SimiGon eyes oil and gas industry

Behind the scenes work building up partnerships is beginning to pay off at SimiGon, the simulation software training solutions provider.

Gross profit in the first half of 2012 was $2.43m, as compared to $2.02m the year before, which, considering revenue was just under $3.5m, gives some idea of the eye-popping margins the firm enjoys. Having said that, gross margins were down to 70% from 83% in the first half of last year, as a result of the group pitching directly for some contracts where it is required to resell hardware and programs. Margins are expected to improve in the second half of the year, Chief Executive Officer Amos Vizer told Sharecast.

SimiGon operates a slightly similar model to the one familiar to mobile phone users, except that in SimiGon's case, companies use SimiGon's technology platform to create simulation scenarios rather than apps. These scenarios are then pitched to customers looking for a training solution. In many cases, all the companies pitching for a contract will be hawking offerings made using SIMbox, SimiGon's PC-based software platform.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

"We're not a simulation company. Developers use our platform to create a training scenario, but what's unique about our technology is its ability to monitor how the simulation is going, and to work out what the user needs to know. When you are learning something for the first time, you don't know what you don't know, so we have built a virtual assistant that will help with this," Vizer explained.

"Our partners can tailor the technology to their specific needs," Vizer explains. "They are the ones that are driving our growth," he claimed, adding that this was all part of the management plan.

"We had a couple of years working on these partnerships where nothing much appeared to be happening to the outside observer. Now, it is like a bunjee cord, snapping back," he said.

Post-tax profit for the half year improved to $0.18m from the previous year's $0.01m, while revenues increased by 43% to $3.47m from $2.43m at the halfway point last year, largely as a result of new contracts won in 2011.

The cash is starting to roll in but don't expect this growth company to start paying dividends any time soon. Vizer's instinct is to use the cash to grow the business but also to set some aside for a rainy day.

The group is largely dependent on the defence sector for its corn, and so is somewhat subject to government budget constraints. It was always the plan, however, to start with a focus on the very demanding military markets and establish a reputation there, before diversifying. The company now sees lots of opportunities in the oil and gas sector where the level of complex technology, not to mention the regulatory aspects in the wake of the Gulf of Mexico Macondo well disaster, took Vizer by surprise.

"Our current customer base is the tip of the iceberg. Oil and gas companies, for instance, need to get ahead of the [training] curve, and there is no better way of training than to learn by doing," Vizer declared.