Big Sofa Technologies : Final Results

RNS Number : 2439S

Big Sofa Technologies Group PLC 08 March 2019

8 March 2019

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

Big Sofa Technologies Group plc

("Big Sofa Technologies" or the "Company")

Final Results for the Year Ended 31 December 2018

Big Sofa Technologies (AIM:BST), an interna/onal video analy/cs provider to the insight and analy/cs industries, announces results for the twelve months ended 31 December 2018.

2018 Financial Highlights

• · Revenues increased by 29% to £1.7 million (2017: £1.3 million)

• · Gross profit increased by 16% to £1.0 million (2017: £0.8 million)

• · Operating expenses reduced by 5% to £4.7 million (2017: £4.9 million)

  • o Programme of annualised cost savings and technology efficiencies ini/ated during 2018 that are expected to reduce 2019 operating expenses by approximately £1.0 million compared to 2018

• · Loss for the year reduced by 13% to £3.4 million (2017: £3.9 million)

• · Investments made into Big Sofa Technologies during the year of £4.6 million

  • o £3.4 million from Ipsos, a Big Sofa Technologies customer and one of the world's largest market research organisations

  • o £0.35 million from current/former directors of Big Sofa Technologies

• · Eliminated Company debt through part conversion and repayment of the remaining approximately £0.65 million Eridge Capital Limited convertible loan

2018 Operational Highlights

• · Work undertaken for customers including Ipsos, 84.51˚, Target Corpora/on, Procter & Gamble and a large US-based multinational food and beverage company

• · Growing traction with Ipsos, which accounted for approximately a quarter of revenues

• · Revenues generated from strategic integra/on of video into large scale surveys were approximately £0.35 million

• · Revenues generated from projects to analyse behaviour at scale were approximately £0.8 million

• · Revenues from Big Sofa Technologies' analy/cs plaEorm (renamed Visual Insight System), which enables clients to upload, store and manage video, were approximately £0.45 million

• · Significant plaEorm improvements to stability, scalability, inges/on capacity, machine learning capability and user experience

Board Changes

• · Appointed global consumer insight and strategy industry leader, Kirsty Fuller, as Chief Commercial Officer in October 2018 and subsequently as Chief Execu/ve Officer in November 2018 (replacing Simon Lidington who became a non-execu/ve director; Simon will not stand for re-elec/on as a director of the Company at the Annual General Meeting. He will resign with effect from 1 April 2019 but will remain as a consultant)

• · AppointedJohn Haworth, Chief Financial Officer of Ipsos MORI UK, a UK subsidiary of Ipsos and a 20% shareholder in Big Sofa Technologies, as a non-execu/ve director (replacing Laurence Stoclet as Ipsos'

nominated director)

·

Adam Reynolds and Paul Clarkstepped down as non-execu/ve directors in June and October 2018 respec/vely, both in support of efforts to streamline the board while maintaining an appropriate level of governance

Post Year-End Highlights

• · Following comple/on of plaEorm improvement works and through other technology efficiencies, £0.35 million of technology-related annualised cost savings to be achieved in 2019 versus 2018 (part of the £1.0 million of annualised cost savings)

• · Successful plaEorm integra/ons into customer knowledge management systems and complementary technology platforms to facilitate deeper strategic integration at the partner or client level

  • o First Stop Data Shop - system used by Procter & Gamble

  • o KnowledgeHound - technology platform for quantitative data and research

  • o Ipsos - ongoing integrations across key service lines

Kirsty Fuller, Chief Executive Officer of Big Sofa, commented:

"My priority on becoming Chief Execu/ve Officer in November 2018 was to ini/ate a strategic review and iden/fy areas for cost savings. With a significant R&D programme having completed at year-end, I was able to ini/ate a programme of material annualised cost savings with a restructuring of the en/re team, a refocus on streamlined, efficient processes and a sharpening of the selling proposi/on. As a result, we began 2019 as a stronger, leaner business.

2019 is an important year for Big Sofa Technologies. It sees the Company step forward confidently with a new vision, a new suite of client offerings, and a more robust and exciting technology capability."

Enquiries:

Big Sofa Technologies Group plc	via Vigo Communications
Kirsty Fuller, CEO
Joe MacCarthy, CFO
Arden Partners plc (Nominated Adviser and Joint Broker)	[phone]
Paul Shackleton / Ben Cryer
Novum Securities (Joint Broker)	[phone]
Colin Rowbury
Vigo Communications (Financial Public Relations)	[phone]
Ben Simons / Jeremy Garcia / Antonia Pollock
About Big Sofa Technologies Group plc

Big Sofa Technologies is an insight-led technology company. The design and development of our technology has been guided by expert understanding of the insight and analy/cs industries and the needs, pressures and business questions of the clients they serve.

We uncover and analyse new-to-the-industry behavioural data sets in video, enabled by the power of our pioneering data capture and plaEorm technology. We are innova/ng both in how video-led projects and programmes are designed and in how the data is analysed, showcased, embedded and re-mined.

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

Big Sofa Technologies' shares are admiPed to trading on the London Stock Exchange's AIM market under the /cker BST.L.

