TIDMSYS1
RNS Number : 4493R
System1 Group PLC
30 June 2020
Press Release 30 June 2020
System1 Group PLC (AIM: SYS1)
("System1" or "the Group" or "the Company")
Financial results to 31 March 2020
System1, the international marketing and market research agency,
today announces its results for the 12 month period ended 31 March
2020.
2019/20
GBPm Consulting AdRatings Total
----------------------- ----------- ---------- -------
Revenue 25.4 0.1 25.5
----------- ---------- -------
Gross Profit 21.5 0.1 21.6
----------- ---------- -------
Underlying Overheads* (18.5) (2.8) (21.3)
----------------------- ----------- ---------- -------
Underlying Operating
Profit 3.1 (2.7) 0.3
----------- ---------- -------
Share Based Payments 0.1 - 0.1
----------- ---------- -------
Finance Charges (0.1) - (0.1)
----------- ---------- -------
Profit/(Loss) Before
Tax 3.0 (2.7) 0.3
----------------------- ----------- ---------- -------
*Underlying Overheads and Underlying Profit Before Tax are
defined in the Business and Finance Review.
Highlights
* Revenue declined 5% to GBP25.5m (2018/19: Revenue
flat at GBP26.9m)
* 2% decline in Gross Profit to GBP21.6m (2018/19:
GBP22.1m)
* Comms Gross Profit up 8% helped by Test Your Ad
* Innovation and Brand Gross Profit down 11% and 7%
respectively
* 20% decline in Underlying Profit Before Tax
(excluding AdRatings) to GBP3.1m (2018/19: 80% growth
to GBP3.8m)
* Profit Before Tax (including AdRatings) declined to
GBP0.3m (2018/19: GBP1.9m), after recognising an
impairment charge of GBP0.9m for capitalised
development costs
* Decline in diluted Earnings Per Share to a loss per
share of 1.8p (2018/19: diluted EPS of 9.8p)
* GBP2.0m cash investment in AdRatings, with a post
impairment profit and loss expense of GBP2.8m.
* GBP6.7m cash at 31 March 2020 and debt of GBP2.5m
(2018/19: GBP4.3m cash and no debt)
* No final dividend proposed (2018/19: 6.4p per share);
proposed share buy-back suspended
* The Company has been making a significant investment
in new AdRatings technology and has for the last two
years split its results into the existing business
(Consulting) and AdRatings. For consistency, these
results maintain the split. For financial reporting
in 2020/21 and beyond the figures will be combined,
reflecting the important contribution of AdRatings IP
to developing the Consulting business
Trading Update and Outlook
In the Trading Update issued on 27th April we said that given
the impact of the Covid-19 pandemic it was difficult to provide
financial guidance for the 2020/21 year, and this remains the case.
In the two months to end May, Revenue and Gross Profit were 36% and
38% respectively below the same period of last year. Over these
months the business as a whole incurred a Pre-Tax loss of some
GBP0.7m as we pursued our short-term objectives of continuing to
develop our new automated product set, while conserving cash by
shrinking the cost base to offset lower sales. Cash net of debt
facilities ended May at GBP3.9m compared with GBP4.1m at 31 March.
In June, the sales pipeline has shown early signs of recovering
towards pre-pandemic levels, and our cost base was in line with our
targets.
Commenting on the Company's performance, John Kearon, Chief
Executive Officer of System1, said:
"Over the last two years we have reshaped much of the business,
automated many of our products, raised our industry profile and
created a management team capable of achieving our goal of becoming
the world leader in predicting advertising effectiveness. Despite
Covid-19, the coming year will see more innovation and more
investment as we continue to automate, attract new clients and
drive revenues."
The Company can be found at www.system1group.com.
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
For further information, please contact:
System1 Group PLC +44 20 7043 1000
John Kearon, Chief Executive
Officer
Chris Willford, Chief Financial
Officer
investorrelations@system1group.com
Canaccord Genuity Limited +44 20 7523 8000
Simon Bridges
Andrew Potts
CHAIRMAN'S STATEMENT
This has been another eventful year for System1, with continued
investment to transform the Company into a more automated digital
business, and mixed fortunes for Sales and Profits. The year began
well, building on the strength of the strong profits recovery in
2018/19 with an encouraging H1 out-turn. Progress was not
maintained however, with a weaker H2 and in particular a marked
slowdown in our Q4 from January 2020 onwards. The full year saw
Sales Revenue and Gross Profit down by a modest 5% and 2%
respectively, and Underlying Profit Before Tax by a more
substantial 20% as investment to drive future growth continued. As
in 2018/19, these results exclude our investment in AdRatings, as
we focused on developing and refining the product offering.
During the year our Chief Innovation Officer, Orlando Wood,
authored a seminal work on the nature of advertising, "Lemon",
which was published by The Institute of Practitioners in
Advertising, (IPA), and System1 to widespread critical acclaim.
This has led to an increased level of interest in our advertising
testing, Test Your Ad, utilising the Star and Spike scores of our
AdRatings methodology. We were encouraged by a partnership with
ITV, Britain's largest commercial broadcaster, promoting System1's
measurement of advertising effectiveness which was planned to be
used in conjunction with the UEFA Euro 2020 football competition,
although this has unfortunately been postponed until 2021 due to
the Covid-19 pandemic.
Whilst interest in the potential benefits of AdRatings continued
to increase, short term subscription revenue to the AdRatings
database remains modest, and we have decided to take an impairment
charge against some of the development cost. From the current
2020/21 financial year we will consolidate AdRatings results into
those of the core business.
Our business benefits from a broad geographical spread and a
range of testing services. Around half of our revenues come from
the Americas, and the other half from the UK, continental Europe,
and Asia. We saw growth in both North and South America this year,
offset by some softness in the European and Asian regions. Within
testing services, our communications testing, mainly of
advertising, grew during the year, again offset by modest declines
in innovation testing and brand tracking.
System1 ended the financial year in a healthy financial
position. In March 2020 the company arranged and drew down a
GBP2.5m revolving credit facility, and the year ended with a gross
cash balance of GBP6.7m and debt of GBP2.5m.
The new financial year commencing 1st April 2020 has seen some
changes to the composition of Executive Directors. James Geddes,
our Chief Financial Officer for the past 17 years left the Company
to be succeeded by Chris Willford, who we welcome to the Board. We
send our heartfelt thanks to James for all he did during his time
with System1 in assisting its international growth and development,
and wish him every success in the future. Stefan Barden, who has
worked with us for over two years in a senior consultancy capacity
has also joined the Board as Chief Operating Officer, to complete
many of the significant systems and process improvements that the
business is engaged with as it transforms its product offering.
The beginning of the current financial year has coincided with
the impact of the Covid-19 pandemic, affecting our major markets
and our clients' forward planning. Whilst there was no material
impact on our 2019/20 results, our current trading and profits
outlook has inevitably been impacted. Given the importance of
retaining cash in the business, the Board has decided to suspend
the proposed share buy-back as well as payment of the final
dividend for 2019/20. Future returns of capital to shareholders
will be kept under review.
Management priorities have been to counter the effect of the
pandemic on short-term financial results, whilst positioning the
business to take future advantage as situations begin to normalise.
Cost saving measures have been implemented, and government
employment schemes utilised where appropriate, including in the UK
and the USA.
The business and our staff have adapted and responded extremely
well to an environment in which both we and our clients' teams are
largely working from home. Weekly client webinars, which have been
widely attended, have been just one example of maintaining regular
contact and stimulating sales. At this stage it is not possible to
provide future guidance, but our short-term business objectives are
being met, and my thanks are due to all the System1 staff worldwide
for their efforts during 2019/20 but especially at the current
time, in rising to the extraordinary challenges the Covid-19
pandemic is presenting.
Graham Blashill
Chairman
CHIEF EXECUTIVE OFFICER'S STATEMENT
Significance Precedes Momentum
Graham has done a great job summarising our 2019/20 financial
performance, so I'll focus on the year's significant changes,
investments and progress towards our goal of becoming the world
leader in predicting advertising effectiveness.
The Effectiveness Agency
Every year, over $900bn is spent on Advertising across the
globe, by far the biggest annual investment most Companies make in
future growth. However, only 0.1% of that is spent testing whether
it's going to work, despite the fact that we know from our own
validated testing that over half of all advertising makes no
contribution to profitable growth.
Over 20 years, we pioneered the application of Behavioural
Science to predicting consumer behaviour and have dramatically
improved the predictive accuracy of ad testing - as validated by
the IPA, the leading authority on ad effectiveness. Having
perfected our approach through tens of thousands of ad tests, our
goal is to help Companies significantly improve their return on
advertising investment.
To improve the utility and access to System1 predictions, we
standardised, digitised and automated our approach and created
AdRatings. This provides online, annual subscription access to ad
effectiveness data for every US and UK ad, brand and company, in
all major advertised categories. Subscribers can see their
performance at a Company, Brand and individual ad level, compare
themselves with competitors and learn how to improve their future
ad effectiveness.
The year saw significant progress in the four progressive goals
I set out for AdRatings last year:
1) BUILD AN ASSET. We have now tested 41,085 ads and have the
largest database of validated ad effectiveness data and spend in
the world, that we are aware of. We use this asset to continuously
enhance our understanding of ad effectiveness and help prove the
value of creativity to advertisers. Last year, the database proved
invaluable to an effectiveness evaluation project with the IPA,
which culminated in the publication of Lemon - authored by our
Chief Innovation Officer, Orlando Wood. The publication has been
critically acclaimed by such industry luminaries as Rory
Sutherland, Vice Chairman of Ogilvy and Peter Field, co-author of
the seminal Long and The Short of It, who said of Lemon, "Just when
you are starting to think that books on advertising effectiveness
are all rather similar, along comes Orlando's book. The book itself
is itself a perfect illustration of the virtues it extols:
entertaining, unpredictable, deep, broad-ranging and beautifully
crafted. A book you will want to read."
2) GENERATE FAME FOR SYSTEM1. Testing every new ad the day after
it first airs has given us the ability to provide predictive data
to industry publications on ads generating interest or controversy.
As a result, we've been able to generate significantly more System1
coverage than in any previous year.
In the weeks since the Covid-19 crisis began, we have tested
almost 550 Covid related ads worldwide and shared our learnings in
a widely-attended weekly webinar. Our research has shown how
consumers have been feeling during the crisis and the need for
brands to empathise with their audience and make creative choices
that strike the right emotional notes. The evidence from the IPA's
long-term studies and our own research has shown that emotionally
appealing advertising is far more effective than advertising based
on rational brand claims - and even more so in challenging
times.
But it's Orlando's Lemon publication that has created the
greatest client interest and critical industry acclaim. The project
started from the IPA's previous publication, The Crisis In Creative
Effectiveness which showed how ad effectiveness had dropped
dramatically since 2008 and asked what's responsible. Was it shifts
in spend towards digital channels, greater emphasis on the
short-term or structural changes in the ad industry?
Based on System1's knowledge of advertising, we thought the
answer might lie in the psychology of how we perceive and relate to
the world. We combined the data from our AdRatings database with
the seminal brain lateralisation work of Iain McGilchrist, author
of The Master And His Emissary, to uncover the roots of the decline
in Advertising effectiveness. The resulting publication, Lemon ,
shows the single biggest determinant of advertising effectiveness
is Creativity. Ads that use humour, generosity, humanity,
story-telling, metaphor, recurring characters, a sense of
between-ness generate the emotions that enable a brand to
successfully and memorably connect with consumers.
Lemon. This advertising brain has stopped working properly.It
has lost its power to persuade, its ability to make people feel,
and its talent to entertain.How has this happened? And is there
anything we can do about it?
In this challenging book, Orlando Wood argues that a golden age
for advertising technology has been far from a golden age for
advertising creativity.He shows how today's analytical culture has
sent the industry's admired reputation for creativity into
reverse.In place of a creative Renaissance, he maintains, we are
now witnessing nothing less than a creative Reformation, a
'stripping of the altars'.Reducing what was once dazzling artform
to dreary science.
So how should agencies and clients correct the wrong turn we
have taken? Orlando offers some surprisingly counter-intuitive
solutions of his own. If the advertising brain has stopped working
properly, maybe this is the repair manual.
Lemon is now the IPA's fastest and biggest selling publication
and Orlando has been invited to present the findings by the leading
advertising bodies (WFA, ISBA, ARF, IPA), ad agencies, clients and
companies such as: Microsoft, LinkedIn, ITV, Sky, Vodafone and
Aldi.
3) WIN NEW CLIENTS. Our increased industry advertising
effectiveness profile has led to the majority of new ad testing
clients coming from industries beyond our historic CPG core, like
Tech, Media and Online Retail. The AdRatings daily testing has also
enabled us to create Ad of The Week, to honour brands making the
most creative ads, with a number of the winners becoming
clients.
A significant new partnership has been ITV, Britain's largest
commercial broadcaster. ITV want to help advertisers improve the
creativity, entertainment and profitability of their ads and are
promoting System1's approach to help achieve it. As a recent
Covid-19 lock-down challenge, ITV challenged viewers to create
their versions of 5 famous adverts and then aired the best of them
during peak Saturday viewing, in the break of Britain's Got Talent.
The best of the ads recreated the famous 'Honda Cog' and
delightfully managed to out-perform the original. Our 30 days free
access to the Global Covid-19 category ads has already generated
over 100 new company trialists.
4) GENERATE NEW REVENUES. Although the number of annual
subscribers to AdRatings is still low, it's proving a very
effective way to sell System1's ad testing consultancy and a high
proportion of our new ad testing clients are also choosing to
subscribe.
In the last quarter of the year we launched Test Your Ad, to
increase access to our testing and generate additional revenues
from AdRatings. Users can upload and pre-test any ad and get
next-day or even same-day predictions for a fraction of current
costs. They see the likely performance of their ad and can compare
it with all other ads in their category. It's early days, but the
initial reaction has been extremely positive and ITV are promoting
the service to all their advertisers. Test Your Ad is our online
offering and AdRatings remains the name for our advert
database.
The combination of the year's initiatives meant we grew ad
testing Gross Profit by 8%, in a year in which System1's overall
Gross Profit declined 2%. Over the last two years, ad testing has
grown to the same size as innovation testing, which for many years
has been the largest part of the business. Growth in ad testing has
significant commercial advantage in being generally a
sole-supplier, long-term partnership with clients, whereas
innovation testing tends to be bought project by project from a
roster of suppliers.
To create a far bigger business we have made a number of
important senior appointments; Orlando Wood as Chief Innovation
Officer, Mark Beard as Chief Technology Officer, Karen Wolfe as
Chief Commercial Officer, Jon Evans as Chief Marketing Officer,
Emma Cooper as Chief People Officer and Robyn Di Cesare as Global
Director of Research & Guidance. There are two recent
appointments to complete our Management Team for the future. Chris
Willford joins as CFO and Stefan Barden currently an Advisor, is
temporarily taking the vacant COO position. Chris brings huge
commercial and financial experience having been UK Finance Director
at Barclays PLC and Group Finance Director at Bradford &
Bingley PLC, (FTSE 100 businesses), as well as working as a
consultant with scale up media and tech business similar to
System1. Stefan brings Tech, Data and Online experience, having
been a FTSE 250 CEO and the CEO who in three years grew Wiggle from
GBP140m turnover to GBP360m, to become Europe's #1 online sports
retailer.
Over the last two years, we have reshaped much of the business,
automated many of our products, generated increasing industry
profile and created a management team capable of achieving our goal
to become the world leader in predicting advertising effectiveness.
There remains much to do, but we believe that we are further ahead
than our competitors. There will be many more innovations in the
coming year, as we continue to automate our predictions, increase
System1's fame, attract new customers and drive revenues.
In summary, over the last year System1 has taken its leading
research IP and created data products and assets to complement our
historic consultancy services. We have been recognised by industry
leaders in what we do and are firmly becoming the research
industry's champion for creativity, backed by data. In the UK, our
pilot market, we have developed partnerships with ITV, the largest
retailer of advertising space and globally with LinkedIn, the B-2-B
platform. It bodes well for the future, but we know there is much
still to do.
Finally a heartfelt thank you to our patient and incredibly
supportive shareholders. And a huge thank you to our wonderfully
creative, hardworking staff (past and present, with a special
thanks to James Geddes, our outgoing CFO for 17 years of
remarkable, dedicated service to the business).
I'll give the final words to the IPA's recent Financial Times
ad, based on System1's joint work with them.
Emotion. The Most Rational Thing a Brand Can Use.
John Kearon
Chief Executive Officer
BUSINESS AND FINANCE REVIEW
Overview
2019/20 % Change YoY
--------------------------------------- -------------------------------- --------------------------------
GBPm Consulting Ad Ratings Total Consulting Ad Ratings Total
--------------------------------------- ----------- ----------- ------ ----------- ----------- ------
Revenue 25.4 0.1 25.5 -5% -5%
Gross Profit 21.5 0.1 21.6 -2% -2%
Gross Profit% 85% 100% 85% 3% 3%
Underlying Overheads 18.5 2.8 21.3 1% 25% 4%
Underlying Profit before Tax / (Loss) 3.1 -2.7 0.3 -20% -86%
Statutory Overheads 21.2 6%
Statutory Profit Before Tax / (Loss) 0.3 -85%
*All figures in the business and finance review are presented in
millions rounded to one decimal place unless specified otherwise.
Percentage movements are calculated based on the numbers reported
in the financial statements and accompanying notes.
This turned out to be a year of mixed fortunes. At the interim
results we reported 7% growth in Gross Profit on the back of
growing momentum in Comms and a 33% increase in Profit Before Tax.
In the final quarter sales declined due to deteroriating trading
conditions and some early teething issues with our new
organisational model, now resolved. As a consequence, 2019/20 Gross
Profit was 2% lower than last year and underlying Profit Before Tax
in Consulting fell 20% from GBP3.8m to GBP3.1m. The final quarter
was minimally impacted by the Covid-19 economic slowdown, primarily
Innovation, although the pandemic has of course affected the first
quarter of our new fiscal year.
Our AdRatings database has spawned Test Your Ad, an online
product. AdRatings generates significant interest and enquiries
from clients but it has proved difficult to attribute subsequent
consulting revenue streams from those clients to the database.The
Board has decided that capitalising the database is no longer
appropriate and will expense future costs as they are incurred. We
have therefore impaired the carrying value of the remaining asset
(GBP0.9m) in full, which contributes to a 25% increase in the
reported costs for AdRatings in the year. Including Ad Ratings,
Profit Before Tax fell from GBP1.9m in 2018/19 to GBP0.3m.
The Group defines Underlying Profit and Underlying Overheads as
Profit Before Tax and Administrative Expenses excluding AdRatings
and share-based payments, including associated social security
costs. Share-based payments are a non-cash expense that varies with
the Company's share price, and so are disclosed separately.
Product areas
The Research business has three main product lines, Comms
(testing adverts prior to broadcast), Brand (tracking brand
health), and Innovation (testing new product and packaging concepts
and ideas). We offer them from our offices in the UK, US, and seven
other offices across Continental Europe and the rest of the
world.
Gross Profit by Product 2019/20 2018/19 Change
GBPm FY FY %
------------------------- -------- -------- -------
Innovation 8.6 9.6 -11%
Comms 8.0 7.4 8%
Brand 3.4 3.7 -7%
Other (includes Agency) 1.6 1.4 19%
Total 21.6 22.1 -2%
Comms comprised 37% of the Company's Gross Profit in the year
(2018/19: 33%), growing 8% year on year and improving in all
regions.
Our Brand product area is closely related to Comms and it
comprised 16% of 2019/20 Gross Profit (2018/19: 17%). Our brand
tracking monitors the health of a brand over time, using a model
which measures the "Fame", "Feeling" and "Fluency" of the brand. It
provides a leading indicator of the direction of future sales (all
other factors unrelated to the brand being equal). Gross Profit
from Brand declined by 7%, as a result of reduced spending by two
large clients in Europe. Growth in other regions was
satisfactory.
Our Innovation business is more ad hoc in nature than Comms and
Brand. It comprised most of Company's business in its early years
and is still the largest product area, representing 40% of 2019/20
Gross Profit (2018-19: 44%). Gross Profit declined by 11% in the
year despite strong growth in the Americas and fell away in the
final quarter as larger clients began to defer new launches.
Other business comprised mainly bespoke projects for large
clients in the UK and USA that did not fall neatly into the main
product categories, together with the legacy Agency business.
Regional performance
Gross Profit by Region 2019/20 2018/19 Change
GBPm FY FY %
------------------------ -------- -------- -------
Americas 10.9 9.5 15%
UK (includes Agency) 4.7 5.5 -14%
Europe 4.6 5.5 -15%
APAC 1.4 1.6 -17%
Total 21.6 22.1 -2%
We have only a small market share in each of our regions and the
addressable market in each one allows room for significant growth.
Americas (Gross Profit +15% (2018/19: -6%)) enjoyed strong growth
in all product areas after a disappointing prior year. Conversely
Europe was down 15% (2018/19: +19%) due to lower client spend on
Brand and Innovation. In the UK, despite growth in Brand and Comms,
the decline in Innovation and the Agency led to a reduction of 15%
in Gross Profit. In APAC Gross Profit fell for the second
successive year due mainly to reduced Innovation sales.
AdRatings
AdRatings is a large database showing 'ratings' or 'scores', of
adverts in the market as a whole. It allows clients to assess the
effectiveness of their historical advertising and benchmark it
against peer companies, competitor categories and the industry as a
whole.
AdRatings Expenditure 2019/20 2018/19 Change
GBPm FY FY %
----------------------- -------- -------- -------
Investment Spend 2.0 3.0 -34%
Capitalisation (0.4) (0.9) -52%
Amortisation 0.3 0.1 200%
Impairment 0.9 0.0 NM
Reported Expenditure 2.8 2.2 25%
----------------------- -------- -------- -------
Net Book Value at 31
March 0.0 0.8 -100%
----------------------- -------- -------- -------
AdRatings has also been a catalyst for upgrading our technology
across the business, as we endeavour to digitise the Company.
Client interest in our automated data products has risen markedly
since year-end on the back of a series of "Coronavirus Webinars"
and we have offered a trial-usage promotion to stimulate demand for
paid-for packages of data.
Productivity
GBPm (unless otherwise specified) 2019/20 2018/19 Growth
----------------------------------- --------------- --------------- --------------
Average headcount 146 145 1%
Gross profit per head 148 152 -3%
Direct costs 3.9 4.9 -20%
Overhead costs 21.3 20.1 6%
-----------------------------------
Total costs 25.2 25.0 1%
----------------------------------- --------------- --------------- --------------
During the year we continued to focus on productivity by
redesigning our business from first principles.
Our Product Portfolio was simplified to comprise only products
where we have real distinctive competitive advantage.
We implemented a 'Continuous Improvement Performance Culture',
accessing data and making it widely available in the business for
local decision making in a series of weekly reviews which present
improvement from the bottom up.
New specific roles were defined, as opposed to the historic
generalist roles. Sales, now 25 specialists rather than 100
part-time generalists, continue to be managed at a client/office
level, but now all other parts of the business are global and, for
example projects can now be managed anywhere within the global
network.
We continue to challenge overhead costs creatively - for example
hiring on lower basic salaries and having more variable
performance-related upside.
We invested heavily in professionalising the personal
productivity of our teams through the Microsoft suite and were
already working remotely as a test when the Covid-19 lockdown hit
us around the world.
Average headcount in 2019/20 was 1% above last year, and
Underlying Overheads in Consulting rose in line with headcount.
Gross Profit per head declined by 3% due to the fall in revenues in
the final quarter but was 10% higher than in 2017/18. Overhead
spend in AdRatings, including the GBP0.9m impairment charge,
contributed to the 6% overall increase at Company level. Excluding
the impairment of the AdRatings asset, overheads rose by 1% and
total costs fell by 3%.
Tax
The Company's effective tax rate (excluding AdRatings) increased
to 35% from 26% due in part to the derecognition of certain
carried-forward tax losses as well as profits that were generated
in relatively higher tax jurisdictions. We intend to submit a
R&D tax credit claim worth approximately GBP0.5m in respect of
the 2018/19 financial year. The potential beneficial impact of this
claim is not included in the reported figures, and will be
recognised upon receipt.
Dividends, Funding and Liquidity
Historically, the Company's policy has been to maintain a level
of ordinary dividends which over the long-term grow broadly in line
with earnings, and to return surplus cash (after payment of
ordinary dividends) by way of special dividends or share buy-backs,
dependent on the price of the Company's shares at the time.
Given the emphasis on retaining cash during the global Covid-19
pandemic, the Board decided to suspend both the proposed buy-back
of up to GBP1.5m of System1 shares announced in February this year,
as well as the payment of a final dividend for the 2019/20
financial year. Future returns of capital will be kept under review
as the economic situation develops.
