Concurrent Technologies Plc

Good afternoon and welcome to the Concurrent Technologies Plc investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q&A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Myles Adcock, CEO. Good afternoon, sir.

Hello. Thank you all for joining us today for the results for the first half of 2026 for Concurrent Technologies Plc. Next slide, please. So we have myself, Chief Executive Officer, and Kim, our CFO. For those of you that might not know, Kim is retiring after four excellent years. So this is her last session. In addition to this presentation, we have now also commissioned research from Equity Development. So you can find their research paper on their or our website. Next slide, please. So as a reminder, Concurrent Technologies is a business that has been trading for more than 40 years, one of the longest listed stocks on AIM. We are now over 200 people based in the United Kingdom and the United States, although we sell all around the world with something over half our revenue going into America. We design and make embedded computer system products. For a long time, we just did computer boards, typically postcard sized boards, but we now do a much wider array of systems and related services. Next slide, please. So the market that we address is absolutely enormous. There's some substantial figures on this slide with America spending more than a trillion dollars on defense, NATO as a group spending around 1.8 trillion dollars the defense electronics market globally is itself over 190 billion dollars these are all absolutely enormous numbers and generally speaking when we win work we're displacing very large competitors next slide please so our first half has been very good on pretty much every metric our best ever with revenue at 23.2 million pounds and profit at 3.2 million pounds excellent standout figure is the order intake at 46.9 million pounds So that's in line with the entirety of last year's order intake, which was itself a record. So that's very pleasing. We have said for many years that it would be 2026 where we start to see the order intake associated with design wins that we secured now many years earlier. That is starting to happen. So of that 46.9, very roughly about two-thirds of that is associated with prior design wins including the substantial 17 million pounds order which was actually a design win from many many years ago clearly going strong worth knowing on the order intake is that a lot of that most of it happened in Q2 and of that a lot of it happened in June so our order intake whilst large very back-end loaded in the half that did constrain our ability somewhat to generate revenue so revenue would have been stronger if the order intake profile had been more skewed towards the first half two primary reasons why it did come in a little later than otherwise planned we saw a continued hiatus of order placement activity out of the united states so similar to q4 last year q1 was very slow that's picked up again now although note america goes back into its budgeting cycle in the next few weeks so let's see what happens there And then we were expecting a fairly substantial order at the beginning of the year for one year's worth of supply of a particular product of ours. But Intel launched a last time buy for the processor associated with our product. That's unheard of for Intel to cut life short. They cut life short by about six years. They normally guarantee 15 years. They end of life this product at, I think, nine. So we had to put our corresponding product into last time buy. And so our customer, who didn't have time to redesign their own solution to accommodate a different computer, did the work to assess how many units they had to buy for four years worth of supply. And that was the 17 million pounds order that we closed in June. So we closed 17 million in June rather than some other significant but smaller number at the beginning of the year. Just a note on that contract, substantially our largest ever. We've designed that to be a milestone based performance contract. So the upfront milestone is the purchase of parts for which we've been paid the cash. We're now purchasing those components, roughly six million pounds worth. And as we do, we can recognize the revenue on those parts, which is good. We recognize a relatively modest profit on those components and instead recognize the bulk of the profit as we deliver finished goods in years two, three, and four. So for this year, that slightly dilutes our gross profit for the year, but will be very good in our years. That's why the expectations in the market which increased at the beginning of this week went up more in revenue terms than it did in profit terms. In terms of design wins, we've been designed into programs that are currently assessed by our customers to have an aggregate value of £129 million to us. It's not a contract, but it is as a metric, let's say a bright green flashing light for our next many years. That's typically revenue that won't start flying for another three or four years, but is an excellent indicator for our continued growth. That's substantially our largest LTV for design wins that we've published to date, partly because we're now starting to see systems work come into that number where the systems into which our cards go the systems are a much higher unit price than the computer cards alone and therefore the potential value of programs for systems is substantially higher other things that we've done as of now rather than the end of the half but as of now we have doubled the capacity of our factory in colchester those machines are up and running and thank goodness they are because the size the quanta of the order intake and the fact that it has come in late in this late in the half means that our quarter four is going to be exceptionally busy so that doubling of capacity is going to be going flat out at the back end of the year but the machines are commissioned we've got the staff we've got the plan so that should be fine next slide please So a little bit of a case study to just illustrate a little bit how the business works, how it takes a long time, but how the scale of opportunity can exponentially grow with that time. So back in 21, 22, which is after I started we were able to launch some products into the market that were first to market really excited people and in particular it excited this distributor that I'm highlighting here in a country in Asia Pac so we started to do work with them in 23 we bought a very small business in Los Angeles Phillips Aerospace as the catalyst for our startup systems business and in 24 we brought every distributor from around the world to Colchester for two days to educate them that the concurrent they knew for 30 plus years was now capable of doing very much more and in particular here's what we can do with systems that excited these guys a lot and relatively quickly after that conference they came to us with a potential opportunity in their country with an in-country prime and the opportunity was to displace an incumbent supplier to that prime so we set about sending some of our best people to that country and we worked up a solution with our distributor but then also the prime contractor which resulted in a 3.7 million dollar order which we communicated in January 25 We've now successfully been working on that order to design and then deliver 15 units. These units go into an amphibious vehicle for trials. So the end customer, the government is trialing these vehicles to see if they like what these computers do in them. and during that period our prime contractor customer has been very pleased and our distributor has introduced us to three other prime contractors also involved in vehicle upgrades in that country and so we're now in discussions not the same thing as an order yet not the same thing as a design win yet but since we're the incumbent supplier of this system that customer money has funded to develop we're in exceptionally good position and we're in discussions about potentially fitting two computers per vehicle for 300 vehicles and at a unit price of very approximately 150 000 that's a good size program this is not unique we're in these sorts of discussions uh many times over so this is one of maybe 10 or a dozen similar discussions with similar sized opportunities now coming into view. Another way of expressing that is all the hard work we've done to get to this point starts to give us permission and credibility to be allowed access to what is the next level of prize in terms of volume and value of work, which will become increasingly real over the coming years. Next slide, please.

