System1 (SYS1): Unrecognised Growth Potential?


Thanks - super-helpful. The adoption challenges were particularly interesting.

I will continue my homework, including reviewing the results on Wednesday (MP edited).

I don’t work in marketing, but know many that do - some who may be particularly relevant. I will see if I can find some scuttlebutt!


Any thoughts on yesterday’s trading update?

The shift towards data from traditional practices appears to be accelerating but overall growth still seems relatively slow.

I attended the AGM in the hope that there might be some form of presentation and/or Q&A session. It was just a dull session with only the agenda items/votes covered with a kafkaesque voting system on Teams.

Stefan Barden wasn’t in attendance at all which was disappointing as I was hoping to see how he and JK inter react.

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Hi longshanks,

Thanks for the message and welcome to the forum.

Difficult to know for sure about growth rates given the weak comparatives from H1 2021 and the business being in transition.

But Data revenue is accelerating and this is important I feel, as the uptake of the new-style Consultancy assignments will be dependent on the initial volume of Data activity.

Some of the old-style Consultancy work is expected to be dropped, and so Consultancy revenue as a whole may look like it is contracting for a while. The question I guess is whether the new-style Consultancy products can grow as quickly as the Data services, and what the eventual economics of both sources of income will be.

At some point I will review the annual results and the AGM statement for my blog (and here is that review).

Yes, poor show really, especially as two days prior I attended a ‘physical’ AGM that hosted a near 1-hour Q&A. So proper AGMs can be arranged at present.

Mind you, SYS1’s management has hosted lengthy Q&A sessions at previous ‘physical’ AGMs, so I am reserving judgment as to whether the directors have suddenly decided to ignore ordinary shareholders. The voting showed notable protests about the LTIP change and board remuneration, so perhaps the board did not want to risk a protracted debate about those matters.

I think the chairman said at the start of the AGM that the questions submitted to the board prior to the meeting had all been answered (in private).

Ah-ha, here is the AGM notice, dated 20 July, stating no questions could be asked during the meeting. Wish I had read that first!

Shareholders attending virtually will not be able to vote or ask questions during the meeting.

Shareholder questions
Shareholders can submit questions to the Board in advance of the AGM by emailing them to by no later than 09:30 a.m. on 2 August 2021. We will consider all questions received and seek to provide a written response in due course.


I also made enquiries regards attending the agm but didn’t log in after informed it was just formal business. I did note from the subsequent RNS a few of the resolutions had significant opposition. Remuneration, rebasing of the LTIP etc

I can’t say I am too bothered by the remuneration policy and certainly didn’t vote against it.

If there is anything that grates, it is the £220k paid to James Geddes for “loss of office”. The RNS in 3rd April suggested it was a resignation and not with immediate effect. Looks like it was more a case of paying him “clear off money” to allow Stefan to develop the business his way.

I smell something in all this. Not necessarily negative, it could be they are working on a merger or trade sale of the business, but I sense some board awkwardness with where they are in the transition of the business.

Hi longshanks,

Some might argue the changes to the LTIP will cost shareholders more that the £220k paid to Mr Geddes! Definitely looks now as if he was paid off to leave as Mr Kearon reshuffled the board.

The remuneration voting may also reflect Mr Kearon’s additional pay during a year when the company received government benefits, did not declare a dividend, reduced the workforce and Mr Kearon seemingly delegating some of his executive duties to his new chief exec.

I think the board awkwardness has now been and gone. Two chief operating officers left between 2017 and 2018, and Mr Barden’s appearance as a board adviser I am sure ruffled a few feathers. My notes say

"He supports management teams deliver step change value by aiding their setting of clear strategies, creating a positive performance culture that ‘gets work done’, and in helping build strong teams.”

…and his ‘gets work done’ attitude may not have gone down well with typical ‘marketing types’.

The recent results had a ‘Group Overview’ statement signed by Mr Kearon, Mr Barden and Mr Willford, the new FD, so I get the impression they are all in tune with the new business direction.

I did wonder whether the business would be snapped up by ITV during the first lockdown when the market cap was just £12m, but I reckon the board – with its new £1b market cap ambition – may want to keep the business independent for now.


PS No bad language on the forum please. Aim is to maintain a higher standard of discussion than found elsewhere.

