System1 Group FY26 Results: H2 Recovery and Strategic Progress Amid Macro Headwinds

Client growth was strong too. System1 ended the year with 635 clients, up 16% from 546, and added 323 new clients during the year, generating £10.7 million of revenue. That is a decent sign that the company’s sales engine is still working even when existing clients are more cautious.

The US also continues to look like the main growth engine. US platform revenue grew 7%, new US client revenue rose to £3.5 million from £2.8 million, and the company signed its largest US contract to date in March, with revenue expected in FY27. In plain English, America is still the big prize here, and System1 looks to be making genuine progress.

Innovation was another bright spot. Innovation revenue increased 19%, and the group expanded its AI-enabled capabilities, including a partnership with BionicX AI. For a business that sells marketing effectiveness tools, staying relevant in the AI era is not optional – it is essential.

Why profit fell so sharply despite stable System1 revenue

This is where the result gets less comfortable. Total revenue was broadly flat, but profits fell hard because System1 was investing while also dealing with weaker client spending in H1. Operating costs rose 9% to £30.4 million, while gross profit dipped 2% to £32.3 million.

Adjusted EBITDA margin fell from 18% to 10%, which is a big drop. The company also reported a Rule of 40 score of 13%, down from 57%. For software and platform-style businesses, Rule of 40 is a simple measure combining growth and profitability, so that fall tells you FY26 was much less efficient.

There was also a clear slowdown in existing customer spend. Platform net revenue retention, or NRR, dropped to 72% from 106%. NRR measures how much existing customers spend compared with the prior year, so anything below 100% means the customer base shrank in value before new sales are added. That is not a disaster given the macro backdrop, but it is definitely a weak spot.

System1 H2 recovery – the part investors will focus on most

The company’s defence is that H1 was the problem, not the whole business model. H2 revenue reached a record £19.9 million, which was 16% higher than H1, and profit before tax in H2 was six times H1. The exact H1 and H2 profit figures were not disclosed, but the direction is clear enough.

Europe is a good example of that rebound. Revenue there was weak for the full year, down 10% to £3.6 million, but H2 improved sharply, rising to £2.2 million from £1.3 million in H1. Management says customer spending patterns normalised in the second half, particularly in the UK and Europe.

My take is simple: this result would look much worse without that H2 bounce. The recovery gives the board a credible argument that FY26 was a temporary wobble rather than a structural problem.

Cash, dividend and balance sheet – solid support for the investment case

One thing System1 still has in its favour is balance sheet strength. It ended FY26 with £12.4 million of net cash, no debt, and an undrawn £1.5 million overdraft facility. That gives it breathing room to invest, manage volatility and keep paying dividends.

Free cash flow fell to £0.8 million from £4.2 million, which is not brilliant, but the company points to higher cash tax, bonus payments and an extra £1.7 million of discretionary investment. Cash generation was still positive, just much less impressive than last year.

The board is proposing a final ordinary dividend of 6.0p per share, up from 5.5p. That is a confident signal, especially after such a weak year for earnings. You could argue it is generous, although some investors may prefer a bit more caution until profit growth is properly re-established.

Strategic progress at System1 – US expansion, AI tools and larger brands

Strategically, there is plenty to like. System1 now works with 48 of the world’s top 100 advertisers, up from 44, and says its most engaged customers spend more than three times as much as single-product users. That points to a decent cross-sell opportunity if it can keep deepening client relationships.

Management also highlighted a growing product set, including AI tools such as TYA Screen and new platform developments like TYA 2.0 and TYI integration. The company invested £4.5 million in product and technology during the year. That is a meaningful spend for a business of this size, so investors will want to see that convert into faster growth and better margins.

There was also a corporate sideshow worth noting. Brave Bison acquired founder John Kearon’s 23% stake and, with additional purchases, now holds 27.85% of System1. A relationship agreement was signed in April 2026, which the company says supports a constructive and transparent relationship.

Is the System1 FY26 RNS positive or negative for shareholders?

Overall, I’d call this cautiously positive, but only cautiously. The full-year numbers are clearly weaker and show how exposed System1 is to swings in client marketing budgets. Profitability, cash flow and customer spend all moved the wrong way.

That said, the platform mix improved, the client base grew nicely, the US is moving forward, innovation is gaining traction, and the second half recovery looks real. If that H2 momentum carries into FY27, this could prove to be a reset year rather than the start of something uglier.

The other slight negative is investor communications. System1 says it will now update the market twice yearly and will stop Q1 and Q3 revenue updates. That is not automatically bad, but less frequent trading updates do reduce visibility for smaller shareholders.

In short, this is not a blowout result, but it is better than the profit decline alone suggests. System1 still needs to prove it can turn strategic progress into consistent earnings growth. For now, the bull case rests on H2 momentum, stronger operational discipline and a cleaner, more scalable revenue mix.