System1 Group (LSE:SYS1) — Annual General Meeting

0:00 Good morning, ladies and gentlemen, and welcome to the SYSTEM1 GROUP PLC Annual General Meeting. Throughout this recorded presentation, attendees will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Company may not be in a position to answer every question submitted however, the company can review all questions submitted today with responses published on the Investor Meeting company platform. I'd now like to hand over the Chairman for today's meeting. Good morning. Yes. Good morning, ladies and gentlemen. I'm pleased to welcome you all, including those joining remotely to the twenty twenty three Annual General Meeting of SYSTEM1 GROUP PLC. As there is a quorum present, we can start the meeting. You may wish to follow the proceedings by referring to the notice of this meeting. First of all, I'd like to introduce myself, Rupert Howell. And then from my left, Conrad Bonner, nonexecutive director John Kieran, founder, new business director Chris Wilford, our CFO to my right, James Gregory, CEO Phil McCray, nonexecutive director, and at the end, Sophie comp Tomkins, our senior independent director.

1:03 The notice of the meeting was sent to you in accordance with the articles of association of the company. Unless there are any objections, I will take the notice as read.

1:12 Thank you. Now before we, dive into the AGM's official agenda, I just wanted to to start with a SYSTEM1 product demo that showcases our market leading product and affirms our position as the world's best creative testing platform. To help with this, I'd like to introduce, the remote today on the screen, John Evans, our chief, commercial officer, and Robin Desessery, our chief product officer, who are gonna present one case history, which I hope you'll find interesting and informative. John, over to you. Good morning, ladies and gentlemen, and and thanks for giving us your time. One of the reasons we wanted to share this, case study from US for Boston Beer is probably more than any other customer, they really embrace the power of SYSTEM1 to transform their creative, and most importantly, to make the creative deliver in market results, and that's what we're excited to share. Just to give you a sense of it, our chief innovation officer, Orlando, who wrote Lookout and Lemon, has done master classes.

2:15 The CEO of Boston Beer, in fact, the founder, often quotes SYSTEM1 in meetings, and it's kind of, you know, often referenced. The CMO helps us with webinars, and, Robin's research and guidance team are integrated into the development process for advertising. So this is a lovely example where SYSTEM1 platform and consultancy are used together to create some pretty powerful commercial effects.

2:40 So let me explain a little bit of the background. So a couple of years ago, Boston Beer created this idea for their advertising campaign called your cousin from Boston. It's based on a bit of a a kind of local joke about everyone's got a cousin from Boston that's got a certain kind of attitude who always comes up and does something funny. And they took this idea to promote their number one beer, Sam Adams, which is the biggest, beer in their portfolio, and they chose the Super Bowl to do it. Now I thought I should explain a little bit about the Super Bowl. So, I'm sure you you all know and love the Super Bowl. It's the world's most watched annual sporting events. It attracts over a 100,000,000, people watching it live. It's also been sponsored exclusively for over forty years by Budweiser, the biggest US beer brand. So to say this is a competitive environment with it within which you advertise is certainly true.

3:33 It's also true that the cost of advertising is enormous. So a thirty second commercial slot in 2022 cost around $6,500,000. So from Boston Beers point of view, as a challenger brand, they wanna make sure that that enormous investment and bear in mind that you could probably double that cost for all the things that go around the the Super Bowl promotion. They wanted to know their creative was going to cut through and make a difference on the biggest stage that there is for advertising your brand. So I thought this would be a perfect moment to, hand over to Robin because she's gonna talk through what we did in partnership with them to make sure that they had a commercial worthy of the stage on which they were presenting it. Over to you, Robin. Great. Thanks, John.

4:19 So the fantastic thing about the Test Your Ad platform is they're able to help our clients all the way through the creative process. So whether that's testing scripts or storyboards through to animatics and the fully finished film, we're able to help to predict the effectiveness of an ad. And so for the way that we do that is through measuring emotion. By measuring emotional response, we've been able to to prove that this has an impact in real world outcomes. And because of our fully automated platform, we're actually able to turn this around incredibly quickly. We state within twenty four hours. Our current medium time is about ten and a half, and that helps our clients to make decisions really quickly and with confidence.

5:05 And that's not just unique to our ad testing tool. We're able to do this in innovation and brand development too. So that speed, together with the value that we offer, allows clients to test multiple iterations of early stage creative development to ensure that they can employ that test and learn mentality, and end up with the best possible outcome. So for Boston Beer then, they use that early stage format, which I'll come on to show you in a moment. And it's important to do that earlier upstream in the process. Once you've gone into production and there's been a lot of time spent producing the film, it's really difficult to or it can be really difficult to change things. So ensuring you've got that insight up front, check you've got the essence of the idea right, and then understanding ways to improve it will ensure that you're gonna get yourself in the right spot. So what did we find?

6:06 So the data itself revealed actually the ad performed this outreach. They've done that really well. But actually, the challenge for them, it was really lacked engagement with the broader population, which we call the nationally representative group. Now as John said, with a viewing audience of over a 100,000,000 for Super Bowl, that's going to be, really, really important to get that right.

6:32 So Boston Beer worked with our team of consultants at SYSTEM1, not only to understand why it wasn't working with this broader audience, but also to understand how they could improve it to to widen that emotional appeal. What our consultants will do is they take the test your ad report where the data sits. They also pair that with our extensive test your ad premium database, which has over a 100,000 ads now. And they pair that with their extensive experience in advertising to be able to make actionable recommendations on how to improve. So I'm actually going to play you now the, the original of early stage creative. But before I do, this scored very well with the core audience.

