Concurrent Technologies (LSE:CNC) — Interim results for the six months ended June 2025

0:00 Good afternoon, and welcome to the CONCURRENT TECHNOLOGIES PLC Half Year Results Investor Presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged, they can be submitted at any time by the Q and A tab situated at the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself, but the company can view all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, would you like to submit the following poll? I'd now like to hand you over to CEO, Miles Adcock. Good afternoon to you, sir. Good afternoon, and thank you all for joining this call. Next slide, please. So Kim and I will take you through the performance of CONCURRENT in the first half of twenty twenty five. Next slide, please. Let's remind ourselves what this company does. We design and manufacture in our own factory really high performance computer boards and associated system level products. We sell primarily to some of the world's largest OEMs, principally in the defense and increasing so defense industry.

1:04 Our focus is very much bringing the latest technology to market as early as possible, ideally first, and we're getting a good track record in doing exactly that. That's underpinned by an obsession of developing, retaining, and hiring talent. Some 80% of the business started after I did just four years ago. And we've developed some really good, much more strategic relationships with customers, which we'll cover in a bit more detail later. Just to talk about the progress we've made, we've more than doubled the size of the business in the last three years, grown more in that period than we had in the previous thirty seven. Clearly hired a lot of people, but onboarded a significant number of new customers and a fun metric, but it points to us as an employer. We've gone from some 700 followers on LinkedIn to an excess of 10,000.

1:58 Next. So here are some of our products. The key takeaway here is, yes, we continue to launch brand new products, often the first to market. But had we looked at a chart similar to this two or three years ago, they would have been roughly half the number of current products, and it would singularly have comprised of things called single board computers. So the computer boards that we design and make in The UK. They are supplemented now by boards that do other things, which we secure through genuine partnerships such as GP GPUs, that's graphics cards, or FPGAs, field programmable gate arrays, or switches. And then there are our new systems, which we are able to design and make, thanks to the acquisition we made exactly two years ago of Philips Aerospace in Los Angeles.

2:52 Next. So primarily servicing defense as a sector. Defense is highly regulated, very concerned with long term deep trusted relationships with technical experts. They have some unique requirements around the robustness of product and it adhering to some of their architectural requirements. They also require things quite uniquely to defense, such as the product you sell on day one of a seven year program has to be identical in every sense of the word to the product that you sell them in year seven of that program. So we clearly have configured ourselves to map very much into the needs of that customer base, and that's going very well for us. Next.

3:41 So the first half then, a record first half. A £21,100,000 of revenue in six months. That's larger than would have been the largest year full year ever just a handful of years ago, so that's very pleasing. Our systems business delivered £3,200,000 of revenue. Recall that in the full year of 2024, that did £1,100,000. So we're at almost six times the run rate inside that business of we were where we were a year ago. We intend for similar performance to follow through in the second half. That's very good. Record profit. That's despite some challenges around foreign exchange, which Kim will cover. It's all about the work that we win.

4:27 So we've been designed into a lifetime value of around £90,000,000 of the work. So that's work that we expect to be contracted for over the next up to a decade. Very useful leading indicator. Two weeks ago, we won a £4,000,000 order into The UK, largest ever UK defense order. Earlier in the year for also VME product, we won £3,400,000 into The United States. Very good. And most importantly, perhaps, is the order intake for the first half is a record at £22,300,000. That's despite the fact that orders from The United States were sluggish during the first half, singularly due to the fact that Department of Defense budgets were not signed off in autumn last year and instead had to wait for the so called big beautiful bill. Now that has been signed off, activity is really picking up now in The US.

5:27 Next. Good afternoon. So financial performance for concurrent half one twenty twenty five. Miles has alluded to some of the numbers already, but a very strong half for us. A few key numbers to note, gross profit remained strong about 51%. That's despite even having a mix of systems and products business in there where the systems is a much lower gross margin. So we're very pleased with gross margin holding. Operating profit 2.7 would have been 3.3 on a constant currency basis, which would have represented a 43% increase.

