BST.L Regulatory News (BST)

1 October 2018

Big Sofa Technologies Group plc

("Big Sofa" or the "Company")

Half-Year Results for the Six Months Ended 30 June 2018

Big Sofa (AIM:BST), a fast-growing international video analytics provider to the consumer insight industry, announces results for the six months ended 30 June 2018.

Financial Highlights

· Revenues grew by 20% to £602,000 (H1 2017: £503,000)

· Work commissioned as at 30 June 2018 increased by 100% to approximately £1.0m (of which 60% recognised in H1 (as at 30 June 2017 work commissioned was £0.5m)

· Gross profit increased by 7% to £382,000 (H1 2017: £356,000)

· Loss for the period reduced by 19% to £1.7m (H1 2017: £2.1m)

· £3m strategic investment in Big Sofa by Ipsos, a client and one of the world's largest market research organisations, in March 2018

· Eliminated convertible loan through part conversion and repayment of the Eridge Capital Limited convertible loan on 31 May 2018

Operational Highlights

· Continued investment in, and productisation of Big Sofa's offering, with the development of three distinct solutions:

- Video Observer, a unique solution based on owned IP to analyse in-home and in-store behaviour at scale

o $200,000 pilot projects completed with 84.51˚, the consumer insights subsidiary of Kroger

- Video Manager, a SaaS-based solution enabling clients to upload, store and manage video using Big Sofa's analytics platform

o Subscription agreements entered into with clients including Procter & Gamble (P&G), 84.51˚, The Boston Consulting Group, Target Corporation and International Flavors and Fragrances

- Video Stories, a solution for capturing video data embedded in market research surveys

o Approximately 60 commissions secured from Ipsos for embedded solutions across product testing teams

· Retained ISO27001 status and became GDPR-compliant

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

Post Period-End Highlights

· Appointment of Kirsty Fuller, consumer insight expert, as Chief Commercial Officer (effective 1 October 2018)

· Appointment of John Haworth, Ipsos MORI UK's Chief Financial Officer, as Non-executive Director

· Awarded $350,000 global project by PepsiCo for Video Observer - expected to be completed by mid-November 2018

Simon Lidington, Chief Executive Officer, commented:

"We have made considerable progress in the first half embedding ourselves within global organisations looking for innovative ways to gain insights that influence their product, service or business strategies.

"The work we have put into productising our offering enables us to take three distinct solutions to market, resulting in a deeper understanding of our capabilities and their capacity to transform client insight strategies. Perhaps most exciting is the launch of Video Observer, a unique solution to analyse in-home and in-store behaviour at scale, which we believe will become an engine of growth for Big Sofa.

"Brands and businesses spend more than $40 billion a year on market research and we believe video will over time become established as a key method within that spend. Big Sofa - with its technology and know-how - is uniquely positioned to drive innovation and capitalise on this trend."

Enquiries

About Big Sofa Technologies Group plc

Big Sofa is a B2B technology business providing the marketing and consumer insight industries with video observation and analytics services, as video emerges as a key platform in a massive $40 billion consumer research market.

Our software platform collates, analyses and organises large volumes of raw/unstructured video enabling our clients, which include leading market research organisations and major household brands, to perform detailed and sophisticated consumer insight analysis; and make genuine use of video content.

Big Sofa deploys three product solutions: Video Observer, which captures and analyses real-time behaviour using fixed and wearable cameras in-home or in-store; Video Manager, which enables clients to upload, store and manage video using Big Sofa's analytics platform; and Video Stories, which enables clients to collect video embedded in consumer insight surveys.

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

Operational Review

Introduction

Big Sofa has made considerable progress in the first half of 2018 both in developing our product offering and continuing to cultivate relationships with major global organisations seeking transformative methods to conduct consumer insight. This is reflected in a growing order book of work which as of today includes commissions for well-known clients such as Ipsos, P&G, 84.51˚, PepsiCo and Target.

Brands and consumer insight agencies are increasingly waking up to the power of observational research techniques in their insight strategies as they shift from attitudinal to behavioural analysis. In March 2018, Ipsos, a Big Sofa client and one of the world's largest market research organisations, made a £3 million strategic investment in our business. Concurrently, we were delighted to welcome Ms Laurence Stoclet (Ipsos Group CFO and Deputy CEO) as a non-executive director of Big Sofa.

