BIDS.L Regulatory News (BIDS)

Fitbug Holdings Plc / Epic: FITB.L / Index: AIM / Sector: Leisure

31 May 2012

Fitbug Holdings Plc ('Fitbug' or 'the Company' or 'the Group')

Final Results - Well Placed for Strong Growth, particularly in the US

Notice of AGM

Fitbug Holdings Plc, the AIM traded provider of online personal health and well-being services, announces its results for the year ended 31 December 2011 and gives notice of its AGM to be held at 1st Floor Waterside House, 47-49 Kentish Town Road, London NW1 8NX on Tuesday 26 June 2012 at 1.00 pm. The report and accounts for the year will be sent to shareholders on 31 May 2012 and will be available on the Company's website at www.fitbugholdings.com.

Overview

·; 13% increase in turnover to £1,283,000 (2010: £1,132,000) and a reduced loss of £783,000 (2010: loss £929,000)

·; Deal flow gaining momentum:

o Agreement signed with the health services arm of one of the largest health groups in the US serving over 70 million lives as well as a further agreement with insurance arm of the group post period end

o Ongoing progress with The Vitality Group - agreements with two large corporate clients covering 16,000 employees

o Three year supply agreement signed in May 2012 with leading US digital health engagement and management company, Healthrageous Inc.

o Progress with PruHealth - now offering all renewing Standard Life Healthcare customers the option to participate in Vitality scheme of which Fitbug is a core component 

o Anxa account in France developing well with new orders confirmed and Holmes Place2Go product achieving significant traction in Israel with a roll-out agreed in Germany and Austria

·; Investment in experienced people and infrastructure to support and deliver on growth ambitions in the US, UK and internationally:

o New appointments in sales, business development and customer services

o New US sales and customer support office in Chicago and US legal entity

·; Strong market fundamentals - overall connected health and mobile health market projected to grow substantially

·; Strong pipeline of new business opportunities

Fergus Kee, Executive Chairman, said "Fitbug is now well placed to grow strongly in the markets in which it operates, particularly in the US. It has a clear strategy and an experienced team to deliver it, with prospects underpinned by signed deals and a strong pipeline."

Executive Chairman's Statement

Background to the market

2011 was an important year for the Fitbug business, both in terms of the accelerating evolution of the market it operates in, and progress in developing the capability to be successful in this exciting emerging market.

Fitbug operates in what is increasingly called the 'Connected Health' market. Connected Health is the use of wearable devices to upload data to the internet to allow individuals and third parties to track and manage a range of health factors ranging from chronic disease to optimising wellness and fitness programmes. ABI research last year estimated that the market for wearable health-related devices ranging from heart rate monitors to biosensors that read body temperature and motion will reach more than 100 million device sales annually by 2016. The market for wearable sports and fitness related monitoring devices is also growing, projected to reach 80 million device sales annually by 2016. Thanks in part to trends such as the growth in wearable devices; the overall mobile health market is projected to grow substantially. Research and analysis firm GlobalData expects the US market to grow in value from an estimated $0.5 billion in 2010 to over $8 billion by 2018, significantly revolutionising healthcare delivery and management.

These growth projections are in part driven by the development of new technology and increasing consumer interest. They are also driven by the growing cost and health system pressures from the projected increase in the burden of chronic disease, frequently caused by avoidable lifestyle-based factors, perhaps most significantly, inactivity. This is a global issue but one that is particularly acute in the US where spend on healthcare is much higher, averaging US$17,500 per family in 2010. The continued increase in healthcare costs, forecast to rise to 19.5% of GDP by 2017, is widely recognised as unsustainable. Healthcare costs, and in particular slowing the rate of future cost increase, is a top priority for most employers and health insurers.