7:19 It achieved a 4.1 star, but actually only achieved a 1.1 with that broad NatRep sample. As the ad plays, what you will see is the emotional response build second by second. You'll see the green positive emotions at the bottom. Neutrality will be in the middle in sort of a gray white. And at the top, the sort of red oranges are the negative emotion. And then on top, we're able to capture the consumers of to really understand why and what's going on. So let's take a look at their early stage ad. We see a tech office late at night. A big sign reads Boston Dynamics. Your cousin from Boston and his friend Polly are working as security guards and drinking beer on the job. They hold a Sam Adams wicked party pack. They're approached by a robot.

8:09 Hey, buddy. Want a Sam Adams? Your cousin from Boston. The boys pass out beer to all the robots. The party is on. Wicked's all around. The robots are dancing, playing beer pong, and enjoying Sam Adams. Cheers, kid. Your cousin has a heart to heart with a robot. I just miss her. I should text her. Right? The robot shakes his head and throws the phone. An engineer arrives and flips on the lights and sees the party.

8:57 Why do we have to start this company in Boston? Samuel Adams Wicked IPA Party Pack. It's good to be wicked. So as you can see from the app, we saw some positive building. So there was some positive emotion. But, actually, at the top, you would have seen that negative emotion being driven as well. And we needed to understand what that was about and to resolve it. So what our consultants will do, they'll use a lens framework that we've specially developed to really understand what makes great advertising through all the work that Orlando's done in thought leadership to develop this framework. And from there, we're able to provide actionable recommendations, which we call our five steps to a five star ad. So what things can they do to move the dial towards a five star advertising?

9:48 So what we found in this particular one, without going into the chapter and verse of the full report, we focused on the story. So one of the things that respondents were pulling out was for the wider group, make sure that party starts after work, not during. We talked about the branding, the fluency, as we call it, and understanding where the right place is to build the brand and the product shots and so forth. And really importantly, the characters themselves. And what we were able to do was actually look at our extensive database of advertising and look at robots used in advertising. So we were able to cite some brilliant examples that Toyota used of where they got it right and a couple of less effective examples of where they've got it wrong. And what's brilliant about that is we're able to share that data with our clients for inspiration so that can help them with their creative development as they go on to the next stage.

10:42 So with that, I'll hand back to John to do the big reveal of how they got on. Thanks, Robin. What I love about this is is you get to see the before and you get to see the after. And some of the changes are big, some of the changes are small, but they add up to a lot. So on the next slide, if we could just play the final video and have a look at the difference in emotion, look at top right emotions Rob described and see how much more positive they are than what you saw before. Thank you. Long day. Thank you. Hey, buddy. You wanna see him, Adams? Alright. Hello. Your cousin from Boston.

11:32 Wicked's all around. Get it girl. He wasn't lying. We're gonna live forever. Ain't nothing but a bright Poor security. That is security. This is the best man of my life. So hopefully you enjoyed that. But what you can see quite clearly is we managed to take the scenes that really work in in the animatic and make sure that they had time. We told the story in a very simple way. The music was there. The acting was you know, all all played a part. And as Robin said, you know, we've got proven five steps that could create a five star ad. Now, of course, how does it do? You know, we're not here to just adjust for the fun of, kinda making advertising. We're here to help businesses make advertising that makes a commercial impact. Now the advantage of having a premium database is we test every ad that airs in the Super Bowl. So we can give a live ranking. So within an hour of Super Bowl ads going on air, we've got the results from database.

12:32 So big reveal and drum roll, please. Oh, I'll come back. Actually, I'll I'll I'll go to the answer, and then I'll come back to the previous slide. So as you can see here, of the 85 Super Bowl ads from some of the biggest advertisers in the world with the biggest budgets in the world, Boston Beer came in at number one with a almost five star performance. So they just missed out on five star but got 4.9. And that is hugely important to them as a business because as a challenger brand against much, much bigger brands, they were able to use our creative testing in order to, punch above their weight and beat much, much bigger competitors. Now just to flick back to the previous slide, I've shared here some of the results. So not only was it number one, but looking at spike rating, which is our prediction of short term sales, how likely people are to take action in the short term, go out and buy, recommend a friend, etcetera, it scored an exceptional level at 1.65.

13:25 As you can see at the top, star rating for the general audience, as Robin said, for the, beer drinking audience, it was already good. But for the general audience, to see a shift from one star to almost five star is incredible. And to put some color to it, typically, Sam Adams will work with us over about a seven or eight month period, and they might test seven or eight times in that time to continually iterate and improve in order to get right up to the top of the score. And the most important thing is, overall, their sales increased by 4.7%, and a lot of that contribution will be down to this campaign. So, hopefully, that gives you an idea of how the platform, the data we have, combined with the guidance and expertise that we have in house, enables, some of our customers, particularly in The US, where it's a very competitive market, win the soup bowl of advertising.

14:15 Thank you, John, and thank you, Robin. And ladies and gentlemen, I hope you felt it was constructive for us to add a little bit of color to these proceedings to show you what we actually do. And up there, Robin, is the the quotes from the client showing how delighted they were with what we do. This is an incredible business that does extraordinary things for the world's major advertisers, and we're very proud of all the results we achieve. Now we need to get to the formal bit, And apologies for the necessary legalese, but I will plough through it as quickly as I can. So proceeding with today's agenda, you'll have noticed that we have enabled the option for electronic submission of questions. Any inquiries received about the resolutions are or will be addressed promptly in writing.

15:02 Post voting, we have designated time to discuss any further questions you may have. We really do welcome questions and shareholder participation. Speaking of voting, we requested prior voting submissions. If you are present in person and have not voted, there will be an opportunity to do so after the reading of each resolution. For those joining us remotely, please be aware that you will not be able to vote. To ensure we capture all shareholders' perspectives, we will conduct a poll on each resolution today. I'm appointing Link Group, the company's registrars, to act as scrutineers. When you registered your attendance here today, you will have been given a poll card, which the shareholders and proxies present at the meeting should complete and sign as indicated. In the case of corporate shareholders, the poll card should be completed by their authorized representatives present at the meeting or by their proxy.