In order to provide greater financial flexibility in the current
environment, the Company arranged and drew down a GBP2.5m revolving
credit facility in March 2020.The business generated operational
cash flow of GBP0.8m in the period (2018/19: -GBP0.4m) after
investing GBP2.0m in AdRatings. Dividend payments of GBP0.9m and
loan funding of GBP2.5m resulted in year-end cash of GBP6.7m
(2018/19: GBP4.3m).
Outlook
Since the end of the 2019/20 financial year, System1's trading
has inevitably been adversely affected by the global economic
downturn caused by the Covid-19 pandemic. Although weekly sales
bookings have improved since the 27 April Trading Statement, the
Board has concluded that it is difficult at this stage to provide
guidance on the financial performance for the current year until a
clearer outlook emerges. The Board will keep investors updated as
the impact on the Group's performance becomes clearer.
System1's priority, as we deal with the impact of the economic
downturn, is to maintain a strong financial position while
safeguarding the human and intellectual capital needed to take
advantage of the what the Board believes will be substantial growth
opportunities when the global economy recovers. In accordance with
this priority, we have taken mitigating actions including deferring
employment costs, reducing the number of hours paid for where the
volume of work has fallen, reducing discretionary expenditure,
laying off a small number of colleagues, and taking advantage of
government-backed business support and furloughing schemes. As part
of this initiative, the Board and other senior executives in
System1 agreed in April 2020 to defer 20% of their salaries until
further notice. Important strategic investments in people, products
and systems have been protected throughout - a policy that we
believe positions System1 well to implement our growth plans when
global economic conditions improve.
Chris Willford
Chief Financial Officer
BUSINESS RISK REVIEW
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:
-- loss of a significant client;
-- loss of key personnel;
-- loss of a critical supplier;
-- material adverse event leading to significant loss of
property, software, or data, or an adverse legal claim;
-- systemic tax or legal compliance error;
-- major outage in our survey platform;
-- cyber-attack causing a material breach in our IT infrastructure.
Loss of a significant client. This is a significant risk, with
the percentage of business from our largest client in the 12 months
to 31 March 2020 at 10% of revenue (2018/19: 6%). We therefore go
to considerable lengths to monitor service quality and seek client
feedback.
Loss of key personnel. The loss of a senior member of the team
would have a negative impact on the business. However, we have a
relatively large senior team and do not view the business as being
overly dependent on any one individual.
Loss of a critical supplier . We have several mission-critical
functions carried out by third-party suppliers (such as panel
suppliers). For these functions, we seek to ensure we are not too
reliant on any one organisation.
Material adverse event leading to a significant loss of
property, software, or data, or an adverse legal claim. We
endeavour to protect the business from significant risks, through a
combination of: comprehensive professional indemnity insurance;
information security, particularly with regard to client
confidentiality and personal data (see below); and sufficient focus
on legal protections, for example through our terms and
conditions.
Systemic tax or legal compliance error . We are a small business
with small finance and legal teams based in the UK and Brazil. We
operate in a number of different jurisdictions and in some cases,
have to deal in relatively complex tax and regulatory environments.
Were we to make a small systemic error which did not surface for a
number of years, the cumulative impact to correct the error could
be significant. However, we endeavour to keep our tax and legal
affairs simple and straightforward, and within our budgetary
constraints, carefully select the best professional advisors that
we can find.
Major outage in our survey platform . Were there to be a major
outage in our survey platform due, for example, to capacity
constraints or a security breach, we could be prevented from
building surveys, collecting data and downloading results. This
might result in significant delay in delivering client projects
with a consequential loss of revenue, reputational damage, and the
costs of remedying the situation. We have suffered relatively minor
outages from time to time, but none has led to significant
financial loss.
Cyber-attack causing a material breach in our IT infrastructure.
Were a cyber-attack to succeed in infiltrating our IT
infrastructure, unauthorised persons could access confidential
information (particularly personal data) held within our systems,
putting us in breach of our confidentiality obligations, and
potentially losing access to key information or files. This is a
critical risk, particularly in the current environment.
Nevertheless, there are a number of mitigating factors. Our
business does not ordinarily hold a great deal of personal data.
For example, we do not have a panel of respondents (but instead use
third party suppliers to reach consumers). Due to the nature of a
marketing services business, the confidential information we hold
is not as commercially sensitive as that for businesses in other
industries (financial services or healthcare, for example). We
invested in our controls, processes and IT infrastructure and hold
ISO 27001 accreditation covering our information security.
Brexit
The Group believes that any impact is likely to be small due to
relatively minor trading between the Group's UK companies and
overseas clients and suppliers. The Group has well established
operations in France, Germany, The Netherlands and Switzerland,
which serve its Continental European clients.
Financial Risk
The Company is also exposed to the usual financial risks (such
as credit, foreign exchange and liquidity risks), as set out in the
Director's Report. However, due to the straightforward nature of
the business, its international cost base, the Company's strong
balance sheet, and the fact that most of the Company's clients are
large, credit-worthy organisations, these risks have historically
proved to be modest.
Covid-19
The coronavirus outbreak has affected economies across the globe
and continues to cause disruption to businesses. As noted in the
Business and Finance review, there was minimal impact on FY2019/20
as a result of Covid-19, however the first few months of FY2020/21
have been affected by the reduction in economic activity across
multiple geographies and industries. At present, the medium to long
term impact of the pandemic are relatively unknown, however the
Group acknowledges that it presents financial and operational risks
in the short term. The Group has taken the following mitigating
actions to manage this risk:
-- facilitating home working and eliminating non-essential travel
-- reviewing discretionary spend and utilising our credit
facility to ensure that the Group has sufficient cash reserves to
withstand a potential drop in revenues in the short to medium
term;
-- controlling salary costs through a combination of reduced working hours and pay deferrals
5 YEAR SUMMARY
GBP000 unless specified otherwise
12 months to 31 Mar 12 months to 31 Dec
------------------------------------------------------- ----------------------
2019/20 2018/19 2017/18 2016 2015
*Restated for IFRS 16
------------------ ------------------------- -------- ------------ --------
Ex AR* Inc AR* Ex AR* Inc AR*
-------- -------- ------------ ----------- -------- ------------ --------
Audited Audited Audited Audited Audited Unaudited Audited
---------------------------- -------- -------- ------------ ----------- -------- ------------ --------
Financial KPIs
-------- -------- ------------ ----------- -------- ------------ --------
Revenue 25,422 25,475 26,896 26,899 26,939 31,236 25,184
-------- -------- ------------ ----------- -------- ------------ --------
growth -5% -5% -% -% -18% 24% 2%
-------- -------- ------------ ----------- -------- ------------ --------
Gross Profit 21,548 21,601 22,047 22,050 22,231 25,643 20,250
-------- -------- ------------ ----------- -------- ------------ --------
growth -2% -2% -1% -1% -18% 27% 4%
-------- -------- ------------ ----------- -------- ------------ --------
Administrative Costs 18,412 21,183 17,777 19,994 20,246 19,414 15,704
-------- -------- ------------ ----------- -------- ------------ --------
growth 4% 6% -12% 1% -2% 24% 4%
-------- -------- ------------ ----------- -------- ------------ --------
Profit Before Tax 3,014 296 4,135 1,921 1,992 6,200 4,501
-------- -------- ------------ ----------- -------- ------------ --------
growth -27% -85% 108% -6% -68% 38% 5%
-------- -------- ------------ ----------- -------- ------------ --------
(Loss)/Profit after tax (231) 1,267 1,213 3,968 3,032
-------- -------- ------------ ----------- -------- ------------ --------
growth -118% -% -70% 31% 5%
-------- -------- ------------ ----------- -------- ------------ --------
EPS - diluted (1.84)p 9.8p 9.5p 30.3p 22.7p
-------- -------- ------------ ----------- -------- ------------ --------
growth NM -1% -69% 33% 7%
-------- -------- ------------ ----------- -------- ------------ --------
Operating Cash Flow** 787 (421) 1,838 6,337 2,696
-------- -------- ------------ ----------- -------- ------------ --------
Cash balance 6,650 4,315 5,784 7,754 6,365
-------- -------- ------------ ----------- -------- ------------ --------
Dividend (interim & final) 1.1p 7.5p 7.5p 7.5p 4.5p
-------- -------- ------------ ----------- -------- ------------ --------
growth -85% -% -% 67% 5%
-------- -------- ------------ ----------- -------- ------------ --------
Special dividend - - 26.1p 12.0p -
-------- -------- ------------ ----------- -------- ------------ --------
Share buy-backs (30) (3) 1 3,195 948
-------- -------- ------------ ----------- -------- ------------ --------
Non-financial KPIs
-------- -------- ------------ ----------- -------- ------------ --------
Number of clients 232 251 204 223 243
-------- -------- ------------ ----------- -------- ------------ --------
growth -8% 23% -9% -8% 3%
-------- -------- ------------ ----------- -------- ------------ --------
Gross profit per project 16.2 16.5 20.0 22.6 19.6
-------- -------- ------------ ----------- -------- ------------ --------
growth -2% -18% -13% 15% -2%
-------- -------- ------------ ----------- -------- ------------ --------
Average headcount 146 145 165 157 158
-------- -------- ------------ ----------- -------- ------------ --------
growth 1% -12% 2% -1% 4%
-------- -------- ------------ ----------- -------- ------------ --------
Gross profit per head 148 152 135 163 128
-------- -------- ------------ ----------- -------- ------------ --------
growth -3% 13% -20% 27% -%
---------------------------- -------- -------- ------------ ----------- -------- ------------ --------
* Ex AR means: excluding AdRatings. Inc AR means: including
AdRatings.
** Operating Cash Flow means: before dividends and share
buy-backs but inclusive of property lease payments
***Years prior to 2018/19 have not been restated for the
transition to IFRS 16
GROUP STRATEGIC REPORT
The Chairman and CEO statements, the Business and Finance
Review, the Business Risk Review, the Corporate Governance Report
and the 5 year summary (which include the Company's key performance
indicators) set out:
-- the issues, factors and stakeholders considered in
determining that the Directors have complied with their
responsibilities under section 172 of the Companies Act 2006
(Corporate Governance Review);
-- the methods used to engage with stakeholders and understand
the issues to which the Directors must have regard under section
172 of the Companies Act 2006 and the effect on the Company's
decisions and strategies during the year (Corporate Governance
Review)
-- the way that management view the business (Chairman and CEO
statements, Business and Finance Review);
-- its strategy, positioning, and objectives (Chairman and CEO
statements, Business and Finance Review);
-- its historic financial performance (Chairman and CEO
statements, Business and Finance Review);
-- an assessment of its future potential (Chairman and CEO
statements, Business and Finance Review);
-- its key performance indicators (5 year summary and Business and Finance Review); and
-- its key business risks (Business Risk Review).
These form part of this Strategic Report.
ON BEHALF OF THE BOARD
Chris Willford
Chief Financial Officer
30 June 2020
GROUP DIRECTORS' REPORT
Review of the business and future development
The Chairman's and CEO statements, the Business and Financial
Review, and the Business Risk Review set out a review of the
business's performance and an assessment of its future
development.
Dividends
The Company has paid the following dividends:
Ordinary shares 31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
2019 interim dividend paid, 1.1p per share 138
----------- -----------
2020 interim dividend paid, 1.1p per share 138
----------- -----------
2018 final dividend paid, 6.4p per share 805
----------- -----------
2019 final dividend paid, 6.4p per share 805
----------- -----------
Total dividends on ordinary shares 943 943
----------- -----------
On 13 December 2019, the Company paid an interim dividend of 1.1
pence per share, amounting to GBP138,000, in respect of the year
ended 31 March 2020.
The Company does not propose the payment of a final
dividend.
Directors
The following individuals served as directors of the parent
Company, System1 Group PLC, during the period:
John Kearon (Executive)
James Geddes (Executive) - resigned 20 April 2020
Robert Brand (Non-Executive)
Graham Blashill (Non-Executive)
Sophie Tomkins (Non-Executive)
Jane Wakely (Non-Executive)
Subsequent to the year-end on 26 June 2020, the following
individuals were appointed to the Board of directors:
Chris Willford (Executive)
Stefan Barden (Executive)
The Remuneration Report sets out directors' interests in the
shares of the Company.
Share capital
Changes in the share capital of the Company during the year are
given in Note 10 to the financial statements. As at 29 May 2020,
the Company was aware of the following significant interests in the
ordinary issued share capital of the Company.
At 29 May 2020 Number % of voting
shares
--------- -----------
John Kearon 2,961,235 23.6%
--------- -----------
University of Notre Dame 1,200,000 9.5%
--------- -----------
Lazard Frères Gestion 847,578 6.7%
--------- -----------
Stefan Barden 716,062 5.7%
--------- -----------
Ruffer Investment Management 720,792 5.7%
--------- -----------
Inv. AG f. langfr. Invest. TGV 670,000 5.3%
--------- -----------
Motley Fool Funds Trust 645,000 5.1%
--------- -----------
Ennismore Fund Management 606,140 4.8%
--------- -----------
Heritage Capital Management 377,774 3.0%
--------- -----------
Financial risk management
The Group's activities expose it to the following financial
risks to a small degree.
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 clients 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, Continental 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 in order to avoid
the cost and complexity does not deal in hedging instruments.
Liquidity risk
The Company monitors its cash balances regularly and holds its
cash in immediately available current accounts to minimise
liquidity risk. The Company has a revolving credit facility with
HSBC..
Other risks
Management do not consider price risk or interest rate risk to
be material to the Group.
Capital risk management
The Company manages its capital to ensure that it is able to
continue as a going concern while maximising its return to
shareholders. The Company's capital structure consists of cash and
cash equivalents, bank borrowings and share capital. Towards the
end of the financial year, the Company arranged and drew down a
GBP2.5m revolving credit facility to provide greater financial
flexibility in a period of uncertainty due to the global pandemic.
The Group has not entered into any derivative contracts.
Going concern
As noted in the Business Risk Review, and in note 3 of the
financial statements, the coronavirus outbreak has affected
economies across the globe and continues to cause disruption to
markets and businesses. The Company acknowledges that this presents
financial and operational risks in the short term, and the
Directors have considered this in their going concern assessment.
In addition to the mitigating actions taken by the Company to
address these risks, as set in the Business Risk Review, the
Directors have closely monitored the post year-end performance of
the Group, noting that net cash has been maintained at a comparable
level to that as at 31 March 2020 and trading continues to be above
the levels anticipated in the Group's Covid-19 scenario
planning.
Accordingly, after making appropriate enquiries, at the time of
approving the financial statements the Directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for at least 12 months from
the approval of these financial statements. For this reason the
Directors continue to adopt the going concern basis in preparing
the financial statements.
Research and development
The Company's Labs team is involved in the development and
validation of new market research methods and products.
Purchase of own shares
During the year the Company transferred 23,167 Ordinary Shares
("Shares") (with an aggregate nominal value of GBP232, representing
0.2% of the called-up share capital of the Company) out of treasury
to satisfy the exercise of employee share options over 23,167
shares, for cash consideration of GBP30,000.
At 31 March 2020, the Company had 13,226,773 Shares in issue (31
March 2019: 13,226,773) of which 626,989 were held in treasury (31
March 2019: 650,156). The treasury shares will be used to help
satisfy the requirements of the Group's share incentive
schemes.
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 general 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.
Auditor
The Company will be seeking shareholder approval to appoint RSM
UK Audit LLP as its auditor, at its Annual General Meeting.
ON BEHALF OF THE BOARD
Chris Willford
Chief Financial Officer
30 June 2020
CORPORATE GOVERNANCE REPORT
Chairman's Introduction
I am pleased to present the System1 Group PLC Corporate
Governance Report for the financial year ended 31st March 2020. As
Chairman of the System1 Group PLC Board, it is my responsibility to
ensure that the Board is performing its role effectively and has
the capacity, ability, structure and support to enable it to
continue to do so.
Your Board remains committed to delivering and maintaining high
standards of Corporate Governance throughout the Group and applies
the Corporate Governance Code of the QCA, which is appropriate for
small and medium sized companies. This report, along with those of
the Audit and Remuneration Committees, describes how the Company
has applied the main principles and complied with the relevant
provisions of the Code.
At System1 we remain committed to complying with both the letter
and spirit of the QCA Code. We believe that good governance is an
essential basis on which to build our business and sustain us over
the long term. The scope of the Company's governance covers the
interests of all its stakeholders, including shareholders, lenders,
employees, clients and suppliers, and to the extent possible given
our size, to the communities in which we operate. We endeavour to
be fair and transparent in all our dealings and communications with
our stakeholders.
Board composition has remained stable throughout 2019/20 with a
good balance of skills and experience following the appointments
made previously. As mentioned in my Chairman's Report, there have
been changes to the Executive Directors after the year end, with
James Geddes, our former Chief Financial Officer being succeeded by
Chris Willford and Stefan Barden formally joining the Board as
Chief Operating Officer after a period of senior consultancy with
the business.
The Board is also mindful that Robert Brand, our Senior
Independent Director, was first appointed to the Board as a
Non-Executive Director in January 2012, and I was appointed as a
Non-Executive Director in July 2012, becoming Chairman in July
2018. Whilst the QCA Governance Code does not require independent
Directors to limit their term of office, we are conscious that we
should strike a balance between both continuity and refreshment. We
plan to consider the future needs of the Board and make a further
announcement in due course.
Graham Blashill
Chairman
30 June 2020
Board of Directors
Graham Blashill - Independent Non-Executive Chairman, appointed
on 18 July 2012
(became Chairman on 25 July 2018);
Graham Blashill joined System1 Group in 2012 as a Non-Executive
Director. He was previously a main board director of Imperial
Tobacco Group plc (a FTSE 100 company) where he spent the majority
of his career. He joined W.D. & H.O. Wills (a division of
Imperial Tobacco) in 1968, and became Managing Director of Imperial
Tobacco UK in 1995. In 2003, he became Regional Director for
Western Europe, and in 2005 was appointed Group Sales and Marketing
Director responsible for Imperial Tobacco's global trading
operations.
Robert Brand - Independent Non-Executive Director, appointed on
5 January 2012
(became Senior Independent Director on 25 July 2018);
Robert Brand joined System1 Group in 2012 as a Non-Executive
Director. He began his career in 1977, initially as a research
analyst and subsequently as Managing Director of UK Equity research
at BZW, then the investment banking division of Barclays Bank. In
1990 he joined Makinson Cowell, a capital markets advisory firm, as
a director and partner. Over a period of 18 years he advised a
range of FTSE 100 and FTSE 250 companies, focusing on their link
with institutional investors. He retired in 2008.
Sophie Tomkins - Independent Non-Executive Director, appointed
on 11 June 2018
Sophie joined the Board as Non-Executive Director in June 2018.
Her career has included nearly two decades as a London-based
stockbroker, focusing mainly on high growth small to mid-cap
companies. She started at established firm Cazenove & Co, and
became more entrepreneurial, at both Collins Stewart, and then
Fairfax. As City Analyst, and latterly Head of Equities, she has
analysed and advised numerous companies and Boards, and been
involved with a huge range of transactions, notably several high
profile IPOs and M&A deals. She became a portfolio
Non-Executive Director in 2012, and is currently Non-Executive
Director and Audit Committee Chair of both Hotel Chocolat Group PLC
(retail and manufacturing) and Cloudcall Group PLC (software), and
Senior Independent Director and Remuneration Committee Chair at
Proactis Holdings PLC (software). She is also a qualified Chartered
Accountant and a fellow of the Chartered Institute for Securities
and Investment.
Jane Wakely - Independent Non-Executive Director, appointed on
23 July 2018
Jane joined System1 Group in July 2018 as a Non-Executive
Director. Passionate about creativity, innovation and driving
profitable growth that transforms categories and brands, she has
had the privilege of working for world leading CPG companies such
as Mars Incorporated, Procter & Gamble and Unilever in her
career, across categories as diverse as cosmetics, beauty care,
healthcare, food, confectionery and pet care. She is currently
Global Chief Marketing Officer for the Pet Nutrition business at
Mars Incorporated and Lead Chief Marketing Officer for Mars Inc.
Previously, Jane was the Global Chief Marketing Officer of the
Chocolate business at Mars and has been part of the Mars drive to
innovate digitally and creatively, leading to Mars being recognised
creatively as one of the most awarded companies in the world. She
is also a Chartered Management Accountant and holds a BSc (Hons) in
Business Administration from Bath Spa University.
John Kearon - Chief Executive Officer
John founded the Company in 1999 and remains its largest
shareholder. Previously he founded innovation agency Brand
Genetics, which invented new products and services for large
consumer companies. Before this, he was a planning director at
Publicis (the leading advertising agency), having started his
career at Unilever where he rose to become a senior marketer at
Elida Gibbs. His role in establishing and developing the Company
made him Ernst & Young's "Emerging Entrepreneur of the Year" in
2006.
Chris Willford - Chief Financial Officer and Company Secretary
(appointed 26 June 2020)
Chris, a Chartered Management Accountant, built his career with
blue chip consumer businesses including Unilever, British Airways
(Group Treasurer), Barclays (Finance director of Corporate Bank and
UK Retail Bank) and Bradford & Bingley (Group Finance
Director). In the past decade, Chris has worked as a consultant
with a portfolio of scale up media and tech businesses similar to
System1
Stefan Barden - Chief Operating Officer (appointed 26 June
2020)
Stefan has over 20 years of General Manager, Managing Director
and CEO experience after graduating from McKinsey Management
Consultancy and Unilever's fast track management development
programme. His previous positions include CEO of Northern Foods,
CEO of Heinz UK and Ireland, as well as more latterly CEO of the
internet business Wiggle which he took from GBP140m to GBP360m in
sales in 3 years. Now semi-retired, he also supports several CEOs,
often founders, in developing high growth businesses.
Strategy
All directors are familiar with the market in which the Company
is operating, the Company's value proposition, and its strategic
intent.
The Board actively participates in setting, and regularly
reviewing, the strategy of the business, and is responsible for
ensuring that the Company's business model is, and remains, aligned
to the achievement of its strategic objectives. The Company sets
out its strategy within the Chairman's Statement, the Chief
Executive's Statement, and the Business and Finance Review 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 Business Risk Review on pages 14 and 15.
The Board is responsible for the Group's system of internal
controls and risk management, and for reviewing the effectiveness
of these systems. These systems are designed to manage, rather than
eliminate, the risk of failure to achieve business objectives, and
to provide reasonable, but not absolute assurance against material
misstatement or loss.
The key features of the Group's internal controls are described
below:
-- clearly defined organisational structure with appropriate delegation of authority;
-- comprehensive budgeting programme with an annual budget approved by the Board;
-- regular review by the Board of actual results compared with budget and forecasts;
-- regular reviews by the Board of full year expectations;
-- detailed budgeting and monitoring of costs incurred on the development of new products;
-- a limited number of directors and Executives authorised to
make payments and commit the company to legal agreements;
-- regular reviews of client 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
continual improvement programme.
Corporate Culture
The Company endeavours to maintain a culture built on integrity.
In order to surface unethical or deceitful behaviours, it promotes
openness amongst its employees, provides channels for employees to
feed back concerns to the Executive Directors and the Board (such
as anonymous employee feedback surveys, and confidential
whistleblowing channels), and conducts exit interviews.
The Board of Directors
The Board comprised two Executive Directors and four independent
Non-Executive Directors, including the Non-Executive Chairman
during the year ended 31 March 2020. The membership of the Board is
set out in the Directors' Report. We believe that the directors
have the mix of leadership, marketing and financial skills and
experience necessary to oversee the Company and deliver its
strategy for the benefit of the shareholders over the medium to
long-term. The composition of the Board is intended to achieve a
balanced range of personal qualities and capabilities, and to
support the Company's commitment to promoting gender equality and
diversity. The biographical details of the directors are presented
on pages 23 and 24.
The Board operates an induction programme for new Non-Executive
Directors. The Board reviews its AIM obligations with its Nominated
Advisor annually, and endeavours to keep up with best practice
governance via QCA seminars and training material. All directors
can access the Company's advisors and obtain independent
professional advice at the Company's expense in performance of
their duties as directors.
During the year, the Board has utilised the services of a Board
Advisor, Stefan Barden, on strategy and technology, and sought
advice from LGF Partners Ltd when sourcing new debt facilities. The
Remuneration Committee has sought advice from
PriceWaterhouseCoopers on the Company's LTIP, advice which
concluded early in the financial year. 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, who were RSM Audit LLP for the year ended 31
March 2020. 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 nine years;
-- their remuneration is not material in the context of their financial circumstances;
-- they have no executive role;
-- they each own an immaterial number of shares in the Company
in the context of their financial circumstances (or in some cases,
no shares);
-- they are not related to either of the Executive Directors; and
-- they have no conflict of interest given their other roles and business activities.
For financial year ended 31 March 2020, the Company Secretary
was also the Chief Financial Officer, as is the case with other
companies of a similar size and complexity. The Group plans to
continue with this combined role, has made interim arrangements
during the recent Board transition, and will split the roles when
it reaches a size which warrants it.
