SIM.L Regulatory News (SIM)

22 April 2013

SimiGon Ltd

("SimiGon" or "the Company")

Preliminary Results for the year ended 31 December 2012

SimiGon, a global leader in providing simulation solutions, announces its preliminary results for the year ended 31 December 2012.

Financial Highlights

·; Revenues increased by 24% to $6.81 million (2011: $5.48 million)

·; Net profit increased by 97% to $0.69 million (2011: $0.35 million)

·; Gross margin of 80% (2011: 85%)

·; Increased positive cash flow from operations by 9% to $2.5 million (2011: $2.3 million)

·; Significant increase in cash and cash equivalents and short term bank deposits at the year end at $7.11 million (31 December 2011: $4.74 million) and the Company has no debt

Operational Highlights

New significant contracts:

·; Awarded a second and third contract from key long term strategic European customer. The total value of all three contracts totals US$2.77 million

·; Signed substantial contract to provide a South American country's entire armed forces with SimiGon's SIMbox training and simulation technology platform

·; Awarded contract from TAISR Group (TAISR) to support the Joint Close Air Support (JCAS) and manned/unmanned Intelligence, Surveillance and Reconnaissance (ISR) community

Significant first time revenues from contracts awarded in the previous year:

·; First year with material revenue stream outside aerospace and defence industry with significant contributions from Check-6, SimiGon's first major contract outside the aerospace and defence

·; First year of generating revenue as prime contractor after successfully implementing SIMbox based T-6A Modular Training Devices (MTD) for the U.S. Air Force Air Education Training Command (AETC) 

Longer term contracts:

·; Long-term contracts continue to progress well as revenues ramped up through 2012, including the Lockheed Martin's F-35 Lightning II Joint Strike Fighter training program (JSF), the UK's Military Flying Training System and the Unmanned Aerial Vehicle training program

Post period-end events:

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

Ami Vizer, Chief Executive Officer of SimiGon, stated: "We are delighted to announce another year of revenue growth and increased profits as we continue to execute our long term strategic plan and deliver on the targets that we set ourselves. This growth is as a result of increasing revenue from existing agreements, the ramping-up of long-term contracts, as well as the number of new contracts won this year.

"Our move to become a prime contractor has further enhanced SimiGon's reputation in the market. We continue to leverage our leading position in the market to build new partnerships, expand our customer base, and target larger contracts.

"Looking ahead, we have entered 2013 with a stronger order book than at the same time last year as there is continued demand for our solutions fromorganisationslooking to deliver effective trainingprogrammesand save on costs at the same time. As a result, we look forward to the future with confidence."

Enquiries:

Overview

SimiGon is pleased to report strong revenue and profit growth in 2012. Revenues increased 24% to $6.81 million (2011: $5.48 million), resulting in a $0.69 million profit (2011: $0.35 million).

The positive results in 2012 and the continued growth further validates the managements strategic decision to align itself with some of the largest global simulation and training projects in the world, including four of the world's largest military flight training programmes. This strategy and the excellent foundations now in place continue to bear fruit for the Company as it establishes its long term growth prospects.

Moving up in the supply chain and becoming a prime contractor, involves an increase in hardware sales alongside SimiGon's software which affected its margins (lower at 80% compared with 85% last year), but the Company continues to believe these remain higher than the sector average. The sale of third-party hardware along with our software technology solutions enables SimiGon to provide a total and comprehensive solution to its customers and was a stated target for the Company. Being prime contractor gives the Company a direct relationship with the customer, further secures us with increased visibility of long term revenues and opens up new and potentially significantly larger opportunities with customers.

Operational Review

With a strong foundation firmly established, SimiGon targeted three key areas to help continue to drive growth. These were: to become a prime contractor; to expand military training beyond air forces, into land and sea simulation environments; and to move into the non-military training such as the oil and gas industry. SimiGon has met all of these targets and continues to deliver on its deliberate long term strategy to push the company forward.

Major contracts

The strong operational progress seen in the first half of 2012 continued in the second half as the Company achieved several significant contract wins.

In a milestone agreement signed in August 2012, SimiGon secured a substantial contract to provide a South American country's armed forces with its SIMbox training and simulation technology platform. Significantly, this contract marks the first time a country's entire armed forces has chosen SIMbox as the training system to be deployed across air, sea and land components, which is a strong endorsement of SimiGon's solutions. This initial contract contributed significant revenues in 2012 and is expected to continue to do so in 2013.

SIMbox will be the baseline training technology used by its local partner, a newly formed government-owned company dedicated to the development of training and simulation systems. SIMbox-based training solutions will be deployed by the armed forces in training centres as well as for operational training and distributed joint forces training exercises. In addition to this contract, SimiGon's local partner will be required to purchase SIMbox Runtime licenses for the delivery of content to trainees adding an additional revenue stream.

In July and December, SimiGon signed a second and third contract with one of its major existing European customers. The deal expands and enhances SimiGon's relationship with the customer.

The second contract is for the development of an initial aircraft training program within its SIMbox simulation environment. The Simulation Based Training (SBT) systems will be installed at the end user site and will be the backbone of its new Academic Training Center (ATC). The third contract is for licenses of SimiGon's SIMbox technology at the development labs of this customer's ATC. The combined values of the three contracts with this customer currently total US$2.77 million. Further maintenance and support service agreements are expected to follow and hence the Company is confident that this figure will continue to increase and contribute towards future revenues.

New markets

In May 2012, SimiGon moved into another new market within the defence sector when it signed an agreement with TAISR, to support the Joint Close Air Support and manned/unmanned Intelligence, Surveillance and Reconnaissance community.

