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Building
Momentum
Annual Report and Accounts
for the year ended 31 March 2023
System1 Group PLC
4 More London Riverside
London
SE1 2AU
United Kingdom
info@system1group.com
www.system1group.com
We believe in the value of testing early and often…
System1’s platform is incredibly efficient and effective
at predicting the success of our creative and identifying
areas of improvement.
Lesya Lysyj, CMO, Boston Beer Company
‘‘
’’
Company Information
Company Secretary
Renata Ziolko-Nishikant
Registered Office
4 More London Riverside
London
SE1 2AU
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
United Kingdom
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
Index
Highlights
Strategic Report
Group Overview
Chairman’s Statement
CEO’s Statement
Financial Review
Principal Risks and Uncertainties
Environmental and Social Report
Governance & Group Directors’ Report
Group Directors’ Report
Statement of Directors’ Responsibilities
Corporate Governance
The Board
Audit Committee Report
Remuneration Committee Report
Independent Auditor’s Report to the Members of
System1 Group PLC
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Company Information
1
2
3
4
6
17
20
23
30
31
33
34
41
42
44
49
58
59
60
61
62
63
85
86
87
97
Highlights
2023
(“FY23”)
£m
2022
(“FY22”)
£m
Change*
%
Management basis*
Platform Revenue (“Predict & Improve”)
Other Revenue (Bespoke consultancy)
Total Revenue
Gross profit
Adjusted operating costs
17.4
6.0
23.4
19.7
(18.9)
12.4
11.7
24.1
20.2
(19.2)
Adjusted profit before taxation
0.8
1.0
Statutory basis
Revenue
Gross profit
Operating costs
Other operating income
Profit before taxation
Tax charge
Profit for the financial year
Diluted earnings per share
23.4
24.1
19.7
(19.3)
0.3
20.2
(19.6)
0.3
0.7
(0.3)
0.9
0.0
0.4
0.9
3.2p
7.4p
40%
-48%
-3%
-2%
-1%
-24%
-3%
-2%
-1%
18%
-23%
nm
-58%
* Adjusted Operating Costs exclude impairment, other interest, share based payments, bonuses and commissions, severance costs, IP
litigation costs, and other staff costs (sabbatical and holiday provisions). Adjusted Profit Before Taxation is Gross Profit less Adjusted Oper-
ating Costs and excludes Other Operating Income. 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.
• Growing sales momentum: H2 Platform
Revenue £9.8m, 29% up on H1 £7.6m
• Full-year platform Revenue £17.4m, up 40%
year-on year representing 74% of group rev-
enue (FY22: 52%)
• Non-platform bespoke consultancy revenue
increased slightly in H2 ending the year at
£6.0m
• Gross profit margin improved in H2 resulting
in an 84.2% margin for the year, higher than in
FY22 (83.8%)
• Adjusted Operating Costs, statutory operating
costs and headcount all 1% lower than in FY22
• £4m cash investment in platform, products
and IP (FY22: £4m), £0.2m amortised (FY22: nil,
nil). TYX platform fully automated across all 3
product groups with additional features
• US IP Litigation settled out of court in June
2023
• Net cash £5.7m at 31 March 2023 (FY22: £8.7m),
£2.5m revolving credit facility fully repaid in
November 2022
created momentum that has carried through into FY24 with
profitable growth across our platform offering. We are relent-
lessly executing the plan outlined in the strategic review.
James Gregory, Chief Executive Officer
‘‘The business delivered a strong second half year and
’’
System1 Group PLC Annual Report and Accounts 2023
1
1System1 Group PLC Annual Report and Accounts 2023 Strategic Report
Group Overview – System1 on a page
Who we are and why we exist
System1 is a marketing decision-making platform
business.
Our target customers are the world’s largest
advertisers. These businesses understand that
creativity is the most powerful tool for growth
within their control. System1 helps them make
confident creative decisions that lead to transfor-
mational business results.
Our products
What we do
System1 predicts and improves marketing effec-
tiveness. Our advertising and idea tests measure
emotion to give our customers the most accurate
predictions of the business impact of creativity. We
‘predict’ (provide research results) and ‘improve’
(provide insight and consultancy on those results)
on arguably three of the most critical marketing
questions for our customers: advertising effective-
ness, innovation effectiveness and brand effec-
tiveness. We aspire to do these three things better
than anyone else at a value that makes System1
our customers’ choice.
Product Type
Communications
Brand
Data (Platform)
TYA Premium (subscription)
TYA Essential
TYB Pro
TYB Essential
TYA Pro
Innovation
TYI Essential
TYI Pro
Data-Led Consultancy
(Platform)
TYA Express Guidance
TYA Expert Guidance
TYA Audit
TYB Guidance
TYB KDA
TYB DAT
TYB Landscaping
TYI Express Guidance
TYI Full Guidance
TYI Audit
Concept Test
Bespoke Consultancy
Enterprise Comms
Enterprise Brand Tracking
Enterprise Innovation
Where we operate
We employ over 150 people
across 13 companies in
9 countries from where we
serve over 450 customers
across the world
Investment case
Assertion
Thesis
1
2
3
4
5
6
7
World-beating prediction/improvement methodologies
Unique, step-change improvements in product value for customers
Innovation and investment to maintain this product lead
Prediction and Improvement market dynamics are very favorable
Defensible through IP, Branding, Customer and Supplier relationships
We are winning new customers, retaining & growing them
Strong scalability and operational gearing from Platform
Conclusion
System1 could be worth a billion+ once it had fully scaled with a 10% market share
3
System1 Group PLC Annual Report and Accounts 2023 Chairman’s Statement
The past year proved to be a
challenging one for mar-
keting technology busi-
nesses
like System1
as well as the broader
technology and media
sectors as witnessed by
the large-scale job reduc-
tions announced by some of the world’s leading
businesses. Whereas the US economy has fared
relatively well, in Europe, domestic spending was
held back by high energy prices in the wake of the
Ukraine conflict, followed by more general cost-
of-living pressures that dented both consumer
and business confidence. Against this backdrop,
your company produced creditable results with
Platform revenue increasing by 40%, £0.7M profit
before taxation, and earnings of £0.4m (3.2p basic
and diluted earnings per share).
When I succeeded Graham Blashill as your
Chairman at last September’s AGM my first and
most urgent task was to conduct a review of the
company’s strategic options for growing the busi-
ness and increasing shareholder value, which had
been announced a month before my appointment.
This review was led by the independent directors
with significant support from the executive and
external advisers. At the end of November we set
out the review’s key findings which included:
• Best in class Predictiveness offered at market-
beating speed and value is System1’s unique
selling proposition
• Increased focus on supporting digital advertis-
ing formats
• Target the world’s largest advertisers with the
aim to generate recurring and repeatable rev-
enue streams
• Work with commercial platform and media
partners to reduce customer acquisition costs
• Significantly increase focus on US geographic
market
Since November we have launched a well-
received Test Your Ad variant specifically for digi-
tal content, won new business with some of the
world’s leading advertisers, and sealed new part-
nerships with Finecast, JCDecaux, Teads, and
Pinterest.
Having the right insight that [the
Ribena Ad] still performs in the
top 20 soft drinks ads in 2023 made us
excited about the opportunity to bring
it back.
Sarah Fleetwood, Head of Brand Global Marketing &
Innovation Director, Suntory Beverage & Food GB
System1 Group PLC Annual Report and Accounts 2023
4
Your group produced creditable results with
Platform revenue increasing by 40%, £0.7M Profit before
taxation, and earnings of £0.4m (3.2p basic and diluted
earnings per share).
‘‘
’’
In the US John Kearon dedicated most of his
time and effort to developing new business oppor-
tunities from the final quarter. The turnaround was
not expected to be immediate but initial signs
are encouraging with new US client wins includ-
ing one of the world’s largest publicly traded
international oil and gas companies, a worldwide
employment website, a multinational enterprise
software company, and one of the largest choc-
olate manufacturers in the world. We have also
formed a US advisory team comprising Jon Bond
(US Advertising Hall of Fame Member) and Noah
Brier (marketing platform and AI guru) and expect
to add further advisers in due course. Also in the
US, we were pleased to conclude a co-existence
agreement with System1 OpCo LLC, thereby set-
tling a long-running legal dispute and providing
clarity on the current and future use of the System1
mark.
The review of strategic options last year imme-
diately preceded James Gregory’s appointment as
CEO and John Kearon’s appointment as Founder
and President with a particular focus on new
business development in the US. Phillip Machray
also joined the board as an independent direc-
tor in May 2022 and has served as chairman of
the Remuneration Committee since December.
Following Jane Wakely’s resignation, Conrad Bona
joined the board in September 2022 as an inde-
pendent director, and his experience in strategic
corporate and legal affairs proved valuable dur-
ing the review. I believe we have the right blend
of experience and expertise on the board to guide
the group towards achieving its strategic objec-
tives.
As a board we are conscious of our fiduciary
duty to all stakeholders including customers,
employees and shareholders. Over the year we
were satisfied with our engagement with cus-
tomers and colleagues. However, the share price
performance in the period and the dissatisfaction
expressed by a number of shareholders in the lead
up to the AGM and the 21 April 2023 general meet-
ing has been listened to and considered carefully.
We will continue to engage with all shareholders,
including those who voted in favour of the resolu-
tions, to improve alignment on the Group’s strat-
egy and increase shareholder value.
Finally on behalf of the board I would like to
thank my predecessor, Graham Blashill, for his
nine years‘ service of as director of the business
and close by paying tribute to the immense effort
that our 150 colleagues in the business make every
day to meet and exceed the needs of our custom-
ers. Their efforts, guided by our new strategy, are
beginning to bear fruit.
Rupert Howell
Chairman
System1 Group PLC Annual Report and Accounts 2023
5
CEO’s Statement
We have a go-to-market strategy aimed at winning with
the world’s largest businesses; new product channels (digital
and audio) amplified by new partnerships, all spearheaded
by a realigned executive team and John Kearon leading the
charge on US growth.
‘‘
’’
Building momentum
of
FY23 has truly been
a year of 2 halves as
we have moved from
a period of design
and transition to one
relentless commer-
cial execution. This shone
through
in our second-half performance. H1
delivered revenue of £10.5m down 15% vs prior
first half year, while we addressed the underlying
structural issues in the US that had caused rev-
enue to decline there in FY22 and started a thor-
ough strategic review of the whole group and how
best to grow the business to create shareholder
value. With renewed strategic focus in H2, we
delivered £12.9m revenue, up 10% vs the second
half of FY22, as we executed a refined go-to-mar-
ket strategy, with a realigned Executive team and
clarity of mission.
While total revenue was down for the year (-3%
vs FY22), we saw improving platform growth of
34% H1 FY23 vs prior year and 45% in H2 FY23
vs prior year, up 40% for FY23 vs prior year as a
whole. This was driven by 44% growth in our data
(Predict Your) products and 23% growth in our
data-led consultancy (Improve Your) offer. In 3
years, we have built out a £17m per annum plat-
form business that provides automated, accurate
predictions and world class improvement insights
across the advertising, innovation and brand track-
ing universe.
Investments
We continued investment in developing the plat-
form and product suite, as well as investing in
our sales and marketing functions to build out
the growth engines of the business, while ensur-
ing costs were held flat (at £19m) and gross profit
margin was up (to 84.2%). With the core Test Your
Ad, Test Your Idea and Test Your Brand product
74%
Platform revenue as a
percent of total
FY23
suite
auto-
fully
mated by May 2022,
the
increased
we
breadth of the offer
to cover all market-
ing channels (Digi-
tal and Audio were
recently added to the TV, Print and Outdoor adver-
tising offering). A year of focussed fame building,
amplified by new partnerships resulted in strong
growth in the number of new platform clients in
FY23 (net increase of 31), and new revenue (net
increase of £5m, of which £3m was from clients
recruited in FY23).
Strategy
The strategic review offered the business a moment
to reflect and refine its strategy, clarifying how our
customers of today and the future buy marketing
predictions and insights and ensuring we have the
capability, structure and focus to deliver these.
We have increased the volume of the voice of the
customer in our decision making; we are clear on
how our understanding of emotions drives busi-
ness profit, allowing us a unique way in to work
with Chief Marketing Officers in the world’s larg-
est advertisers compared with traditional market
research agencies. We are dedicated to creating a
performance-based culture, relentlessly focussed
on execution against our strategy.
As I’ve recently taken on the role of CEO, I am
indebted to the support and trust of our staff,
executive team, board and shareholders who
have backed our refined go-to-market strategy as
well as the continued partnership of our suppliers
and commitment of our industry-leading custom-
ers. Personally, I am also incredibly thankful for
continued wise-counsel and support from John
Kearon, throughout the transition this year as we
look to take System1 to the next level of continued,
repeatable and sustainable business growth.
System1 Group PLC Annual Report and Accounts 2023
6
Asset
Fame
New clients
New revenue
created a new executive role of Chief Product
Officer, where Robyn Di Cesare, partners with
Orlando Wood, our Chief Innovation Officer to
translate the learnings from our thought leader-
ship into our product suite.
Progress towards our goals
This year, alongside our shift of culture towards
relentless execution, we made significant prog-
ress towards delivering the four goals we set out 5
years ago, namely: Build defensible assets; Gener-
ate fame; Win new customers; and Generate new
revenues.
1 Build defensible assets
We have continued to build out our world class
platform and product suite, translating our unique
IP into predictions and improvements for our cus-
tomers.
Our thought leadership has been developed
over the last 15 years as we have been obsessed in
understanding how emotional response to adver-
tising, innovation and brand translates into mar-
keting and business success. This year, we have
Predict share gain from emotional response
Translating emotional
responses to marketing into
business performance under-
pins everything System1 stands
for. It creates our unique ability
to predict how well our cus-
tomers’ advertising and innova-
tion translates to brand growth
and ultimately their businesses’
profitability.
How left & right brain features result in profitable marketing
Building on System1’s IP, set
out in the publication of Lemon
(2019), of how emotional mar-
keting drives broad and long-
lasting business impact, we
have built out product features
to translate this methodology
into actionable insight for our
customers as part of the plat-
form offer.
System1 Group PLC Annual Report and Accounts 2023
7
CEO’s Statement continued
Advertising wears in over time, rather than wearing out
System1’s research shows that
high scoring adverts that are
built on emotion, improve their
performance the longer they
air for, offering marketers who
are facing constrained costs
in recessionary environments
a simple and effective way
to gain market share without
incurring significant new costs.
A methodology proven worldwide
In May 2022, we completed the full automa-
tion of our ‘Test Your’ product suite, enabling us
to predict the impact of advertising, innovation
and brand on business results, with zero manual
intervention and therefore, high levels of scalabil-
ity. These predictions are delivered at world-class
speed, ready for customers within 24 hours and
offered at incredible value pricing. This creates an
automated marketing decision-making platform
to delight our customers and create competitive
advantage, enabling System1 to build out signifi-
cant market share. We continue to innovate on
these products, ensuring we can answer all our
customer needs across the offering while also
adding value with additional features.
We also continued our investment in grow-
ing our world-leading Test Your Ad database to
over 80,000 ads, where we test almost* every ad
in the US and UK on a daily basis, creating what
we believe to be the world’s largest database of
validated ad-effectiveness data and providing our
customers with unique insight into the perfor-
mance of them and their competitors.
Product
Platform
Database
Innovation
Fully automated
June 2021
Fully automated
November 2021
Now c. 80,000 ads
UK 95% of all TV Ads
US 75% of all TV Ads
TYA Pro+
TYA Digital
Now c. 7,000 brands
API development
Fully automated
May 2022
Now c. 60,000 concepts
DAT automation
TYI enhancement
* Every advert that breaks in the US and the UK across the majority of advertising categories.
8
System1 Group PLC Annual Report and Accounts 2023 2 Generate fame
As we have refined our go-to-market strategy, we
have increased the volume and quality of fame
creation, including developing world class con-
tent in partnership with global industry-leading
companies, which we promote through a wide
range of channels, focussed primarily on the US
and UK and secondarily into our other key markets
in Brazil, Germany, France, Asia and Australia.
Ad of the Week US and UK, celebrates the best
and most effective creative content from around
the world, publicised through The Drum (UK) and
AdWeek (US), to generate significant industry
attention and direct customer wins.
Feeling Seen US, builds on the UK equivalent pub-
lication, demonstrating how diverse advertising
has the power to make people feel seen and trans-
lates into greater commercial effectiveness when
executed properly.
Wise Up, in partnership with ITV, is the answer to
one of the industry’s greatest challenges: how
can advertisers portray age more accurately and
consistently? This first-of-its-kind exploration of
age diversity in advertising provides actionable
insights to effectively engage with this important
audience. When brands and agencies wise up and
get it right, the benefits are enormous.
The Short-Cut Guide to Short Term Advertising,
in partnership with ITV, addresses how brands can
best harness their creatives for immediate short-
term impact, through a deep dive into more than
20,000 ads and their Spike Ratings, a predictive
score that indicates short-term sales effect over
the 8-10 weeks after an advert has aired, derived
from two factors: speed of branding and intensity
of emotional response.
Addressable Advantage: How Addressable TV
Makes Audiences Happy, in partnership with Fin-
ecast, illustrates how partnering the right creative
content with a targeted audience allows brands to
dial up campaign effectiveness and deliver greater
long-term brand impact, deeper emotional con-
nection and quicker sales activation.
Digital Ad Effectiveness, in partnership with Pin-
terest, is groundbreaking research to show how
digital ads can captivate audiences and command
customer attention across platforms like TikTok,
Instagram, Pinterest, and Facebook. The findings
show that ads with an emotional look-and-feel
drive a remarkable 75% higher action intent and if
an ad achieves an above-average Star Rating, the
impact soars with a 20% increase in ad recall and
an astonishing 6 times greater action intent.
Creativity Goes Omni, in partnership with Teads,
a leading online video advertising marketplace
reaching 1.2 billion unique visitors, explores the
importance of brand building and the role for cre-
ativity in an Omni-Channel world which was show-
cased at Cannes Lions. Teads and System1 are
actively working with Lumen to prepare the global
release of this powerful new research in 2023.
Ad of the Week US and UK
Feeling seen USA
Wise Up
The Short-Cut Guide
Addressable Advantage
Pinterest Digital
9
System1 Group PLC Annual Report and Accounts 2023 CEO’s Statement continued
If Finecast is to unlock the true poten-
tial of creative effectiveness within
the increasingly addressable media world,
we need a partner with best-in-class tech
and data (and just as) importantly, a team of
consultants who can help plug the knowl-
edge gaps. For Finecast, that’s System1.
Kristian Claxton, Global Head of Innovation, Finecast
System1 helped us better understand
which muesli idea could evolve into
a marketable product with additional work
from our internal teams. It’s been wonder-
ful to see our idea come to life on super-
market shelves.
Becca Hamson, Brand Manager, Dorset Cereals
How To Create The Perfect Digital Poster, in part-
nership with JCDecaux, a world leader in outdoor
advertising, operating in 80 countries, measures
the effect of outdoor advertising which was pre-
sented together in a keynote session at MADfest
London. System1 are now assisting JCDecaux to
test and improve the effect of their largest adver-
tisers.
Hot Topic Webinars, showcase System1s ability to
help customers navigate industry-wide challenges
and create winning key moment campaigns.
Examples include:
• “The Importance of Innovating in a Recession
and How to Do it Well” in partnership with
Professor Mark Ritson, provided a guide for
how brands can survive – even thrive – in tough
times.
• “The Gift of Christmas Creative” with Havas,
Asda and ITV, showcased creative effectiveness
best practices and how to use System1 tools to
create the next winning Christmas ad.
• “System1 SuperBowl LVII” reviewed the event of
the year for US advertisers, in partnership with
the Sports Illustrated executive and former NFL
Player Mark Pattison.
The Uncensored CMO, hosted by Jon Evans, Sys-
tem1’s Chief Customer Officer, became the global
number1 marketing podcast in 2023, hosting Sir
Martin Sorrell, Rory Sutherland, Ed Pilkington (Dia-
geo CMO America), Fernando Machado (Burger
King / Not Co CMO), Allesandra Bellini (Tesco),
Yusuf Chuku (NBC), Lex Bradshaw-Zanger (L’Oreal
CMO).
Building on the success of publications of Lemon
(2019) and Look out (2021), Orlando Wood, Chief
Innovation Officer, continued to reinforce Sys-
tem1’s thought leadership, sharing “Triple Oppor-
tunity: a study on how investing above your brands’
size with emotive creative on high-attention media
represents a triple opportunity for growth” at
Cannes Lions International Festival of Creativity in
2023.
3 Win new customers
FY23 was a record year for new client acquisition,
based on our platform automation and increased
fame building, amplified through many global
partnerships. We recruited 149 new platform
clients in the financial year (previous year: 117).
Whilst we are not permitted to name many of our
clients, new wins in the period included: William
Grant, Southeastern Grocers (Winn Dixie), Block,
Dole and Upwork Global (and that’s just in the US).
Our global partnership strategy has accelerated
access to the world’s leading advertisers and fast-
tracked customer acquisition.
10
System1 Group PLC Annual Report and Accounts 2023 New customer case study: winning Tesco
Fame building
Following up with Wise Up, looking at older age
group representation, we used another Tesco
campaign as a case study and invited Alessan-
dra Bellini the Tesco CMO to join our panel for
the launch event to discuss how Tesco were
using our insight to craft their advertising.
Tesco also won “AD of the week” for its ‘Food
Love Stories’ campaign, which was highlighted
within S1 marketing (https://system1group.com/
ad-of-the-week/tesco-puts-the-stories-in-food-
love-stories).
Creative agency partnership
As a result we worked alongside BBH, the Tesco
advertising agency, to run some early stage
testing and ensure that their creative work was
both representative and effective. This meant
that not only was System1 embedded in the cre-
ative process to help optimise the work but was
also being used by the people who make the
advertising and not just the brand owner.