The Board schedules regular monthly meetings during the year,
with the exception of July or August, and additional ad hoc
meetings as required. All Directors are able to allocate sufficient
time to the Company to discharge their responsibilities fully.
The number of regular meetings that each director attended
during the financial year is set out below:
Board Audit Committee Rem Committee
(11 meetings) (2 meetings) (2 meetings)
--------------- ---------------- --------------
Graham Blashill 11 2 2
--------------- ---------------- --------------
Robert Brand 11 2 2
--------------- ---------------- --------------
Sophie Tomkins 11 2 2
--------------- ---------------- --------------
Jane Wakely 11 n/a 2
--------------- ---------------- --------------
John Kearon 11 n/a 1*
--------------- ---------------- --------------
James Geddes 11 2* 2*
--------------- ---------------- --------------
* Attendance by invitation.
On rare occasions a board member may attend by phone to
accommodate overseas travel arrangements. Management provides the
Board with information on the Company's performance and appropriate
information relating to the agenda prior to Board and Committee
meetings.
Matters Reserved for the Board
The Board discusses and reviews all matters and issues which are
important to the business. Certain decisions are reserved for the
Board; which include:
-- approval of the Group's long-term objectives and strategy;
-- approval of the annual operating and capital budget, and any material changes thereto;
-- extension of the Group's activities into new business or geographic areas;
-- changes to the Group's capital structure and/or major changes
to corporate structure, including acquisitions, disposals and
investments;
-- approval of interim and annual reports, and regulatory or
non-routine shareholder communications;
-- approval of significant changes in accounting policies or practices;
-- approval of 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.
Appointment of Directors
The Board formally approves the appointment of all new
Directors. Each year at the Annual General Meeting, all Directors
retire by rotation and are subject to re-election.
Remuneration Committee
The Remuneration Committee is responsible for determining the
specific remuneration and incentive packages for each of the
Company's Executive Directors and keeping under review the
remuneration and benefits of all senior executives and managers and
overall pay levels of all employees. Its members are:
-- Graham Blashill - Chairman of the Remuneration Committee
-- Robert Brand
-- Sophie Tomkins
-- Jane Wakely
The Remuneration Committee's role and responsibilities are
to:
-- review and approve the remuneration and incentive schemes of
Executive Directors, including pension rights, other benefits and
any compensation payments, ensuring that no Director is involved in
any decisions as to their own remuneration;
-- review and approve the level and structure of remuneration
and incentive schemes for senior management;
-- select, appoint and set the terms of reference for any
remuneration consultants who advise the Committee;
-- approve the payments to Directors under any
performance-related pay or share schemes operated by the
Company;
-- ensure that contractual terms on termination of any Director
are fair to the individual and the Company, that failure is not
rewarded and that the duty to mitigate loss is fully
recognised;
-- approve any major changes in employee benefits structures throughout the Group;
-- approve the policy for authorising claims for expenses from the Directors.
The Remuneration Committee schedules two formal meetings per
year and meets at other times as necessary.
The Remuneration Committee may invite the Chief Executive
Officer or Chief Financial Officer to attend meetings of the
Remuneration Committee. The Chief Executive Officer is consulted on
proposals relating to the remuneration of the Chief Financial
Officer and of other senior executives. The Chief Executive Officer
is not involved in setting his own remuneration. 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 on pages 33 to 40.
Audit Committee
The Audit Committee is responsible for ensuring the financial
performance of the Company is properly monitored and reported on to
shareholders, reviewing the Company's financial systems and
controls, and overseeing the Company's risk management. Its members
are:
-- Sophie Tomkins - Chair of the Audit Committee
-- Graham Blashill
-- Robert Brand
The Audit Committee's role and responsibilities are to:
-- monitor the integrity of the financial statements of the Group;
-- review the Group's internal financial controls and risk management systems;
-- make recommendations to the Board, for it to put to the
shareholders for their approval in relation to the appointment of
the external auditor and to approve appropriate remuneration and
terms of reference for the external auditor;
-- discuss the nature, extent and timing of the external
auditor's procedures and discussion of external auditor's
findings;
-- monitor and ensure the external auditor's independence and
objectivity and the effectiveness of the audit process;
-- develop and implement policy on the engagement of the
external auditor to supply non-audit services;
-- report to the Board, identifying any matters in respect of
which it considers that action or improvement is required; and
-- ensure a formal channel is available for employees and other
stakeholders to express any complaints in respect of financial
accounting and reporting.
The Annual Report from the Audit Committee Chair is set out on
pages 31 to 32.
Board Evaluation
The Board undertook a second annual review of its effectiveness,
in the Company's 2019/20 financial year. The Board will carry out
further reviews of its effectiveness on an annual basis and may use
an external adviser. The objective of this evaluation process is to
bring to light possible changes which could make the Board's
activities and administration more effective and efficient. The
Board Evaluation covered the following areas: the manner in which
the Board is run, and operates as a team;
-- the skills, experience and independence of the Board;
-- the strategy of the business;
-- the risks of the business;
-- the Company's ethical values and behaviours; and
-- engagement with shareholders and other stakeholders.
The exercise identified a number of positive areas particularly
relating to the manner in which the Board is run, and the skills
and experience and independence of the Board, and nearly all of the
categories saw improved scores year on year. The main area for
improvement identified in the previous evaluation was formal
succession planning, and a process to address this in more detail
started during the 2019/20 financial year. The main areas
identified for improvement in this second evaluation were minor
administrative matters, which will be monitored and improved,
particularly in the light of changes to Board composition after the
period end.
Succession Planning
The Board, led by the Chairman, carries out ongoing assessments
as to the succession needs and planning of the Board. Senior
management appointments are made by the Executive Directors, who
carry out ongoing assessments of succession needs and skills gaps
across the business. Key appointments are overseen by the
Remuneration Committee.
Shareholder Communications
The Board endeavours to keep all interested shareholders
informed by regular announcements and update statements. The
Executive Directors meet regularly with institutional shareholders
to understand their needs and expectations. They invite, and
regularly receive, shareholder feedback and report it back to the
Board. Other methods of communication are:
-- Annual General Meetings;
-- Broker briefings;
-- Corporate website; and
-- Letters to shareholders when appropriate.
The Chairman and Senior Independent Director are available to
meet with institutional shareholders on any concerns or issues in
relation to governance, board composition, or Executive Director
remuneration.
Other Stakeholders
The prime stakeholders of the business, in addition to
shareholders, are clients, employees, and suppliers.
The Company undertakes regular client feedback surveys
(conducted by a third party) and employee feedback surveys
(conducted anonymously). The results of both are shared with the
Board, and actions are taken to address the issues raised. Employee
feedback survey results are shared transparently with all
employees.
Actions taken following client and employment feedback have
included:
-- tailoring product development;
-- adjusting the Company's articulation of its value proposition to clients and employees; and
-- changing the way the Company communicates with its employees.
In addition, the Company maintains a senior level dialogue with
its key strategic suppliers.
s.172 Companies Act 2006 statement
Throughout this annual report and on our website, we provide
examples of how the Company:
-- takes into account the likely consequences of decisions in the long term;
-- have regard to the interests of the Company's shareholders,
employees and other stakeholders;
-- promotes openness amongst employees and endeavours to maintain a culture built on integrity
-- take into account the desirability of the Company maintaining
a reputation for high standards of business conduct, and;
-- have regard to the need to act fairly
The Directors assess and take into account what is most likely
to promote the success of the Company for its members in the long
term as part of their decision-making process, and make this
assessment in good faith and fairly. The Directors continue to
promote the success of the Company in accordance with section 172
of the Companies Act 2006.
AUDIT COMMITTEE REPORT
The Audit Committee is responsible for ensuring that the
financial performance of the Group is properly reported and
reviewed. Its role includes monitoring the integrity of the
financial statements (including annual and interim accounts and
results announcements), reviewing internal control and risk
management systems, reviewing any changes to accounting policies,
reviewing and monitoring the extent of the non-audit services
undertaken by external auditors and advising on the appointment of
external auditors.
Members of the Audit Committee
The membership of the Committee is set out on page 28 of the
Corporate Governance Report. Sophie Tomkins took over from Robert
Brand as Chair in January 2019. All members of the Committee are
independent Non-Executive Directors. The Chief Financial Officer
routinely attends the Audit Committee meetings by invitation, but
other Executive Directors or members of the management team may
also be invited to attend meetings as required. The Non-Executive
Directors are provided an opportunity at the Audit Committee
meetings to discuss matters with the Auditors without the presence
of the Executive Directors.
The Board is satisfied that the Chair of the Committee has
recent and relevant financial experience. Sophie is a Chartered
Accountant and is also Chair of the Audit Committee at both Hotel
Chocolat plc and Cloudcall Group 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 26.
During FY20 there was additional Audit Committee contact with the
Auditor due to the change of Auditor, described below.
Duties
The main duties of the Audit Committee are set out in its terms
of reference, which are summarised on page 28 and available on the
Group's website (https:// system1group.com/investors ).
The work carried out by the Audit Committee during FY20
comprised the following:
-- ensuring the financial performance of the Company is being
properly measured and reported on;
-- review of the FY20 audit plan;
-- consideration of key audit matters and how they are addressed;
-- 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
31st March 2020 relate solely to the Audit and Interim review.
The Audit Committee also assesses the auditor's performance.
Audit Process
The auditor prepared an audit plan for the review of the full
period financial statements. The audit plan set out the scope of
the audit, areas to be targeted and audit timetable. This plan was
reviewed and agreed in advance by the Audit Committee. Following
the audit, the auditor presented its findings to the Audit
Committee for discussion. No major areas of concern were
highlighted by the auditor during the period, however areas of
significant risk (such as Covid-19) and other matters of audit
relevance are regularly communicated.
Tender and Change of auditor
Having engaged Grant Thornton UK LLP as the Company's auditor
since 2003, the Board, on the recommendation of the Audit
Committee, decided that it was appropriate to put the group
statutory audit out to competitive tender, a process completed in
March 2019. Longevity of tenure and consideration of the balance
between audit and non-audit fees were key drivers for this tender
process. The Board appointed RSM UK Audit LLP as the Company's
auditor for the financial year ending 31 March 2020 and the Audit
Committee has overseen the transition with nothing to report.
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 ( https://
system1group.com/investors ), the Group has established a framework
of risk management and internal control systems, policies and
procedures. The Audit Committee is responsible for reviewing the
risk management and internal control framework and ensuring that it
operates effectively. During the period, the Committee has reviewed
the framework and the Committee is satisfied that the internal
control systems in place are currently operating effectively.
Whistleblowing
The Group has in place a process whereby employees can discuss
concerns confidentially. The Committee is comfortable that the
current policy is operating effectively.
Anti-bribery
The Group has in place an anti-bribery and anti-corruption
policy which sets out its zero-tolerance position and provides
information and guidance to those working for the Group on how to
recognise and deal with bribery and corruption issues. The
Committee is comfortable that the current policy is operating
effectively.
Sophie Tomkins
Chair, Audit Committee
REMUNERATION REPORT
Annual statement from the Remuneration Committee chair, Graham
Blashill
Dear shareholder,
The Remuneration Committee sets the strategy, structure and
levels of remuneration for the Executive Directors and reviews the
remuneration of senior management, to ensure alignment of
objectives and incentives throughout the business in pursuit of the
Group's stated objectives. The membership and terms of reference of
the Remuneration Committee are set out in the Corporate Governance
Report.
This Remuneration Report is split into two parts:
-- The directors' remuneration policy sets out the Company's
policy on directors' remuneration, in particular the four-year
long-term incentive plan ("LTIP"), and the key factors that were
taken into account in setting the policy. The directors'
remuneration policy is not subject to a shareholder vote at the
2020 AGM, since the main variable element (the LTIP) was approved
by shareholders at the Annual General Meeting on 31 July 2019.
-- The annual report on remuneration sets out payments and
awards made to the directors for the year to 31 March 2020.
There are three elements in director remuneration:
-- Base salary
-- LTIP
-- Benefits
Historically, the Company's LTIPs have been established in three
to four year cycles. The current LTIP was established in September
2019 and will vest on 12 August 2024 (the "2019 LTIP"). Of the
total 1,058,135 options granted under the 2019 LTIP, 462,934 of
these were granted as replacements to equity awards made under the
2017 LTIP scheme, which was established in February 2017. The
primary performance targets of the 2019 LTIP are based on gross
profit, with profit after tax and share price underpins.
We endeavour to keep our director remuneration arrangements
simple and correlated to increases in long term business growth. As
a small Company we are also acutely aware of the dilutive impacts
of equity awards, and when designing our LTIPs, we ensure that
vesting only occurs when there is a substantial increase in
shareholder value (after accounting for the dilution).
The Company consulted with shareholders in designing the 2019
LTIP, and prior to implementing it, obtained shareholder approval
at the Annual General Meeting on 31 July 2019.
For levels below the participants in the 2019 LTIP, the
remuneration ordinarily comprises:
-- Base salary
-- Bonus and profit share
-- Benefits
The Executive Directors and other senior executives who
participate in an LTIP forego annual bonus and profit share.
The committee regularly reviews the appropriateness of
remuneration across the Group and is satisfied that an appropriate
reward structure exists below Board level to recognise and retain
our top talent.
There were no changes to the board of directors during 2019/20.
Subsequent to the year end, on 20 April 2020, James Geddes resigned
from the board. On 26 June 2020, Chris Willford and Stefan Barden
were appointed to the board of directors.
Graham Blashill
Chair, Remuneration Committee
Directors' remuneration policy
Introduction
The policy described in this part of the Remuneration Report is
intended to apply for four years beginning in the 2019/20 financial
year to 31(st) March 2024, and covers Executive Directors and a
small number of other senior managers (" Executives ").
The Committee considers the remuneration policy annually to
ensure that it remains aligned with business needs and is
appropriately positioned relative to the market. However, there is
no intention to revise the policy more frequently than every four
years.
The Committee has based the Executive reward structure on the
long term organic growth strategy of the business. If successful,
this will deliver significant shareholder value, and Executive
rewards are designed to correlate with the key driver of that value
(top line growth).
Fixed annual elements - including salary, pension and benefits -
are to recognise the responsibilities and leadership roles of our
Executives and to ensure current and future market competitiveness.
Long-term incentives are to motivate and reward them for making the
Company successful on a sustainable basis.
Base salary and benefits
Base salary is paid in 12 equal monthly instalments during the
year. Salaries are reviewed annually and any changes are effective
from the beginning of the Company's financial year (which is 1(st)
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.
Long term incentive plan
The Company introduced the current LTIP in September 2019 (the
"2019 LTIP"). It was approved by shareholders at the Annual General
Meeting on 31 July 2019 and covers the period ending 31 March
2024.
The 2019 LTIP was implemented as a replacement for the 2017
LTIP. The company introduced the 2017 LTIP in March 2017 and this
scheme covered the four-year period ending 31 March 2021. Of the
total 1,058,135 options granted under the 2019 LTIP, 462,934 of
these were granted as replacements for awards made under the 2017
scheme. Of the additional 595,201 options, 198,400 were granted to
John Kearon, in lieu of his previous bonus arrangement. The
remainder were granted to members of senior management who have
joined the company subsequent to the 2017 LTIP grant.
The Company has underperformed since the introduction of the
2017 LTIP and identified during 2018/19 that even the minimum
targets were unlikely to be achieved. The Committee does not wish
to reward underperformance and so has not reset the performance
targets when designing the replacement 2019 LTIP. However, to
continue to provide appropriate incentives, the 2019 LTIP extends
the date by when those targets can be met by 3 years. The final
performance period of the 2019 LTIP is therefore the Company's
2023/24 financial year, and the lapse date is 12 August 2024. Under
the 2017 LTIP, the final performance period was the Company's
2020/21 financial year, and the lapse date 12 August 2021.
The 2019 LTIP also allows that vesting may occur as and when the
performance targets are met. Therefore, from 12 August 2020
onwards, some partial vesting may occur earlier than the lapse
date, and then further vesting later (provided that no vesting
could occur in relation to financial periods after the Company's
2023/24 financial year).
The awards have taken the form of zero-cost stock options. The
performance targets are unchanged from the 2017 LTIP and are based
on gross profit growth (the Company's main top line performance
indicator), with profit after tax and share price underpins.
The performance targets and vesting levels for the 2017 LTIP
were set with growth levels of between 10% and 30% pa in mind. At
the 10% pa growth level, the gross profit would be GBP39.5m, and at
the 30% pa growth level, GBP77.1m. The specific vesting levels are
set out in the following table.
Equity level Gross profit target
------------------------- --------------------
Executive Directors 138,880 shares (1.05% of GBP39.5m
issued shares)
------------------------- --------------------
138,880 shares (1.05% of GBP56.0m
issued shares)
------------------------- --------------------
119,040 shares (0.90% of GBP77.1m
issued shares)
------------------------- --------------------
Total awards 396,800 shares (3.00% of
issued shares)
------------------------- --------------------
Senior Managers 231,467 shares (1.75% of GBP39.5m
issued shares)
------------------------- --------------------
231,467 shares (1.75% of GBP56.0m
issued shares)
------------------------- --------------------
198,401 shares (1.50% of GBP77.1m
issued shares)
------------------------- --------------------
Total awards 661,335 shares (5.00% of
issued shares)
------------------------- --------------------
The vesting levels allow that at the lower gross profit target,
35% of awards vest. At the central gross profit target, a further
35% of awards vest, to a cumulative vesting total of 70%, and at
GBP77.1m; the awards vest in full.
There will be proportionate vesting if gross profit is between
GBP39.5m and GBP56.0m pa or between GBP56.0m and GBP77.1m pa.
No awards will vest unless profit after tax ("PAT") is at least
GBP7.0m and the average share price of the Company during the month
of July in the year in which the awards vest is at least GBP9.945
(30% higher than the share price on 22 March 2017, the date of the
2017 LTIP grant). For the higher levels of vesting triggered by
gross profit above GBP56.0m, the PAT underpin increases to
GBP9.9m.
For the purpose of these performance targets PAT is calculated
before deducting share-based payments (to avoid any circular
argument problem when performing the calculations).
The gross profit and PAT targets are designed to relate to
organic growth, and the Committee has the right to adjust the
targets if a material acquisition or other corporate event occurs
(and will ordinarily exercise such right).
During the year, there were two Executive Director participants
in the 2019 LTIP (James Geddes and John Kearon) and five senior
manager participants. John Kearon did not participate in the 2017
LTIP, but instead, had an annual bonus potential for each of the 4
years to 31 March 2021 of between 25-75% of annual salary based on
the growth targets and underpins above. John Kearon's award under
the 2019 LTIP replaces his previous bonus scheme.
Participants in the 2019 LTIP do not participate in the
Company's annual bonus or profit share scheme, and have no other
short-term incentive plan. This is to ensure decision-making focus
is primarily on achieving long-term growth. Therefore, over the
period to March 2021, the only remuneration that they will receive
will be base salary and benefits, unless the Remuneration Committee
determine awards in exceptional circumstances (at their sole
discretion).
The Committee have granted an advisor to the Board Stefan
Barden, a separate equity award, comprising 300,000 zero cost stock
options. The options were granted on 17 April 2019 and were
approved by shareholders at the Company's AGM. They comprise three
tranches of 100,000 options each, with the following performance
conditions:
-- 100,000 zero-priced stock options
-- Vest: when audited Gross Profit in any financial year exceeds
GBP45m, subject to the Company's share price exceeding GBP5.00 per
share for a 30 day consecutive period prior to the lapse date;
-- Lapse: on 30 July 2024.
-- 100,000 zero-priced stock options
-- Vest: when audited Gross Profit in any financial year exceeds
GBP68m, subject to the Company's share price exceeding GBP7.50 per
share for a 30 day consecutive period prior to the lapse date;
-- Lapse: on 30 July 2029.
-- 100,000 zero-priced stock options
-- Vest: when audited Gross Profit in any financial year exceeds
GBP90m subject to share price exceeding GBP10.00 per share for a 30
day consecutive period prior to the lapse date;
-- Lapses: on 30 July 2032.
Subsequent to the year-end, Stefan Barden has joined the Board
of Directors as Chief Operating Officer.
The Committee have taken advice from PriceWaterhouseCoopers in
relation to these equity incentives and consulted with major
shareholders.
Dilution
Vested stock options are set out below.
Number %
----------- -----
Voting shares as at 31 March 2020 12,599,784 100%
----------- -----
2006 employee share option scheme (now closed) 7,000 0.1%
----------- -----
2010-2014 LTIP - vested on 28 May 2014 75,520 0.6%
----------- -----
2014-2016 LTIP - vested on 30 April 2017
(previous LTIP) 233,136 1.9%
----------- -----
315,656 2.5%
----------- -----
Unvested options comprise options granted under the 2019 LTIP
and the equity awards to Stefan Barden, described above. The
maximum aggregate dilution under both of these schemes is 10.9% 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, excepting those participating in the 2019 LTIP,
are entitled to base salary, benefits, and a discretionary annual
bonus. 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
Each of the Executive Directors have service contracts. The
agreements include restrictive covenants which apply during
employment and for a period of 12 months after termination. John
Kearon's agreement can be terminated on six months' notice in
writing by either the Company or by John. James Geddes' agreement
could be terminated on 12 months' notice in writing by the Company
and six months' notice by James. Following an agreement reached in
the year-ended 31 March 2020, James Geddes subsequently left the
company and ceased to be a Director.
Annual report on remuneration
Remuneration for Executive Directors
Year ended 31 March 2020 (audited)
Salary Benefits Pension Options Comp for loss of office Total
Exercised
-------- --------- -------- ----------- ------------------------ --------
GBP GBP GBP GBP GBP GBP
-------- --------- -------- ----------- ------------------------ --------
John Kearon 200,000 20,051 - - - 220,051
-------- --------- -------- ----------- ------------------------ --------
James Geddes 190,000 6,187 11,400 - 220,000 427,587
-------- --------- -------- ----------- ------------------------ --------
Total 390,000 26,238 11,400 - 220,000 647,638
-------- --------- -------- ----------- ------------------------ --------
Compensation for loss of office for James Geddes was paid in
April 2020.
Year ended 31 March 2019 (audited)
Salary Benefits Pension Options Comp for loss of office Total
Exercised
-------- --------- -------- ----------- ------------------------ --------
GBP GBP GBP GBP GBP GBP
-------- --------- -------- ----------- ------------------------ --------
John Kearon 200,000 14,781 6,000 - - 220,781
-------- --------- -------- ----------- ------------------------ --------
James Geddes 190,000 6,338 11,400 169,704 - 377,442
-------- --------- -------- ----------- ------------------------ --------
Alex Hunt 99,615 13,050 2,517 - - 115,182
-------- --------- -------- ----------- ------------------------ --------
Total 489,615 34,169 19,917 169,704 - 713,405
-------- --------- -------- ----------- ------------------------ --------
The Executive Directors received no bonus for the year ended 31
March 2020 or for the year ended 31 March 2019. The Executive
Directors have not received any stock options or other equity
awards other than under the Company's LTIP arrangements as set out
in the directors' remuneration policy.
Directors' interests in shares and options
Directors' interests in the shares of the Company are shown
below.
31 Mar 31 Mar
2020 2019
---------- ----------
Number Number
---------- ----------
John Kearon 2,961,235 2,961,235
---------- ----------
James Geddes 263,178 263,178
---------- ----------
Robert Brand 30,000 30,000
---------- ----------
Graham Blashill 10,000 10,000
---------- ----------
Total 3,264,413 3,264,413
---------- ----------
Directors' interests in options over shares and conditional
shares of the Company are shown below.
Date of grant Earliest Exercise price Number at Granted in year Replaced in Number at 31 Mar
exercise date 1 Apr year 2020
2019
----------------- --------------- ---------- ---------------- ---------------- -----------------
John Kearon
----------------- --------------- ---------- ---------------- ---------------- -----------------
16/01/2015 01/05/2018 0.0p 56,568 - - 56,568
----------------- --------------- ---------- ---------------- ---------------- -----------------
22/07/2015 01/05/2018 0.0p *60,000 - - *60,000
----------------- --------------- ---------- ---------------- ---------------- -----------------
04/09/2019 12/08/2020 0.0p - **198,400 - 198,400
----------------- --------------- ---------- ---------------- ---------------- -----------------
116,568 198,400 - 314,968
--------------------------------- --------------- ---------- ---------------- ---------------- -----------------
James Geddes
----------------- --------------- ---------- ---------------- ---------------- -----------------
22/07/2015 01/05/2018 0.0p *60,000 - - *60,000
----------------- --------------- ---------- ---------------- ---------------- -----------------
22/03/2017 12/08/2021 0.0p 198,400 - (198,400) -
----------------- --------------- ---------- ---------------- ---------------- -----------------
04/09/2019 12/08/2020 0.0p - **198,400 - 198,400
----------------- --------------- ---------- ---------------- ---------------- -----------------
258,400 198,400 (198,400) 258,400
--------------------------------- --------------- ---------- ---------------- ---------------- -----------------
* The options denoted by a single asterisk were granted under
the previous LTIP. They were granted in two tranches of 137,040 and
60,000 option shares (totalling 197,040) to each director. They
were subject to performance conditions, under which 116,568 of each
Director's options vested on 30 April 2017. The remaining 80,472 of
each director's options lapsed.