6:13 I get asked a lot about what we're doing about foreign currency. So we've had a complete banking refresh since we last met in April, and we are working very hard with the bank on the FX. And we're looking at hedging both one off large dollar contracts, but also we're looking at hedging some of our short term intercompany revenue. Closing cash, we'll come on to in a minute. It declined from 13,700,000 at the end of the year to 7,800,000 at the half, purely down to timing. Next, please. So this shows our half performances over the last five years, record on practically every on every level.

7:03 The the numbers just show that we are delivering the growth we said we would and that it's reflective of all the things we're doing. So we are investing in product development. We will do about 4,000,000 this year. We've done 1.8 in the half. That investment in product development is what's driving the revenue as well as increased sales and business development. We do have and are onboarding more and larger customers constantly. That is really important for this business. It gives us more intimacy with customers, much bigger programs with customers, and Miles will talk a bit later about some key contractual frameworks that we're getting onto with our large defense primes.

7:48 We are selling systems not only to supplement the plug in card business because selling a system means our cards can be sold into that system. Whereas other systems integrators wouldn't use our cards. They'll have their own preferences. So that's important, but it also takes us up the value chain in terms of getting closer to the customer and more intimate around their technical needs. And we are developing real partnerships that are enabling us to really fulfill the content of the system's business. Next, please. So in terms of revenue breakdowns, 90% now is into defense. That's up from about two thirds when I started. So defense is where the growth is at and is the focus of both our product development and our business development activities.

8:42 This year, nearly half of our revenue is derived from The United States. So big step up there. We are growing globally, but it is The US where the most significant growth is occurring. Although, note, The UK historically, we would win about £1,000,000 per annum. Last year, we won more than five. And as I said earlier, just two weeks ago, we won a single £4,000,000 order. In terms of customer concentration, it's interesting to note that this year, our tenth largest customer is roughly the same size as the largest customer we had four years ago. And back then, that customer was significantly larger than anybody else. So as Kim has just said, we're doing a good job at onboarding more larger customers.

9:31 Next. So the systems business in dollar terms stepped up to $4,200,000. It was $600,000 loss making as planned. And this is because we, resourced the team upfront to be a team capable of safely and efficiently prosecuting what is fairly complex work. As we enter the second half, we become profitable in that systems business with the intent of getting near to breakeven by the end of this year. So great progress in the systems business. The products business, so our plug in computer cards business, highest ever output for the half. You can see that without the dilution effect of the systems business, the profit there goes from strength to strength.

10:21 Very pleasing. And in the period, we implemented a new ERP system in that business, which I'll talk a little bit more about in a minute. Both businesses are supported by an increasingly strengthening pipeline of opportunity. It's worth noting that the model we have here is that the same salesperson is capable of selling both systems and product content into the same customers. So it's it's quite efficient. Next. So in terms of cash, opening cash on the January 1 was 13,700,000. The big movers are very much around inventory where we've grown by £2,000,000, which is solely us getting ready for the end of this year and into next year.

11:11 At some point, I did say I've I've said regularly that inventory would have to reverse to growth again because we're growing. It's as simple as that. So there's nothing underneath inventories that's of concern. It's just timing, and we'll see that unwind in the next six months or so. Increase in receivables is simply timing. We had a good second quarter, and that left us with quite a lot of, receivables taken across the half point. Another big driver was the net cash used in finance and activities. That is basically the dividend payment, which last year was just the other side into half two. This year, it happened to be just before the end of half one.

11:57 So it's as simple as that. Closing cash, 7,800,000, and we expect that to, go up significantly by year end. Next, please. Just a reminder of the big items that's on our balance sheets. We're we're very we are quite simple as a business on the balance sheet. The big driver there, intangible assets, which is predominantly our product development. We have about 13,000,000 in product development. That's the heartbeat of this organization. Without that product development, we wouldn't be driving the top line. There's about 700 k for our new ERP system, which is really important to us because the last one was terrible. That went live in August 2025, so a few weeks ago, and we are now starting to amortize that.