Two related but important trends in the drive by health insurers and employers to make workers healthier are (i) the increased use of incentives; and (ii) what in the US has become known as 'gamification' - the use of techniques borrowed from digital games in an effort to encourage regular exercise and foster healthy eating habits. In a survey of US employers by Towers Watson and the National Business Group on Health, 60% indicated that by the end of 2013 their health initiatives would include online games as well as other types of challenges and competitions between business location and employee groups. A related Fidelity survey found that almost three out of four US companies used incentives in 2012 to engage employees in health-improvement programmes. The average incentive was $460 per employee with most planning to increase the dollar value of incentives in 2012.

Operational Review

These trends and the opportunity they present underpin Fitbug's core ambition and strategy - to be a leading Connected Health support partner to US health payers and health service providers. These include health insurers, large employers, wellness services, disease management and incentive scheme providers. On joining the Fitbug business as Executive Chairman in April last year the potential of the business and the opportunity for it to execute successfully such a strategy were clear. Fitbug's experience and proven capability in activity tracking, data handling, health behaviour change, health incentive and game support were important foundation strengths, as was its business-to-business ('B2B') focus. Early B2B experience with The Vitality Group ('TVG') and in particular the roll out of the Fitbug capability to two large TVG corporate clients covering 16,000 employees in early 2011 provided further endorsement of the relevance and appeal of Fitbug capability in the US. Client feedback has been very positive with good employee retention and follow-on orders through 2011/12. TVG is the sister company to PruHealth and a subsidiary of South Africa based health insurer Discovery Holdings Limited ('Discovery'), both of whom we are working closely with.

To support and deliver on our growth ambition in the US we have:

·; Invested significant time 'on the ground' in the US with our Chief Executive, Paul Landau, establishing important client relationships

·; Appointed a senior US healthcare industry executive as Senior Vice President of Sales and Business Development. With over 20 years of experience in the healthcare sector, he is a respected figure in the industry having previously worked in senior sales roles at Bupa's US Health Dialog business, Blue Cross Blue Shield of Illinois and CIGNA

·; Opened a US sales and customer support office in Chicago and incorporated a US legal entity, Fitbug Inc., to enable the Company to structure its sales, administration and customer service to effectively meet the needs of the US market and its customers

·; Further strengthened the US team with the appointment of a senior account management executive with prior experience at CVS Caremark, and set up a small customer service team

Market interest has been strong. The TVG account continues to develop well. Most important has been the signing of a Master Services Agreement with the health services arm of one of the largest health groups in the US serving over 70 million lives. This was followed in February this year with a three year Alliance Agreement with its insurance arm which accredits Fitbug as a supplier of services to an innovative new programme due to launch during Q3 2012. Also, post year end, a further three year supply agreement was signed in May 2012 with leading US digital health engagement and management company, Healthrageous Inc. Under the terms of this deal Fitbug will supply Healthrageous customers with its proprietary activity tracking technology including wired devices, software, data handling and customer service support. Additionally, during the period Fitbug established a relationship with Boston-based 'MeYou Health' that delivers web and mobile technologies designed to transform social networks into support systems and improve the well-being of users. MeYou Health is a wholly-owned subsidiary of Healthways, Inc.

By their nature, these B2B strategic supplier relationships take time to negotiate and agree, often six to twelve months from first discussion. In this regard, we are encouraged by the number and quality of US pipeline discussions now underway and would expect to make further announcements in the second half of 2012.

In the corporate wellness space, Fitbug also won various new accounts for the provision of Fitbug as part of organisations' employee wellness programmes. These initiatives encompass Fitbug's core online proposition as well as an increasing use of the platform's games and challenge capabilities, which are proven to drive uptake and engagement in the company's programme and have a highly positive impact on a range of health and community based outcomes. In the coming year this is an area we are looking to build on, as US employers are actively seeking out initiatives that support their health and well-being strategies.

