SIM.L Regulatory News (SIM)

 11 April 2017

SimiGon Ltd

("SimiGon" or "the Company")

Audited Full Year Results

SimiGon Ltd (LSE: SIM), a global leader in providing simulation and training solutions, is pleased to announce its audited full year results for the year ended 31 December 2016.

Financial Highlights

· Net profit of $0.36 million (2015: $1.78 million)

· Revenues of $6.02 million (2015: $6.94 million)

· Gross margin 69% (2015: 78%)

· Basic and diluted EPS $0.01 (2015: $0.04)

· Annual dividend declared of 0.136 cents per share

· Share buy-back programme (subject to shareholder approval)

Operational Highlights

· Continued success winning new business and expanding relationships in core markets:

o Military and aviation markets: Winning Notice from the Israeli Air Force for $2 million contract;

o Non-military targeted vertical markets: five-and-a-half year contract worth $7.9 million to deliver SIMbox based training solutions to a leading provider of training solutions for the civilian aviation industries in the Far East; Continuing to meet project milestones for long term contract with Check-6, the Company's first major contract outside the aerospace and defence industry

· Continue to establish and prove capability by successfully delivering on all contracts

· Identified opportunities for expansion beyond core markets into other domains such as crane operators, consumer drivers and civil aviation

· Ongoing transition to longer term, high visibility license contracts

· Next generation SIMbox v.5.3 released in Sept 2016, bringing more advanced capabilities to the training and simulation industry

Mr. Ami Vizer, Chief Executive Officer of SimiGon, stated: "SimiGon continues to cement its position as a prime contractor for major long term simulation programmes, which is reflected by our success in securing a number of significant new contracts during the year. We also continued to deliver project milestones for long term contracts, underpinning our strategic position as a technology partner to our customers.

"The Board looks to the future with optimism and is confident in the Company's ability to deliver growth over the long term".

Enquiries:

Overview

While the Company's financial performance for year 2016 has been affected by circumstances that were outside of its control the underlying business remains profitable and continues to perform well with new business won and growing recurring revenues from existing strategic partners. The pipeline of new business in the Company's core military, aviation and non-military verticals remains strong and the Board is encouraged by new opportunities identified in the mass application market.

For the year SimiGon recorded a net profit of $0.36 million (2015: $1.78 million) and revenue of $6.02 million (2015: $6.94 million). The Company has concluded that it must recognize in FY 2016 certain costs of meeting additional client demands outside the original scope of a major $6.7 million contract (as announced in June 2013). In addition, the Company has also been disappointed that procedural delays in concluding the signatory processes underlying its contract with the Israeli Air Force (as announced on 20 June 2016) have not enabled it to recognize any related revenues during the year. Research and development expenses increased from $1.47 million in 2015 to $1.71 million in 2016 which reflects the Company's commitment and focus on ongoing R&D to ensure future success.

The Board is confident that the fundamentals of the business remain strong and our business in the past year has further strengthened our position as a preferred supplier for simulation and training technologies and solutions. The pipeline of business is encouraging and this, combined with a growing market opportunity and contracts scheduled to complete in the current financial year, leaves the Board confident in the long term prospects of the Company.

Operational Review

SimiGon undertakes to win and develop strategic, simulation-based training programs. The Company's partners include government and blue chip organizations as well as small businesses.

SimiGon is altering the Modelling, Simulation & Training world landscape with SIMbox technologies. The highly agile SIMbox platform can be used to create simulation content of any type and for any purpose. With the user friendly SIMbox Toolkit for simulation content development, SimiGon is focused on enabling non-programmers to rapidly create simulation content.

Markets

Core markets: military, aviation, targeted commercial verticals

The Company's core end market is defence-related industries as well as vertical markets such as civilian applications for pilot training, maintenance training and soft skills training. These targeted core markets share similar characteristics in that they are highly regulated, require complex and specialised skill training and have a zero margin for error. The Company has been successful in broadening out its core offering from the military application to tangential targeted verticals, including civil aviation.