12:48 An important point to note is there was no impairments of our product development in the half. We're doing per payment reviews twice a year, and they are pretty strong everything we're carrying at the moment. Inventory is the other big one which we've touched on. There is a bit of, about 2,000,000 pounds of end of life components underneath the inventory. That's quite normal in this business. That's where a supplier has decided to discontinue the use, the sale of a certain component. We often choose to buy a a higher level of that component to see us through a period of time whilst we design out that component of our board so we're in control of it. A big chunk of the 2,000,000 that's end of life components is that that we bought in 2023 in Perion.

13:37 We bought about £4,000,000 worth that was gonna last us five years, but we've only got about 1,000,000 left. So it's obviously going quite quickly it's not gonna last us for five years. But we are already actively designing that component out of our products. Next, please. So why are we so confident in the strength of our ongoing pipeline? We have now around five framework agreements in place. Framework agreement is where a large customer will say, right. We've worked with CONCURRENT for some time. We would like to make them a preferred supplier, and therefore, we'll invest the time in a detailed definition of the business relationship between us and the associated terms and conditions. Once that is in place, it's easier then to drop purchase orders through that framework.

14:30 That's exactly what happened with the £4,000,000 order of two weeks ago. That's a framework contract with a large UK prime that we spent the summer establishing. So these are big votes of confidence. Prime contractors don't invest the time in a framework agreement if it's not something they intend to use for the medium to long term. Good. We are winning winning the work and growing the systems business, which, you know, transitions that business from something where we had good intent to something that is now proving as capable of growth, capable of winning. That's extremely encouraging. And, of course, there's a certain amount of buoyancy in this particular market sector. Last week was DSEI, which is, a really significant defense trade show in London.

15:18 We were exhibiting there. Huge amount of interest on our booth. We were visited by well known politicians, the chief scientific adviser, lots of customers, lots of peers, a lot of activity at the moment. So very good. Design wins are a critical leading indicator. They're not a contract. This is where the customer has evaluated our product, chosen it to be incorporated within their own solution to their customers with the intent then of buying that product perhaps over many years as they work through their program, which might be a a refresh of electronics in some kind of military platform, for example. So the fact that we're securing more and more of what we're calling design wins is an extremely powerful big green light for our medium to long term future.

16:09 We operate internally a five year forecast. That five year forecast is quite a significant spreadsheet effectively with many, many line items all pointing uniquely to these specific design wins, the timing that we think will be associated with them, the value that customers say is apportioned to them. And then we take a fairly conservative view of the output of that plan, and it's that conservative view that we then compare to expectation from people like Cavendish, and we're pretty comfortable with their expectations are currently set. So good strong pipeline ahead of us. Next. If you recall the business that we were a handful of years ago on the left hand side of this chart, we sold single board computers and occasionally some storage.

16:57 In twenty twenty one, September, I set out a strategy that said we'll revert to being really good at issuing latest technology through our products to market much earlier. Remember that in 2021, 80% of our order intake was for last time buy, so we had to transform the business around pace. We also said that we would strive to offer more of the elements of a system, not just our computer board, initially through partnership, but then via, hopefully, acquisition, which is exactly what we did exactly what we did. So now we can legitimately position ourselves as a systems integrator, managing the technical and financial risk of getting all of the elements of the system to operate effectively in order to run the customer's application.

17:48 Customers are increasingly wanting to focus on software and application and less and less on hardware. So the more we can present ourselves as a comprehensive hardware solution provider, the more work we will win as they strive to perhaps outsource more and more of what they have done historically. In terms of m and a then, it would be fantastic to secure through ownership, not just partnership, more of the content of a system. But these are there's a relatively small number of candidate companies, and therefore, one might wait quite some time before an acquisition is possible. So we are also looking at a slightly wider scope of pipeline where if you were to look into any typical platform that we sell into, you will likely find other, usually Intel based computing equipment that is similar to what we do but different.