New customer onboarding
Having proven ourselves via their creative
agency and with the benefit of our database of
competitors norms, speed of testing and qual-
ity of guidance we were formally onboarded as
a Tesco supplier and look forward to a long rela-
tionship together.
Customer advocacy
The strength of relationship and endorsement
of System1 can be seen in the Uncensored CMO
podcast interview with Alessandra Bellini the
Tesco CMO which creates a powerful testimo-
nial for other potential customers.
Fame
Building
Tesco Food
Love Stories
advert was
also used as a
showcase in Wise
Up! Age report
produced with
ITV. Invited the
Tesco CMO to
join our panel
for the
launch.
Fame
Building
Tesco Food
Love Stories
advert wins
System1 Ad of
the Week and is
shared via our
own media
channels
Creative
Agency
Partner-
ship
Worked with
BBH, the Tesco
creative agency
to run some early-
stage testing to
ensure that their
creative was
representa-
tive and
effective.
New
Customer
Onboarding
Having
impressed
Tesco via the ITV
report and creative
agency partner-
ship, System1
formally
onboarded
as a Tesco
supplier.
Customer
Advocacy
Allesandra
Bellini, Tesco
CMO, is a guest
on Uncensored
CMO Podcast
proving a power-
ful testimonial
for other
potential
customers.
Media
Partner-
ship
Tesco Food
Love Stories
advert used as
a showcase for
Feeling Seen
report pro-
duced with
ITV.
Tesco
Media partnership
Working with one of our partners, ITV, to promote
System1 to their customers, the launch of Feel-
ing Seen UK showcased the Tesco “Aunties Sumak
Chicken” advert, as one twelve case studies profiled
in the report.
11
System1 Group PLC Annual Report and Accounts 2023 CEO’s Statement continued
Generate new revenues
4
Test Your Ad has continued to grow as the larg-
est revenue stream, growing 32% to £11m revenue
and accounting for 77% of Predict Your revenue in
FY23. Test Your Ad Pro is our top selling product,
and we extended the functionality with a new offer,
Test Your Ad Pro+ in July 2023 which sits alongside
the main Test Your Ad Pro offer, to provide even
greater predictive insight for our customers.
Test Your Brand saw significant growth in FY23
of 222% vs FY22, with strong growth in LATAM
with adoption across Natura, Avon and Globo.
Following the launch of Test Your Idea, Innovation
product revenue increased by 28% in H2 versus
H1 and remains a large opportunity for future rev-
enues.
All regions saw strong growth of platform rev-
enue aided by regional partnerships and targeted
thought leadership with LATAM growing at 152%
and UK at 44%.
Data-led consultancy saw strong growth of 23%
vs FY22 (FY23 £3.3m) as we improved our 24-hour-
turnaround ‘Express’ offer and added depth to the
‘Full Guidance’ offer with additional insights build-
ing on our IP.
Bespoke Consultancy declined year on year
(-48%) but our focus to retain the capability to ser-
vice this work to enable us to win the world’s largest
advertisers resulted in a flattening out of revenue
throughout the year and modest growth H2 vs H1.
We expect to maintain Bespoke Consultancy rev-
enues at similar levels to those in FY23 in coming
years.
As highlighted in the strategic review, we have
more clarity on how people buy today, with over
three quarters of our revenue coming from cus-
tomers who buy across the full platform – data
predictions and data-led consultancy. Our top 10
customers in FY23 accounted for 35% of revenue;
the top 20 customers accounted for 54% of rev-
enue. All these customers bought a combination
of Predict Your (data) and Improve Your services
or Bespoke Consultancy (data-led consultancy)
and have confirmed that they would not buy the
predictions without the ability to have the data-led
insight alongside it. We are confident in the scal-
ability of our business model, using the automated
platform to process the prediction and first-level
insights, supported by high-margin additional
consultancy alongside it.
Progress on strategic review
initiatives
In FY23, we undertook a thorough strategic review,
considering the best options for growing the busi-
ness and increasing shareholder value. The Review
validated our existing successful focus on auto-
mated ‘Test Your’ and ‘Improve Your’ services for
testing and improving creative content, including
all forms of advertising and product innovations,
underpinned by our world-leading IP, brand track-
ing and the TYA Premium (formerly AdRatings)
database. We set out clear objectives on areas of
specific focus.
Clarity on the unique selling proposition
System1 offers unmatchable predictiveness along-
side market-beating speed and value. We translate
the language of creativity, into the language of
business – money! Measuring emotion underpins
everything we do, which is why we can be so pre-
dictive.
We have built our product, platform and data-
led consultancy offer on clear IP, that understands
and evaluates how emotion translates to business
performance and ultimately profit. We have tested
Our USP is predictiveness
12
System1 Group PLC Annual Report and Accounts 2023 Testing with System1 ahead of finalis-
ing the ad proved that we had a win-
ning creative on our hands, and helped us
make the final tweaks needed, including
choosing the perfect music to make it
great.
Anna McInally, Head of Marketing Communications
and Creative, Camelot
System1’s research was invaluable
for helping us understand how the
ad was working and how we could make
improvements as well as giving our organ-
isation and stakeholders the confidence
that we are investing our marketing funds
effectively.
Susan Coghill, Chief Marketing Officer, Tourism Australia
over 175,000 ads, ideas and brands, through over
12.5 million surveys in over 75 markets, culminat-
ing in measurement of over 27 million emotional
responses. Our data science team works continu-
ously with our product teams to ensure we create
and retain high levels of predictiveness across all
products.
Predictiveness alone is not enough, which is
why we have automated the platform that powers
our products and data-led consultancy, allowing
us to offer incredible speed, with predictions pro-
vided in under 24 hours, and at a price point that
is competitive.
We know this is why customers come to
System1 in the first instance, and why they remain
for years as they see the ROI on their marketing
investments.
Increased focus on non-TV formats
While TV remains crucial to any marketer, digital
marketing spend now accounts for over 50% of
global advertising spend and campaigns are more
omnichannel than ever before. So we have built
our offering to cover the full breadth of advertising
campaigns, offering testing for Digital and Audio,
alongside our existing offer of TV, Print and Out-
door. We have also created new partnerships for
these offers, to build credibility, increase fame and
also provide direct access to a large, targeted cli-
ent base.
Target the world’s largest advertisers with
the aim to generate recurring and repeatable
revenue streams
We are fortunate to already work with many of
the world’s largest advertisers and have learnt
how to embed System1 as a fundamental part of
their marketing and creative process. Recognising
the scale and size of these opportunities, we are
focussed on becoming the partner of choice to
all large advertisers, who have both capacity and
funding to test at scale and the capability to use
the predictions and insight to design and improve
marketing campaigns and product development.
13
System1 Group PLC Annual Report and Accounts 2023 CEO’s Statement continued
Customer success story: Aldi
In 2016, Aldi UK and its longstanding agency
McCann featured a talking carrot in its ‘Twas
the Night Before Christmas-inspired ad –
and the rest is history. Over the years, Kevin
the Carrot’s world has expanded with bigger
adventures, extended family and additional
characters like Ebanana Scrooge. His recur-
ring appearances during the festive season
have made him a lovable Fluent Device for the
retailer who drives real results.
“Entertainment and humour are so powerful
for us,” said Darren Hawkins, Group Strategy
Director, McCann Manchester. “When develop-
ing a new ad featuring Kevin, we are aiming for a
positive emotional response and a memorable
story that will enable quick attribution for the
Aldi brand to keep customers returning and win
over new shoppers.”
With the campaign now in its seventh year,
McCann and Aldi are continually challenged
with keeping the narrative fresh and delivering
an ad that the public will enjoy. With the 2022
Christmas season coupled with a controversial
World Cup and the country’s cost-of-living and
energy crisis, there were additional things to
consider.
“How we show up amidst current events is
very important. This year, we needed to strike
the right chord regarding the World Cup and
the difficult financial challenges that people are
facing,” said Jamie Peate, Global Head of Retail
Strategy and Head of Effectiveness for McCann
Worldgroup
Solution
McCann works months in advance to brain-
storm creative ideas that will top the previous
year’s Christmas ad. The team decided to
address the World Cup in a fun, playful way to
deliver an entertaining teaser and full-length ad.
To gain real audience insights on the latest
concept for Kevin, McCann once again lever-
aged System1’s Test Your Ad platform. It assigns
a Star Rating based on viewers’ emotional
responses to ads using a 5-Star scale. Only 1%
of ads achieve 5-Stars, an exceptional result
that supports long-term brand building.
“We start early with testing at the animatic
stage, rather than leaving it until the end,”
added Peate. “It really helps to get feedback
on what’s working, how it’s working and what
might be missing or misfiring.”
Results
In addition to the World Cup, there are other
cultural references, like the classic Christmas
movie Home Alone, plus more than a few funny
moments interspersed with shots of Aldi’s deli-
cious offerings.
It’s the perfect mix of nostalgia, entertain-
ment and humour, as the ad lands 5.9-Stars, the
highest score possible on Test Your Ad. In addi-
tion to this exceptional brand building result,
the Spike Rating of 1.5 means the ad also has
impressive short-term sales potential.
Aldi is also the first Christmas advertiser to
score 5-Star ads four years in a row and the
first to snag a 5-Star Christmas teaser with
this year’s clever nod to Nike’s 1998 World Cup
“Airport” ad. To add to the accolades, Aldi was
named Brand of the Year at the 2022 Marketing
Week Awards and won Gold at the 2022 IPA
Effectiveness Awards. In September, the retailer
also overtook Morrisons to become Britain’s
fourth-biggest supermarket group.
Working with System1 has given us
(Aldi and McCann) the confidence to
consistently build on and invest in a
successful and creatively effective idea.
Jamie Peate, Chief Brand & Marketing, Aldi
14
System1 Group PLC Annual Report and Accounts 2023 Poor branding, alongside creative that is unlikely to be remembered, is perhaps the
single biggest source of waste in marketing. Working with our partner at System1
helps LinkedIn ensure our clients produce ads that are not only well branded but also
emotionally engaging, maximising the chances that the brand is remembered and
minimizing the risk their competitor is remembered instead. Every smart CFO should
mitigate risk by having her marketers test their ad first (generally the biggest line item in
the marketing budget!).
Jon Lombardo, Head of Research, The B2B Institute, LinkedIn
We recognise at the same time the opportunity
that could exist to target the long tail of marketing
spend, across a very large number of small busi-
nesses and have the ability to serve this market
through our automated self-serve platform. We
can also leverage our partnerships with media
platforms such as LinkedIn or ITV to speak directly
with these business without heavy investment in
SEO, SEM and above the line marketing. However,
the current market price point for testing, along-
side the capability of these smaller businesses to
use predictions and insights prevent it from being
a likely short term opportunity for revenue genera-
tion for System1.
How customers purchase
Revenue by offering (percent of total)
100%
80%
60%
40%
20%
Data
Only
Data +
Consultancy
Consultancy
Only
1. Partnerships provide credible fame
with global reach
Our new partnerships are focussed on increas-
ing global presence in specific channels and each
launched with joint thought leadership content
to promote the partnership and grow System1’s
fame.
• Pinterest (digital advertising in Europe)
• Finecast (addressable TV advertising US, UK
Canada, Australia)
• Teads (mobile advertising US and UK)
• JCDecaux (out-of-home advertising US and UK)
2. Partnerships provide direct or indirect
access to a large customer base
This access can be formal and direct, such our
partnership with LinkedIn, where we are part of
the LinkedIn B2B Edge programme, helping Linke-
dIn grow its advertising revenues by increasing the
effectiveness of the advertisers on their platform.
This can also be informal, such as our partner-
ship with ITV, where we jointly host events to pro-
mote our thought leadership, directly to the ITV
customer base.
The value we bring to our partners is our ability
to help them increase the spend of their custom-
ers on their platforms, or through their businesses.
The value they bring us is increased credibility,
amplification of fame and access to the world’s
largest marketing spenders.
Work with commercial platform and media
partners to reduce customer acquisition
costs and provide scale and fame
We have a clear business model to ensure that our
partnerships with global media platforms, creative
agencies, industry partners and professional ser-
vice firms is successful.
Significantly increase the focus
on US geographic market
The US has historically been the largest busi-
ness for System1 (and before that, Brainjuicer)
and remains the largest opportunity for growth.
A whopping US$321bn of advertising spend is
forecast in FY24, 43% of global advertising mar-
15
System1 Group PLC Annual Report and Accounts 2023 CEO’s Statement continued
ket spend, as well as the US accounting for 53% of
global market research expenditure.
FY23 was a year of re-establishing our team and
presence in the US, as we brought in new leader-
ship with Jason Chebib appointed GM Americas
and John Kearon now based in the US to lead our
new business team. We have seen this now kick
in to deliver strong results. Excellent progress was
made in Q4 where
we won new man-
dates from 3 of the
country’s 25 biggest
advertising spend-
the
ers,
including
In H2 the
largest.
US delivered its highest half year of revenue since
FY21, and standard product revenue increased by
23% for the year as a whole.
23%
US Revenue Growth
FY23 vs FY22
We have set up a new US advisory team that
will amplify our fame and provide introductions
to the business, as well as local market advice.
The role of the advisory team will be to help the
Company grow revenue quickly in the US. The
team will be led by Jon Bond, founder of New York
agency Kirshenbaum & Bond and now active in
the MarTech space. Noah Brier, a New York digital
leader, will also be on the team. He is the founder
of BrXnd.ai, co-founder of Variance and Percolate
and one of the leading talents in the US MarTech
space. We are in discussions with other prominent
US sector specialists to join this team.
Outlook
FY24 has started promisingly, continuing the
momentum of revenue growth and new wins from
H2 FY23. We expect the growth in platform rev-
enue to continue, which taken together with the
levelling out of revenue in bespoke consultancy,
should lead to overall revenue growth in FY24. The
launch of TYA Digital and TYA Audio products early
in FY24 has increased TYA’s addressable market.
The new global partnerships provide access to pro-
spective customers, thereby increasing our reach.
One year in, our US commercial team is making
good progress and we are continuing to focus
marketing and business development investment
in the US. We have signed 3 new global mandates
for world-leading advertisers already this year and
are excited about the prospects in the pipeline.
Once more, thank you to our staff whose daily
efforts are the energy behind our business, to our
customers for their commitment to delivering
marketing that works and to our shareholders for
their support as we deliver on the potential of the
business.
James Gregory
CEO
16
System1 Group PLC Annual Report and Accounts 2023 Financial Review
Overview
Platform Revenue (“Predict & Improve”)
Other Revenue (Bespoke consultancy)
Total Revenue
Direct Costs
Gross profit
Adjusted operating costs*
Adjusted profit before taxation*
Statutory profit before taxation
Tax credit/(charge)
2023
£m
2022
£m
Change**
Change**
£m
%
17.4
12.4
6.0
11.7
23.4
(3.7)
24.1
(3.9)
19.7
20.2
(18.9)
(19.2)
0.8 1.0
4.9
(5.6)
(0.7)
(0.2)
(0.5)
(0.3)
(0.2)
0.7
0.9
(0.3)
0.0
(0.2)
(0.3)
40%
-48%
-3%
-5%
-2%
-1%
-24%
-23%
nm
Statutory profit for the financial year
0.4 0.9
(0.5)
-58%
* All figures in the Financial Review are presented in millions rounded to one decimal place unless specified otherwise. Percentage movements are calcu-
lated based on the numbers reported in the financial statements and accompanying notes. Adjusted Cost and Profit figures are as defined in the Highlights
section.
** Year-on-year change and percentage change figures are based on unrounded numbers.
KPIs
Platform Revenue % total Revenue
*Platform Revenue growth %
Gross Profit % Revenue
Adjusted EBITDA £m 1
Adjusted EBITDA % Revenue
*“Rule of 40” 2
Free cash flow 3
Net cash £m
2023
2022
74
40
84.2
1.8
8
48
(3.1)
5.7
52
nm
83.8
2.1
9
nm
2.5
8.7
*Due to the launch of the platform offering during the year ended 31 March 2021, the company does not
have a full year of comparitives to allow meaningful metrics to be calculated for 2022.
1 Statutory profit before taxation + share-based payments + interest, depreciation and amortisation
2 Platform Revenue growth %+ Adjusted Group EBITDA % Group Revenue
3 Cash flow after interest and before debt raising/reduction, buybacks/dividends
Revenue performance
Platform revenue rose by £4.9m (40%) in the year to £17.4m with particularly strong growth in automated ad-testing
revenues. Predict Your platform revenue rose 44% fuelled by the continued success of Test Your Ad. Improve Your
platform-led consultancy revenue increased by 23%. Overall platform revenue represented 74% of total revenue in
FY23, compared with 52% in the pre-
vious year. In line with recent trends,
other revenue, primarily bespoke
consultancy, fell £5.6m year on year
as customers continued to adopt
the standard platform products, and
the company focussed its resources
on
the platform-based product
suite.
Platform revenue continues to grow
Platform revenue (£m)
10
8
6
4
2
FY22 H1
FY22 H2
FY23 H1
FY23 H2
Data
Data-Led Consultancy
Data-Led
Consultancy
+23%
FY23 YoY
Data
+44%
FY23 YoY
System1 Group PLC Annual Report and Accounts 2023
17
Financial Review continued
The Communications product group, including Test Your Ad, grew by £0.9m (6%) year-on-year, notably in the UK
and the US. Communications revenue, including ad-testing, accounted 68% of all revenue in FY23 (FY22: 62%) Brand
tracking revenues increased by £0.4m (13%) helped by wins in the Americas and APAC. Innovation revenues were
down in all regions, £2.0m (35%) lower overall than the previous year, with the launch of Test Your Idea arriving too
late in the year to reverse the trend. The geographic spread of the business remained similar to the previous period.
The Americas region grew for the second consecutive year helped by a buoyant LatAm performance, and the UK
again showed double-digit growth year on year. Continental Europe was affected, particularly in the first half of the
year, by customers’ budgetary response to the Ukraine invasion and associated economic shocks.
Expenditure
Total expenditure* fell by £0.4m versus last year, with direct costs and administrative expenses each £0.2m lower.
The reduction in direct costs was due partly to lower sales volume and partly to improved cost management, with
by reductions totalling £1.0m in operational expenses
3.7
gross profit margin rising to 84.2% from 83.8%.
Adjusted operating expenditure
The company invested an additional £0.7m in customer
acquisition costs, mainly additional employee costs,
and a further £0.4m in IT development in order to
accelerate the development of the platform. Adjusted
operating costs featured increased investment in the
sales, marketing and IT development teams. These
investments in platform revenue growth were funded
including savings in outsourced services and the capi-
talisation of £1.2m platform development costs. Travel
and entertaining expenditure increased by £0.3m from
a very low base with the return of international air travel
after two years of restrictions caused by the pandemic.
Other expenditure
Other expenditure comprises expenditure items and
charges/credits which are excluded from adjusted
operating expenditure as they impede easy understand-
ing of underlying performance. Other expenditure was
broadly unchanged year on year with a £0.4m reduc-
tion in the share-based payment charge being offset by
the non-repetition of a £0.2m prior-year credit relating
to IFRS16 lease impairment reversal, and reductions in
sabbatical provision releases.
Operational gearing from platform –
Cost base is mainly fixed, mainly people
Expenditure by type –
Statutory
Staff overhead
£22.9m
12.9
6.3
Admin
16%
Sales &
Marketing
39%
£12.9m
Operations
23%
IT
22%
Direct costs
Staff overhead
Non-staff overhead
Focused investment – Growth as planned
in Sales & Marketing team in FY23
Staff overhead by business area (£m)
6
5
4
3
2
1
Sales &
Marketing
IT
Operations
Central
FY22
FY23
* Defined as statutory cost of sales and administrative expenses.
System1 Group PLC Annual Report and Accounts 2023
18
Profit before taxation
Adjusted profit before taxation for the year of £0.8m was £0.2m lower than the previous year owing to the flow
through of slightly lower sales volumes. Likewise, statutory profit before tax of £0.7m was £0.2m lower than last year.
Adjusted EBITDA declined year on year to £1.8m (2022: £2.1m).
Tax
The Group’s effective tax rate increased from -1% (tax credit) to 44%. This is due mainly to the impact of R&D tax cred-
its (£0.5m recognised in FY22, £nil in FY23). R&D claims for FY22 and FY23 are in progress, but are yet to be approved
and have not been recognised in the financial statements.
Funding and liquidity
Net cash reduced from £8.7m to £5.7m during the year,
Free cash outflow concentrated in H1 (£ millions)
with the outflows concentrated in H1 reflecting con-
tinued investment in the TYX platform and customer
acquisition costs during a period of reduced customer
demand in Europe following Russia’s invasion of Ukraine.
A further £0.1m was spent on repurchasing shares in H1
before the programme was suspended ahead of the
group’s review of strategic options in the autumn. Free
cash-flow declined from an inflow of £2.5m in FY22 to
an outflow of £3.1m in FY23. Operating cash flow trends
improved in H2 in line with revenue and profitability,
the latter being helped by improved gross margins
and lower year-on-year adjusted operating costs. The
0
-1
-2
-2.7
FY23 H1
FY23 H2
-0.4
Group repaid in full a £2.5m revolving credit facility in November after reviewing the outlook for interest rates and
the expected cash requirements and replaced it with an as yet unutilised overdraft facility.
Some £4.0m cash was invested in product innovation and development in the year, related primarily to the TYX
marketing predictions platform, development of new intellectual property, automated prediction products and the
TYA Premium (formerly AdRatings) database.
Litigation
On 27 September 2021, the Company filed a complaint for trademark infringement, unfair competition and decep-
tive trade practices at the United States District Court Southern District of New York against System1 LLC (“LLC”),
since renamed System1 Inc., an omnichannel customer acquisition marketing provider, over their infringing use of
the mark “SYSTEM1”. On 30 June 2023 the Company announced that a settlement had been reached with LLC. The
parties have signed a global agreement which governs the co-existence of their respective use of the “System1”
mark in connection with their operations. As part of this agreement, the Company is receiving a fixed undisclosed
payment payable in instalments. The parties have agreed to keep further detail of their agreement confidential.