Significant work was undertaken in the first half of the year to develop three distinct solutions to take to market:

· Video Observer - a unique solution based on owned IP to analyse in-home and in-store behaviour at scale

· Video Manager - a SaaS-based solution enabling clients to upload, store and manage video using Big Sofa's analytics platform

· Video Stories - a solution for capturing video data embedded in market research surveys

Revenues

Revenues grew by 20% in the period to £602,000 (H1 2017: £503,000). During the six-month period, Big Sofa generated revenues from across its product suite including from Ipsos, 84.51˚, Target Corporation, The Boston Consulting Group, McDonald's, International Flavors and Fragrances, Nestlé, P&G, S.C. Johnson, Target Corporation and Unilever.

Video Observer contributed approximately £285,000 of revenues in H1, arising from work undertaken predominantly on behalf of 84.51˚ and P&G; Video Manager contributed approximately £207,000 of revenues in H1, generated from a multitude of clients including several product divisions of P&G; Video Stories contributed approximately £40,000 in the period, as clients such as Ipsos began to embed more video questions within surveys; and the balance of revenues was generated from the production of videos for the presentation of client data, as well as from consulting fees.

The majority of Big Sofa's commissions continue to be originated through our US hubs - strategically located in close proximity to the global headquarters of a number of clients including P&G, 84.51˚, S.C. Johnson and Target Corporation. We now have seven full time staff in the US.

Productisation

Video Observer

Video Observer captures previously inaccessible, real-time behavioural information and data from fixed cameras in participants' homes alongside mobile or wearable cameras used in-home or in-store. Video is securely streamed from these devices to Big Sofa's physical servers in key countries where it is monitored and managed remotely by the Company.

Using proprietary technology, Big Sofa is able to obfuscate faces and personal data from the captured video, as required to conform to data protection and compliance restrictions, and to scrub non-relevant content. As video is uploaded, Big Sofa employs a range of A.I. and human-led tools to transform unstructured video into robust, nuanced and quantifiable data for our clients.

We completed two successful pilot projects worth approximately $200,000 for Video Observer during the period with 84.51˚, the consumer insights subsidiary of Kroger, the second largest retailer in the world. The first of these projects looked specifically at homes enabled with smart technology and explored the ways in which consumers behave in these environments and engage with technology. The second involved the capture of three months' worth of video totalling 20,000 hours. Big Sofa's in-house activity detection technology and other proprietary techniques were used to scrub this down to 1,500 hours of relevant product interactions.

After the period under review, Big Sofa announced a $350,000 global project awarded by PepsiCo, the American food and beverage multinational, for the deployment of Video Observer. The project for PepsiCo, which was introduced to Big Sofa by Ipsos, is expected to be completed in H2 2018. It will see us utilising multiple capture solutions to observe consumption behaviour in households and transforming footage into meaningful and quantifiable data readily accessible by the client.

We believe Video Observer will be an engine of growth for Big Sofa as demand for innovative video-based behavioural analysis techniques grows. As more content is created through Video Observer projects, the greater our clients' needs will become for Video Manager as a platform to store and manage the significant volumes of Video Observer-generated content.

Video Manager

Video Manager is a SaaS-based solution which enables clients to upload, store and manage video using Big Sofa's analytics platform. The tool is focused on qualitative market research, enabling long-form video content - which could include content from focus groups or in-depth interviews - to be analysed quickly and in greater depth than previously possible.

Clients are able to use Video Manager to store large volumes of video data, which are then transcoded and stored on dedicated, secure servers. This content can then be translated, ensuring video data can be analysed globally, and is seamlessly accessible across the Big Sofa platform. Following the upload of video, clients can mine and re-mine data, performing specific searches through all video captured to find relevant content.

Revenues from Video Manager are generated from an initial licence fee and an upload fee based on hours of video added to the Big Sofa platform. After the initial licence period expires, additional licence fees (subscriptions) are payable for ongoing access to the video data. These licence fees are supplemented by additional technology consulting fees for the analysis of uploaded video content.

As the volume of video content used in consumer insight grows, so too will our clients' needs for a scalable management platform. We expect Video Manager to provide a backbone of recurring SaaS-based revenue as video becomes a greater component of our clients' consumer insight budgets.

We have already sold Video Manager on a subscription basis to clients such as 84.51˚, International Flavors and Fragrances, Target Corporation and Chivas Brothers.

Video Stories

Video Stories is focused on the quantitative market research sector and enables companies to collect video embedded in surveys - for example video questions - in addition to traditional data. Through the use of video in surveys, individuals give more genuine and authentic responses. Big Sofa's technology allows this video to be analysed as quantitative data providing greater consumer insight. Individual Video Stories projects tend to be small in revenue terms but the volume potential as the industry moves towards embedding video in surveys as standard is significant. Ipsos commissioned some 36 individual projects utilising Video Stories in the first half of 2018.