Whilst the US is clearly the market of greatest future potential for Fitbug, we are in no way lessening our focus on developing in the UK and other selected international markets. In the UK, as in the US, we have strengthened the team with the appointment of an experienced health industry executive as Head of Sales and Business Development. With a 23 year career at Bupa, much of it in senior corporate sales roles, he brings great experience and a strong network of contacts to the business. PruHealth in the UK having completed the integration of the 450,000 customer Standard Life Healthcare business in April started to offer all renewing Standard Life Healthcare customers the option to participate in its Vitality scheme of which Fitbug is a core component. Internationally, the Anxa account in France, where Fitbug provide activity tracking and data feed support to Aujourdhui.com, France's leading diet club, is developing well with new orders confirmed in 2012. Furthermore, the Fitbug based Holmes Place2Go product, marketed by the Holmes Place International group, is achieving significant traction in Israel. A roll-out to its clubs in Germany and Austria has recently been agreed.

Again as with the US, the sales pipeline is encouraging, particularly in the UK where corporate employer interest has been heightened by the London 2012 Olympics.

Over the last year we have invested strongly in product and service development to better support our sales drive in the US, UK and internationally. Specifically for larger B2B customers, in particular health insurers and wellness service businesses, Fitbug capability can now be bought on a modular basis, with website and devices available on a white label/customer brand basis. Pricing options include both an 'all in' per member basis as well as on a hardware and recurring software/service fee basis. Our games framework and mobile connectivity have been improved, with work well advanced on a number of new developments. To support this, our IT and web design and development team has been strengthened with a number of new hires.

Financial Review

The Group's financial results for the year ended 13 December 2011 show a 13% increase in turnover to £1,283,000 (2010: £1,132,000), and a reduced loss of £783,000 (2010: loss £929,000), which very much reflects the above progress and the development stage that the business is at. Whilst continuing to invest in Fitbug's capabilities, including the set up our US infrastructure, strong cost management resulted in a reduced operating cost base of £1,805,000 (2010: £1,852,000). We view the business' low cost base as an important competitive advantage, and have worked hard to make the above investments without any increase in the 2011 cost base over 2010. The Group's cash balance at 31 December 2011 was £182,000 (2010: £357,000). Since the year end the balance sheet has been strengthened by a placing to raise £530,000 and the renegotiation of terms of the loan of £385,000 from NW1 Investment. Under the revised terms, the majority of interest and capital repayments are deferred until April 2016. The Group continues to look at how best to fund the development of the business and planned growth in the US.

Outlook

The last year has been a really important and extremely encouraging one for Fitbug. The business is now moving from a start-up/development phase to focus on driving sales growth. There is clear and strong evidence that the market in which we operate will grow very strongly over the next few years. The capability of Fitbug built over a number of years well-equips the company to be a leading B2B service provider in an important subset of this emerging market. After the changes and investment in 2011, Fitbug is now well placed to grow strongly in the markets in which it operates, particularly in the US. It has a clear strategy and an experienced team to deliver it, with prospects underpinned by signed deals and a strong pipeline.

The Board and I would like to thank our shareholders for their support, and the hugely talented and committed Fitbug team for their hard work, resilience, enthusiasm and loyalty.

Fergus Kee

Executive Chairman

31 May 2012

Consolidated Statement of Changes in Equity

For the year ended 31 December 2011

Notes to the Consolidated Financial Statements for the year to 31 December 2011

1. General Information

Fitbug Holdings Plc is a company incorporated in the UK and its activities are as described in the chairman's statement.

The preliminary announcement of results is not the Company's statutory accounts. Statutory accounts for the year ended 31 December 2011 have not been delivered to the Registrar of Companies. The auditors have reported on the statutory accounts for the year ended 31 December 2011 on 31 May 2011 and their report was unqualified and included a reference to a matter to which the auditor drew attention by way of emphasis without qualifying the report.

Emphasis of matter

The auditors' report drew attention by emphasis of matter to issues surrounding going concern as set out in note 2.

2. Basis of preparation and significant accounting policies

The consolidated financial statements of Fitbug Holdings Plc have been prepared in accordance with International Financial Reporting Standards (IFRSs), International Accounting Standards (IAS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations (collectively "IFRSs") as adopted for use in the European Union and as issued by the International Accounting Standards Board, and with those parts of the Companies Act applicable to companies reporting under IFRS.

