SIM.L Regulatory News (SIM)

19 September 2016

SimiGon Ltd

("SimiGon" or "the Company")

Interim Results for the six months ended 30 June 2016 

Growth in net profit by 5% YoY to $0.83 million and EPS of $0.02  

SimiGon Ltd, a global leader in providing simulation solutions, announces its interim results for the six months ended 30 June 2016.

Financial Highlights

· Net profit increased by 5% to $0.83 million (H1 2015: $0.79 million)

· Profit before tax increased by 2% to $0.81 million (H1 2015: $0.79 million)

· Revenues of $3.29 million (H1 2015: $3.46 million)

· Gross margin of 78% (H1 2015: 75%)

· Basic and diluted EPS of $0.02 (H1 2015: $0.02)

· Paid 2015 annual dividend of 0.6 cents per share in May 2016

Operational Highlights

New major awards:

· Awarded a 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

· Received a Winning Notice from the Israeli Air Force for a $2 million contract to provide F-16 maintenance trainers

Delivering on long term contracts:

· Meeting delivery millstones under the $6.7 million contract signed in June 2013 although on a slower timetable than initially expected as a result of the client requesting SimiGon to provide a number of deliverables outside of the original contract scope

· Continuing long term contracts supporting the UK Military Flying Training System ("UKMFTS") program

· Continuing to meet project milestones for long term contract with Check-6, the Company's first major contract outside the aerospace and defence industry

· Continued support for Lockheed Martin's F-35 Lightning II Joint Strike Fighter training program (JSF)

· Continuing long-term contract to provide training simulations for a strategic European aircraft manufacturer; and

· Continued support for U.S. Air Force Air Education Training Command on its T-6 Modular training simulator devices used in the training of all Remote Piloted Aircraft students

Post period-end event

· The release of SIMbox v.5.3 in September 2016 marks the next step of the Company's technologyevolution, bringing more advanced capabilities to the training and simulation industry.

Ami Vizer, Chief Executive Officer of SimiGon, said: "Continuing to execute our growth strategy, I am pleased to report another period of increased profitability. SimiGon recorded net profit of $0.83 million as compared to $0.79 million in H1 2015 and revenues of $3.29 million in the first half of 2016 (H1 2015: $3.46 million). During the course of this first half of 2016, we have been awarded with new high value contracts and further established our position as a prime contractor providing a highly valued solution to our customers".

"Looking ahead, SimiGon will continue to leverage its position in the market and its global footprint to build new partnerships, expand its customer base, and target large contracts. The Company is continuing its transition into high value, long term license contracts in order to meet market requirements. Though it may lead to lower revenue from these contracts in the early years, it is expected to give SimiGon much better revenue and profits visibility in the long term. Having unique distributed training systems and proven technology applicable for multiple domains and devices together with a business model that allows creating partnerships and relationships with Blue Chip corporations, the Board enters the second half of 2016 with expectations to deliver growth over the long term".

Enquiries:

Overview

SimiGon is pleased to report another period of increased profitability as a result of recurring revenues from existing strategic partners and new business being won. SimiGon recorded net profit of $0.83 million as compared to $0.79 million in H1 2015 and revenues of $3.29 million in the first half of 2016 as compared to $3.46 million in the first half of 2015.

SimiGon had received two major awards in the first half of 2016; these awards have improved SimiGon's position as a technology and services provider for large simulation training programs. A long term supplier of training and simulation technologies for the world's largest military aviation training programmes, the Company is simultaneously focused on achieving growth into vertical markets such as civil aviation training, industrial skills training and soft skills training.

SimiGon's capture of a growing share of the global market for simulation and training projects is allowing the Company to expand project scope and increase potential revenues. Competing as a Prime Contractor, Supplier or Strategic Partner, the Company is focused on participating in more business opportunities to achieve growth and advance its technological capabilities.

SimiGon is working to be consistently positioned as a strategic player in programs that will assist its long term growth. SimiGon's revenue mix of new contracts and support contracts provides the Company with the confidence that it will succeed in achieving growth over the years.

Operational Review

SimiGon has continued to consolidate its position as the technology provider of choice for large simulation training programs and as a strategic supplier of training and simulation technologies for the worlds' largest military flight training programmes. SimiGon is dedicated to developing strategic, simulation-based training programs. This development is allowing expansion into vertical markets, including civil aviation training and industrial training, as well as boosting long term growth.

SimiGon has been delivering on all of its major contracts during the first half of 2016 and continued to increase its visibility of the market and of new opportunities available to it as a prime contractor and strategic partner. The Company continues to benefit from direct relationships with the end users and, as the business and our reputation grows, SimiGon will be in a stronger position to compete for and secure far larger contracts.

Delivery of major contract as prime contractor

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

As noted on SimiGon's 2015 full year financial results, delivery under this contract has continued 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 of its clients, SimiGon has been prepared to agree to these new demands and has been meeting the delivery milestones during the first half of 2016. The Company looks forward to meeting all remaining delivery milestones during the course of H2 2016.

The Company expects that its technology and performance will put it in a good position to be selected for potential subsequent phases of the programme.

Expansion into civil aviation market

In May 2016, SimiGon signed an exclusive five-and-a-half-year contract (the "Contract Period") to deliver SIMbox based training solutions to a leading provider of training solutions for the civilian aviation industries in the Far East (the "Contract"). 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.

