Half-year Results

System1 Group the marketing decision-making platform www.system1group.com announces its unaudited interim results for the six months ended 30 September 2024 ("H1", "H1 FY25").

* FY24 restated to align with full-year FY24 accounting for sublease income - see Note 3

** Percentages and totals are based on numbers rounded to £'000s

H1 Highlights

• Platform revenue grew 53% on H1 FY24 to £16.7m and represented 91% of total revenue (H1 FY24: 82%). Total revenue increased by 38%.
• Strong total revenue growth in the USA (+79%), and UK (+38%).
• 161 new platform clients in H1 FY25 (H1 FY24: 136) providing £3.3m of additional revenue.
• Platform Net Revenue Retention3 of over 120%.
• Gross profit margin in line with FY24 at 87.3% (H1 FY24: 87.8%).
• Benefits of operational gearing and our scalable business model showing through: profit before tax up 176% to £2.6m (H1 FY24: £0.9m).
• £2m additional discretionary investment in the next 18 months aimed at building our position in America and revitalising System1's Innovation proposition.
• Average H1 headcount up 12% to 160 (H1 FY24: 143).
• Share based payments credit of £0.1m.
• £0.3m free cash outflow in H1 (H1 FY24: inflow of £0.6m). Cash balance of £8.9 as at 30 September 2024 (31 March 2024: £9.6m; 30 September 2023: £6.3m).
• Diluted and basic earnings per share up 184% to 13.8p and 13.9p respectively (H1 FY24 diluted and basic earnings per share: 4.9p).

Current Trading & Outlook

• The Company is trading in line with market expectations, including the impact of the additional investment expenditure to be incurred in the second half of the fiscal year2.
• The third quarter has begun well, and at this stage we recognise that there may potentially be some revenue upside compared to current market expectations and we will provide further guidance as appropriate with the Q3 Trading update in early February 2025.

System1 CEO James Gregory commented:

"The first half has played out in line with our plan with strong platform growth and good progress in the USA, over 160 new client wins and improved net revenue retention with existing clients. System1 has a significant opportunity to increase revenue both in America and within the Innovation market segment and we have already begun a £2m additional discretionary investment programme over the next 18 months to target medium-term revenue growth in these areas".

1 Adjusted Profit is Profit before Taxation excluding share-based payments.

2 For the purpose of this announcement, the Group believes market consensus for FY25 to be Revenue of £36.5m, and Adjusted Profit before Tax1 of £4.4m.

3 NRR is calculated as H1 FY25 Revenue excluding new clients divided by H1 FY24 Revenue.

Further information on the Company can be found at www.system1group.com.

1 Statutory profit before taxation + share-based payments + interest, depreciation and amortisation.

2 Platform Revenue growth % + Adjusted Group EBITDA % Group Revenue.

3 Cash flow after interest and before debt raising/reduction, buybacks/dividends.

*H1 FY24 restated to align with full-year FY24 accounting for sublease income.

Total revenue increased by 38% on H1 FY24 to £18.3m and Platform revenue grew 53% to £16.7m and represented 91% of total revenue (H1 FY24: 82%). Within Platform revenue Data increased by 48% from £9.0m to £13.4m and Data-led consultancy by 75% from £1.9m to £3.3m. In the US total revenue increased by 79% to £6.4m and platform revenue increased by 114% to £5.6m. UK and APAC continued to grow strongly, up 38% and 24% respectively on the comparable prior-year period. LatAm was flat year-on year, and Continental Europe was 4% lower due mainly to lower bespoke consultancy revenue and a weaker Euro than in H1 FY24.

Ad testing (Comms) revenue increased by 53% to £15.9m. Brand was 20% down on H1 FY24 to £1.1m due to the runoff of a bespoke brand-tracking contract in the UK. The Innovation product group fell by 13% over the same period to £1.3m and is now the subject of significant and accelerated investment as we set about revitalising it.

Our fame-building, products and partnerships helped the Company to win 161 new platform clients in H1 (H1 FY24: 136), providing £3.3m in revenue (H1 FY24: £2.4m, FY24: £8.2m). Noteworthy initiatives in H1 included:

• The Extraordinary Cost of Dull research in collaboration with Peter Field and Adam Morgan was showcased on the main stage at the Cannes Festival and became the second-most downloaded report in System1 history;
• Uncensored CMO interviews with US-based leading voices, including Scott Galloway;
• The Greenprint USA and The Greenprint Brazil, a guide on how to effectively incorporate sustainability messaging in advertising
• System1 Chief Innovation Officer Orlando Wood, Sir John Hegarty and The Garage launched Advertising Principles Explained (a.p.e.), an advertising effectiveness course that will engage with System1 clients and prospects

