') for the
purposes of assessing future cashflows. The principal assumptions
used in the forecast were the timing and amount of future revenues
and profit margins, which were derived from the latest forecasts
approved by the Board. As a result of this review, and considering
the continuing modest AdRatings revenues of GBP0.05m in the year,
the carrying value of the asset was fully impaired; the
amortisation charge included impairment charges of GBP0.9m.
3. Tangible assets
Right-of-use Furniture Computer
assets and fixtures hardware Total
GBP'000 GBP'000 GBP'000 GBP'000
------------- -------------- ---------- ---------
At 1 April 2019
Cost 2,163 165 580 2,908
Accumulated depreciation (1,698) (110) (509) (2,317)
------------- -------------- ---------- ---------
Net book value 465 55 71 591
Net book value, at 1 April
2019 465 55 71 591
Additions 1,997 - 73 2,070
Disposals - (13) - (13)
Foreign exchange - - - -
Depreciation charge for the
year (483) (32) (57) (572)
------------- -------------- ---------- ---------
Net book value, at 31 March
2020 1,979 10 87 2,076
At 31 March 2020
Cost 2,139 56 653 2,848
Accumulated depreciation (160) (46) (566) (772)
------------- -------------- ----------
Net book value 1,979 10 87 2,076
============= ============== ========== =========
At 1 April 2020
Cost 2,139 56 653 2,848
Accumulated depreciation (160) (46) (566) (772)
------------- -------------- ---------- ---------
Net book value 1,979 10 87 2,076
Net book value, at 1 April
2020 1,979 10 87 2,076
Additions - 5 43 48
Disposals - - - -
Foreign exchange - - - -
Depreciation charge for the
year (690) (10) (68) (768)
------------- -------------- ---------- ---------
Net book value, at 31 March
2021 1,289 5 62 1,356
At 31 March 2021
Cost 2,139 60 181 2,380
Accumulated depreciation (850) (55) (119) (1,024)
------------- -------------- ----------
Net book value 1,289 5 62 1,356
============= ============== ========== =========
4. Investments
GBP'000
-------
Cost and net book amount at 1 April 2020 and 31 March
2021 581
Subsidiary undertakings
Details of subsidiary undertakings, registered office and
country of incorporation of each, at 31 March 2021 are as
follows:
Subsidiary undertaking Registered office Country
of incorporation
------------------------ ---------------------------------------- -----------------
System1 Research Limited 52 Bedford Row, Holborn, London, UK
WC1R 4LR
System1 Research B.V. Conradstraat 38 D2. 138, 3013AP Netherlands
Rotterdam
System1 Research, 251 Little Falls Drive, Wilmington, USA
Inc. DE 19808, New Castle County, Delaware
System1 Research Sarl Avenue Gratta Paille 2, 1018 Lausanne, Switzerland
Switzerland
System1 Research GmbH Kleine Seilerstrasse 1 D-20359 Hamburg Germany
System1 Marketing 58 Fumin Zhi Road, Chongming County, China
Consulting (Shanghai) Shanghai 201914
Co. Limited
System1 Research Do Avenida das Nacoes Unidas 14261 Brazil
Brazil Servicos de - Conj. 25-126B - Cond. WT Morumbi,
Marketing Ltda. CEP 04794-000, Vila Gertrudes, São
Paulo
System1 Research France 17 Rue de Turbigo, 75002 Paris France
Sarl
System1 Market Research 30 Cecil Street, #19-08 Prudential Singapore
Pte Ltd Tower, 049712
System1 Research Pty Suite 1, Level 11, 60 Castlereagh Australia
Ltd. Street, Sydney, NSW 2000
System1 Agency Limited 52 Bedford Row, Holborn, London, UK
WC1R 4LR
System1 AdRatings 52 Bedford Row, Holborn, London, UK
Limited WC1R 4LR
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 online market research services,
apart from System1 Agency Limited which provided advertising agency
services and System1 AdRatings Limited, which provides subscription
access to marketing effectiveness data.
5. Debtors
2021 2020
GBP'000 GBP'000
--------------- --------------
Due within one year
Trade debtors 112 -
Trade debtors from group companies 4,329 312
Amounts due from group companies 595 918
Other debtors 127 135
VAT recoverable 505 227
Corporation tax - 126
Deferred tax asset 46 56
Prepayments 332 301
--------------- --------------
6,046 2,075
Due after one year
Deferred tax asset - 385
During the year, the Company impaired trade debtors from group
companies of GBP367,000 (2020: GBP769,000).