15:52 If a voter is both a shareholder and a proxy for another shareholder or if you're attending as a proxy or representative of more than one shareholding, please use separate poll cards. On your poll cards, there are three options for each resolution. You can vote for the proposed resolution, against the proposed resolution, or you may withhold your vote. A vote withheld is not a vote in law and will not be counted in the calculation of the proportion of the votes for or against a resolution. Please complete your poll card by ticking the appropriate box next to the relevant resolution depending on how you wish to cast your vote. Once all votes have been taken on the resolution, please would you sign the poll card and hand it to the representative of Link Group who will be coming around to collect the poll cards. Should you require any further assistance, our registrars will be happy to help you. The final results of the voting will be announced via the London Regulatory News Service later today and will also be published on the company's website.

16:48 After we conclude the voting, as previously mentioned, we will open the floor to questions. Once the formalities of today's meetings are complete, we invite you to join us for some refreshments and the opportunity to have informal discussions with our board members. We appreciate your active participation and look forward to engaging with you. Dear attendees, let's proceed to voting now. So resolution one is the resolution to receive the report of the directors and the accounts of the company for the financial year twenty twenty two twenty three. I formally propose resolution one as an ordinary resolution. This resolution has now put the meeting to vote. Please, would you tick the appropriate box on the poll card? I will now close the vote. The poll is now closed.

17:34 Resolution two is the resolution to approve the director's remuneration report as sent to members with the notice of this meeting. I formally propose resolution two as an ordinary resolution. This resolution is now put to the meeting to vote. Please, would you tick the appropriate box on the poll card? I will now close the vote. The poll is now closed. Resolutions three to eight inclusive. In accordance with the articles of association, all directors are retiring and are offering themselves for reelection. Mister James Gregory has not been offered for election since his appointment on the 12/06/2022 and accordingly now stands for election as a director. Resolution three is the resolution to reelect John Kieran as a director of the company. I formally proposed resolution three as an ordinary resolution.

18:19 This resolution is now put to to the meeting to vote. Would please, would you tick the appropriate box on the poll card? I will now close the vote. The poll is now closed. Resolution four is the resolution to reelect Sophie Tompkins, who is nonexecutive director. I formally propose resolution four as an ordinary resolution. This resolution is now put to the meeting to vote. Please, would you tick the appropriate box on the poll card? I will now close the vote. The poll is now closed. Resolution five is the resolution to reelect Chris Wilford as a director of the company. I formally propose resolution five as an ordinary resolution. This resolution is now put to the meeting to vote. Please, would you tick the appropriate box on the poll card?

19:06 I will now close the vote. The poll is now closed. Resolution six is the resolution to reelect Rupert Howe, who is a nonexecutive director. I formally proposed resolution six as an ordinary resolution. This resolution is now put to the meeting to vote. Please, would you tick the appropriate box on the poll card? I will now close the vote. The poll is now closed. Resolution seven is the resolution to reelect Philip McCray, who is a nonexecutive director. I formally proposed resolution seven as an ordinary resolution. This resolution is now put to the meeting to vote. Please, would you tick the appropriate box on the poll card? I will now close the vote. The poll is now closed. Resolution eight is the resolution to reelect Conrad Boner as a nonexecutive director. I formally propose resolution eight as an ordinary resolution. This resolution is now put to the meeting to vote. Please, would you tick the appropriate box on the poll card?

19:56 I will now close the vote. The poll is now closed. Resolution nine is the resolution to elect as director of the company, mister James Gregory, who was appointed a chief executive officer since the last annual general meeting. I formally proposed resolution eight as an ordinary resolution. This resolution is now put to the meeting to vote. Please, would you tick the appropriate box on the poll card? I will now close the vote. The poll is now closed. Resolution 10 is the resolution to reappoint RSM UK Audit LLP auditors of the company and to authorize the directors to determine the auditors' remuneration. This Companies Act 2006 requires you to reappoint our auditors and to approve the manner of determining their remuneration. I formally propose resolution 10 as an ordinary resolution. This resolution has now put the to the meeting to vote. Please, would you tick the appropriate box on the poll card?

20:46 I will now close the vote. The poll is now closed. Resolution 11 is the resolution to authorize the directors to allot relevant securities subject to the provisions as set out in the notice. I formally propose resolution 11 as an ordinary resolution. This resolution is now put to the meeting to vote. Please, would you tick the appropriate box on the poll card? I will now close the vote. The poll is now closed. We now come to the special business of the meeting. Resolution 12 is the special resolution to allow the company to disapply shareholders' preemptive rights on the issue of new shares subject to the provisions as set out in the notice. I formally proposed resolution 12 as a special resolution. This resolution is now put to the meeting to vote. Please, would you tick the appropriate box on the poll card?

21:31 I will now close the vote. The poll is now closed. Resolution 13 is a special resolution to allow the company to disupply shareholders' preemptive rights on the issue of new shares in connection with an acquisition or specified capital investment subject to the provisions as set out in the notice. I formally proposed resolution 13 as a special resolution. This resolution is now put to the meeting to vote. Please, would you tick the appropriate box on the poll card? I will now close the vote. The poll is now closed. Resolution 14 is the special resolution to allow the company to purchase its own shares subject to the provisions as set out in the notice. I formally propose resolution 14 as a special resolution. This resolution is now put to the meeting to vote.

