BST.L Regulatory News (BST)

4 June 2018

Big Sofa Technologies Group PLC

("Big Sofa", the "Group" or the "Company")

Final Results for the Year Ended 31 December 2017

Big Sofa (AIM: BST), a fast-growing international video analytics provider to consumer brands and market research agencies, announces results for the twelve months ended 31 December 2017.

FINANCIAL HIGHLIGHTS

· Revenues increased by 72% to £1.3m (2016: £0.8m)

· Gross profit increased by 123% to £845k (2016: £379k)

· Gross margin increased by 30% to 65% (2016: 50%)

· Loss for the year reduced by 8% to £3.9m (2016: £4.3m)

· Balance sheet strengthened through £1.5m share placing in September 2017 at 18.5p per share, a 9% premium to the Admission price of 17p

OPERATIONAL HIGHLIGHTS

· Secured significant trading partnerships which delivered material revenues in the year, including:

o A three-year Master Service Agreement with Ipsos which continues to deliver strong revenue growth and formalised the start of a partnership between the two companies culminating in their investment in the company in March 2018

o Appointed global partner to Procter & Gamble (P&G) to facilitate the acquisition and analysis of both new and existing video content on projects across the global business

· Forged new direct client relationships with other blue-chip global multinationals, including Pernod-Ricard, Nestlé, McDonald's, SC Johnson, Target and 84.51°

· Expanded global presence to include US hubs in Cincinnati and Chicago

· Acquired dedicated server storage capacity and processing capability in the US, Russia and Europe enabling us to meet the high levels of data security required by our global clients

· Further developed technology to provide easier ingestion of video content, faster processing and greater ability to load, protect and access large volumes of video content; and to provide enhanced analytics capabilities

POST YEAR-END HIGHLIGHTS

· £3m strategic investment in Big Sofa, by Ipsos, one of our largest customers

· Appointed Ms Laurence Stoclet, Ipsos Deputy CEO and Group CFO, as a director of the Company

· Further developed trading relationship with Ipsos, with project work commissioned from additional divisions and offices within the group

o Ipsos has appointed a senior 'Single Point of Contact' - a global ambassador for Big Sofa within Ipsos - to facilitate the commercial partnership

· Entered into long-term subscription agreements with 84.51°, Target and International Flavours and Fragrances (IFF)

· Undertaken material repeat project work with P&G and McDonald's

· Forged new client relationships with Johnson & Johnson, Dyson and BCG Digital for whom we are undertaking pilot project work

· Continued investment in the Company's technology to enable behavioural observation at scale:

o Capable of sourcing, managing and ingesting video from homes remotely

o Retained ISO27001 status and became GDPR-compliant at the end of Q1

o Expanded our dedicated server-storage capability in Europe to service European clients and prepare for any adverse impact of Brexit on data transfer

· Eliminated convertible loan through part conversion and repayment of the Eridge Capital Limited convertible loan made on 31 May 2018, with Eridge electing to convert £100,000 of the convertible loan plus rolled up interest into 588,235 ordinary shares and Big Sofa repaying the full outstanding balance of the convertible loan plus rolled up interest, totalling £639,212

· Adam Reynolds, Non-executive Director, steps down from the board

Simon Lidington, Chief Executive Officer of Big Sofa, commented:

"Video is gradually emerging as a key medium for capturing real human behaviour in the multi-billion dollar consumer research industry. This is evident in the work we are already undertaking for household brands and leading global research organisations. We started 2017 with just a single MSA in place with Unilever and by the end of the year we had secured a place on the global rosters of multinationals such as P&G, McDonald's, 84.51° and Target, in addition to signing a global MSA with Ipsos.

"The strategic steps we have taken in 2017 and more recently in 2018 to forge relationships with large global organisations, successfully securing a £3 million investment from Ipsos and investing further in our technology platform, leave us well-placed to capitalise on the industry's growing adoption of video research techniques."

Enquiries

About Big Sofa Technologies Group plc

Big Sofa is a B2B technology business servicing the marketing and consumer insight industries with video analytics.