System1 Group PLC Annual Report and Accounts 2023
19
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
Loss of a significant
Revenues and profits fall
We work with more than 450 customers and work hard
customer
due to the loss of a large
to earn their loyalty. Our customer base is diversified
customer
such that we have no customers contributing over 10%
of revenue.
Loss of key personnel
Key personnel leave
We have a relatively senior team with broad experi-
the business, taking
ence and seek to ensure that System1 is as attractive to
knowledge and external
existing employees as it is to talented external recruits.
relationships with them
Reward is competitive and regular performance evalu-
ation identifies individuals who may be “at risk”. For
the most senior executives, the LTIP (long-term incen-
tive plan) is designed to provide a strong motivation to
stay with System1.
Loss of a critical supplier
The bankruptcy, change
We have several mission-critical functions carried out
of control or resignation
by third-party suppliers (such as panel suppliers). For
of a strategic supplier
these functions, we seek to ensure we are not too reli-
leaves the Company
ant on any one organisation and typically have three
unable to meet customer
qualified providers. We work in close co-operation
demand
with our strategic suppliers, ensuring that any issues
and concerns are surfaced rapidly and resolved in
partnership.
Loss of assets, data,
Theft of intellectual prop-
We endeavour to protect the business from significant
intellectual property
erty via unauthorised or
risks, through a combination of trademark protection;
illegal access to or copying
insurance; development of internal guidelines and
of the Company’s product
policies; comprehensive information security pro-
ideas, databases, propri-
gramme, and our employee, client and supplier terms
etary methods, and algo-
and conditions.
rithms
Litigation risk
Legal action is taken
We endeavour to protect the business from significant
against the Company by
risks, through our terms and conditions, trademark
customers, employees,
protection and comprehensive professional indem-
suppliers, or other
nity insurance.
stakeholders
20
System1 Group PLC Annual Report and Accounts 2023
Risk Area
Potential Impact
Mitigation
Strategic risk
Technological advances
The group positions itself as “the most predictive”
including artificial intel-
provider of information to support creative and mar-
ligence reduce the com-
keting decisions. Currently a combination of real-
mercial viability of the
life panel respondents and System1’s methodology
group’s methodology
achieves this goal. The group acknowledges that this
may change over time and continuously reviews the
application of AI and other tools in predictive market
research and more generally.
Participation. The group
The group formally reviews product and geographic
does not compete effec-
markets as part of its annual strategy review. We
tively in the largest and
upweighted our presence in the US to reflect the
faster-growing markets
significant opportunity in that market and launched
digital and audio versions of Test Your Ad.
Operational risk
An outage or other
All our services are hosted on a secure external cloud
technical issues on our
infrastructure with multiple failover options. We con-
survey platform results
tinuously monitor system availability and endeavour
in delays in delivering
to alert the customer to any delays on the rare occa-
customer projects
sions where there is disruption.
A reduction in panel data
We conduct both operational and strategic reviews
quality affects the com-
of respondent quality in close collaboration with our
pany’s reputation with
approved panel suppliers and can switch provider
key customers
where required.
A cyber-attack causes a
Our business does not ordinarily hold non-employee
material breach to our
personal data. Any personal data of clients’ or sup-
infrastructure
pliers’ employees is held by System1 in compliance
with the applicable legislation. We have invested in
our controls (including penetration tests), processes
and IT infrastructure and hold ISO 27001 accredita-
tion covering information security.
All change initiatives are subject to project gover-
nance, and development is run on an “agile” meth-
odology. The Executive Team reviews operational
performance regularly providing early warning of
potential deviations from plan. The Board reviews
operational performance monthly and strategic
direction regularly and when appropriate.
The volume of change
initiatives in System1’s
transition to a platform
business could lead to
a loss of operational
control
Financial risk
Failure to manage credit,
Due to the straightforward nature of the business, its
currency, market, interest
international cost base, the Company’s strong bal-
rate or liquidity risk expose
ance sheet, and the fact that most of the Company’s
the Group to losses
customers are large, credit-worthy organisations,
foreign exchange and credit risks have historically
proved to be modest. Further detail is given in note 8
of the financial statements.
21
System1 Group PLC Annual Report and Accounts 2023
Principal Risks and Uncertainties continued
Risk Area
Potential Impact
Mitigation
Environmental and
The company’s revenue
The Company trades principally in Europe and the USA
political risks
streams could be affected
and is exposed to the social and economic impacts in
by customers’ decisions to
those regions. The recent Covid-19 pandemic demon-
reduce marketing budgets
strated the Group’s ability to operate normally without
access to its offices. The main exposure is to our cus-
tomers’ decisions on the size of market research bud-
gets in response to an economic downturn.
Shareholder relations: the
The company holds comprehensive investor one-on-
company’s plans could
one and group meetings in roadshows after the full-
be opposed by significant
year and interim results are announced. In addition,
shareholders
quarterly trading updates provide an opportunity to
engage with shareholders who follow the company
closely.
Political risk through
The territories representing the vast majority of the
adverse regime or regula-
Group’s revenue are socially, politically, and economi-
tory change
cally stable. We do not currently service clients based
in Russia or Belarus, and our operations have not been
directly affected by the ongoing conflict. We have a
regional operations centre in Brazil where just under
10 percent of our employees are based and are com-
fortable that the benefits of the operation outweigh
the slightly elevated risks.
System1 Group PLC Annual Report and Accounts 2023
22
Environmental and Social Report
Section 172 Report
Section 172 of the Companies Act requires the Board to take into consideration the interests of stakeholders in its
decision making. This section provides information about the Board’s approach to engagement with stakeholders,
namely:
• Customers
• Talent
• Investors
• Suppliers
• Community and Environment
In determining the Board’s approach, the Board members have regard to the following:
• The likely consequences of any decision in the long term
• The interests of the company’s employees
• The need to foster the company’s business relationships with suppliers, customers and others
• The impact of the company’s operations on the community and the environment
• The desirability of the company maintaining a reputation for high standards of business conduct, and
• The need to act fairly as between members of the company.
Overarching the Group’s approach to all stakeholders is System1’s culture pyramid:
System1 | The Culture Pyramid
Mission
Identity
Beliefs & Values
Capabilities
Behaviours
The World’s Marketing Decision Platform
Best in the World at predicting & improving the commercial returns
of marketing decisions
Brand: Rigour, Human, Everyone, Tech Savvy, Accountable
People: Customer Commitment, Creativity, Collaboration, Conviction
Top talent, managed & developed expertly
T.I.D.E. team behaviours and the speed of trust
Environment
System1 and flexible (modern working)
Customers
Our target customers are the world’s largest advertisers. The board understands the importance of forming and
retaining good working relationships with its existing and target customers. These customers understand that cre-
ativity is the most powerful tool for growth within their control.
“The power of creativity for growth could be considered our industry’s most fundamental reason for being.
Creativity is a superpower”
Marc Pritchard, P&G Chief Brand Officer
System1 helps these companies make confident creative decisions that lead to transformational business results.
Our advertising and idea tests measure emotion to give our customers the most accurate predictions of the business
impact of creativity. We also provide expert guidance to our customers to help them improve the effectiveness of
their ad or innovation.
Enabling our customers to Create with Confidence.
Our fame is spreading – FY23 was a record year for new customer wins with 149 new platform clients, an increase
of 27% versus the previous year.
24
System1 Group PLC Annual Report and Accounts 2023
Customer case study: Sam Adams (Boston Beer Company)
Opportunity
Each year, the Super Bowl is the most-watched sporting event in the US, attracting more than 100 million viewers
and generating just as much buzz for the advertising as the teams playing in the championship game and the half-
time performance. And with advertisers investing millions of dollars to produce and air their big game commercials,
there’s pressure on brands to deliver great work that will drive market share growth.
For years the Boston Beer Company has debuted new game-day creative for Samuel Adams from its agency part-
ner Goodby Silverstein & Partners. The regional ads also enlist the help of the brand’s recurring Fluent Device “Your
Cousin from Boston,” who can be counted on to bring humour, fun and a bit of rebellion.
Ensuring that these ads land well with viewers across major markets is key.
“Innovation and experimentation is in our DNA, so we also bring that energy into the planning process for our big
game commercial each year,” said Lesya Lysyj, CMO, the Boston Beer Company. “Understanding how consumers are
going to respond before we finalize our creative is key.”
Solution
The Boston Beer Company leveraged System1’s Test Your Ad platform to understand the commercial impact of its
advertising for the 2022 and 2023 games. Test Your Ad surveys real audiences and measures their second-by-sec-
ond emotional response to pinpoint how creative makes people feel. Ultimately, ads will leave viewers feeling happy
to solidify positive brand associations and quick recall at the time of purchase.
System1’s team of experts also provide guidance to brands and agencies to help enhance the brand-building poten-
tial of advertising. With insights around story arc, characters, soundtrack and more, advertisers can often implement
minor changes that have a major, positive impact on effectiveness.
“We believe in the value of testing early and often, especially with such a wide-reaching campaign like a big game
commercial,” added Lysyj. “System1’s platform is incredibly efficient and effective at predicting the success of our
creative and identifying areas of improvement.”
Results
Nearly half of ads in System1’s database score 1-Star and only 1% score 5-Stars. Even for the Super Bowl, a time when
brands are hyper-focused on developing strong creative, commercials consistently average in the 2-Star range from
year to year.
#1
1.65
4.7%
Ad for Super Bowl LVI
Exceptional Spike Rating
Increase in Boston Lager (2023)
In 2022, Samuel Adams’ spot featuring “Your Cousin” and robots from Boston Dynamics took the top spot among
all Super Bowl ads with 4.9-Stars and exceptional Spike and Fluency Ratings. In 2023, “Your Cousin” imagined a
Boston where everyone is nice to one another, and walked away with a 3-Star result for the 30-second game-day
commercial and an even higher Star Rating for the 60-second version that dropped ahead of the game. Since the
launch of Boston Lager Remastered, Samuel Adams has seen a 4.7% increase in Boston Lager.
“System1 measures what truly matters. We’re thrilled to have won the hearts of viewers and the number one ranking
in 2022 and a strong result in 2023 as well,” said Lysyj.
25
System1 Group PLC Annual Report and Accounts 2023
Section 172 Report continued
Talent
Our primary focus is on attracting, growing, and retaining world class talent with a culture of healthy performance. To
achieve this, we embed structures that promote equal opportunity and guard against discrimination. We are proud
of being an inclusive organisation – our culture is founded on principles of inclusion such as feedback, honesty, and
creativity.
How we engage with our talent
We have cultural values (Customer Commitment, Creativity, Collaboration and Conviction) as well as a set of team
behaviours known as TIDE, which describe how we work together.
Truth – always tell the truth… and tell it early
Intent – always assume good intent…yet resolve
issues
Dissent – Be obliged to dissent...yet adhere
to ‘Cabinet Responsibility’
Elephant – Don’t allow ‘elephants’ in the room...
yet be empathetic in dealing with them
This helps to ensure that employees understand the behaviours expected of them and allow us to operate a high trust
environment, which is linked to business success. We embed our values and behaviours by the following:
1.
Introducing them to all employees during their onboarding programme, as part of a 1Welcome afternoon,
chaired by the CEO and Chief People Officer
2. Making them a consistent part of all company communications and
3. Celebrating examples of best practice with awards on our Town Halls.
We conduct quarterly employee input surveys which are reviewed by the Board. These use our FaceTrace method-
ology to capture how employees feel about working at System1, along with reasons. We also ask them what is work-
ing well, what could be improved and add a topical question. We hold follow up discussions with each team across
the business, chaired by the team leaders and the HR team to agree improvements, actions and owners.
In addition to monthly Town Hall meetings with all staff, we also hold monthly senior management forums and run
monthly workshops with managers. These meetings give us the opportunity to connect across the business at differ-
ent levels, share and cascade updates and celebrate success - including System1 Value Awards, where employees
are nominated by colleagues and are recognised for working according to our values.
We pay fairly – there is no discrimination across any factor – we ensure this by using benchmarking data and
conducting annual salary reviews by individual and across roles, and there is a structured approach to career and
professional development across the business. We have a strong learning and development culture. We encourage
employees to plan their development using the support and resources we provide (including internal training pro-
grams, professional certifications and MBA sponsorships). We advertise roles internally and promote inter depart-
mental opportunities.
Talent engagement outcome
We continue to develop our hybrid virtual working approach, working closely with managers and all employees to
maximise productivity, creativity and happiness. We believe in a healthy performance culture and use the below
model to guide us in achieving this.
In April 2023 we introduced a Flexible Holiday pilot, to build on our Flexible Working approach and additionally
launched a Flexible Benefits platform. This provides our employees with increased autonomy when it comes to
choosing how they work and rest and we have received very positive feedback on all of these initiatives. We find it
very important to regularly bring people together in person, to share updates and build relationships, to comple-
ment the time spent working remotely. For example, we run 1derful Wednesday events to encourage employees to
socialise together in the office and in November 2023 we plan to gather all staff in the UK for an all-company Strategy
update meeting.
26
System1 Group PLC Annual Report and Accounts 2023
Strong Leadership
– Led by Executive
Stretching Environment
– Performance Management
Good Management
– Manager Training
(cid:31) Clear strategy & comms
(cid:31) Motivation & recognition
(cid:31) Values, behaviours & trust
(cid:31) Lead by example
(cid:31) Promote health & wellbeing
(cid:31) Set pace and urgency
t
r
o
p
p
u
S
(cid:31) High expectations
of self and others
(cid:31) Stretch objectives
(cid:31) Personal
development
(cid:31) Regular 360
feedback
t
r
o
p
p
u
S
(cid:31) Clear direction –
SMART objectives
(cid:31) Support – feedback,
empower, motivate,
recognition
(cid:31) Resources – align
resources with
objectives so task is
realistic
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.
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 principal bank to ensure that it is kept
informed of the Company’s performance and prospects. In the past year we began using InvestorMeetCompany, an
investor engagement platform which we use for capital markets days, group meetings of investors and the annual
general meeting.
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 share-
holders 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 pro-
duce 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”.
Suppliers
We work with a small number of trusted suppliers and operate on a strong partnership basis. As outlined in the
Principal Risks and Uncertainties section on page 20, the loss of a critical supplier could leave the Group unable to
meet customer demand, therefore the Board has regard to the importance of fostering good relationships with our
suppliers to promote the success of the Group. Our approach is centred on lean principles and continuous quality
improvement, with weekly and monthly meetings to review service levels, KPIs and resolve issues. We share data
between teams to ensure that there is one view of our partnership metrics.
Our key delivery suppliers include:
• MAP Marketing Research provides us with survey programming and project management services
• Toluna, Prodege and NetQuest provide us with market research panel respondents to complete our surveys
• Datawise provides us with bespoke data processing and charting services on our non-standard deliverables
• Intonation provides us with translation services (forward translation of questionnaires and back translation of
respondent verbatim)
System1 Group PLC Annual Report and Accounts 2023
27
Section 172 Report continued
Community
ESG Strategy
We are currently in the process of developing a comprehensive ESG Strategy with the support of expert consultants,
to create an appropriate plan that includes achievable goals and timelines that are in line with science-based targets.
In the meantime, we have outlined below some of the things that we are currently doing under each heading.
Environment
In 2022, System1 partnered with Carbon Intelligence (CI) to report on its carbon emissions and to voluntarily disclos-
ing its energy and carbon footprint, based on our worldwide figures. The methodology is aligned to the Greenhouse
Gas Protocol, developed by the World Resources Institute, and it is the industry standard for measurement and
reporting. Using data on our business activities, CI applied an emissions factor against emissions statistics from
government and other third-party databases/regulatory disclosures to estimate our total emissions, expressed in
“tonnes of carbon dioxide equivalent” (t/CO2e).
Buildings emissions (t/CO2e)
Transport emissions (t/CO2e)
45
26
75
13
124
656
Electricity
Gas
Refrigerants
Commuting
Business Travel
Logistics
Vehicles
The findings were as follows:
• In 2022, the Company’s total carbon footprint was 4,358 t/CO2e
• The vast majority of our emissions come from our supply chain and procurement network, accounting for 3,391
t/CO2e (79%)
• Of the total, our right-of-use assets emitted 146 t/CO2e (3%), and transport (including vehicular/air travel and
public transport) emitted 792 t/CO2e (18%)
28
System1 Group PLC Annual Report and Accounts 2023 Emissions breakdown (t/CO2e)
5,000
4,000
3,000
2,000
1,000
4,212
71
75
Scope 1
Scope 2
Scope 3
Scope 1 emissions are greenhouse gas (GHG) emissions that are
owned or controlled by the Group and are directly related to the
Group operations.
Scope 2 emissions are indirect emissions that come from
electricity, steam, heat, or cooling.
Scope 3 emissions are indirect emissions associated with
upstream and downstream operations such as purchased goods
& services (supply chain), business travel, employee commuting,
and capital investments.
As the Group is a provider of professional and digital services with coworking offices, has a flexible working envi-
ronment, and has a fully cloud computing infrastructure other than employee laptops and mobiles, the majority of
our footprint is in scope 3. This is also in line with the marketing and technology industry. However, System1’s flexible
working approach also meant that the travel footprint was low compared to similar firms.
The next step we identified was to conduct a survey amongst our supply chain, on how they are approaching their
carbon footprint. Our findings were that most of our suppliers, who are also SMEs, are in the early stages of creating
their approach.
This year, we are partnering with ITV on Sustainability initiatives in two ways:
1. We are working together to produce and publish research on Sustainability in Advertising – this will seek to
understand the most effective ways to talk about sustainability in advertising with a view to behaviour change.
We will launch this at the Festival of Marketing in October
2. We are committing to assist ITV in achieving its emissions reduction targets, in alignment with the Science-
Based Targets initiative (“SBTi”) Corporate Net-Zero Standard Framework (sciencebasedtargets.org) and to
achieve at least a 5% reduction of Greenhouse Gas Emissions year on year
Social
We launched Look Out volunteering this year. Under this initiative, employees are invited to participate in local
events that support the community. So far these have included delivering meals to vulnerable people in Singapore,
preparing clothing packages for homeless people in Brazil and working with Breakthrough in the UK, to prepare ex-
offenders to re-enter the workplace.
In addition, we are supporting the ESOMAR Foundation (esomarfoundation.org) and Women In Research (https://
www.womeninresearch.org/). 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 System1
volunteers, together with five volunteer research industry Board members, the Foundation provides research train-
ing, 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 £100,000 a year, through annual donations from the research
community, to fund these activities. Emma Cooper (Chief People Officer) organises WIRexec (Women in Research)
annual summits and System1 is sponsoring the European event this year. WIRe believes in the positive impact of
women in business and works to advance the contributions and voice of women in research, both for themselves and
for the greater good of the industry. System1 is also putting 10 employees through the WIRe Accelerate program, a
multi-module, virtual program delivering professional development concepts.
System1 increases its sphere of influence by partnering on initiatives that impact the community. In addition to
the Sustainability example outlined in the previous section, other examples include the Feeling Seen and Wise Up
reports we have produced with ITV. These provide guidance on diversity in advertising, and we have conducted
events and run panels to help socialise our findings within the industry.
On behalf of the Board
Chris Willford
Chief Financial Officer
25 August 2023
System1 Group PLC Annual Report and Accounts 2023
29
Governance & Group Directors’ Report
Group Directors’ Report
Review of the business and future development
The Chairman’s Statement, CEO’s Statement, the Financial Review, the Section 172 Report, Principal Risks and Uncer-
tainties, and the Corporate Governance Report set out:
• the issues, factors and stakeholders considered in determining that the Directors have complied with their respon-
sibilities under section 172 of the Companies Act 2006 (Corporate Governance Review);
• the methods used to engage with stakeholders and understand the issues to which the Directors must have
regard under section 172 of the Companies Act 2006 and the effect on the Company’s decisions and strategies
during the year (Corporate Governance Review);
• the way that management view the business (Group Overview, Chairman and CEO’s statements, Financial Review);
• its strategy, positioning, and objectives (Group Overview, Chairman and CEO’s statements).
• its historic financial performance (Chairman and CEO’s statements, Financial Review);
• an assessment of its future potential (Group Overview, Chairman and CEO’s statements, Financial Review);
• its key performance indicators (Financial Review); and
• its key business risks (Principal Risks and Uncertainties).
Dividends
The Company did not pay an interim dividend in the year ended 31 March 2023 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 and up to the date
of approval of the financial statements:
James Gregory
(Executive)
appointed 6 December 2022
John Kearon
(Executive)
Chris Willford
(Executive)
Graham Blashill
(Non-Executive)
resigned 28 September 2022
Conrad Bona
(Non-Executive)
appointed 1 September 2022
Rupert Howell
(Non-Executive)
Phillip Machray
(Non-Executive)
appointed 27 May 2022
Sophie Tomkins
(Non-Executive)
Jane Wakely
(Non-Executive)
resigned 15 July 2022
The Remuneration Committee Report sets out directors’ interests in the shares of the Company.
Share capital
At 31 March 2023, the Company had 13,226,773 Shares in issue (2022: 13,226,773) of which 547,844 were held in
treasury (2022: 487,151). The treasury shares will be used to help satisfy the requirements of the Group’s share incen-
tive schemes.
On 7 January 2022, the Company initiated a share buyback programme that oversaw the purchase of 158,674
(1.2%) of its own its own shares for an aggregate value of £0.6m in order to enhance shareholder returns and to satisfy
obligations in relation to employee share schemes. The share buy-back programme ended 31 March 2022, however
the Company purchased a further further 60,693 (0.5%) of its own shares on an ad hoc basis in July and August 2022
for a total consideration of £0.1m.
Changes in the share capital of the Company during the year are given in Note 10 to the financial statements.
31
System1 Group PLC Annual Report and Accounts 2023 Group Directors’ Report continued
Substantial shareholders
As at 1 August 2023, the Company was aware of the following significant interests in the ordinary issued share capital
of the Company.