New business wins in the US delivered £1.3m of revenue in H1 and included:

• A large, California-based multi-billion revenue enterprise software company;
• A challenger brand family that focuses on improving the health and lifestyles of both people and their pets;
• A large, global investment management firm with US$20 billion in annual revenue

In the UK and Europe new business flow was also strong with over 100 new clients onboarded in H1 delivering over £1.5m of revenue, including:

• A global social media platform;
• A travel technology platform; and
• An online food delivery company

Net Revenue Retention (NRR) improved in H1 to over 120% for platform revenue and over 110% overall, due to strong growth in the US and UK. (NRR is calculated as H1 FY25 Revenue excluding new clients divided by H1 FY24 Revenue).

Gross profit margin decreased slightly from 87.8% in H1 FY24 to 87.3%, and remained in line with FY24 and comfortably above our 85% benchmark.

Operating Costs increased by 26% versus H1 last year due to increased investment in headcount to target growth, increased spend on marketing, a 68% increase in variable pay from a much lower base in H1 FY 2024, and adverse currency effects arising principally on the US dollar.

Overall average headcount increased by 12% to 160 FTE owing to recruitment in the Sales and Operations teams to secure and service business growth.

We are investing £2m in additional discretionary investment in the next 18 months aimed at building our position in America and revitalising System1's Innovation proposition, covering recruitment of additional personnel, marketing and further IT development costs, and we believe we need to continue to invest in growth to grow shareholder value.

Tax

The Group has recognised a tax charge of £0.8m in the six months to 30 September 2024 (H1 FY24: tax charge of £0.3m). The H1 FY24 figure included a receipt of £0.2m in respect of R&D tax credit claims in the UK. In October 2024, the group submitted an R&D claim for c.£0.3m. Subject to approval by HMRC, the R&D benefit will be offset against profits in the UK.

Earnings Per Share

Diluted and Basic Earnings per Share improved to 13.8p and 13.9p respectively from an H1 FY24 Diluted and Basic earnings per share of 4.9p, in line with the increase in post-tax profits in H1 FY25.

Cash

The Group ended the period with cash balances of £8.9m (H1 FY24 £6.3m, FY24: £9.6m). Free cash flow after property lease costs and interest income amounted to an outflow of £0.3m in the first half, reflecting the payment of £2.6m in bonuses and commissions relating to FY24. (H1 FY24: free cash inflow of £0.6m).

Dividend

The final dividend for FY24 (£0.6m) was paid on 18 October. As previously announced, the Board's policy is to declare a final dividend only and there is therefore no proposed interim dividend.

Balance Sheet

Total equity increased to £12.1m (31 March 2024: £10.6m), arising from the year-to-date post-tax profit of £1.8m partially offset by a £0.2m loss on foreign currency reserves caused by the revaluation of bank and debtor balances at 30 September 2024. Intangible assets have decreased by £0.1m as a result of amortisation charges of £0.3m slightly exceeding the additional capitalisation associated with further development of the platform.

Current Trading & Outlook

Despite a difficult economic environment in some key markets, and challenging conditions for media owners and advertisers, we believe System1 can continue to grow profitably by gaining market share from large incumbents that we believe have less predictive products.

The Company is trading in line with market expectations2, including the impact of the cost of additional investment to be incurred in the second half of the fiscal year. The third quarter has begun well, and at this stage we recognise that there may potentially be some revenue upside compared to current market expectations, and we will provide further guidance as appropriate with the Q3 Trading update in early February 2025.

Earnings per share attributable to equity holders of the Company

Notes to the Condensed Consolidated Financial Statements

for the 6 months ended 30 September 2024

System1 Group PLC (the "Company") was incorporated on 19 September 2006 in the United Kingdom. The Company's principal operating subsidiary, System1 Research Limited, was at that time already established, having been incorporated on 29 December 1999. The address of the Company's registered office is 4 More London Riverside, London, UK SE1 2AU. The Company's shares are listed on the AIM Market of the London Stock Exchange ("AIM").

The Company and its subsidiaries (together the "Group") provide predictive marketing data and market research consultancy.

The Board of Directors approved these interim financial statements for the six months ended 30 September 2024 for issuance on 3 December 2024.