Our software platform collates, analyses and organises large volumes of raw/unstructured video content enabling companies to perform detailed and sophisticated consumer insight analysis; and make genuine use of their video content.

Until recently, video has been difficult and expensive to capture, upload, store, manage and analyse as a consumer insight tool. However, proliferation of smart phones has empowered consumers to speak directly to brands resulting in an evolution of consumer insight and data analytics techniques, with video emerging as a key platform in a massive $33 billion consumer research market.

Big Sofa's shares are admitted to trading on the London Stock Exchange's AIM market under the ticker BST.L.

To find out more, visit www.bigsofatech.com

Follow us on twitter at @bigsofatech

CHAIRMAN'S STATEMENT

I am pleased to report that Big Sofa delivered a 72% increase in revenues in 2017 to approximately £1.3 million. It was, however, the transformation of Big Sofa's customer base that defined our year. For a company of Big Sofa's current size to have embedded relationships with multiple global, blue-chip organisations, including Ipsos, Procter & Gamble (P&G) and 84.51°, and to have converted these relationships into revenues, is a major achievement. It is also further evidence that video is now emerging as 'the' disruptive medium for effective consumer insight in a multi-billion-dollar global market. I believe we are now well placed to leverage our customers - and our customers' customers - growing budgets for video observation strategies in market research.

Our work with these and other large global organisations has led to a surge in the number of proposals written. Brands for whom Big Sofa undertook work in 2017 include SC Johnson, McDonald's, Zurich, Pepsi Cola, Dyson and International Flavours and Fragrances, amongst others. 

Notable achievements during the year include the signing of a global three-year Master Service Agreement with Ipsos in April 2017 (subsequently leading to their investment in the Company), which sets out the terms upon which the entire market research organisation and its affiliates are encouraged to co-brand with Big Sofa to deliver video analytics technology and services. In addition, Big Sofa became an approved supplier to P&G on two of their core rosters: global technology and research, with Big Sofa able to undertake projects that facilitate the acquisition and analysis of both new and existing video content for their organisation worldwide.

By securing these global agreements, and putting in place a commercial framework upon which to mutually engage, Big Sofa is now focusing on maximising the opportunities which these, and other, relationships provide.

Our strategy of cultivating relationships with multinational organisations with the capacity to channel significant volumes of business to Big Sofa in the near term culminated after the year-end, in March 2018, with the investment by Ipsos in Big Sofa. Following our collaboration on over 150 projects, Ipsos has seen first-hand the value that Big Sofa's video observation and analytics technology delivers. We were delighted that they decided to invest in our business; to help us develop faster as an innovative technology company and to enable us to add additional capacity to take advantage of opportunities to accelerate our revenue growth.

Investment in technology and product development during 2017 was another important feature of the year. This culminated in the productisation of three clear client service offerings which the Company is deploying: Video Manager, Video Stories and Video Observer - further details of which are included in the operational review.

The Company also invested significantly in its US presence in the year, to include strategically located hubs in Cincinnati and Chicago. The US contributed 72% of all commercial opportunities in 2017. We believe our US offering is now well positioned to generate material revenue growth from corporate clients whose global headquarters are in the US.

Board changes

We were delighted to welcome Ms Laurence Stoclet, the Deputy Chief Executive Officer, Group Chief Financial Officer and Support Functions Director of Ipsos, to Big Sofa's board as a non-executive director in March 2018, following Ipsos' investment in the Company.

I should also like to place on record the board's thanks to Adam Reynolds, who has resigned as a director of the Company effective from 4 June 2018. Adam's capital markets experience has been enormously valuable to Big Sofa, both prior to, and in the year following, our AIM Admission and we are grateful for the role he has played during this important phase.

Outlook

Big Sofa is pioneering research methods with its technology that present vast opportunities for the consumer insight sector. It is apparent that large research agencies are seeking innovative ways to deliver research that provides valuable consumer insight through observational video techniques. We believe Ipsos' investment in Big Sofa as a technology business recognises the significant impact that video is having as an emerging method within this industry and the potential that it has to transform additional industry verticals.