John Kearon
Investmentaktiengesellschaft für Langfristige Investoren TGV
MEDIQON Group AG
Stefan Barden
Lombard Odier Asset Mgt
Herald Investment Management
Ruffer
Motley Fool Asset Mgt
University of Notre Dame Du Lac
Ennismore Fund Mgt
Financial risk management
% of voting
Number
shares
2,818,235
1,312,547
700,000
657,736
603,476
580,111
570,000
514,609
500,000
437,276
22.2
10.4
5.5
5.2
4.8
4.6
4.5
4.1
3.9
3.5
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 an overdraft facility with HSBC.
Other risks
Management do not consider price risk or interest rate risk to be material to the Group.
Capital risk management
The Group manages its capital to ensure that it can continue as a going concern while maximising its return to share-
holders. The Group’s capital structure consists of cash and cash equivalents, and share capital. In November 2022,
the Company repaid in full the £2.5m revolving credit facility with HSBC. The revolving credit facility expired in Feb-
ruary 2023, and in the same month, the Company secured a £1.5m secured overdraft facility with HSBC. To 31 March
2023, no amounts have been drawn under the overdraft facility. The Group has not entered any derivative contracts.
Going concern
As noted in Principal Risks and Uncertainties, and in note 3 to the consolidated financial statements, the Directors
have considered financial and operational risks in the post-Covid economic climate and marketing industry trends
in the going concern assessment. In addition to the mitigating actions taken by the Company to address these risks,
the Directors have closely monitored the performance of the Group throughout the year, noting the continued £5.7m
cash balance at year-end even with a larger post-Covid cost base and after the repayment of the £2.5m revolving
cash facility.
System1 Group PLC Annual Report and Accounts 2023
32
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 fore-
cast 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 con-
tinue to adopt the going concern basis in preparing the Company and Group financial statements.
Research and development
The Company’s Labs and IT Development teams are involved in the development and validation of new market
research methods and products.
Employees
The Group maintains fair employment practices, attempts to eliminate all forms of discrimination and to give equal
access, and to promote diversity. Wherever possible we provide the same opportunities for disabled people as for
others. If an employee were to become disabled, we would make every effort to keep 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.
Subsequent events
On 30 June 2023, the Group reached a mutually agreeable resolution of the lawsuit filed by System1 Group PLC
against System1 OpCo, LLC in the Southern District of New York for trademark infringement. The parties have signed
a global agreement which governs the co-existence of their respective use of the “System1” trademark in connection
with their operations. As part of this agreement, the Group will receive a fixed amount, payable in instalments, in the
years ending 31 March 2024 and 2025. The parties have agreed to keep further detail of their agreement confidential.
Disclosure of information to auditors
The directors are responsible for the maintenance and integrity of the corporate and financial information included
on the System1 Group PLC website. Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
In the case of each Director in office at the date the Directors’ report is approved:
• so far as the director is aware, there is no relevant audit information of which the group’s and company’s auditors
are unaware; and
• they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any
relevant audit information and to establish that the group’s and company’s auditors are aware of that information.
On Behalf of the Board
Chris Willford
Chief Financial Officer
25 August 2023
System1 Group PLC Annual Report and Accounts 2023
33
Statement of Directors’ Responsibilities
The directors are responsible for preparing the Group Strategic Report, Group Directors’ Report, and the financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare group and company financial statements for each financial year.
The directors have elected under company law and are required by the AIM Rules of the London Stock Exchange
to prepare the group financial statements in accordance with UK-adopted international accounting standards and
have elected under company law to prepare the company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law) including
Financial Reporting Standard 101 “Reduced Disclosure Framework”.
The Group financial statements are required by law and UK-adopted international accounting standards to pres-
ent fairly the financial position and the financial performance of the group and company. The Companies Act 2006
provides in relation to such financial statements that references in the relevant part of that Act to financial statements
giving a true and fair view are references to their achieving a fair presentation.
Under company law the directors must not approve the financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for
that period.
In preparing each of the group and company financial statements, the directors are required to:
a. select suitable accounting policies and then apply them consistently;
b. make judgements and accounting estimates that are reasonable and prudent;
c.
for the group financial statements, state whether they have been prepared in accordance with UK-adopted
international accounting standards;
d.
for the company financial statements, state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the company financial statements
e. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
group and the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Group and the Company’s transactions and disclose with reasonable accuracy at any time the financial position of
the group and the company and enable them to ensure that the financial statements comply with the requirements
of the Companies Act 2006. They are also responsible for safeguarding the assets of the group and the company and
hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included
on the System1 Group PLC website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
On behalf of the Board
Chris Willford
Chief Financial Officer
25 August 2023
System1 Group PLC Annual Report and Accounts 2023
34
Corporate Governance
Governance
System1 understands how vital good governance is for achieving our business goals and sustainability targets. We
will share more about our approach to governance in later sections of this report.
We know that good governance is key for our company’s success. It benefits everyone involved with our group –
not just our shareholders, but our employees, clients, and partners too. That is why we have built a governance struc-
ture that makes sure our decisions are transparent, responsible, and uphold the highest ethical standards.
This past year, we have been busy improving our governance policies and processes. We have been aligning them
with the latest industry standards, legal requirements, and ESG principles. We are committed to ongoing review and
refinement to make sure we manage risks effectively and stay compliant with laws and regulations.
Our Board of Directors is central to our governance structure. It consists of individuals with a wide range of skills
and experiences. They provide critical oversight, strategic counsel, and informed decision-making, ensuring our
commitment to the highest ethical standards is never compromised.
Employee engagement and development form a crucial part of our governance strategy. Our significant investment
in ongoing professional development ensures our team is equipped with the latest industry knowledge, skills, and
best practices to deliver exceptional market research and insights to our clients.
As we move forward, we are committed to maintaining and improving our governance standards and to promot-
ing a culture of responsibility, integrity, and excellence throughout System1.
As an AIM-listed company, System1 adheres to the ten principles of the Quoted Companies Alliance (QCA)
Corporate Governance Code. The QCA Code identifies ten principles that underpin growth in long-term shareholder
value, encompassing an efficient, effective and dynamic management framework accompanied by good communi-
cation to promote confidence and trust.
Deliver growth
Establish a strategy and
Our strategy is to grow the platform-based predic-
See Group Overview
business model to promote
tions business and achieve economies of scale
page 3 and CEO’s State-
long-term value for share-
holders
ment on page 6
Understand and meet share-
The CEO and CFO communicate regularly with
Visit system1group.com/
holder needs and expecta-
investors at half-yearly results roadshows
investors for further
tions
information
Take into account wider
The preferences of customers, employees,
See Section 172 Report
stakeholder and social
suppliers, community as well as investors inform
page 24 and
responsibilities and their
our decision making
implications for long-term
success
system1group.com/
investors
Embed effective risk
The Board is responsible for setting risk appetite
See Principal Risks and
management, considering
and tolerance. The Executive manages risk day
Uncertainties page 20 and
both opportunities
to day
and threats, throughout
the organisation
Board Effectiveness page
40
35
System1 Group PLC Annual Report and Accounts 2023
Corporate Governance continued
Maintain a dynamic management framework
Maintain the Board as a
The Board has two Committees: Audit Committee;
See Corporate
well- functioning,
and Remuneration Committee. The composition
Governance page 38
balanced team led by the
and experience of the Board is reviewed in the
and 39
Chair
Board Evaluation
Ensure that between them
The Board members have the appropriate ranges of
See Board experience
the Directors have the nec-
skills and experience, covering, Sales & Marketing,
page 41 and Board Effec-
essary up-to-date experi-
Technology, Finance, Governance and Sustainability
tiveness on page 40
ence, skills and capabilities
Evaluate Board perfor-
The Board carries out an annual effectiveness review
See Corporate
mance based on clear and
assess its strengths and areas for development and
Governance page 37 and
relevant objectives, seeking
improvement
continuous improvement
Board Effectiveness
on page 40
Promote a corporate cul-
The culture of System1 is guided by the core
See Section 172 Report
ture that is based on ethical
“TIDE” values
page 26
values and behaviours
Maintain governance struc-
The Board is satisfied that the delegated authorities
See Board of Directors
tures and processes
and budgetary processes in the company are
pages 41 and
that are fit for purpose and
adequate to support its strategic growth plans
system1group.com/
support good decision mak-
ing by the Board
Build trust
investors
Communicate how the
The investors section of our website includes
See Remuneration and
Company is governed and
our Annual Report, results, presentations, notice
Audit Committee reports
is performing by maintain-
of AGM and results of the AGM and general
on pages 44 and 42 and
ing a dialogue with share-
meetings.
holders and other relevant
stakeholders
Strategy
Visit system1group.com/
investors for further
information
All directors are familiar with the market in which the Group is operating, the Group’s value proposition, and its stra-
tegic 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 objec-
tives. 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.
36
System1 Group PLC Annual Report and Accounts 2023
The key features of the Group’s internal controls are described below:
• clearly defined organisational structure with appropriate delegation of authority;
• comprehensive budgeting programme with an annual budget approved by the Board;
• regular review by the Board of actual results compared with budget and forecasts;
• regular reviews by the Board of full year expectations;
• detailed budgeting and monitoring of costs incurred on the development of new products;
• a limited number of Directors and Executives authorised to commit the company to legal agreements or make
payments;
• regular reviews of customer and employee feedback;
• information security controls (for which the Company has obtained ISO 27001 accreditation).
The Board take measures to review internal controls and embed risk management procedures on an ongoing basis
and implement metrics and objectives to monitor the business as part of a continuous improvement programme.
Corporate culture
The Group endeavours to maintain a culture built on integrity. To surface unethical or deceitful behaviours, it pro-
motes 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 chan-
nels), 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 2023. The membership of the Board is set out in the Group
Directors’ Report. We believe that the directors have the mix of leadership, marketing and financial skills and experi-
ence necessary to oversee the Company and deliver its strategy for the benefit of the shareholders over the medium
to long-term, and this mix is regularly under review as strategy develops. The composition of the Board is set out
on page 41 and is intended to achieve a balanced range of personal qualities and capabilities, and to support the
Company’s commitment to promoting gender equality and diversity. The biographical details of the directors are
presented below.
The Board operates an induction programme for new Non-Executive Directors. The Board reviews its AIM obliga-
tions with its Nominated Advisor annually and endeavours to keep up with best practice governance via QCA semi-
nars and training material. All directors can access the Company’s advisors and obtain independent professional
advice at the Company’s expense in performance of their duties as directors.
During the year, the Remuneration Committee sought advice from external consultants on board and senior man-
agement remuneration. Neither the Board nor the respective committees have sought other external advice on any
significant matter during the year. The Audit Committee works with the Company’s auditor, 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
• they are not related to any of the Executive Directors; and
• they have no material conflict of interest given their other roles and business activities.
System1 Group PLC Annual Report and Accounts 2023
37
Corporate Governance continued
During the financial year ended 31 March 2023, the Company combined the role of Company Secretary with that
of the Company General Counsel. The office had previously been held by the Chief Financial Officer.
The Board schedules regular monthly meetings during the year, except August, and additional ad hoc meetings as
required. All Directors can allocate sufficient time to the Company to discharge their responsibilities fully. In recent
times, we have embraced a hybrid approach to our board and committee meetings, conducting them both virtually
via Microsoft Teams as well as in person at our central London location. The number of regular meetings that each
director attended during the financial year is set out below:
Graham Blashill (resigned 28 September 2022)
Rupert Howell
Sophie Tomkins
Jane Wakely (resigned 15 July 2022)
Phil Machray (appointed 27 May 2022)
Conrad Bona (appointed 1 September 2022)
James Gregory (appointed 6 December 2022)
John Kearon
Chris Willford
* by invitation.
Matters reserved for the Board
Board
Audit
Remuneration
Committee
Committee
(12 meetings)
(3 meetings)
(2 meetings)
5
12
12
3
10
7
4
12
12
1
3
3
n/a
2
1
n/a
n/a
3*
n/a
2
2
n/a
2
2
n/a
1*
2*
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 24.
Appointment of Directors
The Board formally approves the appointment of all new Directors. Each year at the Annual General Meeting, all
Directors retire by rotation and are subject to re-election.
Remuneration Committee
The Remuneration Committee is responsible for determining the specific remuneration and incentive packages for
each of the Company’s Executive Directors and keeping under review the remuneration and benefits of all senior
executives. Its members are:
Philip Machray – Chairman of the Remuneration Committee (appointed 1 December 2022)
Graham Blashill (resigned 28 September 2022)
Conrad Bona (appointed 1 September 2022)
Rupert Howell
Sophie Tomkins
Jane Wakely (resigned 15 July 2022)
System1 Group PLC Annual Report and Accounts 2023
38
The Remuneration Committee’s role and responsibilities are to:
• review and approve the remuneration and incentive schemes of Executive Directors, including pension rights,
other benefits, and any compensation payments, ensuring that no Director is involved in any decisions as to their
own remuneration;
• review and approve the level and structure of remuneration and incentive schemes for senior management;
• select, appoint, and set the terms of reference for any remuneration consultants who advise the Committee;
• approve the payments to Directors under any performance-related pay or share schemes operated by the Group;
• ensure that contractual terms on termination of any Director are fair to the individual and the Group, that
• failure is not rewarded and that the duty to mitigate loss is fully recognised;
• approve any major changes in employee benefits structures throughout the Group;
• approve the policy for authorising claims for expenses from the Directors.
The Remuneration Committee schedules two formal meetings per year and meets at other times as necessary.
The Remuneration Committee may invite any of the executive directors to attend meetings of the Remuneration
Committee. The Remuneration Committee may use consultants to advise it in setting remuneration structures and
policies. It is exclusively responsible for appointing such consultants and setting their terms of reference.
The Annual Statement from the Remuneration Committee Chair is set out in the Remuneration Committee Report
on page 44.
Audit Committee
The Audit Committee is responsible for ensuring the financial performance of the Group is properly monitored and
reported on to shareholders, reviewing the Group’s financial systems and controls, and overseeing the Company’s
risk management. Its members are:
Sophie Tomkins – Chair of the Audit Committee
Graham Blashill (resigned 28 September 2022)
Conrad Bona (appointed 1 September 2022)
Rupert Howell
Philip Machray (appointed 27 May 2022)
The Audit Committee’s role and responsibilities are to:
• monitor the integrity of the financial statements of the Group;
• review significant financial reporting matters;
• make recommendations to the Board, for it to put to the shareholders for their approval in relation to the appoint-
ment 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 pro-
cess;
• 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.
39
System1 Group PLC Annual Report and Accounts 2023 Corporate Governance continued
Board effectiveness
In line with best practice governance, the Group’s Senior Independent Director recently concluded the annual review
of the Chair. This involved confidential discussions with the independent Directors, to act as a sounding board for
any concerns, and to ensure that the Board is functioning optimally. The review concluded that the Board meetings
were being run well, with all Directors given full opportunity to express views and ask questions of the Executive, and
with clear goal setting and follow up of action points.
Additionally, this year’s Board Evaluation included a number of key topics including:
• the effectiveness of the Board in setting strategy and assessing risk;
• the relationship between the CEO and Chair;
• that decision making was balanced and objective and took active account of relevant stakeholder issues;
• areas for improvement in shareholder communications, including use of the annual AGM;
• that the Board was effective and responsive to new information and events; and
• that the Board had the appropriate composition and skills to discharge its duties, and had sufficient process in
place for regular self assessment.
Overall, the Board Evaluations have indicated that Board processes have been robust, although certain areas have
been flagged as needing improvement. In particular, succession planning has been identified as needing greater
focus, and these processes have been enhanced in response. The Board continues to pursue practical and transpar-
ent ways of engaging with its shareholders, notably via the Company’s second Capital Markets Event in February
2023. The Board continues to challenge itself on the best way of taking account of risk matters in its decision making
and maximising the combined commercial experience of Board members to challenge and refine strategy.
As a result of this year’s process, a number of actions were agreed including increasing opportunities for Non-
Executive Directors to meet colleagues and revisiting the Board’s annual schedule of operational and strategic deep
dive presentations.
The skills and experience of the Board are set out in their biographical details on page 41. The experience and
knowledge of each of the Directors gives them the ability to constructively challenge strategy and to scrutinise per-
formance. The Board meets regularly with external experts including the NOMAD to ensure that it remains abreast of
developments and current best practice.
All Directors undertook a thorough induction process on joining the Board, tailored to the existing knowledge and
experience of the Director concerned.
The Group maintains communication with a wide range of stakeholders to ensure that their needs, interests and
expectations are understood and reflected within the Group’s strategy and in Board decision making. Further details
of how the Board has taken account of the needs of the Group’s stakeholders are set out in pages 24-29.
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 Com-
mittee.
System1 Group PLC Annual Report and Accounts 2023
40
The Board
Conrad Bona
Independent Non-Executive Director, Appointed on
1 September 2022
Conrad joined System 1 Group in September 2022 as a Non–
Executive Director. Conrad is a business consultant, investor
and entrepreneur who started his career as a banking and fi-
nance lawyer and has worked in Toronto, London and Tokyo.
He has a degree in economics from the University of Western
Ontario, law degrees from the University of Edinburgh and the
University of New Brunswick and qualified to practice as a law-
yer in multiple jurisdictions. No longer practicing law Conrad
now advises companies on a wide range of commercial, finan-
cial and business matters. He has both Canadian and British
citizenship and is based in London, England.
Favourite ad of all time: John Lewis Monty the Penguin
Rupert Howell
Independent Non-Executive Director,
Appointed on 15 February 2021 (Became Chairman on
28 September 2022)
Rupert joined System1 Group in 2021 as a Non-Executive
Director and became Chair of the Remuneration Committee in
December 2021. He founded a multi-award-winning ad agency
HHCL (named 1 of the top 10 ad agencies of all time). Rupert was
then CEO of Chime Communications PLC, President EMEA of
McCann Erickson, PLC Executive Director at ITV PLC, Chairman
of Matomy Media, and Executive Director of Reach PLC. He is
currently Chairman of ROXi, a music streaming and entertain-
ment business, and Co-founder/Chairman of Pinwheel, the
sustainable living and planet repair app, helping offset the
Platinum Jubilee Pageant for HM the Queen.
Favourite ad of all time: Tango Slap
James Gregory
Chief Executive Officer, Appointed on 6 December 2022.
Prior to joining System1, James worked at HomeServe Plc as
Chief of Staff, Tesco Plc as Online Director, and Capgemini
Consulting. He brings 15 years of leadership experience in strat-
egy and transformation, operations and commercial manage-
ment across digital, distribution and online retail environments.
Past roles involved scaling digital businesses, initiating and
leading large scale, complex transformations, and delivering
new customer propositions.
Favourite ad of all time: John Smiths Peter Kay, ’Ave It
John Kearon
Founder and President / New Business Director, US
John founded the Company in 1999 and remains its largest
shareholder. During 20 years as CEO, JK steered System1 from
a start-up to where it is today, shaking up traditional market
Board skills and experience
research with fresh innovative thinking & game-changing meth-
ods. Before System1, JK founded innovation agency, Brand
Genetics, after being Planning Director at Publicis, and holding
various research/marketing positions at Unilever.
Favourite ad of all time: Coca Cola Life Argentina
Philip Machray
Independent Non-Executive Director,
Appointed On 27 May 2022
Phil joined System1 Group in 2022 as a Non-Executive Director
and was appointed chair of the Remuneration Committee on 1
December 2022. He started his career at Deloitte in 1992, rising
to Director of Assurance and Advisory. He then joined Trinity
Mirror Group, where he held a number of roles, and became
Director of Corporate Development, reporting to the CEO,
of what became Reach PLC. Since 2021, Phil has been Chief
Financial Officer of Merit Group PLC, a data and intelligence
business, and a Non-Executive Director, and audit committee
Chair of Digitalbox, a mobile-first digital publisher and AIM-
listed company.
Favourite ad of all time: John Smiths Peter Kay, ’Ave It
Sophie Tomkins
Independent Non-Executive Director,
appointed on 11 June 2018
Sophie joined the Board as Non-Executive Director in June
2018 and became Senior Independent Director in August 2021.
Her career included nearly two decades as a London-based
stockbroker, focusing mainly on high growth small to mid-cap
companies. She started at Cazenove & Co, and became more
entrepreneurial, at both Collins Stewart, and then Fairfax. As
a City Analyst, and then Head of Equities, Sophie advised nu-
merous companies and Boards on a huge range of high-profile
IPOs and M&A deals. She is currently Non-Executive Director
and Audit Committee Chair of, Hotel Chocolat Group PLC,
and Virgin Wines UK PLC. Sophie is also a qualified Chartered
Accountant.
Favourite ad of all time: Yellow Pages JR Hartley
Chris Willford
Chief Financial Officer
Appointed 26 June 2020
Chris, a Chartered Management Accountant, built his ca-
reer 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.
Favourite ad of all time: Skoda Cake
Sales and marketing
Technology
Finance
Governance
Sustainability
Conrad Bona
Rupert Howell
James Gregory
John Kearon
Phillip Machray
Sophie Tomkins
Chris Willford
41
System1 Group PLC Annual Report and Accounts 2023
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 exter-
nal auditors and advising on the appointment of external auditors.
Members of the Audit Committee
The membership of the Committee is set out on page 39 of the Corporate Governance Report. All members of the
Committee are independent Non- Executive Directors. The Chief Financial Officer routinely attends the Audit Com-
mittee 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 Com-
mittee 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 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 37. During FY 2022/23, three formal meetings were held.
Duties
The main duties of the Audit Committee are set out in its terms of reference, which are summarised on page 39 and
available on the Group’s website (system1group.com/investors).