To find out more, visitwww.bigsofatech.com

Follow us on twitter at @bigsofatech

Chairman's Statement

Big Sofa Technologies con/nued to build its customer base in 2018. During the year, the Company's clients included Ipsos, 84.51˚, Target Corpora/on, Procter & Gamble and a large US-based mul/na/onal food and beverage company. I draw confidence from the fact that diverse and substan/al organisa/ons such as these are engaging with Big Sofa Technologies and our video analytics capabilities.

It is particularly significant that Ipsos, a Big Sofa Technologies customer and one of the world's largest market researchorganisa/ons, invested an aggregate £3.4 million into the Company during 2018, resul/ng in its ownership of approximately 20 per cent of the business.

The Company's balance sheet benefiPed both from investments of an aggregate £4.6 million during 2018, including from former and current directors, as well as from the elimina/on of the Company's debt through the part conversion and repayment of the Eridge Capital convertible loan on 31 May 2018.

Several changes were made to the composition of the board of directors during 2018.

On 26 September 2018, we welcomed John Haworth, Ipsos MORI UK's chief financial officer, as a non-execu/ve director. Our teams are working together to raise awareness and increase adop/on of our technology and services throughout Ipsos' global organisa/on. John, who is London-based, replaced Laurence Stoclet, who is Paris-based, as Ipsos' nominated director on the board of Big Sofa Technologies.

Kirsty Fuller was appointed to the board on 1 October 2018 and took over as Chief Execu/ve Officer the following month. Kirsty is a leader in the global consumer insight and strategy industry and is already having a posi/ve impact both on our strategic development and the management of costs. Kirsty replaced Simon Lidington who, having co-founded the business, moved into a non-execu/ve director role from which the Company con/nues to benefit from his exper/se. Simon will not stand for re-elec/on as a director of the Company at the Annual General Mee/ng. He will resign with effect from 1 April 2019 but will remain as a consultant.

Adam Reynolds and Paul Clark stepped down as non-execu/ve directors on 4 June 2018 and 10 October 2018 respec/vely, both in support of efforts to streamline the board of directors while maintaining an appropriate level of governance.

I am encouraged by the progress that Big Sofa Technologies con/nues to make in cul/va/ng rela/onships with a growing number of large organisa/ons and our deeper customer strategic integra/ons. I look forward to this posi/ve momentum being continued.

Nick Mustoe

Non-executive Chairman 7 March 2019

Review of Operations

Strategy

I joined Big Sofa Technologies in October 2018 and took over as Chief Execu/ve Officer the following month. My priority was to ini/ate a strategic review and iden/fy areas for cost savings. The business had invested significantly in its technology plaEorm architecture in 2018 - a programme which reached comple/on at the end of the year. With this fundamental R&D programme completed, I was able to ini/ate a programme of material annualised cost savings with a restructuring of the en/re Big Sofa Technologies team, a refocus on streamlined, efficient processes and a sharpening of the selling proposi/on. This strategic review and implementa/on resulted in Big Sofa Technologies starting 2019 as a stronger, leaner business.

I see three pillars to our 2019 strategic roadmap:

Strategic integration with key Ipsos service lines

The investment by Ipsos represented a significant milestone in the strategic growth of Big Sofa Technologies. In 2019, there is a commitment to strategic integra/on programmes with key Ipsos service lines with a focus on the enablement of innova/on in research approaches to drive revenue growth. This spans the integra/on of video and video analy/cs into survey and community plaEorms as well as new genera/on product tes/ng and service evalua/on. An invita/on to the forthcoming Ipsos Leadership Conference will enable further progression of this agenda.

Visual Insight System

Alongside the Ipsos strategic partnership, the business will be building on its direct-to-client successes, developing a bespoke (and newly named) Visual Insight System (a dynamic, interac/ve knowledge management system applicable to all sizes of customer) for knowledge sharing, data re-mining and cross-discipline collabora/on and connec/on. In 2018, we completed successful projects for clients including 84.51˚, the consumer insights subsidiary of Kroger, the second largest retailer in the world, Procter & Gamble, and a large US-based mul/na/onal food and beverage company. We aim to extend our reach beyond retail and consumer packaged goods into technology and media brands. With improved, interac/ve func/onality being delivered in the first half of 2019, this offering has been renamed Visual Insight System.

Automated data extraction

Large scale data providers are inves/ga/ng the automated extrac/on of data from video/film footage at scale. This pushes forward our machine learning roadmap delivered by our R&D func/on. The applica/ons of this capability span manufacturing processes, healthcare and more. A small pilot was conducted with a poten/al partner in this space at the end of 2018. This third strategic pillar represents a new revenue stream for 2019 and may take time to build.

Revenues

Ipsos accounted for approximately a quarter of Big Sofa Technologies' revenues in 2018, predominantly derived from projects to strategically integrate video into large scale surveys.

Revenues generated from integration of video into large scale surveys were approximately £0.35 million in 2018.

Revenues generated from projects to analyse behaviour at scale were approximately £0.8 million in 2018. Using ar/ficial intelligence and human-led tools, we transform unstructured content into meaningful and quan/fiable data for clients. We completed successful projects of this nature during the year for 84.51˚, Procter & Gamble and a large US-based multinational food and beverage company.

