Concurrent Technologies Plc ($CNC)

Good morning, and welcome to the Concurrent Technologies Plc Final Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Miles Adcock. Good morning to you.

Good morning, and welcome to our full year results for 2025. Next slide, please. So my name is Miles. I'm the CEO. This is my fourth set of annual results, and I'm joined by Kim, our CFO. And I should note that at the same time as we issued our full year results, we also announced that Kim has decided to retire at the end of this year. My good friend and colleague, Kim, do you want to say a few words?

Yes. So I achieved a milestone birthday this year, and that made me rethink what I was going to do. So I have decided to retire, but I'm in the business until the end of the year. I'm very excited about the business, and I will be watching it very closely after I've gone, and I'll be regularly calling Miles for updates. But I'm fully committed to the business. And as I say, I'll be taking out for most of this financial year.

Thank you, Kim. And just to note, Kim has generously given us until the end of the year to seek a replacement, and I've engaged Korn Ferry this week, and we're working hard at finding a worthy successor. Next slide, please. So to remind you of the business, we sell globally through sales partners. We have home markets in the U.K. and the U.S. We're 194 people now. And we sell primarily 90% into the defense market globally. Next slide, please. To remind you what we do for 41 years now, we have designed and manufactured in our factory in Colchester, things called single-board computers. So these are printed circuit boards that we design that connect typically Intel processes to the perhaps thousands of separate components that are also on that PCB to create a functioning processor card, a computer card. That then plugs into what we also do now, which is we call systems. So our computer card plugs into a socket on a backplane inside a very complicated metal box and other cards that do other things sit alongside ours like graphics cards or things called field programmable Gatorade or storage or all sorts of other technology. We provide all of that technology now as concurrent through well-established good quality partnerships, and we're then able to sell systems. The reason for wanting to sell systems is you're further up the value chain. A typical selling price for a system is substantially higher for a computer card. And we've been selling systems since we acquired Philips Aerospace back 2.5 years ago. We have a third line of business, which we started last year, which we call design services. So this is where we have a contract with a customer where we use our design talent to design for them their products. So products that they would have historically used their own engineers to design, we would intend to design them for them. They would then likely manufacture that product inside of their own factories. So I said 90% defense. So defense is a combination of brand-new platforms that need computing equipment, but much more often, we're selling into platforms such as vehicles, aircraft, ships. We're selling into platforms that are having upgraded or replacement electronics. A feature of this company now that never existed previously is that we seek to get designed into very large programs. When we get designed in, we've given a customer an early evaluation copy of our product. They test it perhaps against the competition. And if they select us, they design us in, we know that when they get to main production, which could be many years later, they'll be placing those production orders on us. The reason it's many years later is because these big defense programs have a huge amount of upfront work to do. They might produce a prototype system, which they could test for as much as 2 or 3 years before deciding to go ahead on the full program of upgrading perhaps hundreds of platforms. So after 4 years of us now working hard on the design wins, growing new customer relationships, I'm pleased to say that as we enter 2026, we have fantastic visibility pipeline. A significant proportion of it, we have already been down selected for. We're simply waiting for the purchase orders. Next, please. So 2025 then was a record year. Clearly, a significant increase in the revenues delivered at GBP 45.9 million, a corresponding increase in profit, which is very pleasing. But the most important leading indicator then is we consider ourselves one on GBP 145 million worth of design wins. Do note, however, that this number includes a proportion where our customer, no matter how confident, is still in a competitive process, so they haven't secured their contract yet. However, as a leading metric in a rather intelligent traffic light system, GBP 145 million of design wins is a significant step-up even from prior years. And I'm pleased to say it now includes systems work -- we consider our systems business to be a start-up. We're now getting design wins associated with systems, which is really very pleasing. Order intake for the year at GBP 47 million was a record year. We moved into our brand-new facility in Los Angeles, Los Angeles being one of the densest places on the planet for defense-orientated customers. It's a good location to be in. And we now have a facility that is not only attractive to future employees, but it's extremely appropriate for customers. When Kim and I were there just a few weeks ago, we had 4 really high-profile customer visits doing very high-quality business development work. I'm very pleased with that facility. Next slide, please.