The work carried out by the Audit Committee during FY 2022/23 comprised the following:
• ensuring the financial performance of the Group is being properly measured and reported on;
• review of the audit plan;
• consideration of key audit matters and how they are addressed;
• going concern review;
• review of suitability of the external auditor;
• review of the financial statements and Annual Report;
• review of the appropriateness of the Group’s accounting policies and judgements made in the preparation of the
financial statements, and adequacy of the disclosures made therein;
• consideration of the external audit report and management representation letter;
• review of the risk management and internal control systems;
• meeting with the external auditor without management present;
• review of anti-bribery policy and whistleblowing arrangements.
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 2023 relate to the Audit and Interim review.
Auditor Performance
The Audit Committee also assesses the auditor’s performance. The Committee has adopted a broad framework to
review the effectiveness of the Group’s external audit process and audit quality which includes: assessment of the
audit partner and team with particular focus on the lead audit engagement partner; planning and scope of the audit,
with identification of particular areas of audit risk; the planned approach and execution of the audit; management of
an effective audit process; communications by the auditors with the Committee; how the audit contributes insights
and adds value; a review of independence and objectivity of the audit firm; and the quality of the formal audit report
to shareholders. The Audit Committee recommends that RSM be re-appointed as the Group’s auditor at the next
AGM.
System1 Group PLC Annual Report and Accounts 2023
42
Areas of key significance in the preparation of the financial statements
Prior to publication of this Annual Report and Accounts, the Committee reviewed the accounting policies and sig-
nificant judgements and estimates underpinning the financial statements as disclosed in notes to the consolidated
financial statements.
Significant focus is placed on key accounting policies, including any judgements and estimates, which underpin
the financial statements, which include:
• revenue recognition;
• capitalisation and valuation of intangibles;
• valuation of share-based payments.
Further detail on the approach to these areas can be found in Note 4 to the financial statements
Audit process
The auditor prepares an audit plan for the review of the full period financial statements. The audit plan sets out the
scope of the audit, areas to be targeted and audit timetable. This plan is reviewed and agreed by the Audit Commit-
tee. Following the audit, the auditor presents its findings to the Audit Committee for discussion. No major areas of
concern were highlighted by the auditor during the period; however, areas of significant risk and other matters of
audit relevance are regularly communicated.
Internal audit
At present the Group does not have an internal audit function and the Committee believes that management is able
to derive assurance as to the adequacy and effectiveness of internal controls and risk management procedures
without one.
Risk management and internal controls
As described throughout the Annual Report and the Corporate Governance section of the Group’s website (system-
1group.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 con-
trol framework and ensuring that it operates effectively. During the period, the Committee has reviewed the frame-
work 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 com-
fortable 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
43
System1 Group PLC Annual Report and Accounts 2023 Remuneration Committee Report
Annual statement from the Remuneration Committee chair, Philip Machray
Dear Shareholder,
The Remuneration Committee sets the strategy, structure, and levels of remuneration for the Executive Directors and
reviews the remuneration of senior management, to ensure alignment of objectives and incentives throughout the
business in pursuit of the Group’s stated objectives. The membership and terms of reference of the Remuneration
Committee are set out in the Corporate Governance Report.
This Remuneration Report is split into two parts:
1. The directors’ remuneration policy sets out the Company’s policy on directors’ remuneration, 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 2023 AGM, since the main variable
element (the LTIP) was approved by shareholders at the Annual General Meeting on 13 August 2021.
2. The annual report on remuneration sets out payments and awards made to the directors for the year to
31 March 2023.
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 estab-
lished in October 2021 with vesting due on 12 August 2025 (the “2021 LTIP”).
We endeavour to keep our director remuneration arrangements simple and correlated to increases in long term
business growth. As a smaller Group 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 2021 LTIP, the remuneration ordinarily comprises:
• Base salary
• Bonus and profit share
• Benefits
The Committee regularly reviews the appropriateness of remuneration across the Group and is satisfied that an
appropriate reward structure exists below Board level to recognise and retain our top talent.
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.
44
System1 Group PLC Annual Report and Accounts 2023
Directors’ remuneration policy
The policy described in this part of the Remuneration Report is intended to apply for three years beginning in the
2022/23 financial year to 21 March 2025 and covers Executive Directors and a small number of other senior manag-
ers (“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 fre-
quently than every four years.
The Committee has based the Executive reward structure on the long-term organic growth strategy of the busi-
ness. 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 leader-
ship roles of our Executives and to ensure current and future market competitiveness. Variable elements – including
bonuses and Long-term incentives are to motivate and reward them for delivering the Group’s strategy and making
the Group successful on a sustainable basis.
The balance of variable elements, between short-term and long-term awards, is designed to focus decision mak-
ing on delivering shareholder value. In the period to March 2023 the Committee judged that delivery of the Group’s
long-term growth strategy was the primary objective and no short-term awards were granted. For the period to
March 2024, the Committee considered that, in light of the recent strategic review, short-term incentives (bonuses)
matched to the near-term goals of the strategic review would be applicable to retain and reward Executives.
Base salary and benefits
Years ended 31 March 2023 and 31 March 2024; Base salary is paid in 12 equal monthly instalments during the year.
Salaries are reviewed annually, and any changes are effective from the beginning of the Group’s financial year (which
is 1st April). Benefits comprise money purchase pension contributions of up to 6% of salary, private medical and
dental insurance, life insurance and long-term disability insurance.
Bonuses
Year ended 31 March 2023: Participants in the 2021 LTIP did not participate in the Company’s annual bonus or profit
share scheme and had no other short-term incentive plans. Therefore, over the period to March 2023, the only remu-
neration received was base salary and benefits.
Year ended 31 March 2024: Executives have the opportunity to earn cash bonuses for exceeding annual targets.
Targets are set such that no bonus accrues until Adjusted Profit before Taxation (= Profit before Taxation and Share-
Based Payments) exceeds the budgeted performance for that measure. The level of bonus payable increases pro-
gressively from zero for meeting target to a maximum potential payment of 50% of salary for Executive Directors.
Payment is dependent upon a share price accretion underpin.
The long-term incentive plan
The Company introduced the current 2021 LTIP in October 2021. It was approved by shareholders at the Annual
General Meeting on 13 August 2021 and covers the period ending 21 March 2025. The 2021 LTIP was implemented in
October 2021 as a modification to the 2019 LTIP.
Under the approved modified scheme, the 2021 LTIP features the following:
• The awards have taken the form of zero-cost stock options.
• The overall plan limit is 10% of issued ordinary share capital as at 1 January 2017.
• New awards can be granted up to 22 March 2025 so that all executives’ interests are aligned.
• The award has 4 tranches of vesting dates on 12 August 2022 to 2025 with a hard end-date of 21 March 2027.
• The market conditions underpinning these options are an average daily closing mid-price of the Company’s shares
must be at least £4.00 during the month of July (excluding weekends) of the relevant year when vesting occurs.
If the share price target is not met, the award will roll onto the next date of vesting.
• Non-market performance conditions: If for the financial year immediately preceding the year of Vesting, Adjusted
System1 Group PLC Annual Report and Accounts 2023
45
Remuneration Committee Report continued
Profit After Tax is greater than £0 and subject to the Remuneration Committee considering and being satisfied
with the level of profitability for the financial year immediately preceding the year of Vesting and the overall cor-
porate and share price performance since 31 March 2021:
a) all of the award will vest if revenue is equal to or greater than the Stretch Target;
b) one-third of the award will vest if revenue is equal to the Threshold Target;
c) a proportionate amount of the award will vest on a straight-line basis if revenue is between the Threshold
Target and the Stretch Target (between one-third and all of the award).
• The Threshold Target means revenue of £45m in the Company’s financial year ending 31 March and represents the
minimum level of revenue that must be achieved for vesting to occur.
• The Stretch Target means revenue of £88m in the Company’s financial year ending 31 March and represents the
minimum level of revenue that must be achieved for full vesting to occur.
At 31 March 2023, the number of options granted under the 2021 LTIP reached 1,130,959 (or 8.6% of issued ordi-
nary share capital of maximum capacity at 10%).
At 31 March 2023, there were three Executive Director participants in the 2021 LTIP (James Gregory, John Kearon,
and Chris Willford) and six senior manager participants. The specific vesting levels are set out as follows:
Equity level shares
Executive Directors
Senior Managers
Non-employee plan
No. Of issued shares
Revenue target
154,311
308,623
462,934
198,401
396,802
595,203
1.2%
2.3%
3.5%
1.5%
3.0%
4.5%
£45.0m
Threshold
£88.0m
Stretch
£45.0m
Threshold
£88.0m
Stretch
In April 2019, the Committee granted Stefan Barden, then an advisor to the Board, a separate equity award, compris-
ing 300,000 zero-cost stock options in three tranches of 100,000, with the following performance conditions: In
October 2021, the non-employee plan was modified to reflect the same targets as the 2021 LTIP scheme.
Tranche 1: 100,000 zero-priced stock options
• Vest: when audited Revenue in any financial year exceeds £45m, subject to the Company’s share price exceeding
£4.00 per share for a 30-day consecutive dealing day period prior to the lapse date;
• Lapse: on 30 July 2025.
• Reduced to 46,995 on 31 March 2022
Tranche 2: 100,000 zero-priced stock options
• Vest: when audited Revenue in any financial year exceeds £66.5m, subject to the Company’s share price exceed-
ing £7.50 per share for a 30-day consecutive dealing day period prior to the lapse date;
• Lapse: on 30 July 2029
• Cancelled 31 March 2022
Tranche 3: 100,000 zero-priced stock options
• Vest: when audited Revenue in any financial year exceeds £88m, subject to the Company’s share price exceeding
£10.00 per share for a 30-day consecutive dealing day period prior to the lapse date;
• Lapse: on 30 July 2032.
• Cancelled 31 March 2022
Stefan Barden resigned as director on 31 January 2022 and as advisor to the Board on 31 March 2022. As at 31
March 2023, Stefan Barden retained 46,995 of his Tranche 1 options, with the remaining 253,005 options cancelled.
System1 Group PLC Annual Report and Accounts 2023
46
Dilution
Vested stock options are set out below:
Voting shares as at 31 March 2023
2006 employee share option scheme (closed)
2010-2014 LTIP – vested on 28 May 2014 (closed)
No.
%
12,678,929
100%
7,000
10,144
17,144
<1%
<1%
<1%
Unvested options comprise options granted under the 2019 and 2021 LTIP schemes, and the Non- Employee Plan,
all described above. The maximum aggregate dilution under these schemes is 9.4% of the Company’s voting shares.
Non-Executive Directors
Non-Executive Directors do not participate in any of the Company’s incentive arrangements, nor do they receive any
benefits. Their fees are reviewed periodically and set by the Board as a whole.
Remuneration of all employees
All employees are entitled to base salary, benefits, and a discretionary annual bonus or commissions. Since January
2012, equity awards have not been granted to employees who are not also members of executive management.
Director service contracts and policy on payment for loss of office
All the Executive Directors have service contracts. The agreements include restrictive covenants which apply dur-
ing employment and for a period of 6 months after termination. All the Executive Directors’ service contracts can be
terminated on six months’ notice in writing by either the Company or the director.
Annual report on remuneration
Remuneration for Executive Directors
Salary in lieu
Options
Comp for loss
Salary
lof pension
Benefits
Pension
Exercised
of office
Year ended 31 March 2023 (audited)
£
265,000
210,000
12,600
£
6,622
5,943
£
-
-
57,973
-
-
3,899
532,973
12,600
12,565
3,899
£
-
-
-
Year ended 31 March 2022 (audited)
£
Salary in lieu
Options
Comp for loss
Salary
lof pension
Benefits
Pension
Exercised
of office
192,000
265,000
200,000
12,000
£
2,851
8,205
6,045
£
-
£
-
1,767
278,363
-
-
657,000
12,000
17,101
1,767
278,363
John Kearon
Chris Willford
James Gregory
Total
Stefan Barden
John Kearon
Chris Willford
Total
£
-
£
-
-
Total
£
271,622
228,543
61,872
-
562,037
Total
£
194,851
553,335
218,045
966,231
£
-
-
£
-
-
-
-
This Annual report on Remuneration discloses the highest paid director in the year.
System1 Group PLC Annual Report and Accounts 2023
47
Remuneration Committee Report continued
Directors’ interests
The Directors who held office at 31 March 2023 held the following shares in the Company as at that date:
John Kearon
Chris Willford
James Gregor
Conrad Bona
Phil Machray
Sophie Tomkins
Rupert Howell
No
No.
2,818,235
33,666
15,384
26,407
15,380
8,000
10,000
23.1%
0.3%
0.1%
0.2%
0.1%
0.1%
0.1%
Directors’ interests in options over shares and conditional shares of the Company are shown below.
Date
Earliest
Exercise
No. at
Exercised
Cancelled
No. at
of grant
exercise date
price
1 Apr 2022
in year
in year
31 Mar 2023
John Kearon
Chris Willford
04/09/2019
12/08/2022
0.0P
198,400
27/11/2020
12/08/2022
0.0p
132,267
James Gregory
27/10/2021
12/08/2022
0.0p
132,267
-
-
-
-
-
-
198,400
132,267
132,267
Options and conditional shares granted under the 2019 LTIP and modified in 2021, as described in the Directors’ remuneration policy. These modified
options can vest at any time between 12 August 2022 and 12 August 2025, provided performance and market targets are met.
There were no equity awards or vesting of options other than under the LTIP as set out in the directors’ remunera-
tion policy.
Fees for non-executive directors (audited)
The Non-Executive Directors received fees, but no other benefits, as follows.
Graham Blashill (resigned 28 September 2022)
Robert Brand
Rupert Howell
Sophie Tomkins
Jane Wakely (resigned 15 July 2022)
Conrad Bona (appointed 1 September 2022)
Phil Machray
Philip Machray
Chair, Remuneration Committee
2023
£
2022
£
21,000
40,000
-
14,128
40,000 36,000
40,000 37,333
11,108 36,000
22,167
32,772
-
-
167,046
163,461
System1 Group PLC Annual Report and Accounts 2023
48
Independent Auditor’s Report
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 2023 which comprise consolidated income statement, consolidated state-
ment of comprehensive income, consolidated and Company balance sheets, consolidated statement of cash
flows 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 the prepara-
tion of the group financial statements is applicable law and UK-adopted International Accounting Standards. The
financial reporting framework that has been applied in the preparation of the parent company financial state-
ments is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101
“Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs
as at 31 March 2023 and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in accordance with UK-adopted International
Accounting Standards;
• the parent company financial statements have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; 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 Ethi-
cal Standard as applied to listed entities1 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.
Summary of our audit approach
Key audit matters
Group
• Revenue recognition
Materiality
Group and Parent Company
• Capitalisation and valuation of intangibles
• Valuation of sabbatical provision
• Valuation of share-based payment credit
Group
• Overall materiality: £73,000 (2022: £80,800)
• Performance materiality: £54,750 (2022: £60,600)
Parent Company
• Overall materiality: £36,700 (2022: £40,000)
• Performance materiality: £27,525 (2022: £30,000)
Scope
Our audit procedures covered 100% of revenue, total assets and of profit before tax.
50
System1 Group PLC Annual Report and Accounts 2023
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 state-
ments as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Revenue recognition
Key audit matter
The group has recognised revenue of £23,410k (2022: £24,097k), as disclosed in
description
Note 5, and as per the revenue accounting policy described in Note 4.
The application of IFRS 15 to the group’s revenues and, in particular, whether a
contract with a customer exists, delivery of performance obligations and allocation
of transaction price to those performance obligations, involves management judge-
ment and there is also a fraud risk. As a result of this, and the impact on allocation
of audit resource, the matter was considered to be one of most significance in the
group audit and therefore determined to be a key audit matter.
How the matter was
addressed in the audit
Our response to this risk included:
• Reviewing the revenue recognition policies applied by management against IFRS
15 “Revenue from contracts with customers”.
• Performing data analytics on all sales recorded in the year.
• Testing a sample of sales made close to the year end and obtaining evidence to
confirm that they have been recognised in the correct period.
Capitalisation and valuation of intangibles
Key audit matter
The consolidated and company financial statements include capitalised develop-
description
ment costs of £1,124k (2022: £nil) as disclosed in Note 7 of the consolidated financial
statements.
The assessment of whether costs incurred in research and development activi-
ties meet the definition of development costs involves a high degree of manage-
ment judgement and the carrying value of such cost and any impairment against it,
involves both management judgement on forward looking assumptions and resul-
tant estimation uncertainty. As a result of this, and the impact on allocation of audit
resource, the matter was considered to be one of most significance in the group
audit and therefore determined to be a key audit matter.
How the matter was
addressed in the audit
Our response to this risk included:
• Reviewing, for a sample of additions, the supporting evidence held for costs
capitalised.
• Challenging the judgements made by management in relation to the projects
that were deemed to meet the IAS 38 capitalisation criteria for development
costs.
• Reviewing and challenging estimates made by management in relation to the
useful economic life of the intangibles held and the judgement as to when to
commence amortisation.
• Reviewing management’s assessment of any indicators of impairment within the
intangible asset balance.
• Reviewing the disclosures made in the financial statements.
System1 Group PLC Annual Report and Accounts 2023
51
Independent Auditor’s Report
to the Members of System1 Group PLC continued
Valuation of sabbatical provision
Key audit matter
description
The group has a sabbatical leave scheme that provides 20 days paid leave for each
six years’ of service. In the current year, the rules of this scheme were changed to
close it to new entrants and to state that only those within 2.5 years of earning a
sabbatical entitlement at the year end date would remain to be eligible. The carry-
ing amount of the provision in the consolidated financial statements is £419k (2022:
£475k) as disclosed in Note 11.
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 sig-
nificant inputs into the model are the rate of salary growth and average staff turnover.
The employee retention rate is the most sensitive in the calculation and changes in
this, or the other assumptions, may lead to a material movement in the provision.
As a result of this risk of material movements, the level of estimation uncertainty
and the impact on allocation of audit resource, the matter was considered to be one
of most significance in the group audit and therefore determined to be a key audit
matter.
How the matter was
addressed in the audit
Our response to this risk included:
• Agreeing the closing provision at 31 March 2023 to the valuation performed by
management’s expert.
• Challenging management’s view of the inputs used in the calculation, including
in relation to:
Salary growth and bonuses
Employee retention rate
Discount rate
• Review sensitivity analysis completed by management’s expert and discussing
the implications with management as well as reviewing these results against
those disclosed in the financial statements to quantify estimation uncertainty.
• Reviewing the number of staff included in the provision, including their eligibility
per the changes to the scheme rules against their service period per company
records.
Valuation of share based payment credit
Key audit matter
The Group has an equity settled LTIP share based payment scheme with outstand-
description
ing options at the year end. These options have both market and non-market vesting
conditions attached and therefore the valuation of the grants in the year, as well
as the estimate of the number of options expected to vest, involves management
to exercise judgement. During the year, the Group and parent company have both
recognised a net credit in relation to equity-settled share based payments of £153k
(with an associated credit for social security of £18k), arising due to a change in the
estimate of the number of options expected to vest in comparison to the prior year
as explained in Note 4 (Significant estimates and judgements) and Notes 10 and 15.
As a result of this risk of material movements, the level of estimation uncertainty
and the impact on the group’s result for the year, the matter was considered to be
one of most significance in the group audit and therefore determined to be a key
audit matter. basis valuation of share-based payments is considered to be a signifi-
cant risk. Furthermore, there has been a modification to the scheme in the current
year, which will impact the scheme’s valuation, potentially significantly.
52
System1 Group PLC Annual Report and Accounts 2023 Valuation of share based payment credit continued
How the matter was
addressed in the audit
Our response to the risk included:
• •A recalculation of the share based payment credit, for the year based on manage-
ment’s assumptions and the valuation of the new grant performed by manage-
ment’s expert.
• Verifying the new grants to the underlying options agreements including the vest-
ing conditions in those agreements.
• Use of an auditor’s expert to review the valuation of options granted in the year
performed by management’s expert.
• A review of management’s assessment of the proportion of charge, or credit, rec-
ognised in the year based on the likelihood of meeting profit and revenue based
targets. This included assessment in line with the Group’s forecasts.
A review of the disclosures in the consolidated financial statements and the expla-
nation of the critical judgements and estimates made in the accounting for share
based payments.
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 deter-
mined materiality as follows:
Group
Parent Company
Overall materiality
£73,000 (2022: £80,800)
£36,700 (2022: £40,000)
Basis for determining
5% of results before tax,
1% of results before tax
overall materiality
using a 5 year average of results
Rationale for benchmark
Profit measure used for the
Applied for the purpose of
applied
trading activities of the Group.
calculating an appropriate
component materiality.
Performance materiality
£54,750 (2022: £60,600)
£27,525 (2022: £30,000)
Basis for determining
75% (2022: 75%) of overall
75% (2022: 75%) of overall
materiality
materiality
Reporting of misstatements
Misstatements in excess of £3,650 Misstatements in excess of £1,835
to the Audit Committee
(2022: £4,040) and misstatements
(2022: £2,000) and misstatements
below that threshold that, in our
below that threshold that, in our
view, warranted reporting on
view, warranted reporting on
qualitative grounds.
qualitative grounds.
System1 Group PLC Annual Report and Accounts 2023
53
Independent Auditor’s Report
to the Members of System1 Group PLC continued
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 one of the components in the United Kingdom and specified audit proce-
dures were applied to the other components, achieving 100% coverage by our audit procedures.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of account-
ing in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the
group’s and parent company’s ability to continue to adopt the going concern basis of accounting included:
• obtaining an understanding of relevant controls over the going concern models prepared by management,
including the review of the inputs and assumptions used in those models.
• testing the accuracy of management’s models, including agreement to the most recent Board approved budgets
and forecasts.
• auditing the forecasts prepared by management from 1 April 2023 to 31 March 2025 by challenging the key
assumptions of these forecasts by:
comparing forecast revenue with the Group’s historical performance;
evaluating the historical accuracy of forecasts prepared by management;
assessing the sensitivity of the available headroom on the liquidity of the Group;
review of post year end trading of the group and comparison to the forecasts supplied by management.
• auditing the sufficiency of going concern disclosures in the financial statements, including whether commentary
regarding the new facility entered into by the Group is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or con-
ditions 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.