The financial information set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 and is unaudited. The Group's latest statutory financial statements were for the year ended 31 March 2024 and these have been approved by the Board of Directors and filed with the Registrar of Companies. These accounts, which contained an unqualified audit report under Section 495, did not include a reference to any matters to which the auditor drew attention by way of emphasis of matter and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

Basis of Preparation

This condensed consolidated interim financial information has been prepared in accordance with UK adopted IAS 34 Interim Financial Reporting and on the going concern basis. The Board reviews the performance of the Group monthly, and senior management has a weekly assessment of sales revenue. The Group also prepares and reviews cash flow forecasts and is confident that the going concern assessment remains appropriate. The results presented in this report are unaudited and they have been prepared in accordance with the recognition and measurement principles of UK-adopted International Accounting Standards that are expected to be applicable to the financial statements for the year ending 31 March 2025 and on the basis of the accounting policies to be used in those financial statements. The condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements, being the statutory financial statements for System1 Group plc, as at 31 March 2024, which have been prepared in accordance with UK adopted International Accounting Standards with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.

The preparation of financial statements in accordance with UK-adopted International Accounting Standards ("UK-adopted IFRS") requires the use of certain critical accounting estimates.

• Principal accounting policies
• Prior period restatement

During the year ended 31 March 2024 the Group determined that the sublease of its former New York office, previously accounted for as a right-of-use asset, should have been presented as a finance lease receivable. The following table summarises the impact of the prior period reclassification on the financial statements of the Group. There is no impact on basic or diluted earnings per share.

Notes to the Condensed Consolidated Financial Statements

for the 6 months ended 30 September 2024

Segment Information

The financial performance of the Group's geographic operating units ("Reportable Segments") is set out below*.

**Segment revenues have been restated to present USA and LatAm as separate business units, consistent with the information presented to the Executive Directors.

Consolidated balance sheet information is regularly provided to the Executive Directors while segment balance sheet information is not. Accordingly, the Company does not disclose segment balance sheet information here.

Headcount

The average number of staff employed by the Group during the period was as follows:

Dividends

The Company did not pay dividends in the six months ended 30 September 2024 and 30 September 2023. The Company does not propose the payment of an interim dividend. On 18 October 2024 the Company paid a final dividend of £634,454 (5p per share) in respect of the year ended 31 March 2024, including £140,912 paid to the Company's Directors.

Notes to the Condensed Consolidated Financial Statements

for the 6 months ended 30 September 2024

Property, Plant, and Equipment

The only software asset as at 31 March and 30 September 2024 is the Group's finance and operations system that was brought into use October 2020.

Development costs relate to costs capitalised for the development of the "Test Your" platform (carrying value £358k; March 2024: £509k), which completed during the year ended 31 March 2023, and the Supply Chain Automation platform (carrying value £1,030k; March 2024: £930k), which enables System1 to interface (via API) with multiple suppliers of panel respondents, was completed during the period ended 30 September 2024. Development costs in respect of completed projects are tested for impairment where impairment indicators exist. No indicators exist at 30 September 2024 (31 March 2024: none). Development costs in respect of ongoing projects are tested for impairment at each reporting date. The carrying value of the assets in each case are assigned to their respective cash generating units for the purposes of assessing future cashflows. The principal assumptions used in the forecasts were the timing and amount of future revenues and cost savings, which were derived from the latest forecasts approved by the Board. Following the assessment, the Board have determined that no impairment of assets is required as at 30 September 2024 (31 March 2024: £nil). The headroom in the impairment review exceeds the carrying value of the asset.

Notes to the Condensed Consolidated Financial Statements

for the 6 months ended 30 September 2024

Finance lease receivables

Finance lease receivables related to the sublease of the Group's previous office in New York, which expired in July 2024. There were no variable payments within the lease arrangement. At each reporting date the Group estimates the loss allowance on finance lease receivables. No amounts were past due at 30 September 2024 or 31 March 2024.

Borrowings

The analysis of the maturity of lease liabilities is as follows:

The present value of finance lease liabilities is as follows:

On 22 February 2023, the Company entered into an Overdraft Facility with HSBC. The facility of up to a maximum of £1,500,000, is secured over the Company's trade receivables, and incurs interest at 3% above the Bank of England base rate on drawn balances. The facility has no fixed end date and can be cancelled by either party at any time. During the period ended 30 September 2024, the Company has not drawn any amounts under the facility, and no amounts have been drawn to the date of the signing of these financial statements (amounts drawn in the year ended 31 March 2024: £nil).

Notes to the Condensed Consolidated Financial Statements

for the 6 months ended 30 September 2024

Share Capital

The share capital of System1 Group PLC consists of fully paid Ordinary Shares ("Shares") with a par value of one penny each. All Shares, excluding Treasury Shares, are equally eligible to receive dividends and the repayment of capital and represent one vote at the Annual General Meeting.

*Share-based payment expenses include the associated cost of the provision for employer's social security.