They have a whole book on what they do:

Lots of background details - chapter 3 is on advertising…

More here:

But don’t really understand why this can’t be replicated by others - where’s the moat here - maybe they have patents?

Hi Colin,

Thanks for the post and welcome to the forum.

It could be replicated by others. But to sell these services to a CMO, you have to prove your ad data is super predictive and matches up to subsequent changes to market share etc. That is the hard part. And even if you could replicate that proof as well, you would have to sell the service cheaper than SYS1 to ‘disrupt the disruptor’. And perhaps get a deal with ITV to help drive sales. Some more from my earlier comment:


Hi Maynard,

Thanks for the welcome! Only found your forum recently, really like what I’ve seen so far - a high quality initiative.

And thanks for your response, it really does look intriguing and the ITV hook-up (and linked in) as well as the other recent wins (adidas, Expedia, Danone, Sky, Boston Beer, Carlsberg, Kellogg’s, Globo) does seem to show that they have a real, serious and seemingly unique product / proposition.

Still don’t understand how they can scale? They talk about automation, but there’s still the need for 150 humans to watch and score each ad (if I understand correctly) - although they do talk about researching AI solutions - but I think that’s gonna be really hard to get to work anywhere near as well as humans.

So not at all clear to me how this can scale…

Although sounds like they have figured it out … still don’t understand how…

How did Ad Ratings happen?

"It started with a very simple question from our Labs team – what’s the true market picture of advertising? If you tested every ad that aired, how many of them would be good, brand-building ads, and how many of them would be basically a waste of money?

We’d managed to automate our testing process so well that scaling it up to tens of thousands of ads wasn’t a problem. But as soon as we started getting the data in we realised how powerful it was."

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Hi Colin,

The 150 people are sourced from panel organisers Toluna, Prodege and NetQuest. I can’t find the quote in my notes, but I am pretty sure management said at an AGM the company has 100,000+ people registered through those suppliers. So SYS1 is not using the same 150 people every time, just 150 picked/volunteered at random (I presume) to meet the default ‘national representation’ or a specified client demographic.

The IT cost of maintaining and developing the Test Your Ad platform ought to be broadly similar whether the service is handling 10 tests or 1,000 tests a day. That is the ‘scalable’ attraction. Panel costs will of course rise in line with the volume of testing.

The automation refers to clients being able to upload adverts themselves, click a button and have a report produced within 24 hours. The bottleneck could be the panel supplier selecting the 150 people, but that does not stop the automation process I think.

I do wonder if SYS1’s follow-on Expert Guidance consultancy services are as scalable as the Automated Predictions. Surely some human input is required to give the client some advice on how to improve the ad.

Like you I am not sure how AI could provide an ‘emotional’ verdict on adverts!


PS Long blog post here on SYS1’s FY 2021 results.

Just got around to reading your post on the FY 2021 results - excellent work IMO - it still looks intriguing and the rapid growth in Data Revenue as well as signing up some big names… (adidas, Danone, Sky, Boston Beer, Carlsberg, Kellogg’s, and Globo) seems quite promising…

But I’m a little wary of what seems to me to be a bit too much hype, for example “we have challenged ourselves to deliver them at1/100th the cost and 100 x faster than traditional methods”

Again, given they need actual humans to rate each ad, the above does appear to me a bit far-fetched - OTOH, any competitor is gonna have to deal with the same constraint.

But I’m still not convinced that it would be as hard, for a competitor to replicate what they’ve done, as they try to make out…

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An encouraging update released today:

System1 Group issues the following update on trading for the six months to 30 September 2021. The Company will announce its interim results on 30 November 2021.

The first half of the current year (H1) saw a marked increase in sales of automated data products including Test Your Ad. Data products represented 45% of Revenue in Q2, growing from 28% in Q1. Data Revenue in Q2 exceeded Q1 despite a quarter-on-quarter reduction in total Group Revenue. The Group’s H1 Revenue grew 22% on last year to £12.3m.

Q2 Data revenue was better than the Q1/AGM statement had indicated.

Total H1 revenue of £12.3m less £6.5m for Q1 gives £5.8m for total Q2 revenue. 45% of that £5.8m gives Q2 Data revenue of £2.6m and H1 Data revenue of £4.4m — representing 36% of total H1 revenue. SYS1 had previously indicated Data would represent a third of H1 revenue.