Big Sofa's analy/cs plaEorm, which enables clients to upload, store and manage video, generated approximately £0.45 million of revenue in 2018.

The balance of revenues in 2018 was derived from the produc/on of videos for the presenta/on of client data and consulting fees.

Technology Development and Integration

Throughout 2018, Big Sofa Technologies completed a comprehensive architecture rebuild, crea/ng a more scalable video analytics platform. As a result, the platform:

• - ingests and stores significantly higher volumes and file sizes

• - enables clients to collate and curate media more easily as well as monitor compliance

• - has an improved interface for intuitive navigation and interpretation

• - has a smart, automated pipeline for rapid processing and quality checks

Cost Savings

A rolling roadmap of technology improvements will be implemented in an agile and /mely manner in 2019 thanks to the plaEorm architecture rebuild of 2018. However, with the substan/al plaEorm architecture rebuild completed, the Company will be able to realise, when aggregated with other technology efficiencies, approximately £0.35 million in technology-related annualised expense savings in 2019 compared to 2018. These savings form part of an overall programme of savings across the business in 2019 of approximately £1.0 million compared to 2018. This is the outcome of a thorough strategic review resulting in a streamlining of people and processes.

Outlook

2019 is an important year for Big Sofa Technologies. It sees the Company step forward confidently with a new vision, a new suite of client offerings, and a more robust and exci/ng technology capability. Our product roadmap combines enhancements to our interface, functionality, machine learning capabilities and overall user experience.

I believe that our three commercial pillars - Ipsos integra/on, direct-to-client Visual Insight System (from knowledge management to knowledge ac/va/on) and automated data extrac/on (machine learning) - represent a sound strategy for 2019. Combined with a more agile, exci/ng product roadmap, a fresh visual iden/ty, and a team and office restructuring, we have a strong recipe for success.

Kirsty Fuller

Chief Executive Officer 7 March 2019

Financial Review

Summary Financial Performance

FY 2018	FY 2017	Change
£'000s	£'000s	%
Revenue	1,680	1,301	+29%
Gross Profit	982	845	+16%
Gross Margin	58%	65%	-10%
Operating expenses	4,655	4,900	-5%
Loss for the year	(3,403)	(3,923)	-13%

Revenues increased by 29 per cent to £1.7 million (2017: £1.3 million), the majority of which con/nued to come fromthe US.

Gross profit increased by 16 per cent, reflec/ng higher revenues, although the gross profit margin dropped from 65 to 58 per cent as we incurred higher ini/al costs for some of the large-scale behavioural analysis projects in the year. Having incurred set-up costs on these early projects, we do not expect to incur them again and therefore expect the margin to increase in the medium to long term.

Opera/ng expenses reduced by 5 per cent to approximately £4.65 million, as the benefit of annualised cost savings initiated in the latter part of 2018 began to take effect.

Increased revenues and gross profit, combined with reduced expenses, resulted in the loss for the year reducing by 13 per cent to approximately £3.4 million (2017: £3.9 million).

Net cash ouElow from opera/ng ac/vi/es was approximately £2.8 million (2017: £3.0 million). R&D investment (included within 'purchase of intangible assets' in the Consolidated Statement of Cash Flows) was approximately £0.7 million (2017: £0.6 million). In total, the Company has invested approximately £1.7 million between 2016-2018 in R&D. This investment has generated cash tax credits from HMRC of approximately £0.1 million in both 2017 and 2018 and £0.15 million in 2019 to date, all in respect of development work undertaken in 2016 and 2017. Addi/onal cash tax credits for development work undertaken in 2018 are expected in 2019.

During the year we con/nued to invest in our technology plaEorm, to develop new commercial rela/onships and to deepen exis/ng ones. This has been funded, in part, through raising a total of £4.7 million of addi/onal equity in 2018. This funding also enabled the Company to redeem the unconverted por/on of the Eridge Capital Limited convertible loan (approximately £0.65 million). The Company is now debt free.

At the year-end the Company had net assets of approximately £2.0 million (2017: £0.45 million).

Joe MacCarthy

Chief Financial Officer 7 March 2019

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended	Year ended
31 December
31 December 2018	2017
£'000	£'000
Revenue from contracts with customers	1,680	1,301
Cost of sales	(699)	(456)
Gross profit	981	845
Administrative expenses	(4,654)	(4,900)
Operating loss	(3,673)	(4,055)
Finance expenses	(28)	(71)
Loss before income tax	(3,701)	(4,126)
Tax credit	298	203
Loss for the year	(3,403)	(3,923)
Exchange differences on re-translating
foreign operation	(87)	34
Total comprehensive loss	(3,490)	(3,889)
Attributable to owners of the parent:	(3,490)	(3,889)
Loss per ordinary share in respect of
continuing activities - basic and diluted
(pence)	(3.75)p	(6.62)p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 2018	31 December 2017
£'000	£'000
Non-current assets
Property, plant and equipment	40	58
Intangible assets	739	545
Total non-current assets	779	603
Current assets