The AdRatings intangible asset was written off during the 2020 year-end, because at the time there was not enough revenue to support the balance sheet asset value:
This certainly explains part of the drop in EBIT during 2020, from £2.1m to £0.4m, due to this £921k write-off.
Subsequently, the AdRatings development cost is now being expensed through the P&L, as a change of intangible asset policy.
But, this asks the question how much is being spent on AdRatings development in 2021 and the current year?
It would be useful to know this, to be able to adjust Profit and ROCE upwards, for what I consider to be mostly capital expenses.
Also, it would help to form a view on how invested in the data side of the business is, and how much is this growing (or reducing) annually, and to be able to calculate the non-development/operating margin of the data side of the business.
Revenue and Gross Profit (their definition being Revenue less external costs) are disclosed in the annual accounts, but not profit by operating segment.
Director share awards are based on Gross Profit, so effectively incentivising the maximisation of revenue and minimising of external costs.
Possibly SYS1 is intentionally being made ready for a trade sale, whereby someone like S4C would purchase on a multiple of revenue and then reduce the ‘below the gross profit line’ costs post acquisition/merger? SYS1 would need to get revenue growing to get a decent valuation.
i.e. The two executive directors may be at an age whereby they are looking to exit in the next 5 to 10 years? (Having said that, Martin Sorrell is still going at 78 !)