** The options and conditional shares denoted by a double
asterisk were granted under the current LTIP, as described in the
directors' remuneration policy. These options can vest at any time
between 12 August 2020 and 12 August 2024, provided performance and
market targets are met. Of these 198,400 options, 118,011 were
cancelled in April 2020 upon James Geddes' resignation from the
Board.
There were no equity awards or vesting of options other than
under the LTIP as set out in the directors' remuneration
policy.
Fees for Non-Executive Directors (audited)
The Non-Executive Directors received fees, but no other
benefits, as follows.
Year Year
to 31 Mar to 31 Mar
----------- -----------
2020 2019
---------------------------------- ----------- -----------
GBP GBP
----------- -----------
Graham Blashill 40,000 38,217
----------- -----------
Ken Ford (resigned 24 July 2018) - 12,950
----------- -----------
Robert Brand 38,000 36,883
----------- -----------
Sophie Tomkins 36,000 30,000
----------- -----------
Jane Wakely 36,000 27,000
----------- -----------
Total 150,000 145,050
----------- -----------
DIRECTORS' RESPONSIBILITY STATEMENT
The directors are responsible for preparing the Group Strategic
Report, Group Directors' Report, the Annual Report and the
financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. The directors are required by
the AIM Rules of the London Stock Exchange to prepare Group
financial statements in in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the European Union
("EU") and have elected under company law to prepare the parent
company financial statements in accordance with FRS 101 Reduced
Disclosure Framework. 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 and profit
or loss of the Company and Group for that period. In preparing
these financial statements, the directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- for the group financial statements, state whether they have
been prepared in accordance with IFRS adopted by the EU and 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;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company
will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's 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
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 preven-tion and detection of fraud and other
irregularities.
The directors confirm that:
-- so far as each director is aware, there is no relevant audit
information of which the Company's auditor is unaware; and
-- the directors have taken all steps that they ought to have
taken to make themselves aware of any relevant audit information
and to establish that the auditor is aware of that information.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemina-tion of financial statements may differ
from legislation in other jurisdictions.
Chris Willford
Company Secretary and Chief Financial Officer
30 June 2020
INDEPENT 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 2020 which comprise of the Consolidated Income
Statement, Consolidated Statement of Comprehensive Income,
Consolidated and Company Balance Sheets, Consolidated and Company
Statement of Changes in Equity, Consolidated Cash Flow Statement,
and notes to the financial statements, including a summary of
significant accounting policies. The financial reporting framework
that has been applied in the preparation of the group financial
statements is applicable law and International Financial Reporting
standards (IFRSs) as adopted by the European Union and, as regards
the parent company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs as at 31
March 2020 and of the group's loss for the year then ended;
-- the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the Companies Act 2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the group
and the parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
entities and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the group's or the parent company's ability to continue
to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the group and
parent company financial statements of the current period and
include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including
those which had the greatest effect on the overall audit strategy,
the allocation of resources in the audit and directing the efforts
of the engagement team. These matters were addressed in the context
of our audit of the group and parent company financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Group key audit matters
Going concern
Risk
The Group has set out its analysis of the potential impact on
its operations and financial position of the COVID-19 pandemic in
business risk review on page 15 and the going concern statement on
page 53. The potential risks to the Group include loss of a
significant client, a decline in the advertising market resulting
in a reduced demand, and market conditions resulting in a reduced
ability to borrow and comply with bank covenants. In the event of a
material loss of, or delay to, incoming cash resources, the Group
could suffer cash pressure or default against borrowing covenants.
The assessment of these risks in an uncertain economic environment
requires judgement, and a risk of material misstatement arises in
respect of an incorrect application of the going concern basis of
preparation or the failure to disclose a material uncertainty. As a
result, the potential impact of the COVID-19 outbreak on going
concern was considered to be one of most significance in the audit
and was therefore determined to be a key audit matter.
Response
We audited the Group's assessment of the application of the
going concern basis of preparation. Our work included:
-- Checking the integrity and accuracy of the cash flow
forecasts and covenant calculation's provided by management;
-- Corroborating the reasonableness of assumptions and
explanations provided by management to supporting information where
available;
-- Stress-testing the cash flow forecasts to assess the impact
of assumptions worse than those provided by management;
-- Reviewed the Group's expected future win rate on contracts;
-- Reviewed the Group's actual results subsequent to the period
end and compared this to managements forecasts;
-- Considering mitigating actions available to the Group and the
level of headroom in the forecasts under various scenarios;
-- Discussing our findings with the Audit Committee;
-- Auditing the accuracy and completeness of disclosures made in
the finance statements in respect of risks, going concern and post
balance sheet events.
Impact of Covid-19, Sabbatical leave scheme, Intangible assets
and deferred tax
Risk
The impact of Covid-19 (Coronavirus) is having an adverse effect
on the trading performance and profitability of companies as well
as the wider economy. This is expected to impact accounting
estimates and judgements in the financial statements. It is also
expected to affect the associated disclosures in the financial
statements and accompanying documents, in particular, principal
risks and uncertainties in the strategic report, liquidity and
credit risk disclosures in the directors' report, critical
accounting estimates and judgements in the notes to the accounts
and the subsequent event disclosures.
Response
The group has a sabbatical leave scheme, open to all employees,
which provides 20 days paid leave for every six years of service.
The carrying amount of the provision at 31 March 2020 was
GBP724,000. The provision for liabilities under the scheme is
measured using the projected unit credit method. This model
requires several estimates and assumptions of which the most
significant inputs are the rate of salary growth and average staff
turnover. We have challenged managements best estimate for average
staff turnover given the sensitivity surrounding it. We have noted
that further disclosure was required to better document the
sensitivity of the average staff turnover (Note 11) and its impact
upon the value of the provision.
We have reviewed the schedule of capitalised costs and have
noted that, in line with previous years, a portion of AdRatings
costs were eligible to be capitalised. This remains the case in the
current year. A sample of additions were tested against the IAS38
criteria. It was noted that these additions were correctly
capitalised. From our review of costs in the income statement, no
additional costs were identified which should have been capitalised
as development costs, under the group's accounting policy.
Capitalisation is in line with IAS 38. The AdRatings product
subscriptions or other sales (as part of revenue earned on the
group's other services) in the year have not been sufficient to
support the carrying value. Management therefore provided us with
an impairment paper reflecting the current subscription income from
the AdRatings software, including their assessment that the future
income streams do not support the carrying value of the asset. We
have concluded that management's decision to include an impairment
of GBP921,000 (Note 7) on the AdRatings intangible at the year-end
to be materially correct.
Management have recognised a deferred tax asset of GBP377,000 on
carry forward trading losses (Note 20). We challenged and critiqued
managements assumptions on forecasts based on historical results,
expected future growth and uncertainty in the economy moving
forward. We have concluded that management's decision to recognise
a deferred tax asset on carry forward losses to be materially
correct.
The above were considered to be key audit matters due to the
level of judgement and estimation involved alongside the material
nature of the balances financially.
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. During planning overall materiality for the
group financial statements as a whole was calculated as GBP149,000,
which subsequently decreased to GBP145,000 during the course of our
audit. Overall materiality for the parent company financial
statements as a whole was calculated as GBP72,500, which was not
significantly changed during the course of our audit. We agreed
with the Audit Committee that we would report to them all
unadjusted differences in excess of GBP7,280 as well as differences
below that threshold that, in our view, warranted reporting on
qualitative grounds
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the group
and its control environment, including group-wide controls, and
assessing the risks of material misstatement. The group financial
statements were audited on a consolidated basis using group
materiality. The parent entity and subsidiary financial statements
were audited to component materiality. The scope of our audit
covered 100% of both consolidated loss before tax and consolidated
net assets.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, 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 audit or
otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in
the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the Strategic Report and the
Directors' Report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the Strategic Report and the Directors' Report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and
the parent company and their environment obtained in the course of
the audit, we have not identified material misstatements in the
Strategic Report or the Directors' Report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement set out on page 41, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view, and for such internal control
as the directors determine is necessary to enable the preparation
of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at:
http://www.frc.org.uk/auditorsresponsibilities . This description
forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
RICHARD BARTLETT-RAWLINGS (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
The Pinnacle,
170 Midsummer Boulevard,
Milton Keynes,
Buckinghamshire,
MK9 1BP
CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2020
Note 31 Mar 2019
31 Mar 2020 Restated*
---- -------------------------------- --------------------------------
Consultancy AdRatings Total Consultancy AdRatings Total
---- ----------- --------- -------- ----------- --------- --------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---- ----------- --------- -------- ----------- --------- --------
Revenue 5 25,422 53 25,475 26,896 3 26,899
---- ----------- --------- -------- ----------- --------- --------
Cost of sales 15 (3,874) - (3,874) (4,849) - (4,849)
---- ----------- --------- -------- ----------- --------- --------
Gross profit 5 21,548 53 21,601 22,047 3 22,050
---- ----------- --------- -------- ----------- --------- --------
Administrative expenses 15 (18,412) (2,771) (21,183) (17,777) (2,217) (19,994)
---- ----------- --------- -------- ----------- --------- --------
Operating profit/(loss) 5 3,136 (2,718) 418 4,270 (2,214) 2,056
---- ----------- --------- -------- ----------- --------- --------
Finance expense 18 (122) - (122) (135) - (135)
---- ----------- --------- -------- ----------- --------- --------
Profit/(loss) before taxation 16 3,014 (2,718) 296 4,135 (2,214) 1,921
---- ----------- --------- -------- ----------- --------- --------
Income tax (expense)/credit 19 (1,043) 516 (527) (1,075) 421 (654)
---- ----------- --------- -------- ----------- --------- --------
Profit/(loss) for the financial period 1,971 (2,202) (231) 3,060 (1,793) 1,267
---- ----------- --------- -------- ----------- --------- --------
Attributable to the equity holders of the
Company 1,971 (2,202) (231) 3,060 (1,793) 1,267
---- ----------- --------- -------- ----------- --------- --------
* Restatement on change of accounting policy upon the adoption
of IFRS16 (Refer to Note 26).
Earnings per share attributable to equity
holders of the Company
Basic (losses)/earnings per share 21 (1.8)p 10.1p*
Diluted (losses)/earnings
per share 21 (1.8)p 9.8p*
------ ------
The notes on pages 52 to 88 are an integral part of these
consolidated financial statements.
All of the activities of the Group are classed as
continuing.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2020
31 Mar 2020 31 Mar 2019
Restated*
----------- -----------
GBP000 GBP000
----------- -----------
(Loss)/profit for the financial period (231) 1,267
----------- -----------
Other comprehensive income:
----------- -----------
Items that may be subsequently reclassified
to profit or loss
----------- -----------
Currency translation differences on translating
foreign operations (91) 2
----------- -----------
Other comprehensive (loss)/income for the
period, net of tax (91) 2
----------- -----------
Total comprehensive (loss)/income for the
period attributable
to equity holders of the Company (322) 1,269
----------- -----------
* Restatement on change of accounting policy upon the adoption
of IFRS16 (Refer to Note 26).
The notes on pages 52 to 88 are an integral part of these
consolidated financial statements.
CONSOLIDATED BALANCE SHEET
as at 31 March 2020
Registered company no. 05940040
Note 31 Mar 2020 31 Mar 2019 1 Apr 2018
Restated* Restated*
---- -----------
GBP000 GBP000 GBP000
---- ----------- ----------- ----------
ASSETS
---- ----------- ----------- ----------
Non-current assets
---- ----------- ----------- ----------
Property, plant and equipment 6 3,971 2,847 3,423
---- ----------- ----------- ----------
Intangible assets 7 368 814 26
---- ----------- ----------- ----------
Deferred tax asset 20 627 299 372
---- ----------- ----------- ----------
4,966 3,960 3,821
---- ----------- ----------- ----------
Current assets
---- ----------- ----------- ----------
Contract costs 217 208 131
---- ----------- ----------- ----------
Trade and other receivables 9 5,423 6,907 5,704
---- ----------- ----------- ----------
Current income tax 21 431 423
---- ----------- ----------- ----------
Cash and cash equivalents 8 6,650 4,315 5,784
---- ----------- ----------- ----------
12,311 11,861 12,042
---- ----------- ----------- ----------
Total assets 17,277 15,821 15,863
---- ----------- ----------- ----------
EQUITY
---- ----------- ----------- ----------
Attributable to equity holders of the Company
---- ----------- ----------- ----------
Share capital 10 132 132 132
---- ----------- ----------- ----------
Share premium account 1,601 1,601 1,601
---- ----------- ----------- ----------
Merger reserve 477 477 477
---- ----------- ----------- ----------
Foreign currency translation reserve 132 223 221
---- ----------- ----------- ----------
Retained earnings 3,416 4,635 4,482
---- ----------- ----------- ----------
Total equity 5,758 7,068 6,913
---- ----------- ----------- ----------
LIABILITIES
---- ----------- ----------- ----------
Non-current liabilities
---- ----------- ----------- ----------
Provisions 11 565 610 420
---- ----------- ----------- ----------
Lease liabilities 8 3,273 1,977 2,559
---- ----------- ----------- ----------
Borrowings 8 2,500 - -
---- ----------- ----------- ----------
6,338 2,587 2,979
---- ----------- ----------- ----------
Current liabilities
---- ----------- ----------- ----------
Provisions 11 300 225 368
---- ----------- ----------- ----------
Lease liabilities 8 1,001 899 877
---- ----------- ----------- ----------
Trade and other payables 12 3,209 4,508 4,146
---- ----------- ----------- ----------
Contract liabilities 13 671 534 580
---- ----------- ----------- ----------
5,181 6,166 5,971
---- ----------- ----------- ----------
Total liabilities 11,519 8,753 8,950
---- ----------- ----------- ----------
Total equity and liabilities 17,277 15,821 15,863
---- ----------- ----------- ----------
* Restatement on change of accounting policy upon the adoption
of IFRS16 (Refer to Note 26). The notes on pages 52 to 88 are an
integral part of these consolidated financial statements. These
financial statements were approved by the directors on 30 June 2020
and are signed on their behalf by:
John Kearon, Director Chris Willford, Director
CONSOLIDATED CASHFLOW STATEMENT
for the year ended 31 March 2020
Note 31 Mar 2020 31 Mar 2019
Restated*
---- ----------- -----------
GBP000 GBP000
---- ----------- -----------
Net cash generated from operations 23 3,180 2,220
---- ----------- -----------
Tax paid (463) (642)
---- ----------- -----------
Net cash generated from operating activities 2,717 1,578
---- ----------- -----------
Cash flows from investing activities
---- ----------- -----------
Purchases of property, plant and equipment 6 (102) (107)
---- ----------- -----------
Purchase of intangible assets 7 (814) (923)
---- ----------- -----------
Net cash used by investing activities (916) (1,030)
---- ----------- -----------
Net cash flow before financing activities 1,801 548
---- ----------- -----------
Cash flows from financing activities
---- ----------- -----------
Interest received - 2
---- ----------- -----------
Lease liability payments (47) (45)
---- ----------- -----------
Property lease liability payments (892) (835)
---- ----------- -----------
Interest paid on property leases (122) (136)
---- ----------- -----------
Proceeds from borrowings 2,500 -
---- ----------- -----------
Proceeds from sale of treasury shares 10 30 3
---- ----------- -----------
Dividends paid to owners 22 (943) (940)
---- ----------- -----------
Net cash from/(used by) financing activities 526 (1,951)
---- ----------- -----------
Net increase/(decrease) in cash and
cash equivalents 2,327 (1,403)
---- ----------- -----------
Cash and cash equivalents at beginning
of period 4,315 5,784
---- ----------- -----------
Exchange gains on cash and equivalents 8 (66)
---- ----------- -----------
Cash and cash equivalents at end of
period 6,650 4,315
---- ----------- -----------
* Prior period comparatives have been restated for the
transition to IFRS 16. Under IFRS 16 office lease costs are now
treated as a "financing activity" (rather than as an operating
activity, as was the case previously). Office lease costs are
therefore not now 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:
31 Mar 2020 31 Mar 2019
Restated*
----------- -----------
GBP000 GBP000
----------- -----------
Net cash flow before financing activities 1,801 548
----------- -----------
Net cash outflow for property leases (1,014) (969)
----------- -----------
Operating Cash Flow 787 (421)
----------- -----------
A summary of cash flow before financing activities, separating
out Ad Ratings is presented below.
31 Mar 2020 31 Mar 2019
Restated*
----------- -----------
GBP000 GBP000
----------- -----------
Net cash generated from operating activities 4,229 3,608
----------- -----------
Net cash used by investing activities (470) (107)
----------- -----------
Net cash flow before financing activities
(before AdRatings) 3,759 3,501
----------- -----------
Net cash outflow for property and finance
leases (1,014) (969)
----------- -----------
Operating Cash Flow (before AdRatings) 2,745 2,532
----------- -----------
Net cash flow used by AdRatings (1,958) (2,953)
----------- -----------
Operating Cash Flow (after AdRatings) 787 (421)
----------- -----------
The notes on pages 52 to 88 are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2020
Foreign
Share currency
Note Share premium Merger translation Retained
capital account reserve reserve earnings Total
------ -------- -------- -------- ------------ --------- -------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------ -------- -------- -------- ------------ --------- -------
At 1 April 2018 as
originally stated 132 1,601 477 221 4,578 7,009
------ -------- -------- -------- ------------ --------- -------
Transition to IFRS
16 - - - - (96) (96)
------ -------- -------- -------- ------------ --------- -------
At 1 April 2018 restated 132 1,601 477 221 4,482 6,913
------ -------- -------- -------- ------------ --------- -------
Profit for the financial
period - - - - 1,267 1,267
------ -------- -------- -------- ------------ --------- -------
Other comprehensive
income:
------ -------- -------- -------- ------------ --------- -------
- currency translation
differences - - - 2 - 2
------ -------- -------- -------- ------------ --------- -------
Total comprehensive
income - - - 2 1,267 1,269
------ -------- -------- -------- ------------ --------- -------
Transactions with
owners:
------ -------- -------- -------- ------------ --------- -------
Employee share options:
------ -------- -------- -------- ------------ --------- -------
- value of employee
services 10 - - - - (132) (132)
------ -------- -------- -------- ------------ --------- -------
- current tax credited
to equity - - - - 34 34
------ -------- -------- -------- ------------ --------- -------
- deferred tax debited
to equity 20 - - - - (79) (79)
------ -------- -------- -------- ------------ --------- -------
Dividends paid to
owners 22 - - - - (940) (940)
------ -------- -------- -------- ------------ --------- -------
Sale of treasury shares - - - - 3 3
------ -------- -------- -------- ------------ --------- -------
- - - (1,114) (1,114)
------ -------- -------- -------- ------------ --------- -------
At 31 March 2019 restated 132 1,601 477 223 4,635 7,068
------ -------- -------- -------- ------------ --------- -------
Loss for the financial
year - - - - (231) (231)
------ -------- -------- -------- ------------ --------- -------
Other comprehensive
income:
------ -------- -------- -------- ------------ --------- -------
- currency translation
differences - - - (91) - (91)
------ -------- -------- -------- ------------ --------- -------
Total comprehensive
income loss - - - (91) (231) (322)
------ -------- -------- -------- ------------ --------- -------
Transactions with
owners:
------ -------- -------- -------- ------------ --------- -------
Employee share options:
------ -------- -------- -------- ------------ --------- -------
- value of employee
services 10 - - - - (60) (60)
------ -------- -------- -------- ------------ --------- -------
- deferred tax debited
to equity 20 - - - - (31) (31)
------ -------- -------- -------- ------------ --------- -------
- current tax credited
to equity - - - - 16 16
------ -------- -------- -------- ------------ --------- -------
Dividends paid to
owners 22 - - - - (943) (943)
------ -------- -------- -------- ------------ --------- -------
Sale of treasury shares 10 - - - - 30 30
------ -------- -------- -------- ------------ --------- -------
- - - (988) (988)
------ -------- -------- -------- ------------ --------- -------
At 31 March 2020 132 1,601 477 132 3,416 5,758
------ -------- -------- -------- ------------ --------- -------
The notes on pages 52 to 88 are an integral part of these
consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 March 2020
1. General information
System1 Group PLC ("the Company") was incorporated on 19
September 2006 in the United Kingdom. The Company's principal
operating subsidiary, System1 Research Limited (formerly
BrainJuicer Limited), was at that time already established, having
been incorporated on 29 December 1999. The address of the Company's
registered office is 52 Bedford Row, Holborn, London, England, WC1R
4LR. The Company's shares are listed on the Alternative Investment
Market of the London Stock Exchange ("AIM").
The Company and its subsidiaries (together "the Group") provide
marketing and market research consultancy services. The Chairman's
Statement, the Chief Executive's Statement and the Business and
Finance Review provide further detail of the Group's operations and
principal activities.
The Board of Directors approved these financial statements for
the year ended 31 March 2020 (including the comparatives for the
year ended 31 March 2019) on 30 June 2020.
2. Basis of Preparation
The Group has prepared its consolidated financial statements in
accordance with International Financial Reporting Standards and
IFRIC Interpretations as adopted in the European Union ("IFRSs"),
and the Companies Act 2006 applicable to companies reporting under
IFRS. The consolidated financial statements have been prepared
under the historical cost convention.
The preparation of financial statements in accordance with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
high degree of judgement or complexity, or areas where estimates
and judgements are significant to the consolidated financial
statements are disclosed in Note 4.
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates ('the Functional
Currency'). The consolidated financial statements are presented in
Pounds Sterling (GBP), which is the Company's functional and
presentation currency. The financial statements are presented in
round thousands unless otherwise stated.
3. Going concern
The Group has prepared its financial statements on a going
concern basis.
As noted in the Business and Finance Review, the global Covid-19
pandemic had minimal impact on the reported results for FY 2019/20,
however, inevitably, the effects of lockdowns around the world and
the corresponding economic slowdown have been felt in the first
months of the current financial year.
Whilst the longer term impact of Covid-19 of the Group cannot be
assessed with certainty, Management have prepared detailed
forecasts and undertaken scenario planning for FY2020/21 and have
already taken mitigating actions including deferring employment
costs, reducing the number of hours paid for where the volume of
work has fallen, reducing discretionary expenditure, exiting a
small number of colleagues, and taking advantage of
government-backed business support and furloughing schemes. As part
of this initiative, the Board and other senior executives in
System1 agreed in April 2020 to defer 20% of their salaries until
further notice.
Management continue to monitor sales closely and adjust costs
accordingly, whilst ensuring that the Company maintains an
appropriate level of investment in future sales growth. At 31 March
2020, the Company had cash of GBP6,650,000 and borrowings of
GBP2,500,000.
In the two months to end May, Revenue and Gross Profit were 36%
and 38% respectively below the same period of last year. Over these
months the business as a whole incurred a Pre-Tax loss of some
GBP0.7m as we pursued our short-term objectives of continuing to
develop our new automated product set, while conserving cash by
shrinking the cost base to offset lower sales. Cash net of debt
facilities ended May at GBP3.9m compared with GBP4.1m at 31 March.
In June, the sales pipeline has shown early signs of recovering
towards pre-pandemic levels, and our cost base was in line with our
targets
Having considered all information available, the Directors
remain confident that the Company will be able to settle
liabilities as they fall due for a period of at least 12 months
from the date of the approval of these financial statements, and
for this reason consider that it is appropriate to prepare these
financial statements on a going concern basis.
4. Principal accounting policies
The principal accounting policies adopted are consistent with
those of the financial statements for the 12-month period ended 31
March 2019, except for the first-time adoption of IFRS 16, 'Leases'
which was adopted on 1 April 2019.
IFRS 16 replaced the existing guidance in IAS 17. Under IAS 17,
lessees were required to make a distinction between a finance lease
(on balance sheet) and an operating lease (off balance sheet). IFRS
16 now requires lessees to recognise a lease liability reflecting
future lease payments and a 'right-of-use asset' for virtually all
lease contracts. Under IFRS 16, a contract is, or contains, a lease
if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration. The lease liability is initially measured at the
present value of the lease payments that are not paid at the
commencement date, discounted by using the rate implicit in the
lease. If this rate cannot be readily determined, the Group uses
its incremental borrowing rate. The weighted average incremental
borrowing rate applied to lease liabilities is 4.30%.
