SIM.L Regulatory News (SIM)

16 September 2013

SimiGon Ltd

("SimiGon" or "the Company")

Interim Results for the six months ended 30 June 2013 

Continued strong growth in revenues and net profit

SimiGon Ltd, a global leader in providing simulation solutions, announces its interim results for the six months ended 30 June 2013.

Financial Highlights

· Revenues increased by 20% to $4.16 million (H1 2012: $3.47 million)

· Net profit increased 24% to $0.22 million (H1 2012: $0.18 million)

· Cash, restricted cash and equivalent balances, increased by 19% to a total of $8.45 million as at 30 June 2013 (31 December 2012: $7.11 million, 30 June 2012: $6.98 million) with no bank debt remaining

· Gross margins of 65% (H1 2012: 70%), reflecting SimiGon's increased role as a prime contractor by providing complementary third party hardware and programs

· Basic and diluted EPS of 0.5 cents (H1 2012: 0.4 cents)

Operational Highlights

· Secured access to a major new geographical region by winning a significant contract worth $6.7 million, further establishing SimiGon's position as a prime contractor in the aviation training market

· Secured a further contract with an existing major European partner to provide Simulation Based Training ("SBT") solutions for a new clients' Academic Training Center ("ATC")

· Secured additional contract from the U.S. Air Force Air Education Training Command ("AETC") to support and maintain all of the T-6A Modular Training Devices ("MTD") used in the training of all Remote Piloted Aircraft ("RPA") students

· Successful delivery of SIMbox technology simulation training solutions to a South American country's armed forces, as announced in August 2012

· Entered the sixth year of supporting Lockheed Martin's F-35 Lightning II Joint Strike Fighter ("JSF") training program, providing long term revenue visibility to the company

· Continues to meet project milestones for the UK Military Flying Training System ("UKMFTS"), a partnership of over five years

· Partnership with Check 6 progressing well as SimiGon delivered its systems ahead of schedule, exceeding client expectations and increasing the potential for further expanding the relationship

Ami Vizer, Chief Executive Officer of SimiGon, stated: "We are delighted to report a further six months of excellent operational progress, continued revenue growth and increased profits. We continue to execute on our long term strategy and achieve our targets evidenced by the successful transition to become a major prime contractor, enhancing SimiGon's reputation as a market leader and company of choice for the world's largest simulation training programmes.

"Looking ahead, we have excellent revenue visibility, a strong order book in place and an encouraging pipeline of business leads, which leads us to expect that revenues for the full year will be slightly ahead of market expectations.

"We are delighted with the ongoing success of SimiGon and are confident that this will continue in the second half of 2013 and beyond."

Enquiries:

Overview

SimiGon is pleased to report strong revenue growth and increased profitability, in the first half of 2013, for the fifth consecutive period/half year. Revenues increased by 20% to $4.16 million (2012: $3.47 million) with a $0.22 million profit, up from $0.18 million in H1 2012.

The positive momentum taken into the first half of 2013 reflects the Company's successful transition to become prime contractor. SimiGon has now proven its ability to deliver training systems as a prime contractor, further enhancing its reputation in the industry and cementing its leading position as the preferred supplier of training and simulation technologies for the world's largest military flight training programmes.

The role of prime contractor enables SimiGon to target and win significantly larger and more lucrative contracts than was previously possible. It also gives the Company a direct relationship with the customer, a greater share of revenues and profit, and greater potential for further deals with the same customer.

As stated previously moving up in the supply chain and becoming a prime contractor involves an increase in hardware sales alongside SimiGon's software solutions. The Company's continued successful transition to becoming an established prime contractor led to an increase in selling third-party hardware along with its software technology solutions, which as a result, impacted margins in the first half (65% compared with 70% last year). The Company expects margins to increase in the second half following the successful deployment of the hardware systems.

The sale of hardware along with our software technology solutions enables SimiGon to provide a total and comprehensive solution to its customers as was a stated target for the Company.

Operational Review

In the first half of 2013, SimiGon has continued to secure new contracts while expanding and diversifying its customer base.

Significant contract win in the period

In June, SimiGon announced that it has been selected as a prime contractor to deliver a SIMbox based training solution, in a contract worth $6.7 million. SimiGon was awarded this contract despite competition from major competitors, a significant endorsement of the Company's market leading training solutions. Delivery of this contract has already begun and will initially be delivered over an 18 month period with revenues from the deal expected to begin in the second half of 2013. Subsequent phases of the programme have yet to be awarded and SimiGon is confident of being considered when this takes place.

Successful delivery of contracts as prime contractor

In August 2012 SimiGon announced that it had signed a substantial contract to provide a South American country's armed forces with its SIMbox training and simulation technology platform. This contract was the first time a country's armed forces had chosen SIMbox as the training system to be deployed across its entire armed services. SimiGon is successfully delivering this contract on time and on budget, further validating SimiGon's ability as a prime contractor.