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 other-
wise 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 other-
wise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstate-
ments, 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.
System1 Group PLC Annual Report and Accounts 2023
54
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 require-
ments.
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 34, 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 com-
pany’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 com-
pany 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 finan-
cial 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.
55
System1 Group PLC Annual Report and Accounts 2023 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 frameworks
that the group and parent company operate in and how the group and parent company are complying with the
legal and regulatory frameworks;
• 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 assess-
ment of how and where the financial statements may be susceptible to fraud.
The most significant laws and regulations were determined as follows:
Legislation / Regulation
Additional audit procedures performed by the Group audit engagement team included:
IFRS/UK-adopted IAS,
Review of the financial statement disclosures and testing to supporting
Companies Act 2006
documentation;
Completion of disclosure checklists to identify areas of non-compliance.
Tax compliance
Inspection of computations received from external tax advisors and consideration of
regulations
whether any matter 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:
Revenue recognition
Please see the key audit matter above.
Existence of employees
Testing was completed on a sample basis to review photographic identification,
employer background checks and to meet with employees of the group.
Management override
Testing the appropriateness of journal entries and other adjustments;
of 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 Com-
panies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those mat-
ters 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
25 August 2023
56
System1 Group PLC Annual Report and Accounts 2023 Financial Report
Consolidated Income Statement
for the year ended 31 March 2023
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating income
Operating profit
Finance expense
Profit before taxation
Income tax (expense)/credit
Profit for the financial period
Note
2023
£’000
2022
£’000
5
23,410
24,097
15 (3,692)
(3,898)
19,718
20,199
15 (19,203)
(19,383)
340
289
855
1,105
18 (136)
(160)
19
719
945
19
(315)
10
404
955
Attributable to the equity holders of the Company
404
955
Earnings per share attributable to
equity holders of the Company
Basic earnings per share
Diluted earnings per share
The notes on page 63 to 84 are an integral part of these consolidated financial statements.
All of the activities of the Group are classed as continuing.
21
21
3.2p
3.2p
7.4p
7.4p
58
System1 Group PLC Annual Report and Accounts 2023
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2023
Profit for the financial year
2023
£’000
404
2022
£’000
955
Other comprehensive income:
Items that may be subsequently reclassified to profit/(loss)
Currency translation differences on translating foreign operations
227
342
Other comprehensive income for the period, net of tax
227
342
Total comprehensive income for the period attributable
to equity holders of the Company
631
1,297
The notes on pages 63 to 84 are an integral part of these consolidated financial statements.
System1 Group PLC Annual Report and Accounts 2023
59
Consolidated Balance Sheet
as at 31 March 2023
REGISTERED COMPANY NO. 05940040
Assets
Non-current assets
Property, plant, and equipment
Intangible assets
Deferred tax asset
Current assets
Contract assets
Trade and other receivables
Income tax receivables
Cash and cash equivalents
Total assets
Equity
Attributable to equity holders of the Company
Share capital
Share premium account
Merger reserve
Foreign currency translation reserve
Retained earnings
Total equity
Liabilities
Non-current liabilities
Provisions
Lease liabilities
Current liabilities
Provisions
Lease liabilities
Borrowings
Contract liabilities
Income taxes payable
Trade and other payables
Total liabilities
Total equity and liabilities
Note
2023
£’000
2022
£’000
6
7
20
1,162
2,054
1,396
382
203
292
2,761
2,728
9
8
10
102
6,344
55
198
4,492
-
5,719
11,174
12,220
15,864
14,981
18,592
132
1,601
477
423
5,974
132
1,601
477
196
5,857
8,607
8,263
11
8, 14
353
362
432
1,417
715
1,849
11
8, 14
13
101
1,094
-
764
-
12
3,700
77
1,091
2,500
991
267
3,554
5,659
8,480
6, 374
10,329
14,981
18,592
The notes on pages 63 to 84 are an integral part of these consolidated financial statements.
These financial statements were approved by the directors on 25 August 2023 and are signed on their behalf by:
James Gregory
Chris Willford
Director
Director
System1 Group PLC Annual Report and Accounts 2023
60
Consolidated Statement of Cash Flows
for the year ended 31 March 2023
Net cash used in/generated from operations
Tax paid
Net cash used in/generated from operating activities
Cash flows from investing activities
Purchases of property, plant, and equipment
Purchase of intangible assets
Net cash used by investing activities
Note
23
2023
£’000
2022
£’000
(87)
(541)
4,098
(63)
(628)
4,035
6
(30)
7 (1,225)
(79)
(59)
(1,255)
(138)
Net cash flow before financing activities
(1,883)
3,897
Cash flows from financing activities
Interest paid
Property lease liability payments
Purchase of own shares
Repayment of borrowings
Net cash used by financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Exchange gain/(loss) on cash and equivalents
Cash and cash equivalents at end of year
(136)
(1,053)
(134)
(2,500)
(161)
(1,218)
(567)
-
10
(3,823)
(1,946)
(5,706)
1,951
11,174
251
9,008
215
5,719
11,174
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:
Net cash flow before financing activities
Net cash flow for property leases
Operating cash flow
Consolidated Movements in Net Cash and Financing Activities
2023
£’000
2022
£’000
(1,883)
(1,116)
3,897
(1,307)
(2,999)
2,590
At 1 April 2022
Cash flows
Non-cash charges:
- Interest on lease liabilities
- Exchange and other non-cash movements
At 31 March 2023
At 1 April 2021
Cash flows
Non-cash charges:
- Interest on lease liabilities
- New lease liabilities
- Disposal of lease liabilities
- Exchange and other non-cash movements
Cash and
cash
equivalents
£’000
Borrowings
£’000
Lease
liabilities
£’000
Total
£’000
11,174
(5,706)
(2,500)
2,500
(2,508)
1,116
6,166
(2,090)
-
251
5,719
-
-
-
(64)
-
(64)
251
(1,456)
4,263
9,008
1,951
(2,500)
-
(2,575)
1,218
3,933
3,169
-
-
215
-
-
-
(89)
(1,704)
601
41
(89)
(1,704)
601
256
At 31 March 2022
11,174
(2,500)
(2,508)
6,166
The notes on pages 63 to 84 are an integral part of these consolidated financial statements.
System1 Group PLC Annual Report and Accounts 2023
61
Consolidated Statement of Changes in Equity
for the year ended ended 31 March 2023
Share
capital
£’000
Share
premium
account
£’000
Note
Foreign
currency
translation
reserve
£’000
Merger
reserve
£’000
Retained
earnings
£’000
Total
£’000
At 31 March 2021
132
1,601
477
(146)
5,170
7,234
Profit for the financial year
Other comprehensive income:
- currency translation differences
Total comprehensive income
Transactions with owners:
Employee share options:
- value of employee services
10
Purchase of treasury shares
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
955
955
342
342
-
342
955
1,297
-
-
299
(567)
299
(567)
At 31 March 2022
132
1,601
477
196
5,857
8,263
Profit for the financial year
Other comprehensive income:
- currency translation differences
Total comprehensive income
Transactions with owners:
Employee share options:
- value of employee services
10
Purchase of treasury shares
-
-
-
-
-
-
-
-
-
-
-
-
404
404
-
-
-
-
227
227
-
227
404
631
-
-
(153)
(134)
(153)
(134)
At 31 March 2023
132
1,601
477
423
5,974
8,607
The notes on pages 63 to 84 are an integral part of these consolidated financial statements.
System1 Group PLC Annual Report and Accounts 2023
62
Notes to the Consolidated Financial Statements
for the year ended 31 March 2023
1 General information
System1 Group PLC (the “Company”) was incorporated on 19 September 2006 in the United Kingdom. The Com-
pany’s principal operating subsidiary, System1 Research Limited, was at that time already established, having been
incorporated on 29 December 1999. The address of the Company’s registered office is 4 More London Riverside,
London, England, SE1 2AU. The Company’s shares are listed on the AIM Market of the London Stock Exchange (“AIM”).
The Company and its subsidiaries (together the “Group”) provide market research data and insight services. The
Chairman’s Statement, the Chief Executive’s Statement and the Financial Review provide 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 2023 (including the com-
paratives for the year ended 31 March 2022) on 25 August 2023.
2 Basis of preparation
The Group has prepared its consolidated financial statements in accordance with UK-adopted international account-
ing standards and applicable law. The consolidated financial statements have been prepared under the historical
cost convention.
The preparation of financial statements in accordance with UK-adopted international accounting standards
(“UK-adopted IFRS”) requires the use of certain critical accounting estimates. It also requires management to exer-
cise its judgement in the process of applying the Group’s accounting policies. The critical accounting judgements
and estimates applied in the preparation of the consolidated financial statements are disclosed in Note 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, cash balances and cash flow are healthy, and we will continue to invest in our
products, data assets and talent. We ended the year with a cash balance and net cash of £5.7m and net assets at
£8.6m (31 March 2022: £8.8m and £8.3m respectively).
The Group has reviewed its financial forecasts for the 12 months from the approval of these financial statements,
flexing sensitivity analysis scenarios with external and internal inputs that would represent the Group’s forecast and
various downturn scenarios. Our internal assessment of a reasonable worst-case scenario shows that, in the face of a
striking negative downturn on System1’s immediate capacity to function, management would respond appropriately
by reducing our costs as soon as possible.
The Group is very confident in its ability to respond to an abrupt negative situation, whatever the cause. Our miti-
gating 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 sus-
tain the Group reasonably until August 2024 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 2022.
Standards, amendments and interpretations in issue but not yet effective
No new accounting standards or interpretations have been published that are applicable to the Group but are not
mandatory for 31 March 2023 reporting periods and have not been early adopted by the Group.
System1 Group PLC Annual Report and Accounts 2023
63
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
4 Principal accounting policies continued
Basis of consolidation
The Group financial statements consolidate those of the Company and all its subsidiary undertakings drawn up to
31 March 2023.
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 sub-
sidiaries 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 impair-
ment 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 an esti-
mate 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 arrange-
ments for the years ended 31 March 2023 or 2022.
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.
System1 Group PLC Annual Report and Accounts 2023
64
4 Principal accounting policies continued
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 work-
ing condition. Non-attributable costs are expensed under the relevant income statement heading.
Research and development – internally generated intangible assets
All on-going research expenditure is expensed in the year in which it is incurred. Where no internally generated
intangible asset can be recognised, development expenditure is charged to administrative expenses in the period
in which it is incurred.
Furthermore, internally generated software and product development costs are recognised as an intangible asset
only if the Group can demonstrate all the following conditions:
a)
b)
c)
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
its intention to complete the intangible asset and use or sell it;
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 fol-
lows:
Computer software licenses
Capitalised development costs
2 years
3 years
Amortisation on all intangible assets is charged to administrative expenses.
Impairment of property, plant and equipment, right-of-use assets and intangible assets
At each balance sheet date, the Group reviews the carrying amount of its property, plant and equipment and intan-
gible 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 assets
Contract costs comprise directly attributable external costs incurred in fulfilling customer contracts that relate to
incomplete market research projects. The Group assesses at each balance sheet date whether there is objective evi-
dence 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 report-
ing period, which are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws
that have been enacted or substantively enacted at the reporting date applicable to the fiscal periods to which they
relate, based on the taxable profit for the year.
System1 Group PLC Annual Report and Accounts 2023
65
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
4 Principal accounting policies continued
All changes to current tax assets or liabilities are recognised as a component of tax expense in the income state-
ment, 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 com-
parison 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 derived from the delivery of research services. Revenue from the Group’s research
product lines (Platform Revenues and Other Consultancy services) arise from contracts with customers within the
scope of IFRS 15 ‘Revenue from Contracts with Customers’ and are recognised on the same basis, as set out below.
Revenue is recognised at a point in time (rather than over time) as the key performance obligation is the delivery
of the final written debrief to the customer.
Revenue is recognised only after the results or final written debrief has been delivered to the customer, except on
the rare occasion that a large project straddles a financial period end, and that project can be sub-divided into sepa-
rate discrete deliverables; in such circumstances revenue is recognised on delivery of each separate deliverable, and
the transaction price is allocated across the discrete performance obligations by reference to the standalone price
for the separate services. Where a contract with a customer requires a purchase order, signed schedule of work or
similar document to evidence the right to consideration, revenue is not recognised until the Group receives these
documents.
There are no elements of variable consideration in the contracts entered into by the Group. Revenue is measured
by reference to the fair value of consideration receivable, excluding sales taxes.
Other operating income
During the year, the Group partnered with the University of Warwick on UK government grant-funded research look-
ing to harness artificial intelligence (AI) and our proprietary databases to further improve our understanding of pre-
dictions. The grant was specific to this research and was not a part of the Group’s usual operations.
Income from subleasing right-of-use assets generated from our London and New York offices has been posted as
other operating income.
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 rec-
ognised as employee benefit expense when they are due, and any outstanding amounts due at the reporting date
are recognised within accruals.
Share-based payment transactions
The Group issues equity-settled share-based compensation to certain employees (including directors). Equity-set-
tled 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.
System1 Group PLC Annual Report and Accounts 2023
66
4 Principal accounting policies continued
Apart from market-based elements of awards, these estimates are subsequently revised if there is any indica-
tion 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 man-
agement’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:
a)
b)
c)
the Group 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.
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 pre-
sentation currency are translated into the presentation currency as follows:
a) assets and liabilities for each balance sheet presented are translated at the closing rate at the balance sheet
date;
b)
income and expenses for each income statement are translated at average exchange rates; and
c) all resulting exchange differences are recognised as a separate component of equity.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations
are recognised in other comprehensive income. When a foreign operation is partially disposed of or sold, exchange
differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the main decision-
making body of the Company and Group, which collectively comprises the Executive Directors. The Executive Direc-
tors 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 pos-
sess assets held at fair value through profit or loss. The classification is determined by management at initial recog-
nition, being dependent upon the business model and the contractual cash flows of the assets. Financial assets are
derecognised when the rights to receive cash flows from the investments have expired or have been transferred and
the Group has transferred substantially all risks and rewards of ownership. Financial assets arising from contracts
with customers are separately presented in accordance with IFRS 15 in the Consolidated Balance Sheet.
System1 Group PLC Annual Report and Accounts 2023
67
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
4 Principal accounting policies continued
Trade and other receivables
Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. The Group’s amortised cost financial assets comprise trade and other receivables and
cash and cash equivalents in the Consolidated Balance Sheet.
Trade receivables are initially recorded at fair value, but subsequently at amortised cost using the effective inter-
est 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 amor-
tised cost using the effective interest rate method. Financial liabilities arising from contracts with customers are
separately presented in accordance with IFRS 15 in the Consolidated Balance Sheet. Financial liabilities and equity
instruments are classified according to the substance of the contractual arrangements entered. An equity instrument
is any contract that evidences a residual interest in the assets of the entity after deducting all its financial liabilities.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt
instrument, those financial instruments are classed as financial liabilities.
Financial liabilities are presented as such in the Consolidated Balance Sheet. Finance costs and gains or losses
relating to financial liabilities are included in the income statement.
Finance costs are calculated to produce a constant rate of return on the outstanding liability. Where the contrac-
tual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as
an equity instrument. Dividends and distributions relating to equity instruments are debited directly to equity.
Accrued income and contract liabilities
Accrued income is recognised when a performance obligation has been satisfied but has not yet been billed.
Accrued income is transferred to receivables when the right to consideration is unconditional and billed per the
terms of the contractual agreement. The Group is generally paid in arrears for its services and invoices are typically
payable within 120 days. In certain cases, payments are received from customers prior to satisfaction of performance
obligations and recognised as deferred income. These balances are considered contract liabilities. There is no sig-
nificant 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 vari-
able 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 liabil-
ity 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.
System1 Group PLC Annual Report and Accounts 2023
68
4 Principal accounting policies continued
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 over-
seas 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 sub-
sequently sold or re-issued, any consideration received is included in total shareholders’ equity. No gain or loss is
recognised on the purchase, sale, issue, or cancellation of the Company’s own equity instruments.
Significant accounting estimates and judgements
The preparation of the consolidated financial statements requires the Directors and management to make judge-
ments and estimates in respect of certain items where the choice of accounting policy and assumptions applied in
determining the judgement or estimate could materially affect the Group’s financial position or results at the report-
ing date.
Share-based payments – judgement and estimate
The fair value of options granted is determined using Monte Carlo simulation models. 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.
In previous years, the Company has sometimes purchased shares to satisfy the exercise of share options to mini-
mise 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 repur-
chase 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 obliga-
tion, constructive or otherwise to do so in the future. As a result, the Company continues to account for share-based
payments related to its long-term incentive plans as equity rather than cash-settled.
The 2021 LTIP is subject to Revenue, Profit After Tax and the Company’s share price exceeding certain targets;
the full details of which are given in the Company’s Remuneration Report. The measure of the share-based payment
charge is dependent on the estimates made in respect of the probability of those targets being achieved over the
vesting period of the options. The key inputs into those estimates are the Company’s forecasts, revenue volatility and
inflation. Revenue volatility is determined by reference to the share price volatility used to determine the fair value
of the options (with an assumption that the two will have a high level of correlation). Inflation is determined by refer-
ence to the Bank of England data for the UK in March and April 2023. The non-market probability factor utilised in
the share-based payment model for the year ended 31 March 2023 is between 13% and 17% (31 March 2022: 62% to
65%). The cumulative charge recognised in respect of share options is £126,000 at 31 March 2023. If the non-market
probability factor was reduced by 33% to between 9% and 11%, the cumulative charge would reduce to £84,000.
System1 Group PLC Annual Report and Accounts 2023
69
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
4 Principal accounting policies continued
Employee benefits – estimate
The Group has a sabbatical leave scheme, which provides 20 days paid leave for each six years of service. During
the year ended 31 March 2023, the Group modified the terms of the scheme such that rather than being open to all
employees, the scheme is now only available to those individuals who have accrued three or more years of unbroken
service as at 30 September 2022. 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.
Leases – estimate and judgement
Management exercises judgement in determining the likelihood of exercising break or extension options in deter-
mining the lease term, and reviews this on a lease-by-lease basis.
The discount rate used to calculate the lease liability is the rate implicit in the lease, if it can be readily determined,
or the lessee’s incremental borrowing rate if not. Incremental borrowing rates are determined based on the term,
country, currency and start date of the lease, to derive the rate of interest that the lessee would have to pay to borrow
over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-
of-use asset in a similar economic environment. Details of lease liabilities can be found in note 14.
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.
By location of customer
Americas
United Kingdom
Rest of Europe
APAC
2023
2022
Revenue
£’000
Revenue
£’000
9,428
9,043
8,895
7,918
3,741
5,463
1,346
1,673
23,410
24,097
*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.
By product variant
Predict Your (data)
Improve Your (data-led consultancy)
Standard (platform) revenue
Other consultancy (non-platform)
Total revenue
By product group
Communications (Ad Testing)
Brand (Brand Tracking)
Innovation
2023
2022
Revenue
£’000
*Restated
Revenue
£’000
14,060
9,747
3,311
2,683
17,371
6,039
12,430
11,667
23,410
24,097
15,879
14,955
3,669
3,295
3,862
5,847
23,410
24,097
*Following the expansion of the Group’s data and platform-led offering, revenue segments in respect of “By prod-
uct type” have been revised in the current year to reflect the new structure of the Group’s internal reporting. The
comparatives have been re-stated accordingly.
System1 Group PLC Annual Report and Accounts 2023
70
5 Segment information continued
As the Company is domiciled in the UK, its consolidated non-current assets, other than financial instruments and
deferred tax assets are as follows:
Non-Current Assets
United Kingdom
Rest of world
6 Property, plant and equipment
At 1 April 2021
Cost
Accumulated depreciation
Net book value
Net book value, at 1 April 2021
Additions
Disposals
Foreign exchange
Remeasurement of right-of-use assets
Depreciation charge for the year
2023
£’000
2022
£’000
2,204
1,846
354
590
2,558
2,436
Right-of-use
Furniture and
assets
£’000
fixtures
£’000
Computer
hardware
£’000
Total
£’000
4,691
140
224
5,055
(3,346)
(123)
(151)
(3,620)
1,345
17
73
1,435
1,345
17
73
1,435
1,984
1
73
2,058
(196)
-
-
(196)
16
1
4
(405)
(773)
-
(15)
-
21
(405)
(71)
(859)
Net book value, at 31 March 2022
1,971
4
79
2,054
At 31 March 2022
Cost
Accumulated depreciation
Net book value
At 1 April 2022
Cost
Accumulated depreciation
Net book value
Net book value, at 1 April 2022
Additions
Foreign exchange
Depreciation charge for the year
3,555
33
192
3,780
(1,584)
(29)
(113)
(1,726)
1,971
4
79
2,054
Right-of-use
Furniture and
assets
£’000
fixtures
£’000
Computer
hardware
£’000
Total
£’000
3,555
(1,584)
33
(29)
192
3,780
(113)
(1,726)
1,971
4
79
2,054
1,971
-
49
(894)
4
-
-
(3)
79
30
2
(76)
2,054
30
51
(973)
Net book value, at 31 March 2023
1,126
1
35
1,162
At 31 March 2023
Cost
Accumulated depreciation
Net book value
2,050
(924)
11
206
2,267
(10)
(171)
(1,105)
1,126
1
35
1,162
Depreciation charges are included within administrative expenses.