Every program the Company is involved at is a growth opportunity in that specific market while also adding new capabilities that are easily transferable to vertical markets, including civil aviation training and industrial training and serves long term growth potential. While SimiGon has a strong position as a technology provider of choice for large military aviation training programs, the Company is very excited about the many opportunities in its core market. SimiGon's proven credentials in this market space as a strategic supplier of training and simulation technologies pave the way for a leading role in additional military flight training programmes.

New mass consumer application market

The Company has been at the forefront of designing and providing highly technical simulation and training solutions in markets to increase learning efficiencies, reduce risk and save costs for its clients, where there is absolutely no margin for error. The fact that the Company has contracts with bodies such as the US Air Force and the Israeli Air Force is testament to the quality of the solutions that it provides.

The Company believes that, as a result and through its high levels of IP and the experience gained over the last years, it is well placed to benefit from a cultural shift in how training is delivered in a diverse range of industries, solving a wide array of problems that eventually reduce risk and save costs.

Where online video is so readily accessible, written instruction manuals providing usability and functionality guides are fast becoming obsolete. The trend towards 'learning by doing' simulation is growing at pace with consumers demanding visual and interactive problem solving.

SimiGon's technology positions it ideally to take advantage of this trend and currently provides the end-users with the compressive training environment solution needed. Whilst the company's offering in this market is at a nascent stage, the Board believes it has the potential to offer a significant new, highly profitable revenue stream.

Business model:

SimiGon's strategy, in line with market requirements, is to focus on long-term, high value, stable license contracts that provide better revenue and profit visibility as a result of distributing over the period in which they are provided rather than on single lump sum license sales.

Growth Strategy

The Company's organic growth strategy is focused on winning new strategic customers and growing engagement within the existing customer base. SimiGon's ability to capture market share is due to its ongoing participation in large scale simulation and training projects. This strong track record enables the Company to increase its strategic business scope and potential revenue streams. The Company's strategy is to compete as a prime contractor when feasible and as a subcontractor if the business analysis determines a higher win probability as a subcontractor. When participating on a team as a technology provider and services subcontractor, the Company provides partners with significant added value as a training technologies developer and solution provider.

SimiGon has been delivering on all of its major contracts during 2016 and it continues to increase its visibility in the market and awareness of new opportunities as a prime contractor and strategic partner. The Company leverages direct relationships with end users and partners. As the business and sound reputation grow, SimiGon will be better disposed to contend for larger contracts.

The Company is committed to R&D to ensure its products and services remain at the forefront of the evolving training / education landscape. A continuous rollout of new, innovative solutions enables the Company to deepen its relationship with existing clients and capture new customers.

Contracts overview:

Delivery of a major contract as prime contractor

In June 2013, The Company announced that it had signed a contract valued at $6.7 million for a major training programme. This was a milestone contract for SimiGon in terms of the geographic region, the programme scope and the contract value.

Delivery under this contract has continued during 2016 although on a slower timetable than expected as a result of the client requesting SimiGon to provide a number of deliverables outside of the original contract scope. As part of SimiGon's drive to support all its clients, the Company has been prepared to agree to these new demands and has been meeting the delivery milestones during year 2016. The Company now expects to complete all system delivery milestones and receive the requisite client confirmations within the first half of year 2017.

Expansion into the civil aviation market

In May 2016, SimiGon signed an exclusive five-and-a-half-year contract to deliver SIMbox based training solutions to a leading provider of training solutions for the civilian aviation industries in the Far East. Under the terms of the contract, SimiGon will be paid $7.9 million to license its SIMbox software over the contract period, with a minimum of $1.4 million per year starting this year.

This contract is part of SimiGon's strategy to focus on long-term, high value, stable license contracts that provide better revenue and profit visibility rather than on single lump sum license sales. In addition, this is another major contract outside of the defence industry which further expands the Company's growth strategy to diversify its product offering and increase its addressable market. The contract underlines SimiGon's ability to penetrate a much larger market and can be a stepping stone to securing additional business in the civilian aviation industry through similar opportunities.