Thank you. Good afternoon, everybody. So Miles has touched on a few of these numbers, but strong growth in all areas. Point to note on the gross profit, we have held gross profit the same level as last year. That's actually really good considering we're in a period of getting more difficult supply constraints. So we've all known about the DRAM pricing. But actually, that's affecting quite across the board now of most of the electronics components industry. And it's both pricing and availability. We're working very hard to hold on to that gross profit. And we've got a very good procurement team that we're continuing to strengthen. Profit before tax at 3.2 million was after charging 114K of exceptionals. and the other key number on this slide is closing cash which we'll talk about in a minute but it was 24% up on prior year even though we've invested quite a lot of money in the first half. Order intake amazing at 46.9 and actually at the 1st of September that's now sitting at 68 million. Next please. Revenue split. This is just to show that we're still key in all major regions. They do fluctuate a bit between regions, between halves, simply because of how we deliver our projects. You know, it depends on when the program requirement is for the customer. So Asia pack dominated by the top customer there. And then many of the other customers were actually concentrated in Europe. But that's, again, just a pattern that just moves around because our customers deliver at all different times. Next, please. Business units. I'm delighted to say systems is now profitable. Compared to last year, it was about a four or five hundred K loss last year. We're in a really good place. So even though the revenue hasn't gone up massively, it's up nine percent. It's actually because of the mix of revenue, which we've all said. So in this business, you need to win the design work first to then build up the production orders that come off the back of those designs. That's starting to happen. And that's shown by the gross margin going up 13 points from 13.3% to 26.3%. That will continue to evolve over the next few years as we get that mix bigger. on production side against a bigger revenue. Design work will always be there. That's how you live and breathe and move through the rest of the company. Headcount about 25 people in systems. That will simply grow now through more work. So we will hire more engineers as we win more work. Most of the functional people are in place. So it would just be business as usual in terms of further recruitment there. and pipeline of opportunity remains really, really strong in the systems business as it does in the products business. So products business, a good first half at 19.8 million, 11% up. But as Miles has alluded to, that was actually probably quite restrained by the orders being quite late in the half. We will have a very strong half in the systems business and the products business and the systems business. There's a slight downturn on the profit margin against last year. That's solely because this side of the business carries all the cost of the whole group, basically that's non-systems. And therefore there's some additional costs in the first half that we just didn't get revenue up quite high enough to cover off. Some of those are one-off costs in terms of recruitment. As you'll see my replacement, we had another senior recruitment earlier in the year and they will wash through in the second half where profit will be really strong. Next, please. Cash. So just to show on cash, we have gone down about 4 million since year end, as I say, up against last half. That's very much because of the facility upgrades. And that's represented there by the 3.3 million purchase of PPE. We also did a large amount of capitalized R&D. That is 3 million. And that's our product development. That will probably run right at six million this year and probably beyond this year. So products, it depends on our roadmap, what we're doing. Some products are bigger than others. And at the moment, we're working on five very key products that should go across to manufacturing in early end of this year, early next year. In terms of there's two big chunks there, increasing trade payables and increasing receivables. They are dominated by the same thing. So the increase in receivables includes a 6.7 million pound invoice, which was against that 17 million pound order that was raised in June and paid in July. So that dominates that number. And the increase in trade payables should say and liabilities, because in that side of it, there's a 6.7 million deferred revenue, which we will be working through most of that in the second half of the year. The other key point to note on this slide, net cash from operating activities was actually positive in this half. Last half, it was significantly negative last year. So really good cash performance. We are still in a very strong position and we still remain with no debt, even though we have a debt facility of 5 million RCF, which rolls for about another two years. Next, please. This is just to show the five-year performance on the right there and the left is just saying we're doing what we said we'd do. The strategy model set out in 2021 and we've sort of developed into 2022-23. We're absolutely doing it and we're staying very focused on it. And you can see by the numbers their revenues up three times, over three times since 2022. Profit margin is coming up. We've always said that we want to get to mid to high teens. We're currently sitting at 13.8% for the year, for the half year. Next please.