System1 Group PLC Annual Report and Accounts 2023
71
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
6 Property, plant and equipment continued
On 1 April 2021, the Group removed assets with net book values of £nil. This eliminated the cost and accumulated
depreciation of each asset category as follows:
Right-of-use
Furniture and
assets
£’000
fixtures
£’000
Computer
hardware
£’000
Total
£’000
1,547
22
16
1,585
7
Intangible assets
At 1 April 2021
Cost
Accumulated amortisation
Net book value
Net book value, at 1 April 2021
Additions
Amortisation for the year
Net Book Value, at 31 March 2022
At 31 March 2022
Cost
Accumulated amortisation
Net book value
At 1 April 2022
Cost
Accumulated amortisation
Net book value
Net book value, at 1 April 2022
Additions
Amortisation for the year
Net book value, at 31 March 2023
At 31 March 2023
Cost
Accumulated amortisation
Net book value
Development
costs
£’000
Software
£’000
Total
£’000
-
464
464
-
(46)
(46)
-
418
418
-
418
418
-
59
59
-
(95)
(95)
-
382
382
-
525
525
-
(143)
(143)
-
382
382
-
-
525
(143)
525
(143)
-
382
382
-
1,225
382
382
-
1,225
(101)
(110)
(211)
1,124
272
1,396
1,225
525
1,750
(101)
(253)
(354)
1,124
272
1,396
Amortisation charges are included within administrative expenses.
The only software cost as at 31 March 2023 is the Group’s finance and operations system that was brought into
use October 2020 and the Group’s HR system that was brought into use in August 2021.
Development costs relate to costs capitalised for the development of the “Test Your” platform (carrying value
£865k), which completed during the year ended 31 March 2023, and the Supply Chain Automation platform (car-
rying value £259k), which is due for completion in the year ended 31 March 2024. Development costs in respect of
completed projects are tested for impairment where impairment indicators exist. Development costs in respect of
ongoing projects are tested for impairment at each reporting date. The carrying value of the assets in each case
are assigned to their respective cash generating units for the purposes of assessing future cashflows. The principal
assumptions used in the forecasts were the timing and amount of future revenues and cost savings, which were
derived from the latest forecasts approved by the Board. Following the assessment, the Board have determined that
no impairment of assets is required as at 31 March 2023.
System1 Group PLC Annual Report and Accounts 2023
72
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 con-
solidated 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.
Cash and cash equivalents
HSBC Bank PLC (AA credit rating)
Santander
Deutsche Bank
UBS
Other banks
2023
£’000
2022
£’000
5,190
10,586
349
38
142
-
362
115
94
17
5,719
11,174
At 31 March 2023, the Group has cash balances of £42,000 (2022: £nil) which are not readily available for use due
to ongoing restrictions imposed by overseas banking institutions. The Group has made full provision against these
balances at the year end.
Financial instruments by category
At the balance sheet date, the Group held the following financial instruments by category.
Financial assets carried at amortised cost
Trade and other receivables (excluding prepayments)
Cash and cash equivalents
Other financial liabilities carried at amortised cost
Current liabilities
Trade payables
Accruals
Lease liabilities
Borrowings
Non-current liabilities
Lease liabilities
2023
£’000
2022
£’000
5,918
4,229
5,719
11,174
11,637
15,403
1,595
925
1,676
2,060
1,094
-
1,091
2,500
4,365
6,576
362
1,417
362
1,417
On 10 February 2020, the Company entered a 3-year revolving credit facility with HSBC. The agreement allowed
the Company to draw down up to £2,500,000 for the purposes of funding general corporate and working capital
requirements. The loan was fully repaid on 30 November 2022. On 22 February 2023, the Company entered into an
Overdraft Facility with HSBC. The facility of up to a maximum of £1,500,000, is secured over the Company’s trade
receivables, and incurs interest at 3% above the Bank of England base rate on drawn balances. The facility has no
fixed end date and can be cancelled by either party at any time. During the year ended 31 March 2023, the Company
has not drawn any amounts under the facility, and no amounts have been drawn to the date of the signing of these
financial statements.
System1 Group PLC Annual Report and Accounts 2023
73
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
9 Trade and other receivables
Trade receivables
Prepayments and accrued income
Other receivables
2023
£’000
2022
£’000
5,694
3,758
426
452
224
282
6,344
4,492
Trade and other receivables are due within one year and are not interest bearing. The maximum exposure to credit
risk at the balance sheet date is the carrying amount of receivables (detailed in Note 8). The Group does not hold any
collateral as security against trade receivables. The Directors do not believe that there is a significant concentration
of credit risk within the trade receivables balance.
Impairment of financial assets
The Group has financial assets, primarily trade receivables, which are subject to the IFRS 9 expected credit loss
model, and the Group is required to assess these assets for expected credit losses. The Group has applied the sim-
plified 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 2023, trade receivables of £1,733,000 (2022: £861,000) were past due but not impaired. The age-
ing of trade receivables, and the associated loss allowance, is as follows:
At 31 March 2023
Gross trade receivables
Loss provision
Expected loss rate
At 31 March 2022
Gross trade receivables
Loss provision
Expected loss rate
0-3 months
3-6 months
Over 6 months
£’000
due
£’000
due
£’000
due
£’000
Total
£’000
4,007
1,260
403
200
5,870
46
24
15
91
176
1%
2%
4%
45%
2,920
24
1%
801
15
2%
70
5
7%
76
65
86%
3,867
109
Movements in the impairment allowance for trade receivables are as follows:
Provision for impairment of trade receivables
Opening balance
Charged to the income statement
Utilisations and other movements
2023
£’000
2022
£’000
110
101
120
51
(35)
(61)
176
110
As of 31 March 2023, no other receivables or contract costs were impaired (2022: £Nil).
System1 Group PLC Annual Report and Accounts 2023
74
9 Trade and other receivables continued
The carrying amount of the Group’s trade and other receivables are denominated in the following currencies.
United States dollar
British sterling
Euro dollar
Brazilian real
Swiss franc
Australian dollar
Singapore dollar
10 Share capital
2023
£’000
2022
£’000
1,916
1,587
2,607
744
574
233
129
1,669
286
365
321
94
141
170
6,344
4,492
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.
At 1 April and 31 March
No.
£’000
No.
£’000
Allotted, called up, and fully paid ordinary shares
13,226,773
132
13,226,773
132
2023
2022
The Company has treasury shares to satisfy the requirements of the Group’s share incentive schemes. The move-
ment in the Company’s treasury shares balance is as follows:
Shares held by treasury
At 1 April
Purchase of treasury shares
2023
2022
Weighted
average
Weighted
average
Treasury
exercise price
Treasury
exercise price
shares
No.
per share
Pence
shares
No.
per share
Pence
487,151
60,693
510,421
158,674
Transfer of shares to satisfy options exercise
-
-
(181,944)
At 31 March
547,844
487,151
No shares were purchased from related parties of the Group.
Share options
Employee share option scheme
The Group issues share options to directors and to senior managers under an HM Revenue and Customs approved
Enterprise Management Incentive (EMI) scheme and under an unapproved scheme.
Options granted in more recent years have been awarded in accordance with management long-term incentive
plans and such options have a zero-exercise price and are subject to performance criteria. If share options remain
unexercised after a period of ten years from the date of grant, the options expire. Share options are forfeited in
some circumstances if the employee leaves the Group before the options vest, unless otherwise agreed by the
Remuneration Committee of the Board.
System1 Group PLC Annual Report and Accounts 2023
75
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
10 Share capital continued
Movements in the number of share options outstanding and their related weighted average exercise prices are
as follows:
Share options outstanding
Opening balance
Granted
Lapsed
Replaced
Cancelled
Exercised
Closing balance
Exercisable at year-end
2023
2022
Weighted
average
exercise price
Weighted
average
exercise price
Options
per share
Options
per share
No.
Pence
No.
Pence
1,194,590
0.8
1,623,362
0.6
198,401
-
148,289
-
-
(132,267)
-
-
-
-
-
-
-
-
(395,117)
(181,944)
-
-
-
-
1,260,724
0.7
1,194,590
0.8
17,144
53.7
17,144
53.7
Weighted average share price at date of options exercised (pence)
Weighted average fair value of options granted in the year (pence)
NA
43.3
268.4
236.0
The Group had the following outstanding options and exercise prices:
Expiry date
2024
2025
2027
2028
2029
2032
2023
2022
Weighted
average
Weighted
average
exercise price
remaining
Weighted
average
exercise price
Weighted
average
remaining
Options
per share
contractual life
Options
per share
contractual life
No.
Pence
Months
No.
Pence
Months
64,139
14.4
14.9
64,139
14.4
-
1,196,585
-
-
-
-
-
-
-
-
-
-
39.8
1,130,451
-
-
-
-
-
-
-
-
-
-
-
26.9
-
59.7
-
-
-
1,260,724
0.7
38.5
1,194,590
0.8
57.9
Long term incentive scheme
The Company introduced the current 2021 LTIP in October 2021. The 2021 LTIP was implemented in October 2021 as
a modification to the 2019 LTIP. The 2021 LTIP options vest between 12 August 2022 and 12 August 2025, subject to
Revenue, Profit After Tax and the Company’s share price exceeding certain targets. The full details of which are given
in the Company’s Remuneration Report. The final vesting date of the 2021 LTIP is 12 August 2025, with the exercise
period ending on 21 March 2027.
At 31 March 2023, the number of options granted under the 2021 LTIP reached 1,130,959 or 8.6% of issued ordi-
nary share capital of maximum capacity at 10% (2022: 932,558 or 7.1% of issued ordinary share capital).
The key inputs into the fair value measurement of the 198,401 options granted in the year are as follows:
• Expected Life: 2 years and 7.5 months
• Exercise price: £Nil
• Share price at date of grant: £1.45
• Expected volatility: 53.52%
• Risk free rate: 3.51%
The number of options outstanding under the replaced 2019 LTIP scheme is 54,180 (31 March 2022: 186,447).
System1 Group PLC Annual Report and Accounts 2023
76
10 Share capital continued
Non-employee option plan
On 17 April 2019, the Company granted Stefan Barden who was then an advisor to the Board, an equity award com-
prising 300,000 zero cost options. In the year ended 31 March 2022, the plan was modified to reflect the same tar-
gets as the 2021 LTIP scheme. As at 31 March 2023, Stefan Barden retained 46,995 of his first tranche options, with
the remaining 253,005 options cancelled following his resignation in 2022.
Share-based payment charge
The total credit relating to equity-settled share-based payment plans was £153,000 (2022: charge of £299,000).
The associated credit for social security was £18,000 (2022: credit of 28,000). This credit is a result of the decrease
within the assumption relating to the probability of meeting the non-market vesting conditions. As the vesting period
shortens, the probability of meeting the conditions will continue to reduce, we have disclosed the sensitivity of this
assumption within the significant accounting estimates and judgements note on page 69.
11 Provisions
At 1 April 2021
Provided in the year
Utilised in the year
Reversals of unused amounts
Foreign exchange movement
At 31 March 2022
Provided in the year
Utilised in the year
Reversals of unused amounts
Foreign exchange movement
At 31 March 2023
Due within one year
Due after one year
Leasehold
Sabbatical
dilapidations
£’000
£’000
Total
£’000
688
72
760
76
7
83
(19)
(16)
(35)
(266)
(29)
(295)
(4)
-
(4)
475
34
509
75 -
75
(58) -
(58)
(73) -
(73)
- 1
1
419
35
454
91 10
101
328 25
353
The Group has a sabbatical leave scheme which provides 20 days paid leave for each successive period of six
years’ service. There is no proportional entitlement for shorter periods of service. During the year ended 31 March
2023, the Group modified the terms of the scheme such that rather than being open to all employees, the scheme is
now only available to those individuals who have accrued three or more years of unbroken service as at 30 September
2022. The provision is expected to unwind over the next three to four years. The assumptions used in the sabbatical
provision is as follows:
Measurement method
Discount rate, based on 6-year corporate bond yields*
Annual salary growth rate
Staff turnover
*The discount rate for the UK has been disclosed, as this accounts for nearly 70% of the total provision.
Changes to the assumptions will increase the provision by:
0.25% decrease to discount rate
10% increase to salary increase assumption
5% decrease to staff turnover assumption
10% of salary paid as bonus to all members
2023
2022
Project unit credit method
5.0%
7%
14%
2.5%
7%
30%
£’000
-
8
12
39
Dilapidation provisions represent the Group’s best estimate of costs required to meet its obligations under prop-
erty lease agreements.
System1 Group PLC Annual Report and Accounts 2023
77
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
12 Trade and other payables
Trade payables
Social security and other taxes
Accruals
2023
£’000
1,595
429
1,676
2022
£’000
925
569
2,060
3,700
3,554
Trade and other payables are due within one year and are not interest bearing. The contractual terms for the pay-
ment 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
Contract liabilities
2023
£’000
764
2022
£’000
991
From time to time, payments are received from customers prior to work being completed. Such payments are
recorded in the balance sheet as contract liabilities.
Included within Revenue is £816,000 relating to contract liabilities recognised at 1 April 2022 (2021: £653,000).
No revenue has been recognised in the year from performance conditions satisfied, or partially satisfied in previous
periods.
14 Borrowings
The analysis of the maturity of lease liabilities is as follows:
Within one year
Later than 1 but no later than 5 years
More than 5 years
Total contractual undiscounted cashflows
Impact of discounting
Total lease liabilities
The present value of finance lease liabilities is as follows:
Within one year
Later than 1 but no later than 5 years
More than 5 years
2023
£’000
2022
£’000
1,031
1,147
457
1,447
-
-
1,488
2,594
(32)
(86)
1,456
2,508
2023
£’000
2022
£’000
1,094
1,091
362
-
1,417
-
1,456
2,508
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.
System1 Group PLC Annual Report and Accounts 2023
78
15 Expenses by nature
Employee benefit expense
Employee benefit expense – research and development
Other research and development costs
Capitalised development costs – gross of amortisation
Depreciation, amortisation, and impairment
Impairment on right-of-use asset
Net foreign exchange (gains)/losses
Lease expense related to short term leases
Other expenses
Analysed as:
Cost of sales
Administrative expenses
Reconciliation between Operating Costs and Adjusted Operating Costs:
Administrative expenses
Finance expense
Total Operating Costs
Less: Adjusting items
Impairment of right-of-use asset
Compensation for loss of office
Bonus and commissions expense
Share-based payment (credit)/expense*
Other interest expense
Other staff costs
Trademark litigation
Adjusted Operating Costs
* Inclusive of social security accrued in respect of share options.
16 Auditor remuneration
Audit of parent company and consolidated accounts
Audit-related assurance services
2023
£’000
2022
£’000
10,574
9,968
2,341
2,041
1,602
1,740
(1,225)
-
1,184
954
-
(235)
(183)
(131)
199
106
8,403
8,838
22,895
23,281
3,692
3,898
19,203
19,383
22,895
23,281
2023
£’000
2022
£’000
19,203
19,383
136
160
19,339
19,543
-
(235)
39
81
453
268
(171)
270
73
70
(82)
(211)
110
150
422
393
18,917
19,150
2023
£’000
2022
£’000
117
14
131
68
13
81
System1 Group PLC Annual Report and Accounts 2023
79
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
17 Employee benefit expense
Employee benefit expenses (including directors) comprise:
Wages and salaries
Social security contributions and similar taxes
Defined contribution pension cost
Long service leave cost – sabbatical provision
Share-based payment expense
Compensation for loss of office
Medical benefits
2023
£’000
2022
£’000
10,784
9,888
1,437
1,278
458
(61)
369
(225)
(153)
299
39
412
81
319
12,916
12,009
Key management personnel are those persons having authority and responsibility for planning, directing, and
controlling the activities of the Group, including the 3 (2022: 2) Executive Directors of the company. Details of direc-
tors’ emoluments are given in the Remuneration Report on page 47.
Compensation to key management is set out as follows:
Salaries and benefits in kind
Social security contributions
Defined contribution pension cost
Share-based payment expense
2023
£’000
2022
£’000
725
865
93
145
4
(30)
2
85
792
1,097
The average number of staff employed by the Group during the financial year was as follows:
Sales and marketing
Operations
IT
Administration
18 Finance expenses
Other net interest payable
Interest on lease liabilities
19 Income tax expense
Current tax
Deferred tax
2023
£’000
2022
£’000
48
43
43
52
37
36
23
22
151
153
2023
£’000
2022
£’000
72
71
64
89
136
160
2023
£’000
209
106
2022
£’000
(1)
(9)
315
(10)
System1 Group PLC Annual Report and Accounts 2023
80
19 Income tax expense continued
Income tax expense for the year differs from the standard rate of taxation as follows:
Profit on ordinary activities before taxation
Profit on ordinary activities multiplied by standard UK tax rate
Difference between tax rates applied to Group’s subsidiaries
Net expenses not deductible for tax purposes
Adjustments to trading losses and brought forward values
Remeasurement of deferred tax for change in tax rates
Tax on intra-group management charges (Brazil)
Receipt of research and development credits
Adjustment to current tax in respect of prior years
Adjustments to foreign and withholding tax
Adjustments to deferred tax in respect of prior and current years
2023
£’000
2022
£’000
719
945
137
264
15
(395)
72
188
-
78
(390)
180
222
(35)
-
-
-
(487)
(92)
(5)
346
354
315
(10)
The standard tax rate for the years ended 31 March 2023 and 2022 was 19%.
The R&D Tax Credit in respect of the year ended 31 March 2020 provided a benefit of approximately £0.5m, which
was received and recognised in the year ended 31 March 2022. The R&D Tax Credit application of approximately
£0.04m in respect of the year ended 31 March 2022 has been submitted to HM Revenue and Customs. It was not
neither received nor recognised during the year nor subsequent to year-end. The Company is working with its advi-
sors to submit a claim for a R&D Tax Credit in respect of the year ended 31 March 2023.
20 Deferred tax
Deferred tax assets and liabilities are as follows.
Deferred tax assets:
- deferred tax assets to be recovered after more than 12 months
- deferred tax assets to be recovered within 12 months
Deferred tax liabilities:
- Deferred tax (liability)/asset to be recovered within 12 months
Deferred tax asset (net):
The gross movement in deferred tax is as follows.
Opening balance
Income statement credit/(charge)
Foreign exchange movements
Closing balance
2023
£’000
2022
£’000
118
85
272
14
203
286
-
6
203
292
2023
£’000
2022
£’000
292
286
(106)
6
17
-
203
292
System1 Group PLC Annual Report and Accounts 2023
81
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
20 Deferred tax continued
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the
offsetting of balances within the same tax jurisdiction, is as follows:
Deferred tax assets
Trading
losses
£’000
Other
provisions
£’000
Share
Dilapidation
Sabbatical
capital
options
£’000
provisions
provision
allowances
£’000
£’000
£’000
Accelerated
At 1 April 2022
98
14
62
5
107
Credited/(charged) to income statement
(98)
At 31 March 2023
-
62
76
(39)
23
3
8
(21)
86
6
44
10
Deferred tax liabilities
At 1 April 2022
Charged to income statement
At 31 March 2023
Total
£’000
292
(89)
203
Accelerated
capital
allowances
£’000
-
-
-
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 avail-
able on exercise of employee share options.
21 Earnings per share
Profit attributable to equity holders of the company (£’000)
2023
2022
404
955
Weighted average number of Ordinary Shares in issue
12,698,398
12,863,257
Basic earnings/(losses) per share
Profit attributable to equity holders of the Company, in £’000
Weighted average number of Ordinary Shares in issue
Share options
3.2p
7.4p
404
955
12,698,398
12,863,257
12,888
12,881
Weighted average number of Ordinary Shares for diluted earnings per share
12,711,286
12,876,138
Diluted earnings per share
3.2p
7.4p
Basic earnings per share is calculated by dividing the profit or loss attributable to equity holders of the Company
by the weighted average number of Ordinary Shares in issue during the year.
Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding assum-
ing conversion of all dilutive share options to Ordinary Shares. Options are included in the determination of diluted
earnings per share if the required performance thresholds would have been met based on the Group’s performance
up to the reporting date, and to the extent that they are dilutive. Accordingly, employee options of 1.3 million (2022:
1.2 million) have not been included in the calculation of diluted EPS because their exercise is contingent on the sat-
isfaction of certain criteria that had not been met at 31 March 2023 and 31 March 2022. The total number of options
in issue is disclosed in Note 10.
22 Dividendss
The Company did not pay an interim dividend in the year ended 31 March 2023 and does not propose the payment
of a final dividend.
No dividends were paid to directors in the years ended 31 March 2023 and 2022.
System1 Group PLC Annual Report and Accounts 2023
82
23 Net cash generated from operations
Profit before taxation
Depreciation and impairment of property, plant, and equipment
Amortisation and impairment of intangible assets
Reversal of impairment of right-of-use asset
Interest paid
Share-based payment (credit)/expense
Decrease in contract assets
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
(Increase)/decrease in contract liabilities
Decrease in provisions
Exchange differences on operating items
2023
£’000
2022
£’000
719
945
973
859
211
95
-
136
(153)
96
(235)
161
299
120
(1,853)
1,389
146
415
(227)
(55)
188
(251)
(80)
113
(87)
4,098
24 Related party transactions
The following transactions took place between entities within the Group, all of which are consolidated in these finan-
cial statements, and are related parties by virtue of the common control of the Company.
2023
System1 Group PLC
System1 Research Limited
System1 Research, Inc.
System1 Research B.V.
System1 Research Sarl
System1 Research GmbH
System1 Marketing Consulting (Shanghai) Co. Limited
System1 Research Do Brazil Servicos de Marketing Ltda.
System1 Research France Sarl
System1 Market Research Pte Ltd
System1 Research Pty Ltd.
System1 Agency Limited
System1 AdRatings Limited
2022
System1 Group PLC
System1 Research Limited
System1 Research, Inc.
System1 Research B.V.
System1 Research Sarl
System1 Research GmbH
System1 Marketing Consulting (Shanghai) Co. Limited
System1 Research Do Brazil Servicos de Marketing Ltda.
System1 Research France Sarl
System1 Market Research Pte Ltd
System1 Research Pty Ltd.