New contract wins

SimiGon announced in June 2016 a Contract Winning Notice for a $2 million contract from the Israeli Air Force ("IAF") to provide advanced F-16 maintenance trainers to be delivered within a period of 18 months once the expected contract is signed.

By adding a new solution for virtual maintenance training to its product offering, SimiGon will be able to build upon its past performance to succeed in a growing market of virtual training for aircraft technicians. The same technology, training aids and methodology of delivering advanced training for aircrew is now leveraged for maintenance staff training, saving organizations considerable time and money with a single training technology backbone. This comprehensive solution is already being marketed worldwide and will contribute to the Company's market share.

The contract deliverables include SimiGon's SIMbox enterprise training system and interactive Simulation Based Training lessons for F-16 maintenance technicians. The client-server system will support 60 trainees annually. Each trainee will have a personal workstation allowing them to learn avionics and front line maintenance with the support of a Virtual Instructor (VI) for a self-paced syllabus in a fully immersive, virtual environment. This solution further demonstrates the flexibility and extensibility of SIMbox as a suitable training solution for virtually any domain, including maintenance. This agreement is the latest in a long line of SimiGon contracts for providing its products and services to leading military organizations worldwide. The Contract Winning Notice underscores SimiGon's successful entry into the maintenance training market and opens the door to compete for and win similar opportunities in the future.

During year 2016 SimiGon has been awarded an additional contract valued of $0.4 million from its strategic European aircraft manufacturer customer, which mainly includes the delivery of licenses as part of simulation based training of the client installed at academic training centers.

Long term contracts

The Company has an increasing portfolio of long term partnerships developing further business and provide revenue visibility. Many of these partnerships are expected to continue with additional contracts through 2017 and beyond.

SimiGon continues in its support for the UK Military Flying Training System (UKMFTS) as a technology and services provider to Lockheed Martin. The Company continues to deliver under this long term contract, now in its seventh year of support, exceeding partner and end user expectations of SimiGon's technologies and performance.

Check-6 Inc., one of the leading providers of training solutions to the energy and mining industries, is a textbook example of SimiGon's ability to help companies achieve new growth. Throughout this contract, SimiGon has successfully executed against its agreed deliverables. This relationship continues to yield long term business. The Company is optimistic that additional agreements will be executed to extend this relationship.

The USAF maintenance and support contract awarded to SimiGon for the SIMbox based T-6A Modular Training Devices SimiGon delivered as part of a June 2011 contract demonstrates the long term nature of the relationship with this strategic customer. SimiGon continues in its efforts to support this customer and expand this relationship.

SimiGon continues to support a major existing European customer the Company has been supplying with software and services since 2009. The customer is operating SimiGon training solutions in four different training centers daily and is receiving very positive customer reviews. SimiGon is certain that this relationship will continue and lead to additional future orders.

SimiGon's support for successful Unmanned Aerial Vehicle ("UAV") training solutions for a leading provider in the small tactical unmanned aircraft systems remains solid. Through SimiGon's ecosystem, the SIMbox technology supports initial operator training and advanced operational training at the schoolhouse. SimiGon continues to leverage this success in the UAV market.

Annual dividend declaration

In light of the strong cash position and further to the Company's previously declared intention to pay an annual dividend, the Board intends to pay a dividend of 0.136 cents per share, equating to approximately 19% of the Company's earnings per share (2015: approximately 15%) and to approximately 19% of the Company's net profit (2015: approximately 17.2%). The dividend will be payable on Friday 26 May 2017. The record date for payment of the dividend will be Friday 5 May 2017. The ex-dividend date will be Thursday 4 May 2017.

In line with the Israeli tax ordinance and regulations, the dividend payment will be subject to 25% withholding at source unless reduced by a relevant tax treaty.