Big Sofa has a tremendous and enviable customer base of global organisations and brands which it has secured by demonstrating the power of video analytics for market research. It is clear that video is poised to become a huge part of the consumer insight industry and therefore I believe Big Sofa is exceptionally well placed to capitalise on growing industry spend on observational research strategies which demand Big Sofa's expertise and analytics technology.

Nick Mustoe

Non-executive Chairman

1 June 2018

OPERATIONAL REVIEW

Introduction

2017 was a year of significant progress for Big Sofa, achieving revenues of approximately £1.3 million, representing a 72% increase over the prior year, underpinned by the transformation of the Company's client base. This was realised as we continued to grow the opportunity that our technology represents to enable behavioural observation projects for global enterprises at scale. 

Our focus during the year continued to be on broadening the Company's client roster to secure global partnerships and agreements that offer material revenue streams. This strategy has come into fruition in 2017, as we secured a significant agreement with P&G, and an MSA with Ipsos, as well as undertaking a number of projects directly with global multinationals.

With prospective clients increasingly appreciating the potential that Big Sofa's technology can deliver in analysing and interpreting real consumer behaviour, key to securing these agreements is our ability to demonstrate the scalability of our technology and the robustness of our platform when deployed globally. As the volume and size of the video content on Big Sofa's platform grew significantly within the year, so too did the number of users and the sophistication of the projects. In response to this, we proactively developed and invested in our technology, in particular, in the technical architecture, security, stability and performance of the platform to ensure its optimisation and to meet the high standards required of it by our large multinational clients.

Finally, as announced in March 2018, Ipsos agreed to invest £3 million in Big Sofa, at a price of 18.5p per share, representing 20% of the enlarged group. We also appointed Ms Laurence Stoclet as a non-executive director of the Company. Ms Stoclet currently serves as the Deputy Chief Executive Officer, Group Chief Financial Officer and Support Functions Director at Ipsos.

We are extremely proud to have received this investment from Ipsos and believe it will help us develop faster as an innovative technology business and enable the Company to add additional capacity to take advantage of the opportunities to accelerate our rate of revenue growth.

Strategy

In the second half of the year, Big Sofa's strategy continued to focus on securing long-term partnerships with global customers with whom we can demonstrate our ability to deliver deeper consumer insight at scale and consequently generate material income.

Whilst the sales cycle associated with securing agreements with customers of real size and scale is longer, the second half of the year saw a significant uplift in revenues of 60% from H1 to H2 2017, demonstrating our ability to cultivate long-term relationships and in turn secure commissioned work from these organisations.

Investment in the Company's IP and development of our video analytics platform remained a core focus in the year, in order to ensure its robustness and to add functionality in response to customer demand. Big Sofa's technology was central to winning global clients with increasingly complex and innovative requirements. Continued development of our technology is crucial if customers are to maximise the value that Big Sofa's video-based methods and analytical technology can deliver.

New business

During the course of the year, Big Sofa's client base was transformed as global household brands and market research agencies increasingly became aware of the power of our technology to turn unstructured observational video into quantifiable data. Big Sofa is increasingly undertaking larger behavioural observation projects around the world.

In April 2017, we secured a global three-year Master Service Agreement ("MSA") with Ipsos which set out the terms upon which the group and its affiliates can utilise Big Sofa to deliver video analytics and technology. We continue to see strong revenue growth from this partnership, with Big Sofa undertaking 147 projects with Ipsos since July 2015 to May 2018.

In addition, Ipsos has also appointed a senior 'Single Point of Contact' - a global ambassador for Big Sofa within Ipsos to develop and further facilitate our commercial partnership and encourage the utilisation and deployment of Big Sofa's platform. In 2018, this trading relationship has continued to expand, with project work commissioned from additional divisions and office locations within the group. We are seeing significant momentum in our relationship with Ipsos as it continues to develop and expand, but, owing to Ipsos' significant scale, this momentum will develop into more material financial gains in the medium to long term as we expect revenues generated from this partnership to accelerate strongly in H2 2018.