Total Q2 revenue of £5.8m is not great given the previous two quarters each registered £6.5m total revenue. But SYS1 is transitioning from bespoke consultancy work to automated Data income and I guess the revenue cross-over will not always balance out. What is important is the more attractive Data revenue is growing quickly:

SYS1 Q2 2022 revenue chart1

Consultancy revenue was only £3.2m during Q2 versus £4.7m during Q1 and £5m-plus for Q3 and Q4 of FY 2021. That reduction has meant current profit is running below what I had calculated in this blog post.

Adjusted Operating Costs* grew as planned as the Group continued to invest in automated products, technology and business development, increasing by 10% over the comparable period to £9.0m.

Adjusted Pre-tax Profits are expected to be some £1.3m in H1, approximately £0.9m higher than in the comparable period. Statutory Pre-tax Profits are expected to be £1.3m compared with a loss of £0.4m in the first half of last financial year.

Period end cash, net of borrowings, was £7.3m, compared with £6.5m at end-March 2021.

Adjusted operating costs of £9.0m for this H1 is a little better than I had predicted. My sums in this blog post predicted nearly £9.2m.

Pre-tax profit of £1.3m for this H1 looks about right assuming an 85% gross margin (as per Q4 FY 2021) on the £12.3m H1 revenue (=£10.5m gross profit) less £9.2m of adjusted costs.

But H1 pre-tax profit of £1.3m, or £2.6m annualised, is below my £3.6m full-year guess within this blog post:

SYS1 Q2 2022 profit chart2

I am hopeful this Q2 is SYS1’s profit low point as Data revenue continues to grow and replace the old-style Consultancy work. H2 could provide some clues as to the possible economics of the Data operation, as any incremental revenue/profit during Q3 and Q4 can be compared to that of Q2.

Net cash of £7.3m is up only £0.8m on the year end, which seems a tad light given H1 pre-tax profit of £1.3m. But the Q1 update implied net cash was £7.6m, which we now know to be £0.3m higher than Q2, so SYS1’s cash movements appear significant from quarter to quarter.

We have been delighted by the continuing adoption by both new and existing customers of System1’s repeatable, fast-turnaround and scalable data products as they displace the historic large bespoke consultancy projects that dominated the Group’s activity until H2 last year. We believe that the growth in data revenues signals tangible progress towards our strategic goals, and that these revenues will in due course more than offset the reduction in bespoke consultancy projects as more customers switch to using our automated data products.

In line with previous communications, the Group intends after the interim results announcement to initiate a share buyback programme to repurchase its shares over an extended period, in order to enhance shareholder returns and to satisfy obligations in relation to employee share schemes.

*Adjusted Operating Costs exclude impairment, interest, share based payments, bonuses, severance costs and government support related to the Covid pandemic. Adjusted figures exclude items, positive and negative, that impede easy understanding of underlying performance.

Ah, so SYS1 is indeed expecting Data revenue to “more than offset” Consultancy work, albeit “in due course“.

The mooted buyback is still on, although SYS1 is now mentioning an “extended period” and “obligations” to share schemes. So not quite the ‘pure’ buyback I had hoped for.

(There are of course no buyback “obligations” with share schemes; companies do not have to operate such schemes and do not have to buy back the shares to offset the resultant dilution.)

I am now reluctant to consider the buyback for valuation purposes as the text reads as if the money will be spent over many years to keep a lid on share dilution. Mind you, significant option vesting will only occur if revenue doubles to £45m during the next four years — which if it does ought to support a higher share price anyway.




Just presenting the bear case - aren’t we basing investment decisions on revenue and net profit alone, and isn’t that an odd way to do things?

To explain, for SYS1’s accounting purposes direct costs are defined as external costs and not internal time, which means gross profit is meaningless in a business where the allocation of employees’ time is one of the most important factors?

This baffles me - time-sheets for employees must be completed internally and allocated against jobs. That is what happens. Presumably the company thinks releasing such information is commercially sensitive?

Not knowing what the ‘true’ gross profit is, and therefore also not knowing what admin costs are in total, I don’t understand how SYS1 can be properly evaluated as an investment proposition? (It certainly isn’t the 84% gross margin business it reports itself to be?).