In this regard, shareholders, who have a tax withholding exemption or reduced withholding tax rate from dividend payments obtained from by Israeli Tax Authorities, should present and deliver it to the Company, together with the contact details of their stock broker, no later than the end of the business day on Wednesday 3 May 2017.

Share buy-back programme

Given the significant liquid cash balance of $8.14 million and subject to shareholder approval, the Board intends to put in place an irrevocable, non-discretionary programme for the repurchase of its ordinary shares up to a total value of $0.2 million. It is intended that the repurchase programme will be independently managed by finnCap Ltd, the Company's nominated adviser and broker, which will make trading decisions independently and without the influence of the Company. Any ordinary shares repurchased on behalf of the Company will be held in treasury and will be notified to a Regulatory Information Service in accordance with the AIM Rules for Companies. The repurchase programme will last until full repurchase of the Company's Ordinary Shares and will be conducted within pre-set parameters and in accordance with the authority that will be granted by the Company's shareholders to repurchase shares. Further announcements in relation to the implementation of the share buy-back programme and obtaining shareholder approval will be made in due course.

Financial Performance

Revenue for the year ended 31 December 2016 was $6.02 million, compared to $6.94 million in 2015. In terms of regional breakdown, 44% of SimiGon's revenues came from North America (2015: 56%), 19% from Europe, Middle East, South America and Australia (2015: 27%) and 37% from the Far East (2015: 17%).

Gross profit for the year ended 31 December 2016 was $4.1 million, as compared to $5.4 million for the year ended 31 December 2015. Accordingly, gross margins decreased to 69% for the year ended 31 December 2016 as compared to 78% for the year ended 31 December 2015.

Net profit for the fiscal year of $0.36 million (2015: profit of $1.78 million).

Total operating expenses for the year ended 31 December 2016 increased by 4% to $3.91 million as compared to $3.77 million for the year ended 31 December 2015. Research and development expenses for year ended 31 December 2016 increased by 16% to $1.71 million as compared to $1.47 million for the year ended 31 December 2015, mainly due to increase salary expenses. Marketing expenses for the year ended 31 December 2016 decreased by 12% to $1.09 million as compared to $1.25 million for the year ended 31 December 2015 mainly due salary expenses.

General and administration expenses for the year ended 31 December 2016 increased by 6% to $1.11 million as compared to $1.05 million the year ended 31 December 2015 mainly to the collection in year 2015 of debts for which provisions for doubtful debts were recorded in the prior period and provisions for doubtful debts recorded in year 2016.

The Company has recorded a net income tax credit of $0.07 million for the year ended 31 December 2016 mainly as a result of creating a deferred tax asset in relation to the expected utilization of carry forward losses against expected income in future years.

As a consequence of the factors above, operating profit for the year ended 31 December 2016 amounted to $0.22 million, as compared to $1.64 million for the year ended 31 December 2015. Net basic and diluted earnings per share decreased to $0.01 for the year ended 31 December 2016 as compared to $0.04 for the year ended 31 December 2015.

As at 31 December 2016 the Company had liquid cash of $8.14 million as compared to $7.41 million as at 31 December 2015 and trade receivables of $2.92 million compared to $3.72 million for the year ended 31 December 2015. $1.01 million of the year end trade receivables balance has been collected since the year end.

Outlook

SimiGon continues to be profitable through focusing on its strategic milestones and delivering against them. The Company's goal of being a prime contractor and technology provider for major, long term simulation training programmes is being achieved and the Company continues to secure significant new contracts while diversifying its end markets and reaching an ever increasing audience.

The transition towards high value long term license contracts is expected to continue. Though this may lead to lower revenue from these contracts in the short term, it is expected to give SimiGon much greater visibility over both revenue and profits in the long term.

The Board of Directors is confident in its aim to successfully deliver long term growth.

*) Represents an amount lower than $ 1 thousand.

*) Represents an amount lower than $ 1 thousand.