As indicated, this is another major contract outside of the defence industry and it will further expand 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 civilian aviation industry through similar opportunities.

New contract wins

SimiGon announced in June 2016 that it has received a Contract Winning Notice for a $2 million contract from the Israeli Air Force ("IAF") to provide new F-16 maintenance trainers ("the Contract Winning Notice") 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 for aircraft technician virtual training. The same technology, training aids and methodology 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 expected contract with the IAF includes SimiGon's SIMbox software technology customized to train F-16 maintenance technicians in a virtual environment. Up to 60 trainees across two classes will be provided with personal training stations, allowing them to learn avionics and front line maintenance with a Virtual Instructor and a self-paced syllabus using high fidelity simulation. SIMbox is already used by several air forces to train their pilots in the most advanced programs and platforms and the same technology and concept will now also be used to train the aircrafts' maintenance teams.

The Contract Winning Notice underscores SimiGon's successful entry into the military fixed wing training market and further strengthens the Company's strategic market position which should lead to similar opportunities in the future.

Long term contracts

The Company's long term partnerships have blossomed into additional business opportunities and offer good revenue visibility. Many partnerships are expected to continue with additional purchases through 2016 and beyond.

SimiGon is now in its eighth year of providing support to Lockheed Martin's JSF training program and additional licenses and ongoing maintenance support agreements are part of the ongoing, long term partnership.

The Company is now in its seventh year of providing support to the UK Military Flying Training System. The Company continues to deliver under this long term contract, exceeding partner and customer expectations of SimiGon's technologies and their performance.

The long term recurring revenues from SimiGon's partnership with Check-6 Inc., one of the leading providers of training solutions to the energy and mining industries, have continued during 2016. Throughout this contract, SimiGon has successfully delivered SIMbox software and the Company is bullish on extending this partnership with Check 6 in the future.

The maintenance and support contract from the USAF 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. This relationship is also expected to grow and positively impact future earnings.

SimiGon maintains its close relationship with a major existing European customer that it has been working with since 2009. SimiGon's technology is now being operated on a daily basis in 3 different training centers and is receiving high customer satisfaction reviews. SimiGon is confident that this relationship will continue and lead to additional orders in the future.

SimiGon has been providing successful solutions for Unmanned Aerial Systems (UAS) training for a leading provider in the small tactical unmanned aircraft systems. SimiGon's technology is used to support initial operator training in classrooms as well as advanced operational training. SimiGon will continue to work with this partner to increase its footprint in the growing UAS arena.

Financial Performance 

For the reasons set out above revenues for the six months ended 30 June 2016 were $3.29 million as compared to $3.46 million for the six months ended 30 June 2015. Gross profit for the six months ended 30 June 2016 was $2.58 million, as compared to $2.59 million for the six months ended 30 June 2015. Accordingly, gross margin increased to 78% for the six months ended 30 June 2016 as compared to 75% for the six months ended 30 June 2015. Net profit before tax for the six months ended 30 June 2016 improved by 2% to $0.81 million as compared to $0.79 million for the six months ended 30 June 2015 and net profit for the six months ended 30 June 2016 increased by 5% to $0.83 million as compared to $0.79 million for the six months ended 30 June 2015.

Total operating expenses for the six months ended 30 June 2016 decreased by 1% to $1.79 million as compared to $1.8 million for the six months ended 30 June 2015. Research and development expenses for the six months ended 30 June 2016 increased by 9% to $0.8 million as compared to $0.74 million for the six months ended 30 June 2015, mainly due to an increase in salary expenses. Marketing expenses for the six months ended 30 June 2016 decreased by 13% to $0.5 million as compared to $0.57 million for the six months ended 30 June 2015 and general and administration expenses for the six months ended 30 June 2016 decrease by 2% to $0.48 million as compared to $0.49 million the six months ended 30 June 2015.

The Company has recorded net income tax of $0.02 million for the six months ended 30 June 2016 mainly as a result of updating its deferred tax asset created in 2015 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 six months ended 30 June 2016 amounted to $0.79 (H1 2015: 0.79 million) and net basic and diluted earnings per share of $0.02 (H1 2015: Basic and diluted earnings per share $0.02).

As at 30 June 2016 the Company had liquid cash of $8.4 million as compared to $7.4 million for the year ended 31 December 2015 and trade receivables of $3.12 million as compared to $3.72 million for the year ended 31 December 2015. $0.78 million of the year end trade receivables balance has been collected since 30 June 2016.

In light of the strong cash position and further to the Company's declared intention to pay an annual dividend announced in the full year financial results for 2015, a dividend of 0.6 cents per share, equating to approximately 15% of the Company's earnings per share and to approximately 17.2% of the Company's net profit as of December 31, 2015 was paid to shareholders on 27 May 2016.

Outlook

Achieving its strategic milestones, SimiGon continues to deliver strong profitability. The Company's goal of being a prime contractor and technology provider for major, long term simulation training programmes is being executed and SimiGon continues to secure sizable new contracts while expanding its customer base.

To meet market requirements, SimiGon will continue its transition into high value, long term license contracts during 2016. Though it may lead to lower revenue from these contracts in the early years, in the long term, it is expected to provide the Company with much better visibility of revenue and profits.

The Board of Directors enters the second half with expectations to successfully deliver long term growth.