Going concern

The financial statements have been prepared on the going concern basis which assumes that the Group and the Company will have sufficient resources to enable it to continue trading for the foreseeable future.

The directors have since the end of the financial year secured further funds for the Company:

·; On 20 February 2012 the Company raised a further £530,000 by way of a placing of 29,444,445 new ordinary shares of 1p each

·; Repayment terms of shareholder loans totalling £385,000 have been deferred such that £6,000 will be repaid in the year to 31 March 2013, £30,000 in the year to 31 March 2014, £60,000 in the year to 31 March 2015, £78,000 in the year to 31 March 2016 (all by monthly instalments) with the balance due on 1 April 2016.

·; Repayment terms of directors' loans of £75,000 have been deferred until 30 June 2013

·; Certain directors have agreed to make a further loan facility of £225,000 available, repayable on 30 June 2013 or earlier at the option of the Company. The loan facility being provided by directors is a related party transaction for the purposes of AIM Rule 13 of the AIM Rules for Companies. The independent directors of the Company, being Paul Landau, Andrew Brummer and Geoffrey Simmonds consider, having consulted with Seymour Pierce, that the terms of the loan facility are fair and reasonable in so far as the shareholders are concerned.

The directors have prepared financial forecasts which suggest that, based on conversion of the anticipated sales pipeline; sufficient facilities will be available to meet the Group's short term funding requirements. However the board consider that it will be necessary to secure further longer term funding to repay outstanding directors' loan facilities at the end of June 2013, and to support the development of the business and planned growth in the US. The directors are currently exploring several opportunities to put such funds in place.

The directors have continued to adopt the going concern concept in preparing the financial statements on the basis that they believe that the new funds secured as described above and the anticipated sales pipeline will provide sufficient cash until such time that longer term finance can be sourced. The sales forecasts are however necessarily based on the achievement of timings and revenue forecasts which, although believed reasonable by the directors, are nevertheless outside the Group's control. If significant delays were to take place, these may render the Group's cash resources insufficient.

If as a result the Group were unable to continue as a going concern, then adjustments would be necessary to write assets down to their recoverable amounts, non-current assets and liabilities would be re-classified as current assets and liabilities and provisions would be required for any costs associated with closure.

3. Loss per share

The loss per share from continuing and discontinued operations is based on a loss of the year attributable to equity holders of the Parent Company of £783,000 (2010: £929,000) and the weighted average number of ordinary shares in issue for the year of 115,603,364 (2010: 47,357,058). The loss per share from continuing operations is based on a loss for the year of £809,000 (2008: £972,000) and the same number of ordinary shares.

The exercise of the outstanding options would reduce the loss per share and hence have an anti-dilutive effect.

There are 13,300,000 (2010: 1,450,000) shares that could potentially be issued under the terms of options will potentially reduce future earnings per share.

As of 31 May 2012, 29,444,445 shares have been issued since 31 December 2011 which have a further anti-dilutive impact on the loss per share, but potentially reduce future earnings per share.

**ENDS**

For further information visit www.fitbugholdings.com or contact:

Notes

Fitbug is a leading provider of online health and well-being services to help individuals to improve their lifestyles by making realistic changes to their daily routine. It combines activity tracking devices, which download to fitbug.com to provide an understanding of each user's daily activity achievements, with web technology which provides users with personalised weekly activity and nutrition targets, feedback, advice and encouragement. 

Key market sectors include health insurance and rewards providers, workplace health programmes, Primary Care Trusts, fitness operators and consumers. Increasingly, Fitbug's platform acts as the driving force behind third party services such as white label sites, activity driven games and challenge microsites and rewards programmes.

The Company's main focus is now on building strategic partnerships with organisations, with the United States as a key market, which can integrate Fitbug into their own service/product offerings or resell to their customer base. Visit www.fitbug.com for more information.