22:16 Please, would you tick the appropriate box on the poll card? I will now close the vote. The poll is now closed. Resolution 14 was the final resolution of the AGM. Please, would you now sign the poll card and hand it to the representative of Link Group who will be coming around to collect the poll cards? The results of the meeting will be announced via the London Regulatory News Service later today and will also be shortly published on the company's website. Questions. We will now open the floor to questions from those who have joined us who've been good enough to join us. For those in the room, when posing a question, please introduce yourself even though we know you, and mention if you are a member or a representative. If joining remotely, please route your questions via the investor meet company platform.

23:04 Chris Wilford, our CFO, is monitoring those questions, and we'll make sure we answer them all. We do appreciate brevity to give everyone a voice. Remember, only questions from members, representatives, or proxies will be permitted. So shall we take any questions? Maynard, do you have a question for us? Sorry. Last year last year, Graham, the chairman, he read out the votes, and there were significant protest votes at last year's AGM. Why are you not reading out the votes this year? Why are we not reading out the votes this year? The advice is that we can present the votes at the end of the meeting after the meeting's all done. Okay. There may be Very happy to I'm very happy to tell you at some point whatever the votes are.

23:49 We're not hiding anything here. Alright. There may be significant protest votes where that it could lead to questions from remote attendees. Is this still Well, I can advise you. I'm not sure what my legal position here is, but as we're amongst friends, what I can advise you is there's been no protest vote. Okay. So nothing over 20%? We're talking about votes in the 90% in favor plus. Alright. Okay. Okay. That's thank you. Is that am I allowed to say that, Renata? Thank you. Just to put Maynard's mind at once. But, anyway, any questions? Can you sorry. Could you speak up a bit? I'm a bit deaf. I'm afraid. Alright. Okay. So in the annual report, you've introduced a a bonus scheme for the executive short term bonus scheme. Why have you introduced that when the LTIP is still running?

24:37 Chris, do you want to shall I answer that? You you Yes. I'll answer that. The the reason is that the LTIP scheme is is exactly what it says. It's for long term incentives. But we felt, particularly as we had a new refocus strategy with very strong demands on the sales performance that actually incentivizing the

25:02 executive and the team in the absence of any pay rises because we've frozen pay unlike most companies in our well, in fact, like almost every company I know in our sector to keep our costs under control, that the alternative way of motivating people rather than giving them pay rises in advance was to give them bonuses when they achieve results. This has proved to be extraordinarily effective. Okay. The the was introduced on the perhaps, on the understanding that there wasn't a the executives were foregoing bonuses. That was the the understanding of shareholders. They voted it through two years ago. Well, my strong belief is that you need both in any dynamic organization. So you need an LTIP, which is is for long term retention of key executives and reward for long term performance, but you also need to drive short term performance, something that I think you'd agree this company has not always delivered, and we are determined to ensure that we deliver month on month, quarter on quarter, which is exactly what we're doing. And the bonus scheme is a key part of that.

26:10 Okay. I I just think the spirits of the LTIP introduction has been broken. Noted. So in terms of the profit measure then, where you're measuring for these short term bonuses, why isn't why is it just profit? Why is it not aligned with the KPI you've set? Let's say the rule of 40 in your strategic review. Just profit, is it? Yeah. So it's a it's a question. Good question. Yeah. I mean, what what what we've what we've tried and and Phil, I'm sure, wants to add to this. What we've tried to do in coming up with a measure is to ensure that the executive scheme is aligned to the profit that shareholders see. So it's effectively so that's why it's profit and not revenue gain or gross profit, for example.

27:00 But but because I I'm sure you you would be less happy if we achieved some nonfinancial strategic goals, paid cash out of the company, and yet the company wasn't reporting the earnings that you'd expect to see. It's a it's a conflict because you're telling sure shareholders one thing with the rule of 40. That's your financial metric metric for the strategic review. And then your your own incentive is something different. So there's no alignment there. No clear alignment. The the the implicit sorry. If I can't right now. The implicit alignment, if not explicitly, is for any form of s t to be paid out, the rule of four c will be the driver behind that because you need to hit sort of the revenue and the profit growth underneath it for anything to be paid. That needs to be made clear in the annual report because it's not clear. It's just that That's noted. We should make sure that's clearer.

27:55 Because you could you could achieve your bonus goals and not achieve the rule of 40 in some way. And and there's perhaps, a conflict in terms of you thinking, well, are we gonna beat the rule of 40 or your own bonus goals? And they're not aligned, I I think. That's that's the impression you get when reading the annual report. When we when we launched the rule of 40, we strategic measure, and we said that some years, we would beat it. Some years, we might fall just short of it just because of the way that the maths works. So we're we're not walking away from rule of thirty forty, but rule of 40 wasn't designed as an annual compensation driving measure. It was more a strategic light that we that we drive towards.

28:47 Right. Okay. So you're you're quite happy for this year or whatever year not meeting that rule of 40. But, you know, not happy not happy, but but we can actually Never happy not beat it, but it's not driving inappropriate short term behaviors. You know? We we we've we're we're a built we're a business in growth, Maynard. Long may it continue. And we need to drive month on month, quarter on quarter growth. We believe we will achieve the rule of 40 each year, but we've said very explicitly as part of the strategic goal, it was a long term goal, not a quarterly or annual goal. But we hope to beat both. Can I ask if there's any questions online? There are no questions. So we'll carry on with Maynard then. I'm very happy for Maynard to carry on you. Is the is the audit done then? Now you've introduced this new scheme.