So in addition to all the growth and the fun stuff, we have to take governance and in particular the management of risk extremely carefully. So just sharing with you here three of the enterprise level risks that we take great care to manage well. Top of the list is cybersecurity. I have historically run a cybersecurity business. I know a little bit about it. and we need to be as tight as we possibly can in addition to investing in good tools good IT and good people and training people we do lean in to having third parties kick our tires and assess us so for example securing defense cyber certification level two in the United States we're one of the only companies of our size to have done that that's the sort of thing you'll more normally see with a much larger perhaps more mature deeper pockets company and we're about to issue all senior staff with a locked briefcase with complete brand new bare laptop in non-Microsoft comms tools plans and protocols for bringing back up all that stuff so we're doing a lot of work there likewise at the bottom of this chart physical security our profile is a lot higher than it was we work in a sector that attracts attention and we have a lot more dependency on parts finished goods and machines in our Colchester factory So as part of the renovation that I'll talk about in a minute, we have new doors, new windows, bars, bollards, electronic access. And in the new building, we're even designing the ventilation so that it can defeat people trying to listen through it or send small drones down through it. And then of course, there's the supply chain. So Kim said this supply chain is tough across the board. so we're managing it well but it's certainly unusually slow difficult and prone to short-term price fluctuations so we're doing everything we can to manage that including buying in advance where we need to next so this is our family of products and yes we launched five new products in the first half but the point now being really that this entire product range is much more diverse than it would have been some years ago we have graphics cards in here we have systems we've got more storage we've got FPGAs we've got all kinds of stuff but it's also extremely current so our customers would view our portfolio as very up to date exceptionally up to date so that's good and we're starting to get that feedback not just from our customers but some of our core partners are saying they're experiencing us projecting technology into the market often quicker than anybody else. That's relentless for those of you that are familiar with Moore's law, doubling of technology every 18 months. There's no room for complacency, but in our world, this set of products is absolutely fantastic. Next. So in Colchester we were running out of capacity to manufacture our boards our computer boards we'd already doubled capacity by introducing two shifts a few years ago and so the plan has been to in that building half the space was taken up with office accommodation we've removed all the people at desks and have instead turned those rooms into brand new rooms that support the factory like a new large oven room all of our products have to be thermally cycled we've taken off of the shop floor of the factory test so we have a new dedicated test room that liberates then room in the factory for new machines some of those machines are pick and play so the machines that act literally put the printed circuit board together we've got new inspection machines and in that picture in the towards the right there but not quite the right the large gray block that you can just see in the bottom right hand corner is a new soldering machine so that capacity is now installed and running next And so we took the top floor of the building next door, which is an additional 14,000 square feet, two wings. The first wing is done. You can see pictures there. High-end, appropriate to customers and employees, flexible accommodation. It's a really pleasant place to work. The second wing will open soon, into which we will put a really substantial engineering lab, but also a number of rooms that help us to really grow the business currently we've got a number of people in temporary office accommodation the car park literally demountables with air conditioning that will all finish in the next very few weeks so as we get into October the whole thing will be done really first class facility the two buildings are literally next door to each other so that works well next very simple strategy I'm strongly of the view that most businesses can have an extraordinary simple strategy and the focus should be developing the culture to enable operational excellence and that's very much what we do so our intent is to bring technology to market as quickly as possible ideally first and we do that with the capabilities we already have by as i said focusing very much on culture and operational excellence and trying very hard to put evaluation product into customers hands before anybody else can we will then grow that capability organically I've given a couple of examples like thermal management the latest Intel processor generates about 150 watts of heat for those of you that remember what a 100 watt light bulb felt like that is an awful lot of heat to get rid of security matters a lot So our next generation of products will have very novel and very competent security features on board, which I think will be really attractive to customers. And then we have said for some time that we are acquisitive. Our first acquisition was Philips Aerospace. That's going very well. I did say we wouldn't do the next one until we could put a tick in the box of having mobilized our systems business. We have mobilized our systems business. And as Kim said, we spent 114K on exceptional costs. There's really only one thing that can be and we're working very hard on that. So watch this space. And then in terms of how we're developing the business over time, then we're going very much for a business that did one type of product only to an increasingly broad suite of products and interrelated services. So can we we can become much more of a one stop shop for our customers embedded computing and related technology needs. Next. So in terms of outlook, great order intake, 68 million year to date. Our backlog today includes 35 million pounds roughly of work to be prosecuted in 2027 and beyond, the bulk of that being in 2027. So by the time we get to the 1st of January, our opening backlog for 2027 could well be 40 or 50 million pounds. That's roughly 10 times what it was this time five years ago. So building real momentum there, starting to get multi-year visibility. It's the first time our book to build has been greater than one. Our systems business has transitioned into profitability and will grow and in time, years but in time will be larger than our products business I'm certain simply because of the value of opportunity there and therefore we the board are extremely comfortable in exceeding this year's expectations and indeed the expectations for 28 and for 2017 have also been somewhat enhanced thank you back to Lily