In June 2017, Big Sofa became an approved supplier to P&G on their global technology and research rosters, enabling P&G to undertake projects that facilitate the acquisition and analysis of both new and existing video content worldwide and this partnership continued to develop over the year. Additionally, P&G and Big Sofa continue to work closely together to develop new projects for the capture and analysis of video. 

In addition, 2017 saw Big Sofa develop new direct client relationships with multinationals including Pernod-Ricard, Nestlé, McDonald's, SC Johnson, Target and 84.51o, with work undertaken for over 40 clients in the year.

Post year-end, Big Sofa gained further momentum, securing long-term subscription agreements with 84.51 o, Target and International Flavours and Fragrances; as well as undertaking pilot work with J&J, Dyson and BCG Digital, which we anticipate will translate into more material revenue streams in due course.

Our ability to continue to deliver against the requirements of large multinational clients is testament to the excellent progress we have made over the last 12 months and we anticipate that the partnerships we have established in 2017 and the beginning of 2018 have the potential to translate into material revenue in the second half of 2018 and beyond.

Product development

Big Sofa's video analytics platform is central to our growth strategy and as our technology is increasingly embedded with knowledge management providers and strategic partners, we are now benefitting from added exposure to the technical intricacies of clients' eco-systems. During 2017, we continued to invest in our technology to ensure both existing and prospective clients are able to maximise the value they are able to unlock from their visual data.

This focus on technology investment has enabled easier ingestion of video content, faster processing and greater ability to load, protect and access large volumes of video content anywhere in the world. We have made substantial improvements to the robustness, security and scalability of our core analytics platform, focusing on the following key areas:

· continuing to enhance the power of our platform to turn unstructured video into quantifiable and exportable visual data;

· maximising automation throughout the video management and analysis process;

· augmenting the platform to enable the capture of consumer behaviour in-situ and analyse this behaviour in both detailed and aggregate ways, with the capability of sourcing, managing and ingesting videos from homes remotely;

· scaling of our behavioural analytics capability through the use of deeper automation to filter video by relevance at the point of capture, enabling clients to capture and analyse authentic unmediated behaviour globally;

· strengthening the platform's ability to manage highly complex media from multiple primary or secondary sources, including social;

· improving platform speed, downloads and sharing capabilities to enhance usability of the platform, facilitating a stable, frictionless environment for corporate users; and

· through Big Sofa's ISO27001 certification, the Company was already well-positioned to be GDPR-compliant and was fully GDPR-compliant by the end of Q1 2018.

In addition to advancing Big Sofa's IP, we also focused on the productisation of our services, developing three clear product offerings during 2017 and in 2018 to-date, which are:

· Video Manager: a SaaS-based model enabling clients to upload, store and manage their video data using Big Sofa's platform

· Video Stories: a service for the interpretation of video data within the platform utilising tagging and analysing text, tone of voice, emotional response, sentiment and object recognition

· Video Observer: a solution for the capture of consumer behaviour using a range of camera devices and methods which can then be uploaded for detailed tagging and analysis on the platform

We anticipate that, as we increasingly introduce these services to both existing and potential clients during the course of 2018, this will translate into increased revenue generation and enhanced earnings visibility for the future.

International presence

During the year, we expanded our global presence to include US hubs in Cincinnati and Chicago, which are in close proximity to the global headquarters of P&G, 84.51o, McDonald's, SC Johnson and Target. Both of these cities are also locations of the US regional offices for Ipsos and provide us with a platform upon which to build our client base in the US and service our existing customers.

In addition, we further invested in the growth of the Company, with the total number of employees at 31 December 2017 standing at 35, as a result of the increasing levels of work we continue to secure. We have also made significant progress in the development of a freelance network of content analysts in order to service project-based work from our international customer base.

Outlook

We have made a strong start to the year by continuing to cultivate relationships with large multinational clients and by securing a strategically important investment in the business. We continue to see increasing growth in the utilisation of video-based consumer insight methods globally. This, coupled with our ability to enable clients to manage and effectively analyse previously inaccessible video data at scale, has begun to deliver larger projects from a growing number of global brands and agencies. We expect this momentum to continue.

