System1 Reports Difficult Quarter

UK-based System1 has reported continuing declines in its business, in a trading update for the third quarter. Its key measure, Gross Profit, is now expected to be around twenty percent down on the previous twelve months, when full year results are announced in the spring.

The company, which as BrainJuicer was one of the industry's biggest success stories of the last ten years, first announced disappointing conditions in August last year. At the end of October, it said cuts and deferrals to some major FMCG client marketing budgets had reduced its first half trading - Gross Profit was then down 12 twelve percent at constant currencies. It now says Q3 trading 'continued to be worse than anticipated'.

System1 says steps have been taken to reduce growth in overhead costs - in H1 it had added to headcount in the US and its Advertising Agency subsidiary, but it now expects overhead growth over the year as a whole in 'low to mid single digits'. The company still expects to make a small Profit before Tax for the full year, but well down on the £6.3m it announced for 2016/17. However it retains a solid cash position - as of 31st December 2017, it had a cash balance of £4.6m and no debt.

The company says it has responded to client cuts by 're-engineering most of its mainstream product offering into a faster, cheaper, more outcome orientated platform, 'Creat1ve Guidance System', with a view to 'selling and delivering larger-scale, more automated, on-going programmes of work'. New and enhanced products in the autumn included the Digital Content Tracker, to measure emotional response to a brand's online video content against that of its major competitors; and an upgrade to its Predictive Markets idea testing technique, which now draws on learnings from over 40,000 tests and promises clients 'improved accuracy and greater speed at a lower cost'.

System1 is also establishing a new industry standard, 'Advert1sing Quality' to be launched this month, with the creation of new revenue lines, and says it believes these will help return System1 Research to growth in 2018/19, with 'enhanced visibility and stability to revenues'.

The group's advertising agency has meanwhile won its first clients in Continental Europe and the US and System1 says it expects it to be close to break-even this year, and profitable in 2018/19.

The group, whose CEO John Kearon is pictured, is online at www.system1group.com .