18:41 A very simple example that's easy to understand is might be physically much smaller or physically much larger like a rack mount server. They are interesting businesses. There's quite a few of them that are founder owned and managed, tidy, well run, existed for twenty, thirty, forty years, where perhaps they don't have a dedicated global sales team capable of selling their products. Like I said, we potentially could be. And they probably don't have the titanium. They won't have the titanium status with Intel, which is hard to get, which gives us significant visibility in detail of Intel's future designs, enabling us to start designing our product much earlier and hence being early, if not first, to market.

19:29 So we are actively exploring that pipeline. Let's see when that yields a result, but we're certainly putting the effort in. Next. So capacity generation and facilities that are fit for purpose for our future is a focus. So later this year, we will move facility in Los Angeles. Took a little bit longer than we had intended, but we're in good shape now. There's a photograph of it there. First class facility, capable of housing far more people than we currently have. Lots of scope for growth there in a fantastic area called City Of Brea. It takes us out of City Of Industry, which was somewhat less favorable. Worth noting that the Los Angeles area is the second highest concentration of defense activity, on the planet, so it is a good place to be located.

20:20 Likewise, for our factory in Colchester, we continue to we we intend to have around double the capacity for our facility there by the end of next year, making good progress there. That'll be fantastic. Meanwhile, we're not capacity constrained. We operate just two shifts five days a week, so we could increase that. And we also have access to contract manufacturers who could take up any surge requirement should we have it. We implemented a few weeks ago Microsoft Dynamics Business Central ERP system. That's a really big step forward for us. The first meeting I had in this business was associated with exactly that product project. So it's taken us four years.

21:06 Two days after implementing, we were shipping product. I've never experienced that with a new ERP system before. And I'm pleased for the first time in our life to sit here and say, I've just observed and been part of a really good ERP implementation. It's working well for us. We will, throughout the course of next year, roll that out throughout North America as well. It's currently constrained to our UK business. We are investing in people, continue to hire really strong talent, particularly of note in the systems business this year. We're up to about 22 heads. Really good team there. Very strong general manager pulling that team together. And we joined the IQ let me get this right. The OTCQX platform earlier in the year, which enables US based people to engage with our stock. We primarily did that so that our employees can buy and sell stock and participate in any LTIPs that they might be associated with. Next. So to wrap up, we're doing what we set out to do. We're focusing on innovation and technology, developing talent with a strong focus on a culture of performance.

22:22 And hence, we're very pleased to have been able to say that we expect by the end of this year to exceed the market's expectations for performance, A fair bit on revenue and a little bit on profit. But noting that we have a dilution this year in the first half certainly from our systems business, we do have some FX issues around us, particularly the first half. It's very pleasing better wrap up and say we're doing slightly better even than you thought we would do a few weeks ago. Thank you. Miles, can thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions, and you can do so just by using the q and a tab that's situated on the top right corner of your screen. We have received a number of questions both pre submitted and throughout today's live presentation.

23:09 And I'll start the Q and A session off with the first question here which reads as follows. Has the expected pickup in The U. S. Contracting environment begun to come through yet? Yes. Yes. We we do have a sensitivity to timing. There's clearly a difference between receiving an order in the middle of September and receiving it in the middle of December. But absolutely, yes. Our customers are buoyant. Largest ever defense budget in The United States, and people are working really hard to get contracting. That's great. Thanks very much. The next question here, is it still your intention to run systems at breakeven in 2025? Yes. Thank you very much. We have another question, which I think you have touched on. But do you or are you considering hedging currency exchanges?

23:54 Yes. Absolutely. As I said earlier, we'll look to hedge, individual large contracts. Absolutely, we'll do that, but we're also looking at how we can hedge our intercompany revenue over a short period of time, do, like, three or four months worth of time. Thank you very much, Kim. Another question here. How many software programmers do you have, and how have they grown? Oh, we have a handful. Seven, maybe. We don't do application level software. The software that's in our products are things like the BIOS, which is the thing that when you turn a computer on, the BIOS informs the computer what it is, where its memory is, how it can talk to it, that kind of thing. So we do BIOS.