A reconciliation of operating lease commitments as at 31 March
2019 to the lease liability is as follows:
GBP000
-------
Operating lease commitments disclosed at 31 March 2019 5,505
-------
Adjustment for forecast exercise of break clause (2,211)
-------
Effect of discounting (489)
-------
Lease liability recognised at 1 April 2019 2,805
-------
Existing finance lease payables at 1 April 2019 71
-------
Total lease liabilities at 1 April 2019 2,876
-------
The Group has elected to apply the full retrospective approach
to the transition to IFRS 16. The full retrospective approach
requires the transition to be implemented with restatement of the
prior year results as if IFRS 16 had always been applied. Adoption
of the IFRS 16 has resulted in the recognition of Right-of-use
assets and lease liabilities with a corresponding increase in
depreciation charges and finance costs offset by a reduction in
operating lease costs in the income statement. Operating lease
costs were previously recognised on a straight-line basis in the
income statement. In the earlier periods of a lease, the expenses
associated with the lease under IFRS 16 will be higher when
compared to lease expenses under IAS 17. For classification within
the statement of cash flows, the interest and repayment of
principal elements of the lease payments are separately disclosed
in financing activities. The implementation of IFRS 16 has made an
insignificant impact on the net assets and profit before tax of the
Group, as set out in note 26.
Standards, amendments and interpretations in issue but not yet
effective
Certain new accounting standards and interpretations have been
published that are not mandatory for
31 March 2020 reporting periods and have not been early adopted
by the Group. The only amendment identified as applicable to the
Group is as follows:
Amendments to IAS 1 and IAS 8 - Definition of material
The IASB has made amendments to 'IAS 1 Presentation of Financial
Statements' and 'IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors which use a consistent definition of
materiality'
throughout International Financial Reporting Standards and the
Conceptual Framework for Financial Reporting, clarify when
information is material and incorporate some of the guidance in IAS
1 about immaterial information. These amendments clarify the
guidance on the application of materiality and the definition of
'primary users of general purpose financial statements'.
This amendment is not expected to have a material impact on the
entity in the current or future reporting periods or on foreseeable
future transactions.
Basis of consolidation
The Group financial statements consolidate those of the Company
and all of its subsidiary undertakings drawn up to 31 March
2020.
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.
Basis of consolidation (continued)
The Group uses the acquisition method of accounting to account
for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair values of the assets
transferred, the liabilities incurred and the equity interests
issued by the Group. The consideration transferred includes the
fair value of any asset or liability resulting from a contingent
consideration arrangement. Acquisition related costs are expensed
as incurred. Identifiable assets acquired, liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition
date.
On an acquisition-by-acquisition basis, the Group recognises any
non-controlling interest in the acquiree either at fair value or at
the non-controlling interest's proportionate share of the
acquiree's net assets.
The excess of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the acquisition-date
fair value of any previous equity interest in the acquiree over the
fair value of the Group's share of the identifiable net assets
acquired is recorded as goodwill.
All intra-group transactions and balances are eliminated on
consolidation. Unrealised gains on transactions between the Group
and its subsidiaries are eliminated. Unrealised losses are also
eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Amounts reported in the
financial statements of subsidiaries have been adjusted where
necessary to ensure consistency with the accounting policies
adopted by the Group.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less
accumulated depreciation and accumulated impairment losses.
Depreciation is provided to write off the cost of all property,
plant and equipment to its residual value on a straight-line basis
over 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 on all property, plant and equipment is charged to
administrative expenses.
Right-of-use assets
A right-of-use asset is recognised at the commencement date of a
lease. The right-of-use asset is measured at cost, which comprises
the initial amount of the lease liability, adjusted for, as
applicable, any lease payments made at or before the commencement
date net of any lease incentives received, any initial direct costs
incurred, and, except where included in the cost of inventories, an
estimate of costs expected to be incurred for dismantling and
removing the underlying asset, and restoring the site or asset.
Right-of-use assets are depreciated on a straight-line basis
over the unexpired period of the lease or the estimated useful life
of the asset, whichever is the shorter. Where the Group expects to
obtain ownership of the leased asset at the end of the lease term,
the depreciation is over its estimated useful life. The Group had
no such lease arrangements for the years ended 31 March 2020 or
2019. Right-of use assets are subject to impairment or adjusted for
any remeasurement of lease liabilities.
Depreciation on all Right-of-use assets is charged to
administrative expenses.
Intangible assets
Software
Acquired computer software licenses are capitalised at the cost
of acquisition.
Costs incurred in the development of identifiable and unique
software products controlled by the Group, and that will probably
generate economic benefits exceeding costs beyond one year, are
recognised as intangible assets.
Costs include professional fees and directly-attributable
employee costs required to bring the software into working
condition. Non-attributable costs are expensed under the relevant
income statement heading.
Research and development - internally generated intangible
assets
All on-going research expenditure is expensed in the year in
which it is incurred. Development costs incurred in the development
of the Company's new AdRatings product are capitalised as an
internally generated asset when all criteria for capitalisation are
met. The AdRatings product comprises the product platform and the
data available to product subscribers.
Costs relating to the research phase of AdRatings, amounting to
GBP2.11m were expensed in the year to 31 March 2019. Development
costs include professional fees and directly-attributable employee
costs required to bring the software into working condition. Where
no internally-generated intangible asset can be recognised,
development expenditure is charged to administrative expenses in
the period in which it is incurred.
Research and development - internally generated intangible
assets (continued)
Furthermore, internally-generated software and product
development costs are recognised as an intangible asset only if the
Group can demonstrate all of the following conditions:
(a) the technical feasibility of completing the intangible asset
so that it will be available for use or sale; (b) its intention to
complete the intangible asset and use or sell it;
(c) its ability to use or sell the intangible asset;
(d) how the intangible asset will generate probable future
economic benefits;
(e) among other things, the Group can demonstrate the existence
of a market for the output of the intangible asset or the
intangible asset itself or, if it is to be used internally, the
usefulness of the intangible asset;
(f) the availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset;
(g) its ability to measure reliably the expenditure attributable
to the intangible asset during its development.
Amortisation
Acquired computer software licences are amortised on a
straight-line basis over their estimated useful economic life of
two years.
Internally-generated intangible assets are amortised on a
straight-line basis over their useful economic lives.
The AdRatings platform and the cost of data being made available
to subscribers were being amortised over a period of 3 years on a
straight line basis, prior to impairment in full in the year ended
31 March 2020.
Amortisation on all intangible assets is charged to
administrative expenses.
Impairment of property, plant and equipment, right-of-use assets
and intangible assets
At each balance sheet date the Group reviews the carrying amount
of its property, plant and equipment and intangible assets for any
indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss,
if any. Intangible assets not available for use are tested for
impairment on at least an annual basis. The recoverable amount is
the higher of the fair value less costs to sell and value in
use.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and bank
deposits available on demand.
Contract costs
Contract costs comprise directly-attributable external costs
incurred in fulfilling customer contracts that relate to incomplete
market research projects. The Group assesses at each balance sheet
date whether there is objective evidence that contract cost assets
are impaired and provision is made when there is evidence that the
Group will not be able to recover all costs incurred under the
terms of the customer contract.
Income taxes
Current income tax liabilities comprise those obligations to
fiscal authorities relating to the current or prior reporting
period, that are unpaid at the balance sheet date. They are
calculated according to the tax rates and tax laws that have been
enacted or substantively enacted at the reporting date applicable
to the fiscal periods to which they relate, based on the taxable
profit for the year.
All changes to current tax assets or liabilities are recognised
as a component of tax expense in the income statement, except where
they relate to items charged or credited to other comprehensive
income or directly to equity.
Deferred income taxes are calculated using the liability method
on temporary differences. This involves the comparison of the
carrying amounts of assets and liabilities in the consolidated
financial statements with their respective tax bases. In addition,
tax losses available to be carried forward as well as other income
tax credits to the Group are assessed for recognition as deferred
tax assets.
Deferred tax liabilities are always provided for in full.
Deferred tax assets are recognised to the extent that it is
probable that the underlying deductible temporary differences will
be able to be offset against future taxable income. Deferred tax
assets and liabilities are calculated, without discounting, at tax
rates that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at
the balance sheet date. Deferred tax is recognised as a component
of tax expense in the income statement, except where it relates to
items charged or credited to other comprehensive income or directly
to equity.
Revenue recognition
The Group's revenues are primarily from the delivery of research
services. Revenue from all of the Group's Research product lines
(Communications, Brand, Innovation, and other research products)
and its advertising agency services arise from contracts with
customers within the scope of IFRS 15 'Revenue from Contracts with
Customers' and are recognised on the same basis, as set out
below.
Revenue is recognised at a point in time (rather than over time)
as the key performance obligation is the delivery of the final
written debrief to the client.
Revenue is recognised only after the final written debrief or
creative content (in respect of our Agency business) has been
delivered to the client, except on the rare occasion that a large
project straddles a financial period end, and that project can be
sub-divided into separate discrete deliverables; in such
circumstances revenue is recognised on delivery of each separate
deliverable. There are no elements of variable consideration in the
contracts entered into by the Group. Revenue is measured by
reference to the fair value of consideration receivable, excluding
sales taxes.
Cost of sales
Cost of sales includes external costs attributable to client
projects. For the research business, these include respondent
sample, data processing, language translation and similar
costs.
Employee benefits
All accumulating employee-compensated absences that are unused
at the balance sheet date are recognised as a liability. The Group
operates several defined contribution pension plans. The Group pays
contributions to these plans based upon the contractual terms
agreed with each employee.
The Group has no further payment obligations once the
contributions have been paid. The contributions are recognised as
employee benefit expense when they are due.
Share-based payment transactions
The Group issues equity-settled share-based compensation to
certain employees (including directors). Equity-settled share-based
payments are measured at fair value at the date of grant. The fair
value determined at the grant date of the equity-settled
share-based payment is expensed on a straight-line basis over the
vesting period, together with a corresponding increase in equity,
based upon the Group's estimate of the shares that will eventually
vest.
With the exception of market-based elements of awards, these
estimates are subsequently revised if there is any indication that
the number of options expected to vest differs from previous
estimates. Any cumulative adjustment prior to vesting is recognised
in the current period. No adjustment is made to any expense
recognised in prior periods. The fair value of option awards with
time vesting performance conditions are measured at the date of
grant using a Black-Scholes based Option Valuation model. The
expected life used in the model has been adjusted, based on
management's best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
The fair value of awards made with market-based performance
conditions (for example, the entity's share price) are measured at
the grant date using a Monte Carlo simulation method incorporating
the market conditions in the calculations. The awards made in
respect of the Group's long-term incentive scheme have been
measured using such a method.
Social security contributions payable in connection with the
grant of share options are considered integral to the grant itself,
and the charge is treated as a cash-settled transaction.
Provisions
Provisions for sabbatical leave and dilapidations are recognised
when: (i) the Group has a legal or constructive obligation as a
result of past events; (ii) it is probable that an outflow of
resources will be required to settle the obligation; and (iii) the
amount has been reliably estimated. Where material, the increase in
provisions due to passage of time is recognised as interest
expense. The provision for sabbatical leave is measured using the
projected unit credit method. The provision for dilapidations is
measured at the present value of expenditures expected to be
required to settle those obligations.
Foreign currencies
Items included in the individual financial statements of each of
the Group's subsidiaries are measured using the currency of the
primary economic environment in which the subsidiary operates ("the
Functional Currency"). The consolidated financial statements are
presented in Sterling ('GBP'), which is the Company's functional
and the Group's presentation currency. Transactions in foreign
currencies are translated into the Functional Currency at the
exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses arising from the settlement of such
transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies
are recognised in the Income Statement.
The results and financial position of all Group companies that
have a Functional Currency different from the presentation currency
are translated into the presentation currency as follows:
(a) assets and liabilities for each balance sheet presented are
translated at the closing rate at the balance sheet date;
(b) income and expenses for each income statement are translated
at average exchange rates; and
(c) all resulting exchange differences are recognised as a
separate component of equity.
On consolidation, exchange differences arising from the
translation of the net investment in foreign operations are
recognised in other comprehensive income. When a foreign operation
is partially disposed of or sold, exchange differences that were
recorded in equity are recognised in the income statement as part
of the gain or loss on sale.
Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the main decision-making body of the
Company, which collectively comprises the Executive Directors. The
Executive Directors are responsible for allocating resources and
assessing performance of the operating segments.
Financial instruments
Financial assets
The Group's financial assets comprise trade and other
receivables held at amortised cost. The Group does not possess
assets held at fair value through profit or loss. The
classification is determined by management at initial recognition,
being dependent upon the business model and the contractual cash
flows of the assets. Financial assets are derecognised when the
rights to receive cash flows from the investments have expired or
have been transferred and the Group has transferred substantially
all risks and rewards of ownership. Financial assets arising from
contracts with customers are separately presented in accordance
with IFRS 15 in the Balance Sheet.
Trade and other receivables
Trade and other receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in an
active market. The Group's amortised cost financial assets comprise
trade and other receivables and cash and cash equivalents in the
balance sheet.
Trade receivables are initially recorded at fair value, but
subsequently at amortised cost using the effective interest rate
method. In accordance with IFRS 9, the Group assesses on a
forward-looking basis the expected credit losses associated with
its financial assets at amortised cost. The Group assesses expected
credit losses based on the ageing of the receivable, the Group's
historical experience and informed credit assessment. The amount of
the write-down is determined as the difference between the asset's
carrying amount and the present value of estimated future cash
flows.
Financial liabilities. Financial liabilities are initially
recognised at fair value, net of transaction costs, and
subsequently carried at amortised cost using the effective interest
rate method. Financial liabilities arising from contracts with
customers are separately presented in accordance with IFRS 15 in
the Statement of Financial Position. Financial liabilities and
equity instruments are classified according to the substance of the
contractual arrangements entered into. An equity instrument is any
contract that evidences a residual interest in the assets of the
entity after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments
(including share capital) are equivalent to a similar debt
instrument, those financial instruments are classed as financial
liabilities.
Financial liabilities are presented as such in the balance
sheet. Finance costs and gains or losses relating to financial
liabilities are included in the income statement.
Finance costs are calculated so as to produce a constant rate of
return on the outstanding liability. Where the contractual terms of
share capital do not have any terms meeting the definition of a
financial liability then this is classed as an equity instrument.
Dividends and distributions relating to equity instruments are
debited directly to equity.
Accrued and deferred income
Accrued income is recognised when a performance obligation has
been satisfied but has not yet been billed. Accrued income is
transferred to receivables when the right to consideration is
unconditional and billed per the terms of the contractual
agreement. The Group is generally paid in arrears for its services
and invoices are typically payable within 60 days. In certain
cases, payments are received from customers prior to satisfaction
of performance obligations and recognised as deferred income. These
balances are considered contract liabilities. There is no
significant passage of time between the receipt of funds from a
customer and the delivery of services, or between the delivery of
services to a customer and the receipt of funds when payment is in
arrears. The Group does not enter into contractual arrangements
with significant financing components.
Lease liabilities
A lease liability is recognised at the commencement date of a
lease. The lease liability is initially recognised at the present
value of the lease payments to be made over the term of the lease,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the consolidated entity's
incremental borrowing rate. Lease payments comprise of fixed
payments less any lease incentives receivable, variable lease
payments that depend on an index or a rate, amounts expected to be
paid under residual value guarantees, exercise price of a purchase
option when the exercise of the option is reasonably certain to
occur, and any anticipated termination penalties. The variable
lease payments that do not depend on an index or a rate are
expensed in the period in which they are incurred.
Lease liabilities are measured at amortised cost using the
effective interest method. The carrying amounts are remeasured if
there is a change in the following: future lease payments arising
from a change in an index or a rate used; residual guarantee; lease
term; certainty of a purchase option and termination penalties.
When a lease liability is remeasured, an adjustment is made to the
corresponding right-of use asset, or to profit or loss if the
carrying amount of the right-of-use asset is fully written
down.
Share capital
Ordinary shares are classified as equity. Equity instruments
issued by the Company are recorded at the proceeds received, net of
direct issue costs.
Share premium
Share premium represents the excess over nominal value of the
fair value of consideration received for equity shares, net of
direct expenses of the share issue.
Merger reserve
The merger reserve represents the difference between the parent
company's cost of investment and a subsidiary's share capital and
share premium. The merger reserve in these accounts has arisen from
a group reconstruction upon the incorporation and listing of the
parent company that was accounted for as a common control
transaction.
Common control transactions are accounted for using merger
accounting rather than the acquisition method, where this reflects
the substance of the transaction.
Foreign currency translation reserve
The foreign currency translation reserve represents the
differences arising from translation of investments in overseas
subsidiaries.
Treasury shares
Where the Company purchases the Company's equity share capital,
the consideration paid is deducted from the total shareholders'
equity and classified as treasury shares until they are cancelled.
Where such shares are subsequently sold or re-issued, any
consideration received is included in total shareholders' equity.
No gain or loss is recognised on the purchase, sale, issue or
cancellation of the Company's own equity instruments.
Significant accounting estimates and judgements
Share-based payments - judgement The fair value of options
granted is determined using a Black Scholes based Employee Stock
Option Valuation model (for the employee share option scheme) and a
Monte Carlo simulation model (for the long-term incentive scheme).
These models require a number of 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 often purchased shares to
satisfy the exercise of share options in order 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.
In order to determine whether the Company's share options are
equity or cash-settled, consideration needs to be given as to
whether the settlement of the share options through the issue and
subsequent repurchase of treasury shares should be treated as one
transaction or as two distinct transactions, and whether the
Company has an obligation to settle in cash.
The Company does not publicise to option holders that option
shares may be repurchased, the decision to repurchase option shares
is only made at the point of option exercise, and there is no
contractual or other obligation to settle in cash. Therefore, it is
appropriate to treat the exercise of options and repurchase of
option shares as two separate transactions and account for the
option exercise as equity-settled rather than cash-settled.
In the past the Company has on occasion cash-settled part of
long-term incentive plan equity awards. Despite the repurchase of
these equity interests the Company did not have an obligation to do
so and does not have an obligation, constructive or otherwise to do
so in the future. As a result, the Company continues to account for
share-based payments related to its long-term incentive plans as
equity rather than cash-settled.
Employee benefits - estimate The Group has a sabbatical leave
scheme, open to all employees, which provides 20 days paid leave
for each six years' of service. The carrying amount of the
provision at the balance sheet date amounted to GBP724,000 (31
March 2019: GBP753,000). The provision for liabilities under the
scheme is measured using the projected unit credit method. This
model requires a number of estimates and assumptions. The
significant inputs into the model are rate of salary growth and
average staff turnover as explained in Note 11.
Capitalisation of AdRatings platform - estimate The Group tests
capitalised development costs for impairment on an annual basis by
reference to expected future cash generation from the AdRatings
product. In estimating future cash generation, management make
judgements by reference to budgets and forecasts about the amount
and timing of future profits. As a result of the impairment testing
performed for the year ended 31 March 2020, management have
determined that future attributable revenues are not forecast to be
sufficient to supporting the carrying value of the capitalised
development costs and a charge of GBP921,000 has been recognised to
impair the asset in full. Details are contained in Note 7.
Leases - estimate and judgement Management exercises judgement
in determining the likelihood of exercising break or extension
options in determining the lease term, and reviews this on a lease
by lease basis.
The discount rate used to calculate the lease liability is the
rate implicit in the lease, if it can be readily determined, or the
lessee's incremental borrowing rate if not. Incremental borrowing
rates are determined based on the term, country, currency and start
date of the lease, to derive the rate of interest that the lessee
would have to pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of a similar value
to the right-of-use asset in a similar economic environment.
5. Segment information
The financial performance of the Group's geographic operating
units ("Reportable Segments") is set out below. The Group defines
its Consultancy business as Research and Advertising Agency.
31 Mar 2020 31 Mar 2019*
---------------- ----------------
Revenue Gross Revenue Gross
profit profit
------------------- ------- ------- ------- -------
GBP000 GBP000 GBP000 GBP000
------- ------- ------- -------
Consultancy
------- ------- ------- -------
Americas 12,772 10,933 11,657 9,538
------- ------- ------- -------
United Kingdom 5,480 4,653 6,596 5,457
------- ------- ------- -------
Continental Europe 5,628 4,630 6,770 5,447
------- ------- ------- -------
APAC 1,542 1,332 1,873 1,605
------- ------- ------- -------
25,422 21,548 26,896 22,047
------- ------- ------- -------
AdRatings
------- ------- ------- -------
United Kingdom 35 35 - -
------- ------- ------- -------
Americas 18 18 3 3
------- ------- ------- -------
53 53 3 3
------- ------- ------- -------
25,475 21,601 26,899 22,050
------- ------- ------- -------
*Comparative information for 2019 has been restated to disclose
revenues and gross profits attributable to AdRatings. The
Advertising Agency business has been aggregated with the United
Kingdom Research business.
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.
All revenues are recognised when the research results are
delivered to the client.
Consolidated balance sheet information is regularly provided to
the Executive Directors, but segment balance sheet information is
not, and accordingly the Company does not disclose segment balance
sheet information here.
System1 Group PLC (the ultimate parent company) is domiciled in
the UK. As at 31 March 2020, consolidated non-current assets, other
than financial instruments and deferred tax assets, located in the
UK is GBP2,462,000 and located in other countries is GBP1,877,000.
As at 31 March 2019 the respective amounts were GBP1,543,000 and
GBP2,118,000 (restated for IFRS 16).
5. Segment information (continued)
The split of business by research solution is set out below.
31 Mar 2020 31 Mar 2019
--------------------- ---------------------
Revenue Gross Profit Revenue Gross Profit
---------------------------- ------- ------------ ------- ------------
GBP000 GBP000 GBP000 GBP000
------- ------------ ------- ------------
Consultancy
------- ------------ ------- ------------
Communications (Ad Testing) 9,002 7,992 8,473 7,372
------- ------------ ------- ------------
Brand (Brand Tracking) 4,637 3,423 4,985 3,699
------- ------------ ------- ------------
Innovation* 9,829 8,555 11,195 9,608
------- ------------ ------- ------------
Other services 1,954 1,578 2,243 1,368
------- ------------ ------- ------------
25,422 21,548 26,896 22,047
------- ------------ ------- ------------
AdRatings 53 53 3 3
------- ------------ ------- ------------
25,475 21,601 26,899 22,050
------- ------------ ------- ------------
* The Group has reclassified certain product offerings from
'Other services' to Innovation in the current period, and the
comparative period analysis has been restated accordingly.
Advertising Agency revenues and gross profit have been included in
'Other services'.
A reconciliation of total operating profit for Reportable
Segments to total profit before income tax is set out below.
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Gross profit for Consultancy (Research and Agency) 21,548 22,047
----------- -----------
Gross profit for AdRatings 53 3
----------- -----------
Gross profit for Reportable Segments 21,601 22,050
----------- -----------
Operating expenses for reportable segments (13,235) (14,329)
----------- -----------
Central overheads* (8,031) (6,047)
----------- -----------
Exceptional credit (see Note 25) - 250
----------- -----------
Share based payment credit** 83 132
----------- -----------
Operating profit 418 2,056
----------- -----------
Finance expense (122) (135)
----------- -----------
Profit before income tax 296 1,921
----------- -----------
*In the Annual Report for the year ended 31 March 2019, central
delivery costs of GBP892k were allocated to central overheads in
the segmental reporting. The comparable central delivery costs are
included within the operating expenses for reportable segments
above for both periods presented. **Inclusive of associated social
security
Segmental operating profit excludes allocation of central
overheads relating to the Group's Operations, IT, Marketing, HR,
Legal and Finance teams and Board of Directors. Operating expenses
are not reported to the Executive Directors by segment, but is
provided at a consolidated level.
Over the year to 31 March 2020, the Group earned revenue of
GBP2,596,000 from its largest customer, representing 10% of
consolidated revenue (31 March 2019: 6%). Consolidated revenue from
the Group's largest customer in each year is split by geographic
segment as set out below.