That's great thank you very much for your presentation this afternoon. Ladies and gentlemen please do continue to submit your questions just by using the Q&A tab situated on the right hand corner of your screen. We have received a number of questions today and if I may just start off with the first question here which reads as follows. Why no interim dividend especially given the 9.7 million cash on the balance sheet? When can we expect its reinstatement?

Thank you. For a number of years now, we've had the policy of paying dividend based on full year in-year cash and profit. So that will remain to be our policy for the time being. Clearly, we have people who draw that we didn't pay a dividend at all and focus on growth. And then we've got people for whom a dividend is very important. So we think we've got the balance right, but it will be based on full year performance, profit and cash.

That's great. The next question we have here reads, your design and wins accelerated from 100 million in the whole of 2024 to 90 million in the first half of 2025 and 129 million in the first half of 2026. How do you see the trajectory?

Well, you've sort of just laid out the trajectory. so assuming we continue to perform in line with how we expect and assuming we start to win an increasing number of systems related design wins which themselves carry a much higher unit price then that number should continue to grow it's quite lumpy so the largest item in that 129 is 50 million dollars so clearly whether there's a 50 million dollars in it or out of it changes the number quite a lot but in trajectory terms that should strengthen

That's great. Just turning to the next question. Your total reported design in wins from 2023 to 1H26 is 474 million. Will you need further capacity expansion to deliver these wins? Perhaps in the US? What is the current value of your design and wins? Some of the 474 million has converted into contracts and presumably you've updated your forecast on other programs.