24:41 We have security at board level, so it might detect tampering, for example, physically. But we don't do application software. That's where our customers really like to focus. It is a key area. BIOS engineers are one of the hardest types of engineer to recruit. But, nonetheless, we are recruiting they're developing well with us. Thank you. Thanks very much, Miles. Another question here. Are you signing maintenance contracts with Framework customers? No. That's not really the nature of our business. We'll provide support, but, typically, our products don't really need maintenance. They'll use them for the lifetime of, the electronics in that vehicle, and then, typically, they'll be upgraded maybe a decade after they were first installed.

25:31 Thank you very much. We have another question here. What would be a reasonable expectation of sales growth per annum over the next five years? I don't know to what extent people here see the Cavendish Outlook, but that's all we can share. Have you got those numbers with you, Kim? I I have, I think. So the outlook that's in the market is 46 for this year, 52 for next year, 60 for 2027, and 66 for 2028. That's as far as we can go. One thing I do regularly say, though, that a meaningful waypoint for this business will be exceeding 100,000,000.

26:18 That doesn't mean it's our target, but it will be a thing we celebrate when we get there. And that's comfortably achievable inside of our five year plan we operate internally. That's great. Thank you very much for that. Is CONCURRENT likely to benefit from increased European spending on defense? Could an acquisition in the EU be helpful? We do benefit from growth in Europe. We are seeing growth in Europe. We sell via distributors, which is a model that works perfectly well for us. We are seeing demand for our products that directly relate to areas of conflict globally, which is a a sad thing, but we're experiencing that. I'm cautious about owning a business in Europe just because it's another jurisdiction to govern, and there are some challenges with being an employer in Europe.

27:11 So we don't need to do that yet. But, we are seeing growth in Europe. A bigger trend that impacts us than defense budgets alone is the trend within defense, which is to upgrade electronics. If you're a country that needs to rapidly enhance your military capability, don't start designing a new aircraft. Upgrade electronics in the one you've got, and we are seeing that as a trend. That's great. Thank you. What new product development are you focusing on? Well, that's a big question. We we have quite a detailed product road map that has many, many products on it. That road map is informed principally from two directions. One is Intel, where we know what new features they're going to be issuing and when, and we work very closely with Intel.

28:00 An example is our Kratos product that we launched earlier in the year, in addition to being a phenomenally powerful computer, has a brand new capability in it from Intel, which is the ability to create and operate a five g network. Five g mill, as it's called military five g, is a big area of growth. And, you know, we knew about that when it was still under wraps in Intel long time before it came out, and we're able to design, the product and how we'd market it accordingly. So big input from Intel. The other input then is, of course, from our customer community. We will always strive to have at least one, if not more, lead customers strongly engaged with us as we design new products so that we can have a strong expectation of them wanting to buy it when it's ready. First to market is or early to market certainly is everything.

28:50 Our biggest ever order last year, $6,000,000. Had we been just a few weeks later finishing the design of that product, we would have missed the opportunity to win that work. So being early is the most important thing. Thank you. Perfect. Well, Miles, Kim, thank you very much for answering those questions from investors. Of course, the company can view all the questions that have been submitted today, and we will publish a response to that on the investment company platform. But just before redirecting investors, provide you their feedback, and it's particularly important to you both. Miles, could I just ask you for a few closing comments? Yeah. Just to say thank you, everybody. It's Kim and I genuine genuinely enjoy this. It's extremely pleasing that the things I set out some four years ago as the direction for this company, we haven't changed any of that. We've simply stuck to our gums and driven through on what what we said we would do. So thank you for your support. If indeed you do support us, and I look forward to doing this again.

29:50 That's great. Well, Miles, can thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback and all the management team can better understand your views and expectations? Half the management team of CONCURRENT TECHNOLOGIES PLC, we'd like to thank you for attending today's presentation, and good afternoon.