29:40 Are you is that Phil's chairman of the Yeah. So the remuneration policy remains that that remuneration should be a combination of both fixed elements, variable short term elements, and variable long term elements. And the last variable long term element that was put in place, the LTIP scheme that you're referring to, continues in its current form and is intended to continue in its current form. But following the strategic review and as the policy outlines, we review the mixture of fixed and variable annually and have determined following the strategic review that, the Chairman has outlined, there will be a short term focus on month on month growth, quarter on quarter growth needed in order to hit the long term objectives.

30:25 So that the long term LTIP remains in place. And if the business is successful, will be the most it could be the most significant element of remuneration. But what we've layered in for twenty f y twenty four, important to say that, are no short term bonuses paid in respect of the accounts that have been tabled at the meeting today. For '24, we've layered in some short term objectives. I don't consider them to be soft objectives. They offer overperformance of the board's expectation for the business. And we will review them on completion of FY '24 against the targets, and we'll review again going forward whether the business should revert to solely an LTIP or a combination of short term and long term variable.

31:15 So it's it's not done. It remains a part of the remuneration mix. Does give the impression that maybe some employees or senior employees have given up on the LTIP and fancy the the short term bonus because the LTIP was a stretching So yeah. It was it was a stretching target, but it was clear, really clear to shareholders what the targets were. And I hope it's very clear to shareholders what any of the remuneration targets are. Okay. So what are the targets then for the short term bonus? Because they're not they're not specified in the annual report. I what I don't think I take on your observation, but I don't think it's right to think that anybody, certainly in the executive team or indeed the management team, has given up on the long term incentive plan or the long term strategy. Okay. We've got two years, so we'll find out in two years whether We we will. The bonuses are paid out, but LTIPS isn't The only way we'll get there in two years is to hit the quarterly targets and the half yearly targets and and the annual Which we are currently doing.

32:15 I mean, the way you're looking at the statement this morning, you maybe not need the short term bonuses because you'll easily hit the LTIP. Well, the short term bonuses are part of why we're able to put out a statement like this morning. Okay. Because because they've been very targeted by and brilliantly targeted, I may say, by James with the approval of of Remco and the board to make sure that key people are absolutely a 100% focused on hitting targets rather than allowing anything even to drift for a minute. That's the plan. And then they're there to motivate as well as remunerate. Yeah. So so yeah. And you gotta remember, we're dealing with an egg about performance and incentives. We're also dealing here with, you know, with some very high caliber people who are in demand elsewhere, and we took a we took a business decision not to give any pay rises when the average pay rises in our sector are double digit, and we didn't do that. What we did instead is said, we will put in place some short term bonus schemes if you deliver the numbers, and they have.

33:16 And that, we're delighted about, and I think shareholders should be delighted about. So with these with these bonuses, do they because in the annual report, it it they it specifies the executives. Does it spread through to the senior management as well? Yeah. Senior Bonuses do. And the whole company. For for the The the guidance that the remuneration committee gives to the exec and that James and I I talk about is that is that the senior management team of the business should be should have the same strategic targets and the same incentive structure deliver those targets as the executive directors. Okay. Absolutely. And will these be classified as an adjusting item next year? That's I I didn't hear the question. That that will will they be the question is, will they be classified as an adjusting item next year? Just just the cloud development currently, SYSTEM1 treats bonus and commission payments as as what we what we call a non trading cost, and that goes back to the time the the two thousand nineteen, twenty, and 2021 where the bonus targets were set very, very high. And the partly because of the pandemic, the business performance was very low.

34:32 And if the bonuses were paid so bonuses are either very high or nothing. And so it may be un potentially, that could hide the underlying performance. And so we decided we will take those out of what we call our sort of ongoing profit figure. Now with the new bonus structure both for the sales team and with the short term incentive for the executive team, we are actively considering taking taking variable compensation out of non trading and putting it into the the operational cost. That's so that's and I I think you're aware of that, but that decision hasn't been taken yet. And we'd obviously restate any prior periods to give that clarity. So the the reason reason it wasn't on trading is it was that was, like, three years off when you're on, and it was just very confusing in understanding what was going on with the rest of the business. Okay. I just worry that you introduced new bonus scheme, company's doing well, which is positive.

35:31 But it's not another adjusting item, and we're back to breakeven next year. Because it's a fifth if it's a maximum of 50% salary, that's if you for the board, it's £300,000 for the senior management more. And it's another adjusting cost, and you're back to breakeven next year. And I I recognize that. I I I understand why you're asking that question, but I'd I'd highlight the release you put out this morning where we've indicated that the board's confident that we're going to beat the consensus profit figure. So we're signaling very clearly that we're going to be profitable. We've we've that we've set a, you know, a gross margin percent base that gives a great a great start towards that. We've obviously not disclosed the cost. It's not even the end of the half year yet. But, yeah, re read read that as it's as it's intended.

36:23 Cool. Any more, mate, else? I've got quite a few. So I I just I just think it's it's a bit sad where shareholders have approved that LTIP two years ago on the understanding. Maybe it's not a technical reason, but on the understanding that you're all foregoing your annual bonuses and driving for this LTIP. And you just let's say you're changing the rules halfway through. Well, I think what we do But I yeah. But you've you've you've explained it. I I I that's that's what I'm saying, man. But we also conducted an exhaustive strategic review, reset the business on a path that I well, I would argue that 99.9% of our shareholders are very, very happy with because it's starting to move in the right direction. And this is it's all part and parcel of it, but your your your comments are are understood and noted.

37:14 Yeah. I mean, the company was I mean, the LTIP's been without prolonging this particular part, but it's it's been going for six years, and it's not paid out. You think, well, okay. Do you need us other people to to drive the business forward? That's We're we're gonna get there. But it this is a a very difficult talent market. We've got some great talent. We need to motivate and remunerate them. The talent so far hasn't paid out. Hasn't the talent so far hasn't matched your LTIP targets. That's that's what I'm saying. It's a re it's a reenergized talent following the strategic review and getting the right people doing the right jobs. If if may, if I could just point out that that four of the seven participants in the LTIP have joined either joined the company or joined the LTIP since 2021.