SimiGon has also exhibited the capability to fulfill the continued needs of the U.S. Air Force AETC with the successful delivery, as prime contractor, of its SIMbox based T-6A training systems following a contract signed in September 2011. The SIMbox MTD simulators are used to train undergraduate, RPA students for Pilot Instrument Qualification training. The capability displayed during the successful delivery of this specific contract meant SimiGon were considered and later selected for a further contract from AETC, which was agreed in April this year. The value of the contract is US$405,000. SimiGon's success with this contract enhances the Company's market leading offering and positions it well for similar opportunities in a large and fast growing global market.

The Company is now in its second year of a five-year agreement with Check-6 Inc., a leading provider of training solutions to the energy and mining industries. This agreement, the Company's first major contract outside the aerospace and defence industry, saw SimiGon deliver its systems ahead of schedule and exceed expectations of the client. The successful implementation of SimiGon's systems will enhance the potential to expand the agreement with Check 6 further in the oil and gas industry.

Update on long term contracts

SimiGon has a number of long term contracts and partnerships that are all progressing well as sales continue to steadily increase.

During the first half of year 2013, SimiGon expanded its relationship with a major existing European customer with contracts worth value of US$0.6 million expected to be delivered during 2013 and 2014. The new contracts increase the integration of SimiGon's SIMbox technology at the development labs for this customer's Academic Training Center and also include licenses for a new clients' ATC. This is the fourth client that will use SimiGon's technology through its Strategic European customer. The companies have been working together since 2009 and this contract is a further expansion of an ongoing long term relationship.

Lockheed Martin is one of SimiGon's longest serving clients and the Company has been supporting Lockheed Martin's F-35 Lightning II JSF training program for over six years. As the JSF program progresses and enters its regular production and delivery phase SimiGon has continued to see an increase in demand. The JSF programme was a significant contributor to revenue in 2012 and sales have steadily grown in the first half of this year and are expected to continue for the remainder of 2013 and throughout 2014.

SimiGon continues to successfully meet all its project milestones for the UKMFTS. The three year partnership validates SimiGon's product capabilities allowing the company to showcase its product capabilities and increase probability of future sales.

SimiGon is pleased to report that all of its long term projects are progressing well with many existing clients expected to purchase further licenses over the course of 2013 and 2014. SimiGon now provides training and skill development required for survival by fighter pilots and astronauts, to oil and gas workers, preserving lives and protecting profits across the globe.

Financial Review

Revenues for the six months ended 30 June 2013 were $4.16 million as compared to $3.47 million for the six months ended 30 June 2012, reflecting an increase of 20%. Gross profit for the six months ended 30 June 2013 was $2.70 million, as compared to $2.43 million for the six months ended 30 June 2012. Accordingly, gross margins were 65% (H1 2012: 70%), the decrease reflecting that the Company has become active as a prime contractor (that is, the sales mix including the reselling of third-party hardware and programs) on certain contracts, and it is expected that the gross margins will increase in H2 2013 compared with the first half.

Net profit for the six months ended 30 June 2013 improved 24% to $0.22 million (H1 2012: Net profit of $0.18 million).

Total operating expenses for the six months ended 30 June 2013 increased to $2.43 million (H1 2012: $2.27 million). Research and development expenditure increased mainly due the investment made in new employees to help meet growing demand and support the Company's growth. Marketing expenses for the six months ended 30 June 2013 increased to $0.85 million as compared to $0.69 million for the six months ended 30 June 2012 and general and administration expenses the six months ended 30 June 2013 decreased to $0.45 million as compared to $0.50 million the six months ended 30 June 2012.

Operating income for the six months ended 30 June 2013 amounted to $0.27 million, significantly improving upon performance for the six months ended 30 June 2012.

Net financial expenses of $0.05 for the six months ended 30 June 2013 as compared to financial income of $0.01 million for the six months ended 30 June 2012 mainly due to the currency exchange rate movements.

Increase in the Company's net basic and diluted earnings per share for the six months ended 30 June 2013 of $0.005 as compared to $0.004 basic and diluted earnings per share for the six months ended 30 June 2012.

The Company's cash and equivalent balances, including restricted cash recorded, to insure future project performance, increased by 19% to a total of $8.45 million as at 30 June 2013 as compared to $7.11 million as at 31 December 2012 and to $6.98 million as at 30 June 2012: with no outstanding bank debt.

Outlook

SimiGon is pleased to report that the momentum gained from the strong results of the first half has continued into the second half of the year. As a result the Company now expects to report revenues for the full year slightly ahead of market expectations, demonstrating clear growth on previous years. SimiGon expects profits for the year to remain in line with market expectations reflecting the Company's expanded role as a prime contractor.

*) The comparatives been restated to reflect the implementation of IAS 19 (Revised) Employee Benefits.

*) The comparatives been restated to reflect the implementation of IAS 19 (Revised) Employee Benefits.

*) The comparatives been restated to reflect the implementation of IAS 19 (Revised) Employee Benefits.

*) Represents an amount lower than $ 1,000.

*) The comparatives been restated to reflect the implementation of IAS 19 (Revised) Employee Benefits.

**) Represents an amount lower than $ 1,000.