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Continental Europe - 775
----------- -----------
Americas 2,596 632
----------- -----------
APAC - 92
----------- -----------
2,596 1,499
----------- -----------
6. Property, plant and equipment
For the year ended 31 March 2020:
Right-of-use assets Furniture, fittings and Computer hardware Total
*Restated equipment *Restated
------------------- ------------------------------- ----------------- ----------
GBP000 GBP000 GBP000 GBP000
------------------- ------------------------------- ----------------- ----------
At 1 April 2019
------------------- ------------------------------- ----------------- ----------
Cost 5,286 553 1,285 7,124
------------------- ------------------------------- ----------------- ----------
Accumulated depreciation (2,666) (422) (1,189) (4,277)
------------------- ------------------------------- ----------------- ----------
Net book amount 2,620 131 96 2,847
------------------- ------------------------------- ----------------- ----------
Year ended 31 March 2020
------------------- ------------------------------- ----------------- ----------
Opening net book amount 2,620 131 96 2,847
------------------- ------------------------------- ----------------- ----------
Additions 2,336 - 102 2,438
------------------- ------------------------------- ----------------- ----------
Disposals (54) (13) - (67)
------------------- ------------------------------- ----------------- ----------
Foreign exchange 88 3 - 91
------------------- ------------------------------- ----------------- ----------
Depreciation charge for the year (1,183) (74) (81) (1,338)
------------------- ------------------------------- ----------------- ----------
Closing net book amount 3,807 47 117 3,971
------------------- ------------------------------- ----------------- ----------
At 31 March 2020
------------------- ------------------------------- ----------------- ----------
Cost 5,532 452 1,398 7,382
------------------- ------------------------------- ----------------- ----------
Accumulated depreciation (1,725) (405) (1,281) (3,411)
------------------- ------------------------------- ----------------- ----------
Net book amount 3,807 47 117 3,971
------------------- ------------------------------- ----------------- ----------
For the year ended 31 March 2019:
Right-of-use assets Furniture, fittings and Computer hardware Total
*Restated equipment *Restated
------------------- -------------------------------- ----------------- ----------
GBP000 GBP000 GBP000 GBP000
------------------- -------------------------------- ----------------- ----------
At 1 April 2018
------------------- -------------------------------- ----------------- ----------
Cost 5,018 562 1,160 6,740
------------------- -------------------------------- ----------------- ----------
Accumulated depreciation (1,864) (359) (1,094) (3,317)
------------------- -------------------------------- ----------------- ----------
Net book amount 3,154 203 66 3,423
------------------- -------------------------------- ----------------- ----------
Year ended 31 March 2019
------------------- -------------------------------- ----------------- ----------
Opening net book amount - 203 66 269
------------------- -------------------------------- ----------------- ----------
Adjustment on transition to IFRS
16 3,154 - - 3,154
------------------- -------------------------------- ----------------- ----------
Additions 320 1 106 427
------------------- -------------------------------- ----------------- ----------
Disposals - (2) - (2)
------------------- -------------------------------- ----------------- ----------
Foreign exchange 121 3 1 125
------------------- -------------------------------- ----------------- ----------
Depreciation charge for the year (975) (74) (77) (1,126)
------------------- -------------------------------- ----------------- ----------
Closing net book amount 2,620 131 96 2,847
------------------- -------------------------------- ----------------- ----------
At 31 March 2019
------------------- -------------------------------- ----------------- ----------
Cost 5,286 553 1,285 7,124
------------------- -------------------------------- ----------------- ----------
Accumulated depreciation (2,666) (422) (1,189) (4,277)
------------------- -------------------------------- ----------------- ----------
Net book amount 2,620 131 96 2,847
------------------- -------------------------------- ----------------- ----------
7. Intangible assets
For the year ended 31 March 2020:
Development Software Software Total
costs licenses
(AdRatings)
------------ --------- -------- -------
GBP000 GBP000 GBP000 GBP000
------------ --------- -------- -------
At 1 April 2019
------------ --------- -------- -------
Cost 923 697 1,672 3,292
------------ --------- -------- -------
Accumulated amortisation (110) (696) (1,672) (2,478)
------------ --------- -------- -------
Net book amount 813 1 - 814
------------ --------- -------- -------
Year ended 31 March 2020
------------ --------- -------- -------
Opening net book amount 813 1 - 814
------------ --------- -------- -------
Additions 446 - 368 814
------------ --------- -------- -------
Amortisation charge (338) (1) - (339)
------------ --------- -------- -------
Impairment charge (921) - - (921)
------------ --------- -------- -------
Closing net book amount - - 368 368
------------ --------- -------- -------
At 31 March 2020
------------ --------- -------- -------
Cost 1,369 697 2,040 4,106
------------ --------- -------- -------
Accumulated amortisation (1,369) (697) (1,672) (3,738)
------------ --------- -------- -------
Net book amount - - 368 368
------------ --------- -------- -------
For the year ended 31 March 2019:
Development Software Software Total
costs licenses
(AdRatings)
------------ --------- -------- -------
GBP000 GBP000 GBP000 GBP000
------------ --------- -------- -------
At 1 April 2018
------------ --------- -------- -------
Cost - 697 1,672 2,369
------------ --------- -------- -------
Accumulated amortisation - (671) (1,672) (2,343)
------------ --------- -------- -------
Net book amount - 26 - 26
------------ --------- -------- -------
Year ended 31 March 2019
------------ --------- -------- -------
Opening net book amount - 26 - 26
------------ --------- -------- -------
Additions 923 - - 923
------------ --------- -------- -------
Amortisation charge (110) (25) - (135)
------------ --------- -------- -------
Closing net book amount 813 1 - 814
------------ --------- -------- -------
At 31 March 2019
------------ --------- -------- -------
Cost 923 697 1,672 3,292
------------ --------- -------- -------
Accumulated amortisation (110) (696) (1,672) (2,478)
------------ --------- -------- -------
Net book amount 813 1 - 814
------------ --------- -------- -------
7. Intangible assets (continued)
Software comprises the Group's main research software platform,
at a cost of GBP1,604,000, other software licences of GBP68,000,
and additions of GBP368,000 relating to the Group's new finance
system. The carrying amount of the Group's main research software
platform at the balance sheet date was GBPNil (31 Mar 2019:
GBPNil). The Group's finance system was still in development at the
year end and therefore has not been amortised.
Development costs comprise amounts capitalised for the Group's
AdRatings product. This comprises the platform and the data
available to subscribers, which are both amortised over three
years.
The carrying value of the AdRatings product has been tested for
impairment at as 31 March 2020. The carrying value of the asset has
been allocated to the AdRatings cash generating unit ('CGU') for
the purposes of assessing future cashflows. The principal
assumptions used in the forecast are the timing and amount of
future revenues and profit margins, which are derived from the
latest forecasts approved by the Board. As a result of this review,
and in light of the continuing modest AdRatings revenues of
GBP0.05m in the year, the carrying value of the asset has been
impaired in full, and accordingly the amortisation charge above
includes impairment charges of GBP921,000.
8. Financial risk management
The Group's financial risk management policies and objectives
are explained in the Group Directors' report.
Credit risk
The Group reviews and manages credit risk, arising from trade
receivables and cash and cash equivalents, on a consolidated basis.
The vast majority of the Group's clients are large blue-chip
organisations, and the Group has only ever suffered minimal bad
debts. The Group has concentrations of credit risk as follows.
31 Mar 31 Mar
2020 2019
------- -------
GBP000 GBP000
------- -------
Cash and cash equivalents
------- -------
HSBC Bank PLC (AA credit rating) 6,135 3,849
------- -------
Santander 360 231
------- -------
Deutsche Bank 84 154
------- -------
UBS 64 79
------- -------
Other banks 7 2
------- -------
6,650 4,315
------- -------
Trade receivables
------- -------
Largest customer by revenue 390 161
------- -------
Financial instruments by category
At the balance sheet date the Group held the following financial
instruments by category.
Assets and liabilities as per balance sheet 31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Financial assets carried at amortised cost
----------- -----------
Trade and other receivables (excluding prepayments
and accrued income) 5,072 6,102
----------- -----------
Cash and cash equivalents 6,650 4,315
----------- -----------
11,722 10,417
----------- -----------
Other financial liabilities carried at amortised
cost
----------- -----------
Current liabilities
----------- -----------
Trade payables 1,005 1,990
----------- -----------
Accruals 2,086 2,226
----------- -----------
Lease liabilities 1,001 899
----------- -----------
4,092 5,115
----------- -----------
Non-current liabilities
----------- -----------
Borrowings 2,500 -
----------- -----------
Lease liabilities 3,273 1,977
----------- -----------
5,773 1,977
----------- -----------
The application of IFRS 16 has resulted in the recognition of
lease liabilities in respect of property leases previously treated
as operating leases and expensed in the income statement on a
straight line basis. The payment of the Group's financial
liabilities will be financed from existing cash to their fair
value.
On 10 February 2020, the Company entered into a revolving credit
facility with HSBC. The agreement allows the Company to draw down
up to GBP2,500,000 for the purposes of funding general corporate
and working capital requirements. The facility is available for
three years and is secured over the assets of those Group companies
domiciled in the United Kingdom and the United States. The loan
accrues interest at a rate of 2.5% above LIBOR and is subject to
leverage and interest covenants.
9. Trade and other receivables
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Trade receivables 4,678 5,794
----------- -----------
Other receivables 394 308
----------- -----------
Prepayments and accrued income 351 805
----------- -----------
5,423 6,907
----------- -----------
Trade and other receivables are due within one year and are not
interest bearing. The maximum exposure to credit risk at the
balance sheet date is the carrying amount of receivables (detailed
above). The Group does not hold any collateral as security against
trade receivables. The Directors do not believe that there is a
significant concentration of credit risk within the trade
receivables balance.
Impairment of financial assets
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Opening balance 64 -
----------- -----------
Charged to the income statement 99 64
----------- -----------
Utilisations and other movements (52) -
----------- -----------
Provided at year-end 111 64
----------- -----------
The Group has financial assets, primarily trade receivables,
that are subject to the IFRS 9 expected credit loss model and the
Group is required to assess these assets for expected credit
losses. The Group has applied the simplified approach to measuring
expected credit losses as permitted by IFRS 9 and recognises a loss
allowance based on the financial assets' lifetime expected
loss.
The Group assesses on a forward-looking basis, the expected
credit losses associated with its debt instruments carried at
amortised cost. The Group assesses expected credit losses based on
the ageing of the receivable, the Group's historical experience and
informed credit assessment. Further credit losses are recognised
where the Group has information that indicates it is unlikely to
recover balances in full.
The Group has no financial assets designated as measured at fair
value.
As of 31 March 2020, trade receivables of GBP1,352,000 were past
due but not impaired (31 March 2019: GBP2,070,000). The ageing of
trade receivables, and the associated loss allowance, is as
follows.
31 March 2020
Not past due Up to 3 months 3 to 6 months Over 6 months
------------ -------------- ------------- -------------
GBP000 GBP000 GBP000 GBP000
------------ -------------- ------------- -------------
Gross trade receivables 3,326 1,274 117 72
------------ -------------- ------------- -------------
Loss allowance - - 39 72
------------ -------------- ------------- -------------
Expected loss rate 0% 0% 33% 100%
------------ -------------- ------------- -------------
31 March 2019
Not past Up to 3 months 3 to 6 months Over 6 months
due
-------- -------------- ------------- -------------
GBP000 GBP000 GBP000 GBP000
-------- -------------- ------------- -------------
Gross trade receivables 3,724 1,757 269 108
-------- -------------- ------------- -------------
Loss allowance - - 64 -
-------- -------------- ------------- -------------
Expected loss rate 0% 0% 24% 0%
-------- -------------- ------------- -------------
As of 31 March 2020, no other receivables or contract costs were
impaired (31 March 2019: GBPNil).
The carrying amount of the Group's trade and other receivables
are denominated in the following currencies.
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
US Dollar 2,350 2,727
----------- -----------
Sterling 1,397 2,507
----------- -----------
Euro 893 885
----------- -----------
Brazilian Real 257 353
----------- -----------
Swiss Franc 281 209
----------- -----------
Chinese Yuan 35 24
----------- -----------
Canadian Dollar 16 -
----------- -----------
Australian Dollar 144 107
----------- -----------
Singapore Dollar 50 95
----------- -----------
5,423 6,907
----------- -----------
10. Share capital
The share capital of System1 Group PLC consists only of fully
paid Ordinary Shares ("Shares") with a par value of one pence each.
All Shares are equally eligible to receive dividends and the
repayment of capital, and represent one vote at the Annual General
Meeting.
Allotted, called up and fully paid Ordinary Number GBP'000
Shares
---------- -------
At 1 April 2019 and at 31 March 2020 13,226,773 132
---------- -------
During the year ended 31 March 2020 the Company transferred
23,167 Shares out of treasury to satisfy the exercise of employee
share options at a weighted average exercise price of 132 pence per
share for total consideration of GBP30,000. The weighted average
share price at exercise date was 204 pence per share.
At 31 March 2020, the Company had 13,226,773 Shares in issue (31
March 2019: 13,226,773) of which 626,989 were held in treasury (31
March 2019: 650,156). The treasury Shares will be used to help
satisfy the requirements of the Group's share incentive
schemes.
Share options
Employee share option scheme. The Group issues share options to
directors and to employees under an HM Revenue and Customs approved
Enterprise Management Incentive (EMI) scheme and also under an
unapproved scheme.
The exercise price for share options granted historically is
equal to the mid-market opening quoted market price of the
Company's Shares on the date of grant, and in general, they vested
evenly over a period of one to three years following grant date.
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 Group.
Movements in the number of share options outstanding and their
related weighted average exercise prices are as follows.
31 Mar 2020 31 Mar 2019
--------------------------- ---------------------------
Average exercise Options Average exercise Options
price per price per
share share
---------------------- ---------------- --------- ---------------- ---------
Pence No Pence No
---------------- --------- ---------------- ---------
Opening balance 6.4 962,470 4.7 1,393,329
---------------- --------- ---------------- ---------
Granted - 1,358,135 - -
---------------- --------- ---------------- ---------
Lapsed 131.5 (17,000) - (198,400)
---------------- --------- ---------------- ---------
Replaced - (462,934) - -
---------------- --------- ---------------- ---------
Cancelled - (132,267) - (132,267)
---------------- --------- ---------------- ---------
Exercised 131.5 (23,167) - (100,192)
---------------- --------- ---------------- ---------
Closing balance 0.5 1,685,237 6.4 962,470
---------------- --------- ---------------- ---------
Exercisable at end of
period 0.5 315,656 17.4 355,823
---------------- --------- ---------------- ---------
The weighted average share price at date of exercise of options
exercised during the year ended 31 March 2020 was 204 (year ended
31 March 2019: 270) pence .
At 31 March 2020 and 31 March 2019, the Group had the following
outstanding options and exercise prices.
31 March 2020 31 March 2019
----------------------------------- ---------------------------------
Average Options Weighted Average Options Weighted
exercise average exercise average
price per remaining price per remaining
share contractual share contractual
life life
------- ---------- --------- ------------ ---------- ------- ------------
Expiry Pence No Months Pence No Months
date
---------- --------- ------------ ---------- ------- ------------
2020 - 10,144 1.9 50.6 122,687 12.1
---------- --------- ------------ ---------- ------- ------------
2024 5.3 172,376 50.9 - - -
---------- --------- ------------ ---------- ------- ------------
2025 - 233,136 60.8 - 233,136 72.8
---------- --------- ------------ ---------- ------- ------------
2027 - 1,069,581 83.7 - 606,647 95.8
---------- --------- ------------ ---------- ------- ------------
2029 - 100,000 112.0 - - -
---------- --------- ------------ ---------- ------- ------------
2032 - 100,000 148.1 - - -
---------- --------- ------------ ---------- ------- ------------
0.5 1,685,237 82.2 6.4 962,470 79.5
---------- --------- ------------ ---------- ------- ------------
Long-term incentive scheme
On 4 September 2019 the Company granted 1,058,135 zero cost
options to certain members of the senior management team at a
weighted average fair value of 17 pence per share. Of these,
462,934 options were granted as replacements to equity awards made
under the 2017 LTIP scheme. The options vest between 12 August 2020
and 12 August 2024, subject to Gross Profit, Profit After Tax and
the Company's share price exceeding certain targets. These targets
are the same as those set under the 2017 LTIP scheme, full details
of which are given in the Company's Remuneration Report. The
options lapse on 21 March 2027. 132,267 options were cancelled.
Options outstanding under the scheme number 1,058,135 (31 March
2019: 606,647).
Non-employee option plan
On 17 April 2019 the Company granted an advisor to the Board,
Stefan Barden, an equity award comprising of 300,000 zero cost
options at a weighted average fair value at date of grant of 37
pence per share. These options vest in three tranches of 100,000
each subject to Gross Profit and the Company's share price
exceeding certain targets. The three tranches lapse on 30 July
2024, 30 July 2029 and 30 July 2032 respectively. Full details of
the grant can be found in the Company's Remuneration Report.
Share-based payment charge. The total credit relating to
equity-settled share-based payment plans was GBP60,000 for the year
ended 31 March 2020 (31 March 2019: credit of GBP132,000). The
associated credit for social security was GBP23,000 for the year
ended 31 March 2020 (31 March 2019: GBP64,000 credit).
11. Provisions
Sabbatical Dilapidation Total
provision provisions
---------- ------------ ------
GBP000 GBP000 GBP000
---------- ------------ ------
At 1 April 2018 706 82 788
---------- ------------ ------
Provided in the year 158 - 158
---------- ------------ ------
Utilised in the year (111) - (111)
---------- ------------ ------
At 31 March 2019 753 82 835
---------- ------------ ------
Provided in the year 12 59 71
---------- ------------ ------
Utilised in the year (41) - (41)
---------- ------------ ------
At 31 March 2020 724 141 865
---------- ------------ ------
Of which:
---------- ------------ ------
Current 237 63 300
---------- ------------ ------
Non-current 487 78 565
---------- ------------ ------
724 141 865
---------- ------------ ------
The Group has a sabbatical leave scheme, open to all employees.
The scheme provides 20 days paid leave for each successive period
of six years' service. There is no proportional entitlement for
shorter periods of service. The provision for the liabilities under
the scheme is measured using the projected unit credit method. The
calculation of the provision for the year ended 31 March 2020
assumes an annual rate of growth in salaries of 7% (year ended 31
March 2019: 7%), a discount rate of 2.1% (year ended 31 March 2019:
1.6%), based upon good quality 6-year corporate bond yields, and an
average staff turnover rate of 19% (year ended 31 March 2019: 19%).
The key assumptions are considered to be the estimation of future
salary increases and staff turnover. An adjustment of 10% to the
assumptions for salary increases and staff turnover rates would
result in a change in the valuation of the provision as at 31 March
2020 of GBP55,000 and GBP150,000 respectively.
Dilapidation provisions represent GBP63,000 in relation to
agreed settlements and the remainder represents the Group's best
estimate of costs required to meet its obligations under property
lease agreements.
12. Trade and other payables
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Trade payables 1,005 1,990
----------- -----------
Social security and other taxes 118 292
----------- -----------
Accruals 2,086 2,226
----------- -----------
3,209 4,508
----------- -----------
Trade and other payables are due within one year and are not
interest bearing. The contractual terms for the payment of trade
payables are generally 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
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Contract liabilities 671 534
----------- -----------
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 GBP358,000 relating to contract
liabilities recognised at 1 April 2019 (2019: GBP355,000). 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:
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Within one year 1,208 1,002
----------- -----------
Later than 1 but no later than 5 years 3,405 1,972
----------- -----------
More than 5 years - 201
----------- -----------
Minimum lease payments 4,613 3,175
----------- -----------
Future finance charges (339) (299)
----------- -----------
Recognised as a liability 4,274 2,876
----------- -----------
The present value of finance lease liabilities is as
follows:
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Within one year 1,001 899
----------- -----------
Later than 1 but no later than 5 years 3,273 1,786
----------- -----------
More than 5 years - 191
----------- -----------
4,274 2,876
----------- -----------
There are no contingent payments, purchase options or
restrictive covenants in respect of property leases. Details of
loan facilities and balances are given in note 8.
15. Expenses by nature
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Employee benefit expense 12,551 11,882
----------- -----------
Depreciation, amortisation and impairment 2,598 1,261
----------- -----------
Net foreign exchange (gains)/losses (21) (3)
----------- -----------
Other expenses 9,929 11,703
----------- -----------
25,057 24,843
----------- -----------
Analysed as:
----------- -----------
Cost of sales 3,874 4,849
----------- -----------
Administrative expenses 21,183 19,994
----------- -----------
25,057 24,843
----------- -----------
16. Profit Before Taxation
Profit Before Taxation is stated after charging:
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Depreciation and amortisation 1,677 1,261
----------- -----------
Share-based payments (60) (132)
----------- -----------
Loss on disposal 66 2
----------- -----------
Impairment of development costs 921 -
----------- -----------
Net (gain)/loss on foreign currency translation (21) (3)
----------- -----------
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -------------
Audit and audit related fees
----------- -------------
Audit of parent company and consolidated accounts 58 57
----------- -------------
Audit related assurance services 10 7
----------- -------------
68 64
----------- -------------
Non-audit fees
----------- -------------
Tax compliance - 58
----------- -------------
Tax advisory - 38
----------- -------------
Other services - 25
----------- -------------
- 121
----------- -------------
68 185
----------- -------------
17. Employee benefit expense
The average number of staff employed by the Group during the
financial year was as follows:
31 Mar 2020 31 Mar 2019
----------- -----------
No No
----------- -----------
Number of administrative staff 146 145
----------- -----------
The aggregate employment costs of the above were:
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Wages and salaries 10,134 9,775
----------- -----------
Social security costs 1,131 1,176
----------- -----------
Pension costs - defined contribution plans 361 339
----------- -----------
Long service leave cost - sabbatical provision (29) 47
----------- -----------
Share based remuneration (60) (132)
----------- -----------
Compensation for loss of office 521 101
----------- -----------
Medical benefits 493 576
----------- -----------
12,551 11,882
----------- -----------
The Company had 7 key management personnel as at 31 March 2020
(31 March 2019: 6), including the two Executive Directors.
Compensation to key management is set out below.
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Short-term employee benefits - salaries,
bonuses and benefits in kind 949 662
----------- -----------
Short-term employee benefits - employer social
security, including GBP15,000 credit (year
ended 31 March 2019: GBP89,000 credit) in
respect of share incentive plans 78 32
----------- -----------
Compensation for loss of office 220 -
----------- -----------
Post-employment benefits (pension costs -
defined contribution plans) 11 19
----------- -----------
Long term bonus plan (7) (48)
----------- -----------
Share-based payment (24) (62)
----------- -----------
1,227 603
----------- -----------
Details of directors' emoluments are given in the Remuneration
Report.
18. Finance expenses
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Other interest payable / (receivable) 4 (2)
----------- -----------
Finance charges on property leases 118 137
----------- -----------
122 135
----------- -----------
19. Income tax expense
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Current tax 886 660
----------- -----------
Deferred tax (359) (6)
----------- -----------
527 654
----------- -----------
Income tax expense for the year differs from the standard rate
of taxation as follows:
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Profit on ordinary activities before taxation 296 1,921
----------- -----------
Profit on ordinary activities multiplied by standard UK tax rate 56 365
----------- -----------
Difference between tax rates applied to Group's subsidiaries 265 237
----------- -----------
Expenses not deductible for tax purposes 7 4
----------- -----------
Tax on intra-group management charges (Brazil and China) 113 97
----------- -----------
Adjustment to current tax in respect of prior years (41) (27)
----------- -----------
Withholding tax 45 -
----------- -----------
Derecognition of trading losses 84 -
----------- -----------
Credit on exercise of share options taken to income statement (2) (22)
----------- -----------
527 654
----------- -----------
The standard tax rate for the year ended 31 March 2020 and 2019
was 19%.
The Company is working with its advisors to submit claims for a
Research & Development Tax Credit ("R&D Tax Credit") in
respect of the two years ended 31 March 2020. The R&D Tax
Credit in respect of the year to 31 March 2019 is anticipated to
provide a benefit of approximately GBP0.5m, which will be
recognised on approval by HMRC. No amounts have been recognised in
these financial statements in relation to these claims.
20. Deferred tax
Deferred tax assets and liabilities are as follows.
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Deferred tax assets:
----------- -----------
- Deferred tax assets to be recovered after more than 12 months 570 145
----------- -----------
- Deferred tax assets to be recovered within 12 months 79 175
----------- -----------
649 320
----------- -----------
Deferred tax liabilities:
----------- -----------
- Deferred tax liability to be recovered within 12 months (22) (21)
----------- -----------
Deferred tax asset (net): 627 299
----------- -----------
The gross movement in deferred tax is as follows.
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Opening balance 299 372
----------- -----------
Income statement credit 359 6
----------- -----------
Tax debited directly to equity (31) (79)
----------- -----------
Closing balance 627 299
----------- -----------
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 Other provisions Share options Dilapidation provisions Sabbatical Total
provision
-------------- ---------------- ------------- ----------------------- ---------- ------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- ---------------- ------------- ----------------------- ---------- ------
At 1 April 2019 - 38 129 10 143 320
-------------- ---------------- ------------- ----------------------- ---------- ------
Credited/(charged)
to income statement 377 (10) (11) 17 (13) 360
-------------- ---------------- ------------- ----------------------- ---------- ------
Debited directly to
equity - - (31) - - (31)
-------------- ---------------- ------------- ----------------------- ---------- ------
At 31 March 2020 377 28 87 27 130 649
------------------------ -------------- ---------------- ------------- ----------------------- ---------- ------
Deferred tax liabilities Accelerated capital allowances
------------------------------
GBP000
------------------------------
At 1 April 2019 (21)
------------------------------
Charged to income statement (1)
------------------------------
At 31 March 2020 (22)
------------------------------
Deferred tax assets are recognised only to the extent that their
recoverability is considered probable. All deferred tax assets have
been recognised with the exception of those relating to our
Singaporean business (GBP83,000 of tax benefit that would have been
recognised in respect of trading losses).
The deferred tax asset in respect of the Company's share option
plans relates to corporate tax deductions available on exercise of
employee share options.
21. (Losses)/earnings per share
(a) Basic (losses)/earnings per share
Basic (losses)/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.