Through Big Sofa's retained ISO27001 status, the Company was already well-positioned to be GDPR-compliant and became fully GDPR-compliant during the period. We also expanded our dedicated server-storage capability in Europe to service European clients and to prepare for any adverse impact of Brexit on data transfer.

Product development

We continued to invest in our products and technology throughout the period. Notable developments included:

· developing automation software and hardware solutions for Video Observer, enabling remote scale capture and analytics;

· enabling more complex search and analysis within and across large volumes of behavioural and dialogue video data;

· broadening automated transcription and translation capabilities to drive greater speed and flexibility;

· strengthening enterprise SSO for seamless corporate integrations across multiple global clients; and

· expanding dedicated server-storage capability in Europe to service European clients and prepare for any adverse impact of Brexit on data transfer.

Embedded relationships

Big Sofa aims to become a transformative, integrative resource within our clients' organisations, to drive innovation in consumer insight from the inside, through the use of video and video analytics.

This is reflected in our Master Service Agreement with Ipsos, its £3 million strategic investment in Big Sofa and its designation of a senior 'Single Point of Contact' - a global ambassador for Big Sofa within its organisation - to develop and further facilitate our commercial partnership and encourage the utilisation and deployment of our platform. This quality of relationship is also evident in our approved supplier status with P&G on its global technology and research rosters, enabling P&G to undertake projects that facilitate the acquisition and analysis of new and existing video content.

As the market transitions increasingly towards behavioural analysis techniques, such embedded relationships as these have the capacity to generate extremely large volumes of work for the Company; as well as to expose Big Sofa to a multitude of brands seeking to use video in their consumer insight strategies.

Board changes

I was pleased to announce after the period-end that we will further strengthen our board with the appointment that will become effective on 1 October 2018 of Kirsty Fuller. Kirsty is a leader in the global consumer insight and strategy industry. In 1997, she co-founded the Flamingo Group, which was acquired by Omnicom in 2006 and grew, under her leadership as co-CEO and latterly CEO until 2017, to become one of the largest specialist qualitative research agencies in the world, with a network of eight offices on four continents, employing 340 staff.

Kirsty's focus throughout her career has been on raising the contribution of context-informed consumer insight to business and brand success. She has been instrumental in integrating innovative methods as the insight industry has evolved. Kirsty has worked around the world with leading blue-chip companies including Unilever, PepsiCo, Diageo, Sony and Visa.

I was further pleased to welcome John Haworth, on 26 September 2018, to the board as a non-executive director. John is the Chief Financial Officer of Ipsos MORI UK, our largest shareholder. Prior to joining Ipsos MORI UK, John held various global and European chief financial officer positions within the Kantar Group, one of the world's largest insight, information and consultancy groups. He has a successful track record of helping businesses to grow over more than 20 years, ranging from divisions of FTSE 100 groups to small and medium-sized enterprises.

John is London-based and replaced Laurence Stoclet as Ipsos MORI UK's nominated director on the board of Big Sofa. We look forward to working with John to further facilitate our commercial relationship with Ipsos.

Outlook

We continue to see growing evidence of a shift from attitudinal analysis to behavioural analysis as brands, businesses and their insight agencies strive to gain a competitive edge. Big Sofa's observational research expertise, combined with its video analytics technology and platform, uniquely positions us to capture an expanding slice of a multi-billion dollar annual spend on market research. Our focus on large multinational organisations during this period of change in the research industry means that we continue to experience slow sales cycles and lumpy revenues.

Organisations are spending more than $40 billion a year on market research globally. We believe video will over time become established as a key method within that spend; and that Big Sofa - with its technology and know-how - is uniquely placed to capitalise on this trend.

The Company's growth has led to it absorbing cash which will continue for a number of months; the directors are at an advanced stage of arranging further funding necessary to sustain the business and support the growth strategy.

The board has agreed to a number of significant cost-cutting measures which we believe will bring the company to cash breakeven sooner without affecting its ability to deliver anticipated revenues. 

Simon Lidington

Chief Executive Officer

28 September 2018

Financial Review

Revenues grew by 20% to £602,000 compared to H1 2017, and work commissioned increased by approximately 100% to £1.0 million. Only 60% of this commissioned work was recognised in the first half, reflecting the larger and longer-term contracts that we are receiving from our clients. These contracts provide us with increasing visibility over future revenues and the significant size of these individual contracts - even as pilot projects - are an indication of the traction Big Sofa is gaining with major global clients.

Average project commission values also increased in the period, up 45% from H1 2017 to over £9,000, driven in part by the launch of Video Observer, for which individual commissions are typically much higher in value.