38:03 And so for that group in particular, with the LTIP having been designed in 2017, I know it's been adjusted slightly. We need to make sure that those individuals are properly motivated as well as rewarded for the long term performance. Okay. We can we move on to another Yeah. Yeah. Sorry. Okay. So let's talk let's talk about Orlando Wood and his and his marketing course. So why why is he spending time developing a marketing course and not selling the platform service? He's doing both. I mean, I'll let James answer in detail, but I'll give you the headline. It's I'm very I'm delighted with what Orlando's up to. I'll tell you why. The way our marketing and our new business drive works is we have to build fame for SYSTEM1, but we also need to spread the the gospel amongst senior marketers as widely as we can and in some depth. Because as you've seen, the one of the reasons I wanted to show a case study is this not this is not a product that you buy off Google.

39:07 Right? This is a product that has to be developed and sold into big companies who it's a key part of them spending millions and millions and millions of dollars. K? And to do that requires quite a lot of education. One of the things that John has found himself doing in New York, for example, quite a lot is running master classes at the request of client companies to teach them about how to think differently about advertising, how you measure it, how you how you make it more performant to use, that phrase. And what Orlando's doing here in partnership with us and with the with Walk, the which is a incredibly hope high profile organization, is building a course that is going to educate a whole generation of marketers around the SYSTEM1 protocols.

39:59 So suddenly, we will have instead of just one person going out proselytizing SYSTEM1, hopefully, thousands of people doing it because it I mean, there are thousands of people who have preregistered interest in the in the course that we're building with Orlando. So it's a it's a joint thing. It will be brand cobranded SYSTEM1. It'll raise the fame, and he's still gonna be working four days a week, not five, four days a week with us, meeting clients, and running new business pitches. This is something he does. It's by the way, this is not like a classroom course. This is not like what happens nowadays is he produces video modules that are served online. So it's an online eeducation course. This is not Orlando University.

40:45 So he can do it in a day a week, and he's going down to four days a week in terms of his pay. Is that Yeah. I mean, he's, say, chief innovation officer. I mean, the key thing he focuses on is building out our methodology and our IP about promoting that, whether that's sort of be on stage at grand scheme or whether it's directly with customers to to win or to retain them. If you look at where he was yesterday, he was on stage promoting our new publication called Listen Up, which is all about radio advertising and audio advertising. Again, we talked to one of our strategic pillars was doing more than just TV testing, so that that helps for that. But, again, you'll see he is still there promoting system one, building out the methodology and promoting it. The the good thing about the course is the scalability. Know I a question we talked about before is our our scalability, especially where people are involved in it. And the great thing about the course is because it is modular and it can be prerecorded, essentially, that can be scaled to multiple people versus, as you said, Rupert in a room with one customer at a time, which is much less scalable. So that's that's why we're very pleased about it. It's a very good evolution of his role. So the people attending the course, they're not they're employees of customers and or potential customers. Is that is that right? Yeah. Yeah. Yeah. Okay.

41:53 Either new customers or if it helps with new business wins, it helps with retention. Man, can I can I stop you? I'm coming back to you. Yeah. Yeah. We've got we've got an online question. Right. Okay. Go for free That's fine. That's fine. Chris. Yep. And this is probably one for Phil. Mhmm. So this is from Martin. As a very long term shareholder, I hate dilution in principle. I like execs to buy shares themselves and hold them. Can you give me any reaction to this in your long term thinking? So I think two responses to that. Firstly, on on the dilution point, I think we're clear in the remuneration policy that we're very cognizant that nobody likes dilution and that the shareholder accretion that we expect to be delivered in order to fulfill the long term incentive plan goes beyond the point at which the plan itself would be dilutive. So yes, I echo the sentiment in that question, and I think that will continue to be reflected in part of the remuneration policy going forward. The second part of the question about executives holding shares, I think I'm right in saying every member of the board at the moment has shareholdings.

43:09 And I'm aware that I since joining, I certainly have and Conrad, the most recent joiner of the board have both purchased shares. We don't have I I think we don't have a specific requirement for executives to hold shares at this point in time, but continue to encourage it. Yeah. Yeah. I'm not aware of a formal policy, but we could certainly look at a policy, you know, because it's becoming more and more common in the market to have a a formal exec holding policy where you hold a a sort of, you know, proportion or or multiple of salary in in in shares going forward. Let's let's look at that. So we can certainly look at it. Yeah. Back to you, Maynard. So, I mean, sure sure you all under should be saying or in this course saying this is the best.

44:01 It seems a bit of a convoluted No. It's exactly what it's exactly what in terms in terms of the predictions, prediction, speed, and value. That's what they should be selling me. That's exactly what he's saying. I don't want to sort of reveal all the content, but but it will come out very soon. But within there, you will see SYSTEM1, its methodology. For example, having people accessing the database so they can understand breadth of what Robin talked about earlier, those 100,000 ads, which will be there, etcetera. So it is inherently linked in everything SYSTEM1 stands for and does. So is there mentions of seventeenth century Italian art then in these films? If he if he if Orlando brings to light the the methodology through his unique way, he would choose to do so, and we wouldn't limit him on that. Alright. That's very system two Well, the thing the other thing, Maynard, is when you are doing online modules, and I I've never personally had a business that does elearning, but I have friends who founded elearning businesses, including the current chancellor of the exchequer, who had did one of the first elearning businesses, is the absolute critical element is that you keep it interesting, not dry.