This agreement demonstrates that SimiGon is the partner of choice for simulated training in thedefence sector and expands the Company's reach into the ISR market, a new, fast growing and substantial sector, estimated at $9 billion in 2012 at the Performance Audit of USA Department of Defense Intelligence, Surveillance, and Reconnaissance. JCAS and ISR technology seeks to improve mission success rates and the survival potential of those who operate in extremely hostile environments.

Revenue from this initial contract was realised in 2012. SimiGon expects that this initial contract will contribute to improved revenue visibility, underpinning the company's growth expectations.

2012 saw the first full year of revenue contribution from Check-6, a company with worldwide operations and clients including industry leaders such as Chevron, Diamond Offshore and BP. SimiGon's training solutions have adapted to the oil and gas market and are performing well. The Company believes there is scope for further expansion not only with Check-6 but throughout the oil and gas sector.

A Visiongain industry report has calculated that the oil & gas virtual reality training and simulation market was worth $2.24 billion in 2011. This has strong growth potential over the next ten years from a combination of increasing demand, improving technologies, and increasing safety concerns helping simulation training technologies become more widespread.

Long-term contracts

SimiGon achieved a significant milestone when, in late 2011, it was selected as prime contractor for AETC for the delivery of SIMbox based T-6A Modular Training Devices. 2012 saw the first year of revenues from this contract as SimiGon successfully delivered part of SIMbox based T-6A Modular Training Devices to the AETC. This contract remains on course and additional units are due to be delivered in 2013.

In addition, as announced last week, SimiGon secured a further contract from AETC to support and maintain all of the T-6A Modular Training Devices used in the training of all RPA students.

SimiGon's entry into the fast growing RPA market and the successful deliverables in 2012, as prime contractor, of SimiGon's T-6A Modular Training Devices demonstrates how SIMbox can be adapted to provide companies and agencies with the ability to quickly build simulation based training in a variety of fields. This will help to further enhance SimiGon's market leading offering and positions the Company for similar opportunities globally.

The Company entered the fifth year of supporting Lockheed Martin's F-35 Lightning II Joint Strike Fighter training program and the fourth year for the UK Military Flying Training System. SimiGon continues to deliver on all its milestones for these projects which continue to progress and ramp up as the project develops.

SimiGon continue its great work on providing successful training solutions solution for Unmanned Aerial Vehicle training program for a leading provider in the small tactical unmanned aircraft systems.

The market opportunity

SimiGon believes the market in which it operates to be very attractive, and accordingly has positioned itself well to take advantage of opportunities as and when they arise. With operational environments such as aircraft cockpits, air traffic control systems, UAVs and other weapons systems becoming increasingly complex, expensive and dangerous to train on, simulation software is a more cost effective and efficient alternative to real live equipment training.

According to a report from Global Industry Analysts the greater Modelling & Simulation market is valued at more than $20 billion annually and the projection for the global eLearning market is $107.3 billion by the year 2015.

The biggest driver of the training and simulation market growth is the defence industry. Despite the US defence budget cuts, the US Department of Defence remains the undisputed leader in seeking training and simulation solutions for military preparedness and readiness for symmetric and asymmetric warfare.

SimiGon has seen a continuing increase in the industry trend towards usage of simulation based training as the US, and other governments, seek more ways to reduce costs while meeting the increasing pressure to develop innovative training solutions to keep military personnel trained to the exacting standards required.

In the military pilot training market alone, Forecast International projects 1,600 new fixed wing military training aircraft over the next ten years and the market for fighter aircraft will be worth nearly $194.5 billion as approximately 3,150 fighters will be manufactured.

SimiGon is well positioned with its industry leading technology, and well established position, to take advantage of this global opportunity. Its solutions are not only cost efficient but also deliver better pass rates than conventional means giving customers the best possible training at less cost.

Financial Performance

Revenue for the year ended 31 December 2012 was $6.81 million, compared to $5.48 million in 2011, reflecting increase of 24%. In terms of regional breakdown, 73% of SimiGon's revenues came from North America (2011: 71%), 25% from Europe and the Middle East (2011: 27%) and 2% from the Far East (2011: 2%).

Net profit for the fiscal year increased by 97% to $0.69 million (2011: profit of $0.35 million).

Total operating expenses for the year increased by 9% to $4.74 million (2011: $4.35 million). Research and development expenses increased to $2.16 million (2011: $1.68 million) reflecting the investment made in recruiting new employees an area that SimiGon believe is integral to its future development. Sales and marketing expenses decreased by 7% to $1.57 million mainly due share based compensation expenses (2011: $1.70 million). General and administration expenses increased to $1.02 million (2011: $0.98 million).

The operating profit therefore is $0.69 million (2011: $0.31 million) and the net profit is $0.69 million in 2012 compared to net profit of $0.35 million in 2011. This resulted in a net basic and diluted earnings per share of $0.02 (2011: Basic and diluted earnings per share of $0.01).

SimiGon generated positive cash flow from operations of $2.5 million in 2012 (2011: $2.3 million) resulting in the Company having cash, cash equivalents and deposits totaling $7.11 million as of 31 December 2012 (31 December 2011: $4.74 million). This was after the Company including fully repaying of it entire bank debt that was outstanding as at 31 December 2011, as stated in the interim results on 27 September 2012.

Outlook

The momentum from the good results in 2012 has continued into 2013 as sales to the Company's long-term partners and recent contract wins ramp up. In addition, the move to become a prime contractor has helped SimiGon target new opportunities and significantly larger scale contracts than in previous years.

Looking ahead, with excellent revenue visibility and a strong order book in place, the Board expects continuing year-on-year sales and profit growth in 2013 and looks forward to the future with ever increasing confidence. 

*) Represents an amount lower than $ 1 thousand.

*) Represents an amount lower than $ 1 thousand.