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
(Loss)/Profit attributable to equity holders
of the Company (GBP'000) (231) 1,267
----------- -----------
Weighted average number of Ordinary Shares
in issue 12,582,934 12,547,658
----------- -----------
Basic (losses)/earnings per share (1.8)p 10.1p
----------- -----------
(b) Diluted (losses)/earnings per share
Diluted (losses)/earnings per share is calculated by adjusting
the weighted average number of shares outstanding assuming
conversion of all dilutive share options to Ordinary Shares.
Options are included in the determination of diluted earnings per
share if the required performance thresholds would have been met
based on the Group's performance up to the reporting date, and to
the extent that they are dilutive.
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
(Loss)/Profit attributable to equity holders
of the Company (GBP'000) (231) 1,267
----------- -----------
Weighted average number of Ordinary Shares
in issue 12,582,934 12,547,658
----------- -----------
Share options NA 330,378
----------- -----------
Weighted average number of Ordinary Shares
for diluted earnings per share 12,582,934 12,878,036
----------- -----------
Diluted (losses)/earnings per share (1.8)p 9.8p
----------- -----------
22. Dividends
On 13 December 2019, the Company paid an interim dividend of 1.1
pence per share, amounting to GBP138,000, in respect of the year
ended 31 March 2020.
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Final dividend for 2018/19: 6.4p per share
(prior period: 6.4p per share) 805 802
----------- -----------
Interim dividend for 2019/20: 1.1p per share
(prior period: 1.1p per share) 138 138
----------- -----------
138 138
----------- -----------
Total ordinary dividends paid in the period 943 940
----------- -----------
The directors do not propose a final dividend in respect of the
year ended 31 March 2020.
23. Net cash generated from operations
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Profit before taxation 296 1,921
----------- -----------
Depreciation 1,338 1,126
----------- -----------
Amortisation and impairment 1,260 135
----------- -----------
Interest paid 122 135
----------- -----------
Loss on disposal of property, plant and equipment 66 2
----------- -----------
Share-based payment credit (60) (132)
----------- -----------
Increase in contract costs (8) (77)
----------- -----------
Decrease/(increase) in receivables 1,484 (1,204)
----------- -----------
(Decrease)/increase in payables (1,265) 417
----------- -----------
Increase/(decrease) in contract liabilities 137 (46)
----------- -----------
Exchange differences on operating items (190) (57)
----------- -----------
Net cash generated from operations 3,180 2,220
----------- -----------
24. Related party transactions
Dividends paid to directors were as follows:
31 Mar 2020 31 Mar 2019
----------- -----------
GBP GBP
----------- -----------
John Kearon 222,093 245,067
----------- -----------
James Geddes (resigned 20 April 2020) 19,738 18,824
----------- -----------
Ken Ford* (resigned 24 July 2018) NA 1,280
----------- -----------
Robert Brand 2,250 2,250
----------- -----------
Graham Blashill 750 750
----------- -----------
244,831 268,171
----------- -----------
*Includes those dividends with an ex-dividend date prior to
resignation as director on 24 July 2018.
A family member of James Geddes is due to receive commission
from WeWork during the year to 31 March 2021 equal to 10% of the
first year of rental payments to be made by the Company on its new
WeWork office space in London. This commission will amount to
GBP40,000, and the proposed transaction was reviewed by, and
received the prior approval of, the Company's Audit Committee. No
such transactions arose in the year ended 31 March 2019.
The following transactions took place between entities within
the Group, all of which are consolidated in these financial
statements, and are related parties by virtue of the common control
of the Company.
For the year ended 31 March 2020:
Revenues/ Overhead Royalties Amounts due
(direct charges from/(to)
costs) related
parties
--------- -------- --------- -----------
GBP'000 GBP'000 GBP'000 GBP'000
--------- -------- --------- -----------
System1 Group PLC 2 6,090 2,403 351
--------- -------- --------- -----------
System1 Research Limited (190) (1,371) (557) (78)
--------- -------- --------- -----------
System1 Research B.V. (88) 271 (113) (51)
--------- -------- --------- -----------
System1 Research, Inc. (169) (2,858) (1,120) (416)
--------- -------- --------- -----------
System1 Research Sarl 219 (489) (188) 465
--------- -------- --------- -----------
System1 Research GmbH - (410) (158) (211)
--------- -------- --------- -----------
System1 Marketing Consulting
(Shanghai) Co. Limited - - - 254
--------- -------- --------- -----------
System1 Research Do Brazil
Servicos de Marketing Ltda. - - - (6)
--------- -------- --------- -----------
System1 Research France Sarl 88 (291) (112) 223
--------- -------- --------- -----------
System1 Market Research Pte
Ltd 45 (116) (45) (52)
--------- -------- --------- -----------
System1 Research Pty Ltd. 11 (284) (109) 182
--------- -------- --------- -----------
System1 Agency Limited 84 - - (661)
--------- -------- --------- -----------
For the year ended 31 March 2019:
Revenues/ (direct costs) Overhead charges Royalties Amounts due from/(to)
related parties
------------------------ ---------------- --------- ---------------------
GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------------- --------- ---------------------
System1 Group PLC - 4,953 2,462 3,327
------------------------ ---------------- --------- ---------------------
System1 Research Limited 154 (1,210) (601) (1,050)
------------------------ ---------------- --------- ---------------------
System1 Research B.V. - (124) (62) (22)
------------------------ ---------------- --------- ---------------------
System1 Research, Inc. (236) (2,008) (997) (339)
------------------------ ---------------- --------- ---------------------
System1 Research Sarl 120 (495) (246) 243
------------------------ ---------------- --------- ---------------------
System1 Research GmbH - (505) (251) (752)
------------------------ ---------------- --------- ---------------------
System1 Marketing Consulting (Shanghai)
Co. Limited 94 - (2) 30
------------------------ ---------------- --------- ---------------------
System1 Research Do Brazil Servicos de
Marketing Ltda. - - - (108)
------------------------ ---------------- --------- ---------------------
System1 Research France Sarl 150 (239) (119) (22)
------------------------ ---------------- --------- ---------------------
System1 Market Research Pte Ltd (201) (176) (87) (469)
------------------------ ---------------- --------- ---------------------
System1 Research Pty Ltd. (29) (197) (98) 76
------------------------ ---------------- --------- ---------------------
System1 Agency Limited (52) - - (915)
------------------------ ---------------- --------- ---------------------
25. Exceptional credit - Rates rebate in prior year
During the year ended 31 March 2019, the Company recognised an
exceptional credit of GBP251,000 in administrative expenses in
respect of a Business Rates refund that was made as a result of an
error by Camden Council and the Valuation Office. There were no
exceptional credits in the year to 31 March 2020.
26. Change in accounting policies
The adoption of IFRS 16, 'Leases' has resulted in the following
changes to the previously reported figures:
Balance sheet 31 Mar 2019 Impact of IFRS 16 31 Mar 2019
Restated
-------------------------------------------- ----------- ----------------- -----------
GBP000 GBP000 GBP000
----------- ----------------- -----------
ASSETS
----------- ----------------- -----------
Non-current assets
----------- ----------------- -----------
Property, plant and equipment 227 2,620 2,847
----------- ----------------- -----------
Intangible assets 814 - 814
----------- ----------------- -----------
Deferred tax asset 275 24 299
----------- ----------------- -----------
1,316 2,644 3,960
----------- ----------------- -----------
Current assets
----------- ----------------- -----------
Contract costs 208 - 208
----------- ----------------- -----------
Trade and other receivables 6,915 (8) 6,907
----------- ----------------- -----------
Current income tax asset 431 - 431
----------- ----------------- -----------
Cash and cash equivalents 4,315 - 4,315
----------- ----------------- -----------
11,869 (8) 11,861
----------- ----------------- -----------
Total assets 13,185 2,636 15,821
----------- ----------------- -----------
EQUITY
----------- ----------------- -----------
Capital and reserves attributable to equity
holders of the Company
----------- ----------------- -----------
Share capital 132 - 132
----------- ----------------- -----------
Share premium account 1,601 - 1,601
----------- ----------------- -----------
Merger reserve 477 - 477
----------- ----------------- -----------
Foreign currency translation reserve 223 - 233
----------- ----------------- -----------
Retained earnings 4,721 (86) 4,635
----------- ----------------- -----------
Total equity 7,154 (86) 7,068
----------- ----------------- -----------
LIABILITIES
----------- ----------------- -----------
Non-current liabilities
----------- ----------------- -----------
Provisions 610 - 610
----------- ----------------- -----------
Lease liabilities 23 1,954 1,977
----------- ----------------- -----------
633 1,954 2,587
----------- ----------------- -----------
Current liabilities
----------- ----------------- -----------
Provisions 225 - 225
----------- ----------------- -----------
Lease liabilities 48 851 899
----------- ----------------- -----------
Trade and other payables 4,591 (83) 4,508
----------- ----------------- -----------
Contract liabilities 534 - 534
----------- ----------------- -----------
5,398 768 6,166
----------- ----------------- -----------
Total liabilities 6,031 2,722 8,753
----------- ----------------- -----------
Total equity and liabilities 13,185 2,636 15,821
----------- ----------------- -----------
Income statement (extract) 31 Mar 2019 Impact of IFRS 16 31 Mar 2019
Restated
GBP000 GBP000 GBP000
----------- ----------------- -----------
Operating profit 1,932 124 2,056
----------- ----------------- -----------
Finance income/(expense) 2 (137) (135)
----------- ----------------- -----------
Income tax expense (677) 23 (654)
----------- ----------------- -----------
Profit after taxation 1,257 10 1,267
----------- ----------------- -----------
Cash flow statement (extract) 31 Mar 2019 Impact of IFRS 16 31 Mar 2019
Restated
GBP000 GBP000 GBP000
----------- ----------------- -----------
Net cash generated from operating activities 609 969 1,578
----------- ----------------- -----------
Net cash used by investing activities (1,030) (1,030)
----------- ----------------- -----------
Net cash used by financing activities (982) (969) (1,951)
----------- ----------------- -----------
Net decrease in cash and cash equivalents (1,403) - (1,403)
----------- ----------------- -----------
Cash and cash equivalents at 31 March 4,315 - 4,315
----------- ----------------- -----------
The Group has elected to apply the full retrospective approach
to the transition to IFRS 16. The full retrospective approach
requires the transition to be implemented with restatement of the
prior year results as if IFRS 16 had always been applied.
On adoption of IFRS 16, the Group has recognised lease
liabilities reflecting future lease payments, and 'Right-of-use
assets' in respect of property leases which meet the definition of
a contract that conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration. The lease liability is initially measured at the
present value of the lease payments that are not paid at the
commencement date, discounted by using the rate implicit in the
lease. Further details are given in note 3 of the financial
statements.
As a result of the implementation of IFRS 16, the following
restatements have been made:
1. The increase in property, plant and equipment from the
recognition of Right-of-use assets
2. The increase in lease liabilities from the recognition of
liabilities for future lease payments, discounted to present
value
3. The elimination of prepayments and accruals in respect of
operating lease rentals, including those amounts recognised in
respect of lease incentives
4. The recognition of depreciation and finance expenses in place
of operating lease charges, with a corresponding increase in
finance charges and a decrease in operating expenses for the
periods presented.
Balance sheet 31-Mar-18 Impact of 31-Mar-18
IFRS 16
Restated
----------------------------------- ---------- ---------- ----------
GBP000 GBP000 GBP000
---------- ---------- ----------
ASSETS
---------- ---------- ----------
Non-current assets
---------- ---------- ----------
Property, plant and equipment 269 3,154 3,423
---------- ---------- ----------
Intangible assets 26 - 26
---------- ---------- ----------
Deferred tax asset 372 - 372
---------- ---------- ----------
667 3,154 3,821
---------- ---------- ----------
Current assets
---------- ---------- ----------
Contract costs 131 - 131
---------- ---------- ----------
Trade and other receivables 5,711 (7) 5,704
---------- ---------- ----------
Current income tax asset 423 - 423
---------- ---------- ----------
Cash and cash equivalents 5,784 - 5,784
---------- ---------- ----------
12,049 (7) 12,042
---------- ---------- ----------
Total assets 12,716 3,147 15,863
---------- ---------- ----------
EQUITY
---------- ---------- ----------
Capital and reserves attributable
to equity
holders of the Company
---------- ---------- ----------
Share capital 132 - 132
---------- ---------- ----------
Share premium account 1,601 - 1,601
---------- ---------- ----------
Merger reserve 477 - 477
---------- ---------- ----------
Foreign currency translation
reserve 221 - 221
---------- ---------- ----------
Retained earnings 4,578 (96) 4,482
---------- ---------- ----------
Total equity 7,009 (96) 6,913
---------- ---------- ----------
LIABILITIES
---------- ---------- ----------
Non-current liabilities
---------- ---------- ----------
Provisions 420 - 420
---------- ---------- ----------
Lease liabilities 70 2,489 2,559
---------- ---------- ----------
490 2,489 2,979
---------- ---------- ----------
Current liabilities
---------- ---------- ----------
Provisions 368 - 368
---------- ---------- ----------
Lease liabilities 46 831 877
---------- ---------- ----------
Trade and other payables 4,223 (77) 4,146
---------- ---------- ----------
Contract liabilities 580 - 580
---------- ---------- ----------
5,217 754 5,971
---------- ---------- ----------
Total liabilities 5,707 3,243 8,950
---------- ---------- ----------
Total equity and liabilities 12,716 3,147 15,863
---------- ---------- ----------
27. Audit exemption
System1 Research Limited (company number 03900547), System1
Agency Limited (company number 09829202) and System1 Ad Ratings
Limited (company number 11313402) are exempt from the requirements
of the Companies Act 2006 relating to the audit of accounts under
section 479A. System1 Group Plc has given a parental guarantee for
all entities above under section 479C of the Companies Act
2006.
COMPANY BALANCE SHEET
as at 31 March 2020
Registered Company No. 05940040
Note 31 Mar 2020 31 Mar 2019 1 Apr 2018
*Restated for IFRS 16 *Restated for IFRS 16
---- ----------- ---------------------- ----------------------
GBP000 GBP000 GBP000
---- ----------- ---------------------- ----------------------
Fixed assets
---- ----------- ---------------------- ----------------------
Intangible assets 2 368 814 26
---- ----------- ---------------------- ----------------------
Tangible assets 3 2,076 591 1,014
---- ----------- ---------------------- ----------------------
Investments 4 581 581 581
---- ----------- ---------------------- ----------------------
3,025 1,986 1,621
---- ----------- ---------------------- ----------------------
Current assets
---- ----------- ---------------------- ----------------------
Debtors due within one year 5 2,075 5,292 3,900
---- ----------- ---------------------- ----------------------
Debtors due after one year 5 385 100 122
---- ----------- ---------------------- ----------------------
Cash at bank 3,966 152 1,330
---- ----------- ---------------------- ----------------------
6,426 5,544 5,352
---- ----------- ---------------------- ----------------------
Creditors: amounts due within one year 6 (2,678) (3,106) (2,117)
---- ----------- ---------------------- ----------------------
Net current assets 3,748 2,438 3,235
---- ----------- ---------------------- ----------------------
Total assets less current liabilities 6,773 4,424 4,856
---- ----------- ---------------------- ----------------------
Creditors: amounts due after one year 7 (4,101) (66) (494)
---- ----------- ---------------------- ----------------------
Provisions for liabilities 8 (270) (287) (307)
---- ----------- ---------------------- ----------------------
Net assets 2,402 4,071 4,055
---- ----------- ---------------------- ----------------------
Capital and reserves
---- ----------- ---------------------- ----------------------
Share capital 10 132 132 132
---- ----------- ---------------------- ----------------------
Share premium account 1,601 1,601 1,601
---- ----------- ---------------------- ----------------------
Retained earnings 669 2,338 2,322
---- ----------- ---------------------- ----------------------
Shareholders' funds 2,402 4,071 4,055
---- ----------- ---------------------- ----------------------
As permitted by Section 408 of the Companies Act 2006, the
Parent Company's profit and loss account has not been included in
these financial statements. The Parent Company's loss after tax was
GBP663,000 (2019: restated profit of GBP1,137,000).
These financial statements were approved by the directors on 30
June 2020 and are signed on their behalf by:
John Kearon, Director Chris Willford, Director
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2020
Share Share premium Retained Total
Capital account earnings
-------- ------------- --------- -------
GBP000 GBP000 GBP000 GBP000
-------- ------------- --------- -------
At 1 April 2018 as originally
stated 132 1,601 2,373 4,106
-------- ------------- --------- -------
Transition to IFRS 16 - - (51) (51)
-------- ------------- --------- -------
At 1 April 2018 restated 132 1,601 2,322 4,055
-------- ------------- --------- -------
Profit for the financial period
and total comprehensive income
attributable to the equity holders - - 1,137 1,137
-------- ------------- --------- -------
Transactions with owners:
-------- ------------- --------- -------
Employee share scheme
-------- ------------- --------- -------
Value of employee services - - (132) (132)
-------- ------------- --------- -------
Current tax credited to equity - - 18 18
-------- ------------- --------- -------
Deferred tax debited to equity - - (70) (70)
-------- ------------- --------- -------
Dividends paid to owners - - (940) (940)
-------- ------------- --------- -------
Sale of treasury shares - - 3 3
-------- ------------- --------- -------
- - (1,121) (1,121)
-------- ------------- --------- -------
At 31 March 2019 restated 132 1,601 2,338 4,071
-------- ------------- --------- -------
Loss for the financial year and
total comprehensive loss attributable
to the equity holders - - (663) (663)
-------- ------------- --------- -------
Transactions with owners:
-------- ------------- --------- -------
Employee share scheme
-------- ------------- --------- -------
Value of employee services - - (60) (60)
-------- ------------- --------- -------
Deferred tax debited to equity - - (33) (33)
-------- ------------- --------- -------
Dividends paid to owners - - (943) (943)
-------- ------------- --------- -------
Sale of treasury shares - - 30 30
-------- ------------- --------- -------
- - (1,006) (1,006)
-------- ------------- --------- -------
At 31 March 2020 132 1,601 669 2,402
-------- ------------- --------- -------
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
1 Accounting policies
Statement of compliance
The separate financial statements of the Company are presented
in accordance with Financial Reporting Standard 101 - 'The Reduced
Disclosure Framework'. They have been prepared under the historical
cost convention. The principal accounting policies adopted in the
preparation of these financial statements are set out below. These
policies have been applied consistently throughout the year except
for the first-time adoption of IFRS 16, 'Leases' which was adopted
on 1 April 2019.
IFRS 16 replaced the existing guidance in IAS 17. Under IAS 17,
lessees were required to make a distinction between a finance lease
(on balance sheet) and an operating lease (off balance sheet). IFRS
16 now requires lessees to recognise a lease liability reflecting
future lease payments and a 'right-of-use asset' for virtually all
lease contracts. Under IFRS 16, a contract is, or contains, a lease
if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration. The lease liability is initially measured at the
present value of the lease payments that are not paid at the
commencement date, discounted by using the rate implicit in the
lease. If this rate cannot be readily determined, the Company uses
its incremental borrowing rate. The weighted average incremental
borrowing rate applied to lease liabilities is 3.5%.
The Company has elected to apply the full retrospective approach
to the transition to IFRS 16. The full retrospective approach
requires the transition to be implemented with restatement of the
prior year results as if IFRS 16 had always been applied. Adoption
of the IFRS 16 has resulted in the recognition of right-of-use
assets and lease liabilities with a corresponding increase in
depreciation charges and finance costs offset by a reduction in
operating lease costs in the income statement. The implementation
of IFRS 16 has made an insignificant impact on the net assets of
the Company, as set out in note 12.
This Company is included in the consolidated financial
statements of System1 Group PLC for the 12 months ended 31 March
2020. These accounts are available from the registered office
address of the Company, and at www.system1group.com (investor
section).
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 requirement to produce a balance sheet at the beginning
of the earliest comparative period;
(c) the requirements of IAS 24 Related Party Disclosures to
disclose related party transactions entered into between two or
more wholly owned members of the group;
(d) disclosure of key management personnel compensation;
(e) capital management disclosures;
(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 financial instruments and fair
value measurement.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
Research and development - internally generated intangible
assets
All on-going research expenditure is expensed in the year in
which it is incurred. Development costs incurred in the development
of the Company's new AdRatings product are capitalised as an
internally generated asset when all criteria for capitalisation are
met. The AdRatings product comprises the product platform and the
data available to product subscribers.
Costs relating to the research phase of the product, amounting
to GBP2.11m were expensed in the year to 31 March 2019. Development
costs include professional fees and directly-attributable employee
costs required to bring the software into working condition. Where
no internally-generated intangible asset can be recognised,
development expenditure is charged to administrative expenses in
the period in which it is incurred.
Furthermore, internally-generated software and product
development costs are recognised as an intangible asset only if the
Company can demonstrate all of the following conditions:
(a) the technical feasibility of completing the intangible asset
so that it will be available for use or sale; (b) its intention to
complete the intangible asset and use or sell it;
(c) its ability to use or sell the intangible asset;
(d) how the intangible asset will generate probable future
economic benefits;
(e)among other things, the Company can demonstrate the existence
of a market for the output of the intangible asset or the
intangible asset itself or, if it is to be used internally, the
usefulness of the intangible asset;
(f) the availability of adequate technical, financial and other
resources to complete the development and to use or sell the
intangible asset;
(g) its ability to measure reliably the expenditure attributable
to the intangible asset during its development.
Amortisation
Acquired computer software licences are amortised on a
straight-line basis over their estimated useful economic life of
two years.
Internally-generated intangible assets are amortised on a
straight-line basis over their useful economic lives.
The AdRatings platform and the cost of data being made available
to subscribers were being amortised over a period of 3 years on a
straight line basis, prior to impairment in full in the year ended
31 March 2020.
Amortisation and impairment on all intangible assets is charged
to administrative expenses.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
Tangible assets
Property, plant and equipment are stated at historical cost less
accumulated depreciation and accumulated impairment losses.
Depreciation is provided to write off the cost of all property,
plant and equipment to its residual value on a straight-line basis
over its expected useful economic lives, which are as follows:
Furniture, fittings and equipment 5 years
Computer hardware 2 to 3 years
The residual value and useful life of each asset is reviewed and
adjusted, if appropriate, at each balance sheet date. Depreciation
is charged to administrative expenses in the income statement.
Right-of-use assets are measured at cost to include the lease
liability, direct and restoration cost and are generally
depreciated over the shorter of the asset's useful life and the
lease term on a straight-line basis. Payments associated with short
term leases of equipment and vehicles and all leases of low value
assets are recognised on a straight-line basis as an expense in the
profit and loss.
Impairment of property, plant and equipment and intangible
assets
At each balance sheet date the Company reviews the carrying
amount of its property, plant and equipment and intangible assets
for any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of the
impairment loss, if any. Intangible assets not available for use
are tested for impairment on at least an annual basis. The
recoverable amount is the higher of the fair value less costs to
sell and value in use.
Cash at bank
Cash at bank comprises cash in hand and bank deposits available
on demand.
Income taxes
Current income tax liabilities comprise those obligations to
fiscal authorities relating to the current or prior reporting
period, that are unpaid at the balance sheet date. They are
calculated according to the tax rates and tax laws that have been
enacted or substantively enacted at the reporting date applicable
to the fiscal periods to which they relate, based on the taxable
profit for the year. All changes to current tax assets or
liabilities are recognised as a component of tax expense in the
income statement, except where it relates to items charged or
credited to other comprehensive income or directly to equity.
Deferred income taxes are calculated using the liability method
on temporary differences. This involves the comparison of the
carrying amounts of assets and liabilities in the consolidated
financial statements with their respective tax bases. In addition,
tax losses available to be carried forward as well as other income
tax credits to the Company are assessed for recognition as deferred
tax assets.
Deferred tax liabilities are always provided for in full.
Deferred tax assets are recognised to the extent that it is
probable that the underlying deductible temporary differences will
be able to be offset against future taxable income. Deferred tax
assets and liabilities are calculated, without discounting, at tax
rates that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at
the balance sheet date. Deferred tax is recognised as a component
of tax expense in the income statement, except where it relates to
items charged or credited to other comprehensive income or directly
to equity.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
Employee benefits
All accumulating employee-compensated absences that are unused
at the balance sheet date are recognised as a liability.
The Company operates a defined contribution pension plan. The
Company pays contributions to the plan based upon the contractual
terms agreed with each employee. The Company has no further payment
obligations once the contributions have been paid. The
contributions are recognised as employee benefit expense when they
are due.
Share-based payments
Equity-settled, share-based payments are measured at fair value
at the date of grant. Equity-settled, share-based payments that are
made available to employees of the Company's subsidiaries are
treated as increases in equity over the vesting period of the
award, with a corresponding increase in the Company's investments
in subsidiaries, based on an estimate of the number of shares that
will eventually vest.