45:12 And one of the things that Orlando is brilliant at is making what could be quite a dry topic fruity, and that is why we think this is going to be incredibly successful. From what I've seen, it's the opposite way around. Yeah. But then maybe you're But maybe I've not seen maybe I've I've not seen the maybe I've only seen the the lemon film. Or Well, what he does is he brings he brings things to life in a very engaging and compelling way for the marketing community, which is the target audience, Maynard. With all due respect, our target audience is not in professional investors. It's marketeers. Maybe you'd like to attend one. Sorry? Maybe you'd like to attend one of Orlando's courses. Yes. Yeah. I mean yeah. Yeah. I could I think we should. Yeah.

45:59 I think we should do that as a gift to you. I I get some sort of return instead of a dividend. We we have one more coming on Alright. Yeah. Yeah. Yeah. Yeah. No. If you go if you go if you prioritize the online ones, then I can I can So this is Charles? What's the long term future of the original non platform business? Yes. Right. So I take that. I think something we've we've tried to restate as we did the strategic review is there's always likely to be an element of bespoke work that's required. And we've also recognized that we have some great customers who are sort of long term customers of SYSTEM1 as well. When we've talked about the makeup of the business, we've talked about the likelihood of 75 to 80% of our data are are pure, predict your offering, About 20 to 15% of our data led consultancy are improved offering and about 5% on bespoke.

46:52 So the what we've considered is that historic enterprise work is that bespokeness. So as we grow the business, obviously, level where we're at today will decline, but we always imagine to retain some going forwards. And, again, if you look at some of way some of our largest customers buy, sometimes they just have a question to ask, which we can't offer from our standard online offer, and that will come into that bespoke part of it. And it was up the question there? And there's a there's another there's another question that I think I I'll answer. Go on then. Okay. From today's trading statement, it's possible to calculate both h one and q two platform and non platform revenue, but requires transparency growth rates from previous periods. Wouldn't it be simpler just to state the numbers for current periods? Well, yes, it would, but the the q two and h one haven't finished yet. So on the October 24, we will publish the the numbers in tabular form so you can see exactly that. And they will be, hopefully, approximately close to what we've trailed today.

47:48 Yeah. So that hopefully, that that answers that that question. But but we felt that it would be wrong not to indicate the direction of travel. Yep. Next one may not. Okay. So test your idea. That's got off to a slow so why isn't Orlando writing a book to build fame for test your idea and instead of doing a course? We have to keep our powder on one thing. I think that watch this space, there will be more focus on test your idea going forwards. At the appropriate times, we'll be able to share what that looks like. Yeah. Because I see, like, Orlando's our chief innovation officer. He's very involved. As I as I said, like, if you wanna ask after, I'll share the the listen up publication, which we set out yesterday. But, again, he was a core part of doing that. The other thing we've also been focused on is you have to double down on what's working while you're building for the future.

48:34 So what we're doing within that is we know that the test your ad is really flying and really rocketing, so we need to ensure that we can drive as much revenue from that to allow us to reinvest in the business in future things like test your idea, test your brand, etcetera. So so it's it's not being ignored, and it's on our list, for sure. You'd have thought because it it was your biggest I've I've mentioned this before, but it was your biggest sales earner. And it's dried up over the last last few years. And most of the income, I think, is bespoke consultancy. So you you the actual data from this part of the business is quite small. It does feel like it has fallen by the wayside. And now you've got to listen up and what Orlando is doing another course. It all feels like this business is going for the ad testing side of things because it works, but it is a smaller market.

49:21 Yeah. And you've lost a really big chunk of your past revenue. I recognize the challenge. I think we as you said, we've spoken about it before. I think when I talked in the the last Capital Markets Day, it must have been we did talk about the fact that the revenue the revenue off the back of Test test your idea isn't growing at the level that we wanted to, and we do want to continue to invest and focus on it. We'd like to see that grow this year, and we'd like to ensure that we have the supporting methodology, the fame, the new business wins, and then the retained customers through it in the same ways we've been able to do your I would have put put that as your number one priority, not Orlando doing a course because it's such a bigger market than ad testing. Well, that you've said in that Yeah. I mean, it it it it fits within us again. So if you look at customers who are going to buy if you look at the if you look at the full marketing cycle cycle and you look at how innovation is interlinked with advertising, once you've innovated a product, you need to advertise it. So so they aren't completely standalone.

50:13 I know we we split our revenues because we want to, but the the idea is that you innovate, you advertise at the back of it, and then you improve your brand performance. And it it there is a bit of a sick cyclicality through that piece. As I say, like, we we view the the the Orlando's course will be very positive for the business. We view that test your idea as a big opportunity for us to grow in as well, and we'll be doing both. Yes. Okay. I I it's just it's just an obvious thing for you to do. Yeah. Yeah. As it was obvious for us to do Orlando thinks test test print and testing online, which we're doing. So They they know it's just sort of small small smaller opportunities. Well, there are there are many opportunities that we have.

50:59 And we we test your idea, test your brand, the move into digital print. These are these are all quite nascent compared with test your ad. Test your ad is going like a runaway train at the moment. The other ones, we've got still plenty of potential, and we're putting a lot of effort behind them. And I think it just shows you the long term potential of this business is, I think, is enormous. But we know what the barriers are. The barriers are the understanding well, it's the fame of SYSTEM1 because we are quite we're modestly famous in The UK. We're not yet at all famous in The US, which is part of what John's been doing. So so fame is is really important. The reason why it's important is because these are massive decisions.