Gross profit was up 7% in the first half to £382,000, as a result of the increase in revenue. However, gross margin was 8% lower at 63%, as projects, particularly Video Observer, are priced competitively as the market adopts new methodology. The product mix will continue to impact the Company's overall gross margin while clients adopt Video Observer however, we expect margin to increase in the medium-term as we are able to adopt higher pricing and technological advances lead to a decrease in costs. We also expect Video Observer to continue to drive revenue for our other products, including Video Manager, our higher margin proprietary SaaS-based storage and management solution.

Overall loss for the period was reduced by 19% to £1.7 million (H1 2017: £2.1 million), reflecting the increase in revenues and also a reduction in the cost base between the periods. In H1 2017, we invested heavily in making our platform better able to deal with the requirements of large global clients. We will maintain a sharp focus on cost control in the second half and beyond; we expect the cost base to increase slightly in the second half, and for revenues to increase significantly.

Net cash outflows from operations were down 22% to £1.4 million compared to H1 2017. Cash burn continues to decrease as revenues increase coupled with the ongoing focus on cash management. Cash balances at the period end were £1.1 million (H1 2017: £397, 000), bolstered by the Ipsos investment in March 2018.

Investment Initiatives

On 9 March 2018, we finalised the strategic investment into the Company by Ipsos, one of our major clients and one of the world's largest market research agencies. Gross proceeds of £3.0 million were raised by the issue and allotment of 16,402,143 new Ordinary Shares at a subscription price of 18.5 pence per share. The proceeds of this subscription were used to repay the convertible loan from Eridge Capital Limited ("Eridge"), to fund the continued investment into the technology platform and to further develop our sales and marketing activities, particularly in the US from where we are seeing the greatest revenue growth.

On 31 May 2018, we repaid £639,000 (including rolled up interest) of a convertible loan to Eridge. In addition, Eridge elected to convert £100,000 of their loan into 588,235 shares in the Company at a conversion price of 17 pence per share. As a result of this, the Company is now debt free.

Joe MacCarthy

Chief Financial Officer

28 September 2018

Consolidated Statement of Comprehensive Income

For the 6 months to 30 June 2018

Consolidated Statement of Financial Position

As at 30 June 2018

Consolidated Statement of Changes in Equity

For the 6 months to 30 June 2018

Consolidated Statement of Cash Flows

For the 6 months to 30 June 2018

Notes to the Half Year Report for the 6 months Ended 30 June 2018

1. General Information

Big Sofa Technologies Group Plc is a company incorporated and domiciled in England and Wales. The company is listed on the AIM market of the London Stock Exchange (ticker: BST).

The financial information set out in this Half Yearly report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The group's statutory financial statements for the year ended 31 December 2017, prepared under International Financial Reporting Standards ("IFRS"), have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain statements under Sections 498(2) and 498(3) of the Companies Act 2006.

Copies of the annual statutory accounts and the Half Yearly report can be found on the Company's website at http://www.bigsofatech.com/.

2. Basis of preparation and significant accounting policies

This Half Yearly report has been prepared using the historical cost convention, on a going concern basis and in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, using accounting policies which are consistent with those set out in the financial statements for the year ended 31 December 2017.

New and amended standards adopted by the group

There are no IFRSs or IFRIC interpretations that are effective for the first time in this financial period that would be expected to have a material impact on the group.

3. Loss per Share

Basic earnings per share is calculated by dividing the earnings attributable to shareholders by the weighted average number of ordinary shares outstanding during the period.

Reconciliations are set out below:

Basic and diluted earnings per share are not the same, since where a loss is incurred the effect of outstanding share options and warrants is considered anti-dilutive and is ignored for the purpose of the loss per share calculation. As at 30 June 2018 there were 10,970,163 outstanding share options and 567,531 outstanding share warrants.

4. Share Capital

Issued share capital comprises:

During the six months to 30 June 2018 the Company issued 17,467,478 ordinary shares. 477,100 were issued at 13.1p per share, 588,235 were issued at 17p per share and the remaining 16,402,143, at 18.5p per share.

5. Loans and borrowings

On 31 May 2018, Eridge Capital Limited ("Eridge") (formerly New World Oil and Gas PLC) elected to convert £100,000 of the Convertible Loan plus rolled up interest into 588,235 ordinary shares of 3p in the Company, representing a conversion price of 17p per share. In addition to this, the Company repaid the full outstanding balance of the Convertible Loan plus rolled up interest, totalling £639,212.

6. Post balance sheet events

No post balance sheet events occurred.

7. Availability of Report

A copy of this half-year report is available on the Company's website at www.bigsofatech.com