Moving onto the share options for 2019 awards these are to be nil paid and basically based on revenue:

The Gross Profit performance measure will be replaced with Revenue. The Revenue required for threshold performance is proposed to be £45m and the Revenue required for stretch performance is proposed to be £88m.

  • Is success therefore only to be based on sales or should it be weighted to producing a decent return? There used to be a net profit condition on share awards (I would think to prevent excessive internal hiring) but this appears to have been side-stepped, as described below:.

 Given our change in business model and valuation, the Profit After Tax underpin will be replaced with the Remuneration Committee considering the level of profitability in the year of vesting and the overall corporate and share price performance over the period

A bit fuzzy??

I hate to quote Mungerisms but he believes incentives are the most powerful things and I don’t believe SYS1 have got it right on this occasion, either with their hiring discipline due to their (non-)reporting of gross profit or share option incentives?




Hi anon

Not sure gross profit is meaningless, as direct costs are still costs. The annual report explains:

Cost of sales includes external costs attributable to customer projects. For the research business, these include respondent sample, data processing, language translation and similar costs.

But yes, direct costs are much smaller than indirect costs and perhaps not as significant to the investment case from here.

The latest statement did not disclose gross profit or margin, but referred only to revenue and adjusted operating costs (i.e. including employee costs). So to get a sense of the level of current profit, a guess of gross margin/profit has to be applied before subtracting the adjusted costs. Whether the 85% gross margin proves to be accurate for this H1 and beyond is difficult to say. It was just a guess based upon Q4 of last year.

The option changes are not ideal, although most of the options still require a £4-plus share price and revenue to double to £45m to vest.

I wrote about the options on my blog and surmised: “Perhaps SYS1 will become another portfolio holding with unfortunate remuneration arrangements that goes on to perform well

All I can say is I invested when most of the options demanded a £10 share price and earnings of at least £7m!


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Hi Maynard,

Apologies but the gross profit figure is meaningless because it only reflects the difference between revenue and external costs.

I am not trying to be argumentative but rom memory there are 55 or so employees on an average salary of around £60k p.a. who work directly on jobs. Their cost is attributed to ‘administration costs’ rather than ‘direct costs’ as if they were accountants or secretaries or marketing people. But they are not fulfilling any of these functions.

This is hugely misleading with (55 x £60k) c.£3.4m of costs being reflected as admin costs when in reality they are a huge part of the machinery directly attributable to revenue and a direct cost.

Rant over!



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Hi anon

Ah, ok, this is a wider direct-versus-indirect cost issue. From what I can tell, companies have some leeway as to what they classify as direct and indirect costs, and the classification can differ significantly between companies in the same sector. I never really look at gross margin or gross profit because of this leeway and focus on operating profit and margin (i.e. after all costs). I looked at gross margin/profit for SYS1 only to gauge its current level of profit from the info given.


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Hi Maynard,

Thanks for getting back to me and good luck with it (and with having an ex Imperial Brands sales director in charge of the remuneration committee!).

I don’t get it (and neither do the ebit,ebi, post tax profit and cash metrics, below). I freely admit this may be my shortcoming, though, because I’m just looking at the figures rather than the narrative, which may be changing in the company’s favour:

Best wishes,


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I do agree with anon that the business should report its costs better. I would like to see a genuine gross margin (i.e. after all COGS), operational indirect costs and central costs. This would allow investors to understand the nature of the operating leverage within the business. This is highly unlikely to be competitively sensitive. It would also give me the comfort that management understand their cost base and structure. It is amazing how many don’t.

The incentive scheme is the antithesis of SMART, but I note the pragmatic reasons not to be too worried by this.

I still need to follow re industry perceptions of the technology.

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I have read the book (Thinking Fast and Slow / Kaufman) and I thought it was very good.

Having watched the below video, though, (which -Maynard kindly references one of his articles), SYS1 feels a little like emperor’s new clothes to me at least:

Maybe the creatives are running the show without the benefit of a hard-headed Sorrell on the Board? On the other hand, they were very successful, at least initially.Maybe I need to get in touch with my creative side? :grinning:




The points above are annoying rather than fundamental. I still believe S1 is a promising, and quite specific, investment thesis, which is different to broader advertising agencies. The missing piece for me at the moment is customer perception and market size. Hopefully, I can get some more feedback on this over the next few weeks.


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