Provisions
Provisions for sabbatical leave are recognised when: the Company
has a legal or constructive obligation as a result of past events;
it is probable that an outflow of resources will be required to
settle the obligation; and the amount has been reliably estimated.
Where material, the increase in provisions due to passage of time
is recognised as interest expense. The provision for sabbatical
leave is measured using the projected unit credit method. The
provision for dilapidations is measured at the present value of
expenditures expected to be required to settle those
obligations.
Financial instruments
The Company's financial assets comprise trade and other
receivables held at amortised cost. The Group does not possess
assets held at fair value through profit or loss. The
classification is determined by management at initial recognition,
being dependent upon the business model and the contractual cash
flows of the assets. Financial assets are derecognised when the
rights to receive cash flows from the investments have expired or
have been transferred and the Company has transferred substantially
all risks and rewards of ownership. Financial assets arising from
contracts with customers are separately presented in accordance
with IFRS 15 'Revenue from Contracts with Customers' in the Balance
Sheet.
Trade and other receivables
Trade and other receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in an
active market. The Company's amortised cost financial assets
comprise trade and other receivables and cash and cash equivalents
in the balance sheet.
Trade receivables are initially recorded at fair value, but
subsequently at amortised cost using the effective interest rate
method. In accordance with IFRS 9, the Company assesses on a
forward-looking basis, the expected credit losses associated with
its financial assets carried at amortised cost. This assessment
takes into account 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.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
Financial liabilities. Financial liabilities are initially
recognised at fair value, net of transaction costs, and
subsequently carried at amortised cost using the effective interest
rate method. Financial liabilities and equity instruments are
classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract
that evidences a residual interest in the assets of the entity
after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments
(including share capital) are equivalent to a similar debt
instrument, those financial instruments are classed as financial
liabilities. Financial liabilities are presented as such in the
balance sheet. Finance costs and gains or losses relating to
financial liabilities are included in the income statement. Finance
costs are calculated so as to produce a constant rate of return on
the outstanding liability. Where the contractual terms of share
capital do not have any terms meeting the definition of a financial
liability then this is classed as an equity instrument. Dividends
and distributions relating to equity instruments are debited
directly to equity.
Share capital
Ordinary shares are classified as equity. Equity instruments
issued by the Company are recorded at the proceeds received, net of
direct issue costs.
Share premium
Share premium represents the excess over nominal value of the
fair value of consideration received for equity shares, net of
expenses of the share issue.
Treasury shares
Where the Company purchases the Company's equity share capital,
the consideration paid is deducted from the total shareholders'
equity and classified as treasury shares until they are cancelled.
Where such shares are subsequently sold or re-issued, any
consideration received is included in total shareholders' equity.
No gain or loss is recognised on the purchase, sale, issue or
cancellation of the Company's own equity instruments.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
Significant accounting estimates and judgements
Share-based payments - judgement The fair value of options
granted is determined using a Black Scholes based Employee Stock
Option Valuation model (for the employee share option scheme) and a
Monte Carlo simulation model (for the long-term incentive scheme).
These models require a number of estimates and assumptions. The
significant inputs into the models are share price at grant date,
exercise price, historic exercise multiples, expected volatility
and the risk-free rate. Volatility is measured at the standard
deviation of expected share price returns based on statistical
analysis of historical share prices.
In previous years the Company has often purchased shares arising
from the exercise of share options in order 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. In order to determine whether the Company's
share options are equity or cash-settled, consideration needs to be
given to whether the settlement of the share options through the
issue and subsequent repurchase of treasury shares should be
treated as one transaction or as two distinct transactions, and
whether the Company has a present obligation to settle in cash. The
Company does not publicise to option holders that treasury shares
may be repurchased and the decision to do so is only made at the
point of option exercise. Consequently, for subsequent settlements
treasury shares issued may not be purchased. For this reason,
treating the transaction as a whole would not reflect the
transaction's substance. There is no present obligation to settle
in cash given that the Company does not have a policy of
repurchasing treasury shares and has not advertised to employees
that this option will be open to them until the point of exercise.
As a result, the Company's share options continue to be accounted
for as equity rather than cash-settled.
In prior periods the Company has on occasion cash-settled part
of long-term incentive plan equity awards. Despite the repurchase
of these equity interests the Company did not have an obligation to
do so and does not have an obligation, constructive or otherwise to
do so in the future. As a result, the Company continues to account
for share-based payments related to its long-term incentive plans
as equity rather than cash-settled.
Employee benefits - estimate The Company has a sabbatical leave
scheme, open to all employees, which provides 20 days paid leave
for each six years' of service. The carrying amount of the
provision at the balance sheet date amounted to GBP257,000 (31
March 2019: GBP280,000). The provision for liabilities under the
scheme is measured using the projected unit credit method. This
model requires a number of estimates and assumptions. The
significant inputs into the model are rate of salary growth and
average staff turnover as explained in Note 8.
The average number of staff employed by the Company during the
year ended 31 March 2020 was 49 (2019: 44) and total employment
costs were GBP5,343,000 (2019: GBP3,533,000)
Leases - estimate and judgement Management exercises judgement
in determining the likelihood of exercising break or extension
options in determining the lease term, and reviews this on a lease
by lease basis.
The discount rate used to calculate the lease liability is the
rate implicit in the lease, if it can be readily determined, or the
lessee's incremental borrowing rate if not. Incremental borrowing
rates are determined based on the term, country, currency and start
date of the lease, to derive the rate of interest that the lessee
would have to pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of a similar value
to the right-of-use asset in a similar economic environment.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
Capitalisation of AdRatings platform.
The Group tests capitalised development costs for impairment on
an annual basis by reference to expected future cash generation. In
estimating future cash generation, management make judgements by
reference to budgets and forecasts about the amount and timing of
future profits.
The carrying value of the AdRatings product was tested for
impairment as at 31 March 2020. The carrying value of the asset has
been allocated to the AdRatings cash generating unit ('CGU') for
the purposes of assessing future cashflows. The principal
assumptions used in the forecast are the timing and amount of
future revenues and profit margins, which are derived from the
latest forecasts approved by the Board. As a result of this review,
and in light of the continuing modest AdRatings revenues of
GBP0.05m in the year, the carrying value of the asset has been
impaired in full, and accordingly the amortisation charge for the
year ended 31 March 2020 includes impairment charges of
GBP921,000.
2. Intangible assets
For the year ended 31 March 2020:
Development costs Software licenses Software Total
(AdRatings)
----------------- ----------------- -------- -------
GBP000 GBP000 GBP000 GBP000
----------------- ----------------- -------- -------
At 1 April 2019
----------------- ----------------- -------- -------
Cost 923 499 1,672 3,094
----------------- ----------------- -------- -------
Accumulated amortisation (110) (498) (1,672) (2,280)
----------------- ----------------- -------- -------
Net book amount 813 1 - 814
----------------- ----------------- -------- -------
12 months ended 31 March 2020
----------------- ----------------- -------- -------
Opening net book amount 813 1 - 814
----------------- ----------------- -------- -------
Additions 446 - 368 814
----------------- ----------------- -------- -------
Amortisation charge (338) (1) - (339)
----------------- ----------------- -------- -------
Impairment charge (921) - - (921)
----------------- ----------------- -------- -------
Closing net book amount - - 368 368
----------------- ----------------- -------- -------
At 31 March 2020
----------------- ----------------- -------- -------
Cost 1,369 499 2,040 3,908
----------------- ----------------- -------- -------
Accumulated amortisation (1,369) (499) (1,672) (3,540)
----------------- ----------------- -------- -------
Net book amount - - 368 368
----------------- ----------------- -------- -------
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
2. Intangible assets (continued)
For the year ended 31 March 2019:
Development costs Software licenses Software Total
(AdRatings)
----------------- ----------------- -------- -------
GBP000 GBP000 GBP000 GBP000
----------------- ----------------- -------- -------
At 1 April 2018
----------------- ----------------- -------- -------
Cost - 488 1,672 2,160
----------------- ----------------- -------- -------
Accumulated amortisation - (462) (1,672) (2,134)
----------------- ----------------- -------- -------
Net book amount - 26 - 26
----------------- ----------------- -------- -------
12 months ended 31 March 2019
----------------- ----------------- -------- -------
Opening net book amount - 26 - 26
----------------- ----------------- -------- -------
Additions 923 - - 923
----------------- ----------------- -------- -------
Amortisation charge (110) (25) - (135)
----------------- ----------------- -------- -------
Closing net book amount 813 1 - 814
----------------- ----------------- -------- -------
At 31 March 2019
----------------- ----------------- -------- -------
Cost 923 499 1,672 3,094
----------------- ----------------- -------- -------
Accumulated amortisation (110) (498) (1,672) (2,280)
----------------- ----------------- -------- -------
Net book amount 813 1 - 814
----------------- ----------------- -------- -------
Software comprises the Company's main research software
platform, at a cost of GBP1,604,000, other software licences of
GBP68,000, and additions of GBP368,000 relating to the Company's
new finance system. The Company's main research software platform
was developed over a number of years and introduced in 2011. It was
amortised over 7 years and is now fully amortised. The carrying
amount of this asset at the balance sheet date was GBPNil (31 Mar
2019: GBPNil). The Company's finance system was still in
development at the year end and therefore has not been
amortised.
Development costs comprise amounts capitalised for the Company's
AdRatings product. This comprises the platform and the data
available to subscribers, which were being amortised over three
years prior to impairment.
The carrying value of the AdRatings product has been tested for
impairment at as 31 March 2020. The carrying value of the asset has
been allocated to the AdRatings cash generating unit ('CGU') for
the purposes of assessing future cashflows. The principal
assumptions used in the forecast are the timing and amount of
future revenues and profit margins, which are derived from the
latest forecasts approved by the Board. As a result of this review,
and in light of the continuing modest AdRatings revenues of
GBP0.05m in the year, the carrying value of the asset has been
impaired in full, and accordingly the amortisation charge above
includes impairment charges of GBP921,000.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
3. Tangible assets
For the year ended 31 March 2020:
Right-of-use assets Furniture, fittings and Computer hardware Total
*Restated equipment
*Restated
------------------- ------------------------------- ----------------- ----------
GBP000 GBP000 GBP000 GBP000
------------------- ------------------------------- ----------------- ----------
At 1 April 2019
------------------- ------------------------------- ----------------- ----------
Cost 2,163 165 580 2,908
------------------- ------------------------------- ----------------- ----------
Accumulated depreciation (1,698) (110) (509) (2,317)
------------------- ------------------------------- ----------------- ----------
Net book amount 465 55 71 591
------------------- ------------------------------- ----------------- ----------
12 months ended 31 March 2020
------------------- ------------------------------- ----------------- ----------
Opening net book amount 465 55 71 591
------------------- ------------------------------- ----------------- ----------
Additions 1,997 - 73 2,070
------------------- ------------------------------- ----------------- ----------
Disposals - (13) - (13)
------------------- ------------------------------- ----------------- ----------
Depreciation charge for the year (483) (32) (57) (572)
------------------- ------------------------------- ----------------- ----------
Closing net book amount 1,979 10 87 2,076
------------------- ------------------------------- ----------------- ----------
At 31 March 2020
------------------- ------------------------------- ----------------- ----------
Cost 2,139 56 653 2,848
------------------- ------------------------------- ----------------- ----------
Accumulated depreciation (160) (46) (566) (772)
------------------- ------------------------------- ----------------- ----------
Net book amount 1,979 10 87 2,076
------------------- ------------------------------- ----------------- ----------
For the year ended 31 March 2019:
Right-of-use assets Furniture, fittings and Computer hardware Total
*Restated equipment
*Restated
------------------- -------------------------------- ----------------- ----------
GBP000 GBP000 GBP000 GBP000
------------------- -------------------------------- ----------------- ----------
At 1 April 2018
------------------- -------------------------------- ----------------- ----------
Cost 2,163 164 500 2,827
------------------- -------------------------------- ----------------- ----------
Accumulated depreciation (1,270) (79) (464) (1,813)
------------------- -------------------------------- ----------------- ----------
Net book amount 893 85 36 1,014
------------------- -------------------------------- ----------------- ----------
12 months ended 31 March 2019
------------------- -------------------------------- ----------------- ----------
Opening net book amount - 85 36 121
------------------- -------------------------------- ----------------- ----------
Adjustment on transition to IFRS
16 893 - - 893
------------------- -------------------------------- ----------------- ----------
Additions - 1 80 81
------------------- -------------------------------- ----------------- ----------
Depreciation charge for the year (428) (31) (45) (504)
------------------- -------------------------------- ----------------- ----------
Closing net book amount 465 55 71 591
------------------- -------------------------------- ----------------- ----------
At 31 March 2019
------------------- -------------------------------- ----------------- ----------
Cost 2,163 165 580 2,908
------------------- -------------------------------- ----------------- ----------
Accumulated depreciation (1,698) (110) (509) (2,317)
------------------- -------------------------------- ----------------- ----------
Net book amount 465 55 71 591
------------------- -------------------------------- ----------------- ----------
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
4. Investments
Group companies
------
GBP000
------
Cost and net book amount at 1 April 2019 and 31 March
2020 581
------
Subsidiary undertakings
Details of subsidiary undertakings, registered office and
country of incorporation of each, at 31 March 2020 are as
follows:
Subsidiary undertaking Registered office Country
of incorporation
---------------------------------------- -----------------
System1 Research Limited 52 Bedford Row, Holborn, London, UK
WC1R 4LR
---------------------------------------- -----------------
System1 Research B.V. Conradstraat 38 D2. 138, 3013AP Netherlands
Rotterdam
---------------------------------------- -----------------
System1 Research, 251 Little Falls Drive, Wilmington, USA
Inc. DE 19808, New Castle County, Delaware
---------------------------------------- -----------------
System1 Research Sarl Avenue Gratta Paille 2, 1018 Lausanne, Switzerland
Switzerland
---------------------------------------- -----------------
System1 Research GmbH Kleine Seilerstrasse 1 D-20359 Hamburg Germany
---------------------------------------- -----------------
System1 Marketing 58 Fumin Zhi Road, Chongming County, China
Consulting (Shanghai) Shanghai 201914
Co. Limited
---------------------------------------- -----------------
System1 Research Do Avenida das Nacoes Unidas 14261 Brazil
Brazil Servicos de - Conj. 25-126B - Cond. WT Morumbi,
Marketing Ltda. CEP 04794-000, Vila Gertrudes, São
Paulo
---------------------------------------- -----------------
System1 Research France 17 Rue de Turbigo, 75002 Paris France
Sarl
---------------------------------------- -----------------
System1 Market Research 30 Cecil Street, #19-08 Prudential Singapore
Pte Ltd Tower, 049712
---------------------------------------- -----------------
System1 Research Pty Suite 1, Level 11, 60 Castlereagh Australia
Ltd. Street, Sydney, NSW 2000
---------------------------------------- -----------------
System1 Agency Limited 52 Bedford Row, Holborn, London, UK
WC1R 4LR
---------------------------------------- -----------------
System1 AdRatings 52 Bedford Row, Holborn, London UK
Limited WC1R 4LR
---------------------------------------- -----------------
System1 Research Limited, System1 Agency Limited and System1
AdRatings Limited are wholly owned direct subsidiaries of System1
Group PLC. The remaining subsidiaries are each wholly owned direct
subsidiaries of System1 Research Limited. The activities of all
companies are the provision of online market research services,
apart from System1 Agency Limited which provided advertising agency
services and System1 AdRatings Limited, which provides subscription
access to marketing effectiveness data. Brainjuicer India Private
Limited, previously a dormant wholly owned subsidiary of System1
Research Limited, was dissolved during the year.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
5. Debtors
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Due within one year
----------- -----------
Trade debtors (intra-group) 312 696
----------- -----------
Amounts due from group companies 918 3,452
----------- -----------
Other debtors 135 10
----------- -----------
VAT recoverable 227 190
----------- -----------
Corporation tax recoverable 126 189
----------- -----------
Deferred tax (Note 9) 56 79
----------- -----------
Prepayments 301 676
----------- -----------
2,075 5,292
----------- -----------
Due after one year
----------- -----------
Deferred tax (Note 9) 385 100
----------- -----------
6. Creditors: amounts due within one year
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Trade creditors 451 1,192
----------- -----------
Social security and other taxes 128 133
----------- -----------
Amounts due to group undertakings 848 822
----------- -----------
Lease liabilities 460 428
----------- -----------
Accruals 791 531
----------- -----------
2,678 3,106
----------- -----------
7. Creditors: amounts due after one year
31 Mar 2020 31 Mar 2019
*Restated
----------- -----------
GBP000 GBP000
----------- -----------
Lease liabilities 1,601 66
----------- -----------
Bank loan 2,500 -
----------- -----------
4,101 66
----------- -----------
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
8. Provisions for liabilities
Deferred Sabbatical Total
tax provision
(Note 9)
--------- ---------- ------
GBP000 GBP000 GBP000
--------- ---------- ------
At 1 April 2018 19 288 307
--------- ---------- ------
Provided in the year - 64 64
--------- ---------- ------
Utilised in the year (12) (72) (84)
--------- ---------- ------
At 31 March 2019 7 280 287
--------- ---------- ------
Provided in the year 6 17 23
--------- ---------- ------
Utilised in the year - (40) (40)
--------- ---------- ------
At 31 March 2020 13 257 270
--------- ---------- ------
The Company has a sabbatical leave scheme, open to all
employees. The scheme provides 20 days paid leave for each
successive period of six years' service. There is no proportional
entitlement for shorter periods of service. The provision for the
liabilities under the scheme is measured using the projected unit
credit method. The calculation of the provision for the year ended
31 March 2020 assumes an annual rate of growth in salaries of 7%
(year ended 31 March 2019: 7%), a discount rate of 2.1% (year ended
31 March 2019: 1.6%), based upon good quality 6-year corporate bond
yields, and an average staff turnover rate of 19% (year ended 31
March 2019: 19%). The key assumptions are considered to be the
estimation of future salary increases and staff turnover. An
adjustment of 10% to the assumptions for salary increases and staff
turnover rates would result in a change in the valuation of the
provision as at 31 March 2020 of GBP20,000 and GBP55,000
respectively.
9. Deferred tax
Deferred tax assets and liabilities are as follows.
31 Mar 2020 31 Mar 2019
----------- -----------
GBP000 GBP000
----------- -----------
Deferred tax assets:
----------- -----------
- Deferred tax assets to be recovered after
more than 12 months 385 100
----------- -----------
- Deferred tax assets to be recovered within
12 months 56 79
----------- -----------
441 179
----------- -----------
Deferred tax liabilities:
----------- -----------
- Deferred tax liability to be recovered
within 12 months (13) (7)
----------- -----------
Deferred tax asset (net): 428 172
----------- -----------
The gross movement in deferred tax is as follows.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 March 2020
9. Deferred tax (continued)
Year to 31 Mar 2020 Year to 31 Mar 2019
------------------- -------------------
GBP000 GBP000
------------------- -------------------
Opening balance 172 273
------------------- -------------------
Income statement credit/(charge) 289 (31)
------------------- -------------------
Tax debited directly to equity (33) (70)
------------------- -------------------
Closing balance 428 172
------------------- -------------------
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 Other provisions Share Sabbatical Total
losses options Provision
------- ---------------- -------- ---------- ------
GBP000 GBP000 GBP000 GBP000 GBP000
------- ---------------- -------- ---------- ------
At 1 April 2019 - 2 124 53 179
------- ---------------- -------- ---------- ------
Credited to income statement 304 - (5) (4) 295
------- ---------------- -------- ---------- ------
Debited directly to equity - - (33) - (33)
------- ---------------- -------- ---------- ------
At 31 March 2020 304 2 86 49 441
----------------------------- ------- ---------------- -------- ---------- ------
Deferred tax liabilities Accelerated capital allowances
------------------------------
GBP000
------------------------------
At 1 April 2019 (7)
------------------------------
Charged to income statement (6)
------------------------------
At 31 March 2020 (13)
------------------------------
10. Share capital
Allotted, called up and fully paid Ordinary Number GBP'000
Shares
---------- -------
At 1 April 2019 and at 31 March 2020 13,226,773 132
---------- -------
11. (Loss)/Profit for the year
The Company has made use of the exemptions as permitted by
Section 408 of the Companies Act 2006 and accordingly the income
statement of the Company is not presented as part of the accounts.
The parent company loss for the year to 31 March 2020 of GBP663,000
(31 March 2019: profit of GBP1,137,000) is included in the Group
loss for the financial year. Details of Executive and Non-Executive
Directors' emoluments and their interest in shares and options of
the company are shown within the Directors' Remuneration
Report.
12. Change in accounting policies
The adoption of IFRS 16, 'Leases' has resulted in the following
changes to the previously reported figures:
Balance sheet 31 Mar 2019 Impact of IFRS 16 31 Mar 2019
Restated
----------- ----------------- -----------
GBP000 GBP000 GBP000
----------- ----------------- -----------
Fixed assets
----------- ----------------- -----------
Other intangible assets 814 - 814
----------- ----------------- -----------
Tangible assets 126 465 591
----------- ----------------- -----------
Investments 581 - 581
----------- ----------------- -----------
1,521 465 1,986
--------------------------------------- ----------- ----------------- -----------
Current assets
----------- ----------------- -----------
Debtors due within one year 5,292 - 5,292
----------- ----------------- -----------
Debtors due after one year 100 - 100
----------- ----------------- -----------
Cash at bank 152 - 152
----------- ----------------- -----------
5,544 - 5,544
--------------------------------------- ----------- ----------------- -----------
Creditors: amounts due within one year (2,660) (446) (3,106)
----------- ----------------- -----------
Net current assets 2,884 19 2,438
----------- ----------------- -----------
Total assets less current liabilities 4,405 19 4,424
----------- ----------------- -----------
Creditors: amounts due after one year (23) (43) (66)
----------- ----------------- -----------
Provisions for liabilities (287) - (287)
----------- ----------------- -----------
Net assets 4,095 (24) 4,071
----------- ----------------- -----------
Capital and reserves
----------- ----------------- -----------
Share capital 132 - 132
----------- ----------------- -----------
Share premium account 1,601 - 1,601
----------- ----------------- -----------
Retained earnings 2,362 (24) 2,338
----------- ----------------- -----------
Shareholders' funds 4,095 (24) 4,071
----------- ----------------- -----------
Balance sheet 31 Mar 2018 Impact of IFRS 16 31 Mar 2018
Restated
----------- ----------------- -----------
GBP000 GBP000 GBP000
----------- ----------------- -----------
Fixed assets
----------- ----------------- -----------
Other intangible assets 26 - 26
----------- ----------------- -----------
Tangible assets 121 893 1,014
----------- ----------------- -----------
Investments 581 - 581
----------- ----------------- -----------
728 893 1,621
--------------------------------------- ----------- ----------------- -----------
Current assets
----------- ----------------- -----------
Debtors due within one year 3,900 - 3,900
----------- ----------------- -----------
Debtors due after one year 122 - 122
----------- ----------------- -----------
Cash at bank 1,330 - 1,330
----------- ----------------- -----------
5,352 - 5,352
--------------------------------------- ----------- ----------------- -----------
Creditors: amounts due within one year (1,597) (520) (2,117)
----------- ----------------- -----------
Net current assets 3,755 (520) 3,235
----------- ----------------- -----------
Total assets less current liabilities 4,483 373 4,856
----------- ----------------- -----------
Creditors: amounts due after one year (70) (424) (494)
----------- ----------------- -----------
Provisions for liabilities (307) - (307)
----------- ----------------- -----------
Net assets 4,106 (51) 4,055
----------- ----------------- -----------
Capital and reserves
----------- ----------------- -----------
Share capital 132 - 132
----------- ----------------- -----------
Share premium account 1,601 - 1,601
----------- ----------------- -----------
Retained earnings 2,373 (51) 2,322
----------- ----------------- -----------
Shareholders' funds 4,106 (51) 4,055
----------- ----------------- -----------
The Company has elected to apply the full retrospective approach
to the transition to IFRS 16. The full retrospective approach
requires the transition to be implemented with restatement of the
prior year results as if IFRS 16 had always been applied.
On adoption of IFRS 16, the Company has recognised lease
liabilities reflecting future lease payments, and 'Right-of-use
assets' in respect of property leases which meet the definition of
a contract that conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration. The lease liability is initially measured at the
present value of the lease payments that are not paid at the
commencement date, discounted by using the rate implicit in the
lease.
As a result of the implementation of IFRS 16, the following
restatements have been made:
1. The increase in property, plant and equipment from the
recognition of Right-of-use assets
2. The increase in lease liabilities from the recognition of
liabilities for future lease payments, discounted to present
value
3. The elimination of prepayments and accruals in respect of
operating lease rentals, including those amounts recognised in
respect of lease incentives
4. The recognition of depreciation and finance expenses in place
of operating lease charges, with a corresponding increase in
finance charges and a decrease in operating expenses for the
periods presented.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UKRARRSUNUUR
(END) Dow Jones Newswires
June 30, 2020 02:00 ET (06:00 GMT)
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