So very little of it has converted in contracts yet Although in the first half of this year, we always said it with 26 that design win Order intake would start to pick up and then revenue so Including the 17 million about two-thirds of it relates to prior design wins. So that will start to become That will start to become revenue the capacity for boards on a like-for-like basis is now running at about 80 million pounds per annum of output we could do three shifts seven days a week in principle which would significantly increase that yes we could and probably should at some point consider capacity in the United States and we're thinking about that there's no urgency at the moment And for systems, we've got plenty of capacity there for fairly low rate and modest production. If we get into high production orders, we will find a very simple, low cost space like a warehouse into which you need to recruit skilled labor to do assembly. It's not the same thing as needing to buy very large, expensive machines. So essentially, we've done the hard work to generate the ability to have the capacity we need for the foreseeable future.

That's great. What's your current view on the progress of the systems business and the outlook over the next five years?

Current view is clearly positive. We've set very modest expectations formally externally because we're learning. So it's a startup. It's a startup and it's lumpy and it's in the midst of fairly turbulent customer procurement behaviors, particularly in America. so we run a model and the difference between the low case and the high case is substantial but the low case is still really pleasing so I haven't given any numbers it's too early we're feeling our way a little but I think we as I said earlier I think we can expect that business to overtake the size of the product business it's just how many years will that take that's great what headwinds if any are US tariffs presenting they present indirect headwinds into the ecosystem in general so we we are not subject to tariffs our products are not currently subject to tariffs but the people we sell to are living in a world where they and many of their suppliers are subject to tariffs so as you take money out of the system A typical behaviour would be place contracts as late as possible, commit to things as late as possible whilst you're dealing with tariffs elsewhere. So tariffs create a general dampening effect on the ecosystem, I would say, although we're not directly impacted by them ourselves.

That's great. And just the final question we have here. Please, could you give a rough outline of the end product that your computers go into? In other words, ships versus land systems versus aviation versus missiles versus drones.

Thank you. We don't currently service missiles nor small drones. We can and do products into very large drones. We do air, land and sea. Now, we didn't use to do that much land and the reason we didn't use to do that much land is because there's lots of land vehicles. And if there's lots of land vehicles, they're very big programs. They're very big programs. Our large competitors did everything they could to lock us out. Now that the world is moving towards open systems and those large competitors can't use the fact they've flooded the vehicle with proprietary architecture like interconnects, we have a level playing field. So we will see most of the growth being associated with land vehicles, which is good because they also require our most rugged products. We're doing a great deal going into radars. There's a lot of people buying radars at the moment. We do have computers that go into aircraft, helicopters, amphibious vehicles, all across the board really. Thank you.

That's great. There has just been another question that's come through. When you look to expand staff levels, is there a good supply of engineers with suitable qualifications and experience, or is this a potential stumbling block?

We're doing very well at hiring in general, but there are specific niche skills that are difficult to find. So an example over the last year has been BIOS engineers. The BIOS, forgive me for a second, but when you turn your computer on and it spends time thinking, that's the BIOS saying, I'm a computer, here's my processor, here's my memory, here's how I talk to it, and it wakes itself up. It's clearly a much more complicated thing than that. So if you know any BIOS engineers, get in touch.

That's great. Thank you for answering those questions you can from investors. And of course, the company can review all questions submitted today and will publish those responses on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to the company, Myles, can I please just ask you for a few closing comments?

Yeah, thank you for your support. We're doing what we said we would do. It's going overall pretty well. Despite world events creating obstacles and headwinds, we're doing great and we'd do even better still if things were smooth. So I'm very, very happy. Your support is welcome. Yes, please, feedback. And I hope the research that we've commissioned is useful to you. OK, thank you.

That's great. Thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete and I'm sure be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation and good afternoon to you all.