System1 Agency Limited
System1 AdRatings Limited
Overhead
charges
£’000
6,801
(2,860)
(2,304)
(116)
(332)
(285)
-
-
(470)
(131)
(304)
-
-
7,673
(2,886)
(2,588)
(176)
(598)
(296)
-
-
(560)
(214)
(354)
-
-
Amounts due
from/(to)
Royalties
related parties
£’000
£’000
2,107
(886)
(714)
(36)
(103)
(88)
-
-
(146)
(41)
(94)
-
-
2,272
(856)
(766)
(52)
(175)
(88)
-
-
(167)
(64)
(105)
-
-
2,035
(583)
(1,065)
(327)
35
(557)
178
108
488
(315)
0
5
(4)
5,010
(3,846)
(1,258)
244
67
(473)
(213)
28
249
(125)
318
2
(3)
-
-
-
-
-
-
-
-
-
-
-
-
-
During the year, purchases of £141,181 (2022: £nil) were made from Merit Data & Technology Limited, a related
party by virtue of the common directorship of Mr Philip Machray. At the year end, an amount of £nil was owed
(2022: £nil).
System1 Group PLC Annual Report and Accounts 2023
83
Notes to the Consolidated Financial Statements continued
for the year ended 31 March 2023
25 Post balance sheet events
On 30 June 2023, the Group reached a mutually agreeable resolution of the lawsuit filed by System1 Group PLC
against System1 OpCo, LLC in the Southern District of New York for trademark infringement. The parties have
signed a global agreement which governs the co-existence of their respective use of the “System1” trademark
in connection with their operations. As part of this agreement, the Group will receive a fixed amount, payable
in instalments, in the years ending 31 March 2024 and 2025.
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.
84
System1 Group PLC Annual Report and Accounts 2023 Company Balance Sheet
as at 31 March 2023
REGISTERED COMPANY NO. 05940040
Fixed assets
Intangible assets
Tangible assets
Investments in subsidiaries
Note
2023
£’000
2022
£’000
2 1,396
382
3
4
808
581
1,464
581
2,785
2,427
Debtors due after one year
5
26
-
Current assets
Debtors due within one year
Cash and cash equivalents
5 5,924
8,147
1,242
2,288
7,166
10,435
Creditors: amounts due within one year
6
5,182
7,367
Net current assets
Total assets less current liabilities
Creditors: amounts due after one year
Provisions for liabilities
Net assets
Capital and reserves
Share capital
Share premium account
Retained earnings
Shareholders’ funds
1,984
3,068
4,795
5,495
6
7
163
792
194
264
4,438
4,439
9
132
132
1
1,601
1,601
1
2,705
2,706
4,438
4,439
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 after tax was £287,000 (2022: £1,667,000).
The notes on pages 87 to 96 are an integral part of these company financial statements.
These financial statements were approved by the directors on 25 August 2023 and are signed on their behalf by:
James Gregory Chris Willford
Director
Director
System1 Group PLC Annual Report and Accounts 2023
85
Company Statement of Changes in Equity
for the year ended 31 March 2023
Share
capital
£’000
Share
premium
account
£’000
Retained
earnings
£’000
Total
£’000
At 1 April 2021
132
1,601
1,307
3,040
Profit for the financial period and total comprehensive
income attributable to the equity holders
-
-
1,667
1,667
Transactions with owners:
Employee share options scheme:
- value of employee services
Purchase of treasury shares
-
-
299
299
(567)
(567)
-
-
(268)
(268)
At 31 March 2022
132
1,601
2,706
4,439
Profit for the financial period
-
-
287
287
Total comprehensive income
attributable to the equity holders
Transactions with owners:
Employee share options scheme:
- value of employee services
Purchase of treasury shares
-
-
287
287
-
-
(153)
(153)
(135)
(135)
-
-
(288)
(288)
At 31 March 2023
132
1,601
2,705
4,438
System1 Group PLC Annual Report and Accounts 2023
86
Notes to the Company Financial Statements
for the year ended 31 March 2023
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 prin-
cipal 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 2023. These accounts are available from the registered office address of the Company, and at system1group.
com/investors.
Disclosure exemptions adopted
In preparing these financial statements the Company has taken advantage of all disclosure exemptions available
under FRS 101. Therefore, these financial statements do not include:
a) a statement of cash flows and related notes;
b) the requirements of IAS 24 Related Party Disclosures to disclose related party transactions entered between
two or more wholly owned members of the group;
c) disclosure of key management personnel compensation;
d) capital management disclosures;
e) disclosure of leases as required by paragraph 52 of IFRS 16 “Leases”;
f) presentation of a comparative reconciliation of the number of shares outstanding at the beginning and at
the end of the period;
g) the effect of future accounting standards not adopted;
h) disclosures in respect of share-based payments
i) disclosures in respect of financial instruments and fair value measurement.
As permitted by the Companies Act 2006 section 408, the Company does not present a profit and loss account.
Research and development – internally generated intangible assets
All on-going research expenditure is expensed in the year in which it is incurred. Where no internally generated
intangible asset can be recognised, development expenditure is charged to administrative expenses in the period
in which it is incurred.
Costs relating to the research phase of the product, amounting to £3.9m were expensed in the year to 31 March
2023. Development costs include professional fees and directly attributable employee costs required to bring the
software into working condition.
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)
b)
c)
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
its intention to complete the intangible asset and use or sell it;
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.
Capitalised development costs are amortised on a straight-line basis over their estimated useful economic life of
three years.
Amortisation and impairment on all intangible assets are charged to administrative expenses.
System1 Group PLC Annual Report and Accounts 2023
87
Notes to the Company Financial Statements continued
for the year ended 31 March 2023
1 Accounting policies continued
Investments
Fixed asset investments comprise investments by the Company in the shares of subsidiary undertakings. The carry-
ing value of is reviewed for indicators of impairment on an annual basis. Where such indicators are present, a quanti-
fied impairment test is required and the value in use calculated based upon a discounted cash flow methodology
using the most recent forecasts prepared by management. No impairment indicators were identified at 31 March
2023 or 31 March 2022.
Tangible assets and right-of-use assets
Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impair-
ment 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 report-
ing period, which are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws
that have been enacted or substantively enacted at the reporting date applicable to the fiscal periods to which they
relate, based on the taxable profit for the year. All changes to current tax assets or liabilities are recognised as a
component of tax expense in the income statement, except where it relates to items charged or credited to other
comprehensive income or directly to equity.
Deferred income taxes are calculated using the liability method on temporary differences. This involves the com-
parison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective
tax bases. In addition, tax losses available to be carried forward as well as other income tax credits to the Company
are assessed for recognition as deferred tax assets.
Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it
is probable that the underlying deductible temporary differences will be able to be offset against future taxable
income. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply
to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet
date. Deferred tax is recognised as a component of tax expense in the income statement, except where it relates to
items charged or credited to other comprehensive income or directly to equity.
Employee benefits
All accumulating employee-compensated absences that are unused at the balance sheet date are recognised as a
liability.
The Company operates a defined contribution pension plan. The Company pays contributions to the plan based
upon the contractual terms agreed with each employee. The Company has no further payment obligations once the
contributions have been paid. The contributions are recognised as employee benefit expense when they are due.
Any amounts outstanding at the reporting date are recognised in liabilities within accruals.
System1 Group PLC Annual Report and Accounts 2023
88
1 Accounting policies continued
Share-based payments
Equity-settled, share-based payments are measured at fair value at the date of grant. Equity-settled, share-based
payments that are made available to employees of the Company’s subsidiaries are treated as increases in equity over
the vesting period of the award, with a corresponding increase in the Company’s investments in subsidiaries, based
on an estimate of the number of shares that will eventually vest.
Provisions
Provisions are recognised when: the Company has a legal or constructive obligation because of past events; it is
probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably esti-
mated. Where material, the increase in provisions due to passage of time is recognised as interest expense.
The provision for sabbatical leave is measured using the projected unit credit method.
The provision for dilapidations is measured at the present value of expenditures expected to be required to settle
those obligations.
Financial instruments
The Company’s financial assets comprise trade and other receivables held at amortised cost. The Company does not
possess assets held at fair value through profit or loss. The classification is determined by management at initial rec-
ognition, 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 con-
tracts 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 inter-
est 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 amor-
tised cost using the effective interest rate method. Financial liabilities and equity instruments are classified accord-
ing 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 state-
ment. Finance costs are calculated to produce a constant rate of return on the outstanding liability. Where the con-
tractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed
as an equity instrument. Dividends and distributions relating to equity instruments are debited directly to equity.
Lease liabilities
A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the
present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit
in the lease or, if that rate cannot be readily determined, the consolidated entity's incremental borrowing rate. Lease
payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on
an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option
when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The vari-
able lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred.
System1 Group PLC Annual Report and Accounts 2023
89
Notes to the Company Financial Statements continued
for the year ended 31 March 2023
1 Accounting policies continued
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 liabil-
ity is remeasured, an adjustment is made to the corresponding right-of use asset, or to profit or loss if the carrying
amount of the right-of-use asset is fully written down.
Share capital
Ordinary shares are classified as equity. Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
Share premium
Share premium represents the excess over nominal value of the fair value of consideration received for equity shares,
net of expenses of the share issue.
Treasury shares
Where the Company purchases the Company’s equity share capital, the consideration paid is deducted from the
total shareholders’ equity and classified as treasury shares until they are cancelled. Where such shares are sub-
sequently 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 under the long-term incentive scheme is determined using Monte Carlo simulation
models. 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 sometimes purchased shares arising from the exercise of share options to
minimise shareholder dilution and create shareholder value. IFRS 2 does not provide guidance on the application
of ‘substance over form’ when evaluating whether a share-based payment should be accounted for as equity or
cash-settled. To determine whether the Company’s share options are equity or cash-settled, consideration needs
to be given to whether the settlement of the share options through the issue and subsequent repurchase of trea-
sury 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.
The 2021 LTIP is subject to Revenue, Profit After Tax and the Company’s share price exceeding certain targets;
the full details of which are given in the Company’s Remuneration Report. The measure of the share-based payment
charge is dependent on the estimates made in respect of the probability of those targets being achieved over the
vesting period of the options. The key inputs into those estimates are the Company’s forecasts, revenue volatility and
inflation. Revenue volatility is determined by reference to the share price volatility used to determine the fair value
of the options (with an assumption that the two will have a high level of correlation). Inflation is determined by refer-
ence to the Bank of England data for the UK in March and April 2023. The non-market probability factor utilised in
the share-based payment model for the year ended 31 March 2023 is between 13% and 17% (31 March 2022: 62% to
65%). The cumulative charge recognised in respect of share options is £126,000 at 31 March 2023. If the non-market
probability factor was reduced by 33% to between 9% and 11%, the cumulative charge would reduce to £84,000.
System1 Group PLC Annual Report and Accounts 2023
90
1 Accounting policies continued
Employee benefits – estimate
The Company has a sabbatical leave scheme, which provides 20 days paid leave for each six years of service. During
the year ended 31 March 2023, the Company modified the terms of the scheme such that rather than being open to
all employees, the scheme is now only available to those individuals who have accrued three or more years of unbro-
ken service as at 30 September 2022 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 2023 was 64 (2022: 61)
and total employment costs were £6,072,000 (2022: £5,700,000).
Leases – estimate and judgement
Management exercises judgement in determining the likelihood of exercising break or extension options in deter-
mining 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.
2
Intangible assets
At 1 April 2021
Cost
Accumulated amortisation
Net book value
Net book value, at 1 April 2021
Additions
Amortisation for the year
Net Book Value, at 31 March 2022
At 31 March 2022
Cost
Accumulated amortisation
Net book value
At 1 April 2022
Cost
Accumulated amortisation
Net book value
Net book value, at 1 April 2022
Additions
Amortisation for the year
Net book value, at 31 March 2023
At 31 March 2023
Cost
Accumulated amortisation
Net book value
Development
costs
£’000
Software
£’000
Total
£’000
-
464
464
-
(46)
(46)
-
418
418
-
418
418
-
59
59
-
(95)
(95)
-
382
382
-
525
525
-
(143)
(143)
-
382
382
-
-
525
(143)
525
(143)
-
382
382
-
1,225
382
382
-
1,225
(101)
(110)
(211)
1,124
272
1,396
1,225
525
1,750
(101)
(253)
(354)
1,124
272
1,396
System1 Group PLC Annual Report and Accounts 2023
78
91
Notes to the Company Financial Statements continued
for the year ended 31 March 2023
2
Intangible assets continued
The only software cost as at 31 March 2023 is the Company’s finance and operations system that was brought into
use October 2020 and the Company’s HR system that was brought into use in August 2021.
Development costs relate to costs capitalised for the development of the “Test Your” platform (carrying value
£865k), which completed during the year ended 31 March 2023, and the Supply Chain Automation platform (car-
rying value £259k), which is due for completion in the year ended 31 March 2024. Development costs in respect of
completed projects are tested for impairment where impairment indicators exist. Development costs in respect of
ongoing projects are tested for impairment at each reporting date. The carrying value of the assets in each case
are assigned to their respective cash generating units for the purposes of assessing future cashflows. The principal
assumptions in the used in the forecasts were the timing and amount of future revenues and cost savings, which
were derived from the latest forecasts approved by the Board. Following the assessment, the Board have determined
that no impairment of assets is required as at 31 March 2023.
3 Tangible assets
At 1 April 2021
Cost
Accumulated depreciation
Net book value
Net book value, at 1 April 2021
Additions
Disposals
Depreciation charge for the year
Right-of-use
Furniture and
assets
£’000
fixtures
£’000
Computer
hardware
£’000
Total
£’000
2,139
60
181
2,380
(850)
(55)
(119)
(1,024)
1,289
5
62
1,356
1,289
5
62
1,356
1,245
1
68
(196)
-
-
1,314
(196)
(939)
(3)
(68)
(1,010)
Net book value, at 31 March 2022
1,399
3
62
1,464
At 31 March 2022
Cost
Accumulated depreciation
Net book value
At 1 April 2022
Cost
Accumulated depreciation
Net book value
Net book value, at 1 April 2022
Additions
Depreciation charge for the year
2,682
10
165
2,857
(1,283)
(7)
(103)
(1,393)
1,399
3
62
1,464
2,682
(1,283)
10
(7)
165
2,857
(103)
(1,393)
1,399
3
62
1,464
1,399
-
(621)
3
-
(1)
62
23
1,464
23
(57)
(679)
Net book value, at 31 March 2023
778
2
28
808
At 31 March 2023
Cost
Accumulated depreciation
Net book value
1,245
(467)
778
11
(9)
2
188
(160)
1,444
(636)
28
808
System1 Group PLC Annual Report and Accounts 2023
92
4 Investments
Cost and net book amount at 1 April 2022 and 31 March 2023
Subsidiary undertakings
£’000
581
Details of subsidiary undertakings, registered office and country of incorporation of each, at 31 March 2023 are as
follows:
Subsidiary undertaking
Registered office
Country of
incorporation
System1 Research Limited
System1 Research B.V.
System1 Research, Inc.
System1 Research Sarl
System1 Research GmbH
4 More London Riverside, London, England, SE1 2AU
UK
Conradstraat 38 D2. 138, 3013AP Rotterdam
Netherlands
251 Little Falls Drive, Wilmington, DE 19808,
New Castle County, Delaware
Avenue Gratta Paille 2, 1018 Lausanne, Switzerland
Kleine Seilerstrasse 1 D-20359 Hamburg
USA
Switzerland
Germany
System1 Research Do Brazil Servicos de Marketing Ltda. Avenida das Nacoes Unidas 14261 – Conj. 25-126B –
System1 Research France Sarl
System1 Market Research Pte Ltd
System1 Research Pty Ltd.
System1 Agency Limited
System1 AdRatings Limited
Cond. WT Morumbi, CEP 04794-000, Vila Gertrudes, São Paulo
Brazil
17 Rue de Turbigo, 75002 Paris
30 Cecil Street, #19-08 Prudential Tower, 049712
France
Singapore
Suite 1, Level 11, 60 Castlereagh Street, Sydney, NSW 2000
Australia
4 More London Riverside, London, England, SE1 2AU
4 More London Riverside, London, England, SE1 2AU
UK
UK
System1 Research Limited, System1 Agency Limited, and System1 AdRatings Limited are wholly owned direct
subsidiaries of System1 Group PLC. The remaining subsidiaries are each wholly owned direct subsidiaries of System1
Research Limited. The activities of all companies are the provision of market research data and insight services, apart
from System1 Agency Limited and System1 AdRatings Limited, which are dormant.
5 Debtors
Due within one year
Trade debtors
Trade debtors from group companies
Amounts due from group companies
Other debtors
VAT recoverable
Corporation tax recoverable
Deferred tax asset
Prepayments
Due after one year
Deferred tax asset
2023
£’000
2022
£’000
12
10
5,131
3,745
126
3,880
92
126
203
127
2
43
-
19
358
197
5,924
8,147
26
-
The Company is part of a VAT group with its wholly owned subsidiary, System1 Research Limited. At 31 March
2023, System1 Research Limited had a VAT liability of £415,000, therefore the net exposure of the two entities is
£211,000 (2022: debtor of £90,000).
System1 Group PLC Annual Report and Accounts 2023
93
Notes to the Company Financial Statements continued
for the year ended 31 March 2023
6 Creditors
Due within one year
Trade creditors
Social security and other taxes
Amounts due to group companies
Lease liabilities
Borrowings
Accruals
Due after one year
Lease liabilities
7 Provisions for liabilities
At 1 April 2021
Provided in the year
Reversal of unused amount
At 31 March 2022
Provided in the year
Utilised in the year
Reversal of unused amount
At 31 March 2023
Due within one year
Due after one year
2023
£’000
2022
£’000
741
436
-
304
3,220
2,615
630
681
-
2,500
591
831
5,182
7,367
163
792
163
792
Sabbatical
Deferred tax
£’000
£’000
Total
£’000
299
-
299
-
10
10
(45)
-
(45)
254
10
264
-
(11)
(69)
184
32
-
-
-
10
10
152
-
-
(11)
(69)
194
42
152
The Company has a sabbatical leave scheme, which provides 20 days paid leave for each successive period
of six years’ service. There is no proportional entitlement for shorter periods of service. During the year ended 31
March 2023, the Group modified the terms of the scheme such that rather than being open to all employees, the
scheme is now only available to those individuals who have accrued three or more years of unbroken service as at
30 September 2022. The provision is expected to unwind over the next three to four years. The assumptions used in
the sabbatical provision is as follows:
Measurement method
Discount rate, based on 6-year corporate bond yields*
Annual salary growth rate
Staff turnover
Changes to the assumptions will increase the provision by:
0.25% decrease to discount rate
10% increase to salary increase assumption
5% decrease to staff turnover assumption
10% of salary paid as bonus to all members
2023
2022
Project unit credit method
5.0%
7%
14%
2.5%
7%
30%
£’000
-
8
12
39
System1 Group PLC Annual Report and Accounts 2023
94
8 Deferred tax
Deferred tax assets and liabilities are as follows.
Deferred tax assets:
- deferred tax assets to be recovered after more than 12 months
- deferred tax assets to be recovered within 12 months
Deferred tax liabilities:
- deferred tax liability to be recovered within 12 months
Deferred tax asset (net):
The gross movement in deferred tax is as follows.
Opening balance
Income statement credit/(charge)
Closing balance
2023
£’000
2022
£’000
70
1
26
123
96
124
(70)
(105)
26
19
2023
£’000
2022
£’000
19
7
46
(27)
26
19
The movement in deferred income tax assets and liabilities during the year, without taking into consideration the
offsetting of balances within the same tax jurisdiction, is as follows:
Deferred tax assets
At 1 April 2022
Credited to income statement
At 31 March 2023
Deferred tax liabilities
At 1 April 2022
Charged to income statement
At 31 March 2023
Other
provisions
£’000
Share
options
£’000
Sabbatical
provision
£’000
Total
£’000
1
27
61
(39)
63
(17)
125
(29)
28
22
46
96
Accelerated
capital
allowances
£’000
(105)
35
(70)
System1 Group PLC Annual Report and Accounts 2023
95
Notes to the Company Financial Statements continued
for the year ended 31 March 2023
9 Share capital
At 1 April and 31 March
No.
£’000
No.
£’000
Allotted, called up, and fully paid ordinary shares
13,226,773
132
13,226,773
132
2023
2022
Included within issued share capital are 547,844 ordinary shares held in treasury.
10 Related party transactions
During the year, purchases of £141,181 (2022: £nil) were made from Merit Data Technology Limited, a related party
by virtue of the common directorship of Mr Philip Machray. At the year end, an amount of £nil was owed (2022: £nil).
11 Post balance sheet events
On 30 June 2023, the Group reached a mutually agreeable resolution of the lawsuit filed by System1 Group PLC
against System1 OpCo, LLC in the Southern District of New York for trademark infringement. The parties have signed
a global agreement which governs the co-existence of their respective use of the “System1” trademark in connection
with their operations. As part of this agreement, the Group will receive a fixed amount, payable in instalments, in the
years ending 31 March 2024 and 2025.
96
System1 Group PLC Annual Report and Accounts 2023
We believe in the value of testing early and often…
System1’s platform is incredibly efficient and effective
at predicting the success of our creative and identifying
areas of improvement.
Lesya Lysyj, CMO, Boston Beer Company
‘‘
’’
Company Information
Company Secretary
Renata Ziolko-Nishikant
Registered Office
4 More London Riverside
London
SE1 2AU
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
United Kingdom
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
Index
Highlights
Strategic Report
Group Overview
Chairman’s Statement
CEO’s Statement
Financial Review
Principal Risks and Uncertainties
Environmental and Social Report
Governance & Group Directors’ Report
Group Directors’ Report
Statement of Directors’ Responsibilities
Corporate Governance
The Board
Audit Committee Report
Remuneration Committee Report
Independent Auditor’s Report to the Members of
System1 Group PLC
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Company Information
1
2
3
4
6
17
20
23
30
31
33
34
41
42
44
49
58
59
60
61
62
63
85
86
87
97
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2
0
2
3
Building
Momentum
Annual Report and Accounts
for the year ended 31 March 2023
System1 Group PLC
4 More London Riverside
London
SE1 2AU
United Kingdom
info@system1group.com
www.system1group.com