6. Creditors
2021 2020
GBP'000 GBP'000
-------- --------
Due within one year
Trade creditors 229 451
Social security and other taxes 123 128
Amounts due to group companies 480 848
Lease liabilities 771 460
Accruals and deferred income 682 792
Corporation tax payable (39) -
-------- --------
2,246 2,678
Due after one year
Lease liabilities 830 1,601
Bank loan 2,500 2,500
-------- --------
3,330 4,101
7. Provisions for liabilities
Deferred
Sabbatical tax Total
GBP'000 GBP'000 GBP'000
----------- --------- ---------
At 1 April 2019 280 7 287
Provided in the year 17 6 23
Utilised in the year (40) - (40)
----------- --------- ---------
At 31 March 2020 257 13 270
Provided in the year 42 - 42
Utilised in the year - (10) (10)
Adjustments with respect to prior
year - 61 61
----------- --------- ---------
At 31 March 2021 299 64 363
=========== ========= =========
Due within one year 78 64 181
Due after one year 221 - 182
The Group has a sabbatical leave scheme, open to all employees.
The scheme provides 20 days paid leave for each successive period
of six years' service. There is no proportional entitlement for
shorter periods of service. The assumptions used in the sabbatical
provision is as follows:
2021 2020
---------- ----------
Project unit credit
Measurement method method
Discount rate, based on 6-year corporate
bond yields 1.2% 2.1%
Annual salary growth rate 7% 7%
Average staff withdrawal rate 18% 19%
GBP'000
---------
Changes to the assumptions will increase the provision by:
0.25% decrease to discount rate 6
10% increase to salary increase assumption 84
3% decrease to staff turnover assumption 78
8. Deferred tax
Deferred tax assets and liabilities are as follows:
2021 2020
GBP'000 GBP'000
------------- -------------
Deferred tax assets:
- Deferred tax assets to be recovered after
more than 12 months 101 385
- Deferred tax assets to be recovered within
12 months 9 56
------------- -------------
110 441
Deferred tax liabilities:
- Deferred tax liability to be recovered
within 12 months (64) (13)
Deferred tax asset (net): 46 428
============= =============
The gross movement in deferred tax is as follows.
2021 2020
GBP'000 GBP'000
------------- -------------
Opening balance 428 172
Income statement credit/(charge) (357) 289
Tax (debited)/credited directly to equity (25) (33)
Closing balance 46 428
============= =============
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:
Trading Other Share Sabbatical
Deferred tax assets losses provisions options provision Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- ------------ --------- ----------- --------
At 1 April 2020 304 2 86 49 441
Credited/(charged) to income
statement (324) 7 (17) 8 (326)
Adjustments with respect to
prior year 20 - - - 20
Debited directly to equity - - (25) - (25)
At 31 March 2021 - 9 44 57 110
======== ============ ========= =========== ========
Accelerated
Deferred tax liabilities capital allowances
GBP'000
--------------------
At 1 April 2020 (13)
Charged to income statement 10
Adjustments with respect to
prior year (61)
--------------------
At 31 March 2021 (64)
9. Share capital
Allotted, called up and fully paid Ordinary Number GBP'000
Shares
========== =======
At 1 April 2020 and at 31 March 2021 13,226,773 132
---------- -------
Company Information
Company Secretary
Chris Willford
Registered Office
52 Bedford Row
Holborn
London
WC1R 4LR
United Kingdom
Registered Number
05940040
Independent Auditor
RSM UK Audit LLP
Statutory Auditor
Chartered Accountants
The Pinnacle
170 Midsummer Boulevard
Milton Keynes
Buckinghamshire
MK9 1BP
Registrars
Link Asset Services
34 Beckenham Road
Beckenham
Kent
BR3 4TU
United Kingdom
Stockbrokers
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
United Kingdom
[1] Global Market Research 2020 - ESOMAR
[2] https://www.itvmedia.co.uk/advertising-on-itv
[3]
https://news.linkedin.com/2021/april/linkedin-business-highlights-from-microsoft-s-fy21-q3-earnings
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END
FR RJMBTMTIBTRB
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July 14, 2021 02:00 ET (06:00 GMT)
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