We continue to invest in the technology and products essential in scaling our business and we are confident that the customers and partnerships we are winning and developing will translate into sustained and significant growth in the medium to long term.

Simon Lidington

Chief Executive Officer

1 June 2018

Financial Review

2017 was a year of growth and development for the business. The funds raised at the time of the Company's admission to AIM, and the subsequent fundraising in September 2017 (which was at a premium to the AIM admission price) allowed the Group to invest in both our technology and people in the UK and US, enabling Big Sofa to service our growing global blue-chip client base.

Our stated strategy to generate revenue has been to identify and target a number of global brand clients which each have the ability to deliver multi-million pounds of annual revenues in the medium term. During the year, revenues grew to £1.3m, a 72% increase on the prior year. This was derived from a small number of core clients materially increasing their year-on-year commitments; with a large minority of the revenue secured from a client base that we had not worked with previously. During the year we introduced Big Sofa to these new clients, educated them about the power of video analytics and our technology and completed a procurement process, which resulted in commissions for revenue generating work. For both our existing and our new clients, the revenue potential remains significant.

Gross profit margin for the year was 65%, representing a 30% increase over the prior year from 50%, which is testament to the increasing adoption of Big Sofa's technology by established clients with significant budgets, and the scale in which our technology is being deployed globally.

Operating expenses were 5% higher in 2017 versus the prior year, but 53% higher when one-off listing costs from the prior year are taken into account. This is as a result of the continued investment being made in the Company's technology and personnel. During the year, we expanded our business development function in key US locations and doubled our research and development team in the UK.

The Group's cashflow reflects this investment in both staff and technology as outlined above. The Group used funds from the AIM listing and the further fundraising of £1.5m in September 2017 to invest in our technology, enabling us to service the clients that we believe will generate significant value for Big Sofa in the medium term. Net cash outflow from operating activities (including staff costs) was £3m (2016: £2.8m) and investment in the platform was £0.6m, up 62% on the prior year. The potential of the Group was realised by Ipsos who, after engaging with Big Sofa on projects for over two years, made a strategic investment of £3m in the Company after the period-end, in March 2018, which bolstered the balance sheet.

We continue to maintain a tight control of expenses and anticipate these will increase moderately as we continue to execute on our growth strategy; but we also expect revenues and gross profit to increase significantly.

The business made huge progress during 2017. We now have a global reach, a scalable product, an established team, and a high-quality client-base delivering repeat revenues. Big Sofa is well-positioned for continued future growth.

Joe MacCarthy

Chief Financial Officer

1 June 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Joe MacCarthy

Chief Financial Officer

Company number 07847321

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CASH FLOWS

Notes to the preliminary financial results

1. The figures for the years ended 31 December 2017 and 2016 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The figures for the year ended 31 December 2017 have been extracted from the statutory accounts for that year on which the auditor has issued an unqualified audit report which have yet to be delivered to the Registrar of Companies. The figures for the year ended 31 December 2016 have been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies. This announcement was approved by the board of directors on 1 June 2018 and authorised for issue on 4 June 2018.

2. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ('IASB') and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together 'IFRS') as endorsed by the European Union. The information in this preliminary statement has been extracted from the audited financial statements for the year ended 31 December 2017 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with the International Financial Reporting Standards ('IFRS').

3. Earnings per share

Basic earnings per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period. The weighted average number of shares for the current and prior years included shares issued by Big Sofa Technologies Group PLC.

Due to the loss in the periods the effect of the share options was considered anti-dilutive and hence no diluted loss per share information has been provided.

Annual Report and Accounts

Copies of the Annual Report and Accounts, together with a notice convening an annual general meeting, are being posted to shareholders shortly and will be available within the Investors section of the Company's website at www.bigsofatech.com. 

Annual General Meeting

The annual general meeting of the Company will be held at 9.00 a.m. on 3 July 2018 at Martin House, 5 Martin Lane, London, EC4R 0DP.