51:48 We're not talking about somebody just deciding whether it'd be fun to run an ad or not. We're talking about people making $100,000,000 decisions in some cases. So engaging with us and us being their core adviser on this is a big decision, and you only do that with people you know and know well and whose methodology you understand and believe So everything we're doing is about raising the fame, increasing the understanding of the methodology, of the SYSTEM1 methodology, which is a lot of what Orlando does, and then a Salesforce that's in there educating and so on. People do not buy this off the shelf. You have to get in there, educate, and grow with them. And the proof is in the pudding. We're doing it. But the potential, yes, is huge. I agree with you. Yeah. So, yeah, the the innovation side, the market side is in your slides twice as big as that. Are. Testing. So you think, well, the next once you've got the system up and running for a test your idea, you think, right. Okay. How can I promote that? Test your idea is a harder sell, and the reason it's a harder sell is because the cycle is longer. So new product development cycles tend to be, you know, multiple years. So people don't do a new product every year. They might do it in three, five, or seven year cycles, whereas test your ad typically would be annual or biannual.

53:02 So it's a longer cycle to get in and and start doing stuff with them. That's what but the potential is huge. I'm not disagreeing with you at all. That's a frustration from other shareholders that you're you are spending too much on advertising while you test your ad. But advertising doing that. I mean, you know, we've got a tiny market Yeah. But there's another market which you've Yeah. But we we've got a we we are renowned where we're with the clients we're working with, we're renowned as the world leading in testing your advertising, and we still have a very small market share. So as James, I thought, eloquently explained, we have to drive that because that funds driving the other harder to sell tools, and that's what we're doing. So we're not we're not absolutely I'm not disagreeing with you at all. It's the way you do it.

53:52 It's a bit like, you know, when I first joined the board, I was concerned about how we'd let the consultancy business go because my all the transformation work I've done in other companies is you use the established business and growth in the established business to fund the innovative side and the and the new development side of the business. It it's not an either or. So I'm I'm I'm with you on that, and I promise you we're we can tell you more afterwards, but we're we're doing a lot of stuff. Okay. Any more? Yeah. Just one or two more. So a question for Conrad. Because you you represent the German shareholders for SYSTEM1. No. I represent all shareholders. But you you have a connection to some of the German shareholders? I sit on a board that they're also invested in, but I don't represent them at all.

54:41 Do do Very clear, Maynard. When I joined this board, made it very clear that I represented all shareholders Okay. Because that's my my obligation as a board member. There there is there is a you have a connection there with the German shareholders. All I I was gonna ask is what the German shareholders think of the company's progress. I haven't spoken to them. I don't know. I have. Okay. Rupert, what do you have? We're very happy with developments. Conrad, you know, Conrad has been let me just say, on the record, Conrad has been a brilliant addition to this board. Not only is he a very smart person, but he has a considerable experience in matters legal, m and a, and others that he's brought to bear. Critical part of the strategic review. Huge help to Sophie who was running the strategic review.

55:28 He's been absolutely brilliant. We we love him. We think he's a great a great board member. So that's for the record. He has never once mentioned the g word in a board meeting of German. But I as it happens, I had a I had a lunch with Matthias, one of our the big Joe who represents the German shareholders, who, as you will see when the results come out tonight, is very supportive of all of us and all that we're doing and is delighted that we have strategic clarity and a growth plan that is delivering. You could say not before time. And just to follow-up one of the remote questions, which talked about direct to shareholders. It does say in the annual report that the nonexecs own a immaterial number of shares in the context of their financial circumstances.

56:18 So given today's statement, I mean, can we see that immaterial number of shares increase? You might well do. But it's also true that up not today, but almost every other day in recent times, we've not been allowed to buy shares. Isn't that correct, Chris? Yeah. For reasons that we Close periods. That would that would say a lot more actions. I've as I said in the general meeting, actions speak louder than words. They do. And but it's also important that you recognize, and I mean, Sophie has reminded me of this before, that there are limits on shareholding you can have to remain independent. Isn't that correct, Sophie? Well, I mean, if it's I mean, back to the Conrad question as well and that and something that's always been very important to me, the independence of nonexec directors. So although it can be a signal, you also don't want non execs, you know, absolutely loading up with shares. And also, the other point, of course, is that we can't, as any directors, obviously, just tell you in a public forum what our dealing plans are.

57:18 Yes. It's But we you've made the point before, and it is it is it is well documented, the point you've made before. All I would say all I can ever say is when people ask me about SYSTEM1, I say, I think it's a very good company. And then it's up to them whether they buy shares or not, and it's up to me whether I buy shares or not. Okay. Alright. I have bought shares, and I'm very pleased that the share price appears to have gone up a little bit today. Okay. Well, let's let's wait and see then. Yeah. Any more, man? No. I'm done. Thank you. Listen. Thank you. Without you, it would be a dry old do. And thank you for your participation. Hopefully, you feel that the approach and tone of this AGM is more to your liking and indeed the liking of all the people who've attended offline.

58:12 We do want to, if you like, reset relationships in a positive and constructive and discursive manner so that, we're very happy to take any questions at any time, as you know, and we're very open to dialogue with you and indeed any shareholder. Okay. Thank you. Thank you very much. So ladies and gentlemen, we are grateful for your active engagement during the question and answer session. We highly value your feedback and assure you that we are devoted to addressing any remaining inquiries through the appropriate channels. There are no more, Chris, on that. Thank you to all the shareholders who made the time to be with us today, I e, Maynard. For those who are present in the room, please feel invited to join us for some coffee and informal discussions with, your board members. And to those who joined us remotely, thank you, and take care. We look forward to seeing you all in 2024.

58:57 Thank you very much indeed. That's great. To the board of SYSTEM1, thank you very much indeed for your time, this morning. Can I please ask attendees not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the board can really better understand your views and expectations? This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the board of SYSTEM1 GROUP PLC, we'd like to thank you for attending today's annual general meeting, and good morning to you all. Thank you very much.