Financial performance, as Miles has already spoken about, another record year for us. So GBP 45.9 million of revenue. A large chunk of that increase is from the systems business, very pleasingly, so about GBP 3.3 million of that, which is excellent. And our boards business continues to grow in a year when we've always said this is more of normal performance and hasn't yet included the effects of these design wins coming through. A couple of things to note on this slide. Gross profit, very strong in FY '25 at 53% across the group against 50% last year. There's a few things in there that will be affected by mix of products. So we have a range of gross margins on our products and mix will affect that number. Number two is we have invested significant time and money into our procurement management, and we have a great team now who are actually driving down and negotiating costs. And hand-in-hand in that goes the volume piece that we get because we're a much bigger business, so you can negotiate bigger discounts. And the fourth part to this is that actually our systems business has gone from a small negative gross profit last year to approximately about 16% gross profit margin this year. So there is a swing there. Profit before tax grew by 25%, but you'll see that earnings per share only grew by 7%. And I'm sure you've all noted that this is because the profit after tax has grown by much less than the profit before tax. So let me address that now. Concurrent was always under the SME R&D tax credit scheme, which was quite simple. So we do a lot of development. We receive R&D tax credits from HMRC. And under the SME scheme, that went straight through the tax line. So it was just a credit against our corporation tax. FY 2025 is the first year of a new scheme called the merged RDEC scheme, where the government are bringing together SMEs and large companies into the same scheme. This basically means that the R&D tax credit still exists. It was about $850,000 in FY '25, but it's treated differently in the accounts. So the credit goes no longer through the tax line. It goes above operating profit, but it follows the cost. And most of our R&D costs are capitalized to the balance sheet. So most of the R&D tax credit in FY '25 is our first year has gone to the balance sheet and will be released to the P&L against the amortization for those products. So over a period of time, the same effect. Unfortunately, here, it has a big effect on the profit after tax. And on a cash basis, it has no impact because the R&D tax credit still just offsets the corporation tax liability. Closing cash, very strong at GBP 14.4 million, and we'll talk a bit more about that on a future slide. Next, please. Revenue. So U.S., strong for us, 52% now of our revenue and a circa GBP 5.4 million growth in FY '25, of which a bulk of that was the systems business. The U.K., pleasingly, when I first started, this was only about GBP 1 million. We're now up to GBP 4.2 million. The U.K. is quite a tough market to get into, and we're doing lots of foundational work with customers to ensure we grow that even further. Europe and Asia remain strong markets to us. They do fluctuate a little bit year-on-year, but it's solely down to timing of programs. Top 10 customers, they will bounce around again year-on-year because programs are long term and therefore, you can have somebody in 2024 as a top customer who doesn't appear again until 2027, depending on when they order large quantities. Our top customer, in fact, in FY '25 was Italy. Next, please. So just to show you a bit about how we're doing our systems business and our products business. So systems very pleasingly grew by 160% in FY '25 to $7.3 million on revenue. This is really exciting for us, and it's exactly what we said we would do with systems. We got very close to breakeven at minus $0.4 million. And we are confident that depending on buying patterns, we are hopeful that in FY 2026, this will get to breakeven. And we've more than doubled the headcount in systems to 22 people roughly now. And we've made significant investment in both the people and the capability in that systems business for the future. Hence, we need a level of volume of revenue to recover those costs to make us profitable, but we're well on the way to that. We were lower than we thought we would be in FY '25 on systems, purely due to the delayed -- a bit of slowness in the anticipated contracting, but the pipeline is strengthening very pleasingly in this business. Products, we continue to grow in the products business, record output from the factory and Colchester expansion, Miles will talk about in a few slides' time. And we continue to release some really exceptional products that will continue. They are the heartbeat of this business. And the gross margin in the products business remains very strong at 57%. So a really good solid business in the product side of the business. Next, please. Cash. This is just to give you a flavor for how we've done our cash. Strong operational cash at GBP 7 million, but we do spend quite a lot of money in investment. The first one, GBP 3.9 million on capitalized R&D. That's for our product development. It's the heartbeat of this organization. So we absolutely need to keep investing in our products. That's what makes this business the success it is. And there was some purchase of PPE, which is predominantly the fit-out for the new facility in L.A. And then you'll see we've got some net cash used in investment activities, which is predominantly dividends and a bit of leasing. But very pleasingly, we came out the year with GBP 14.4 million of cash balance. Next, please. Just to give you a flavor of our balance sheet, we're actually quite simple. We don't have any debt. We're dominated by a couple of big things. One is the intangibles, which is dominated by product development. We've got GBP 13.9 million against that, of which roughly about GBP 5 million of it is products that are currently in development, and that's a continual roll-in number really. Inventories heavy at GBP 11.7 million. Some people say, is that a big number? It's actually a really good number for us. We're really tight on our inventory management. Most of our cost of sales is driven by stock. So we really have to have the stock in at the right time to deliver our revenue. Trade receivables, trade payables, they're nothing more than phasing. So receivables looks high at year-end at GBP 9.7 million. That's due to the fact that we had a great December. We have no issues with receivables. I think I wrote off something like a GBP 26,000 invoice in 2025. So you can see it's a tiny proportion of the work we do throughout the year. Most of our customers are on a 30-day payment cycle, and we have no issue with that at all. And cash, as we've already touched on, we have GBP 14.4 million to support us through FY '26. Next, please. So just to say here that we continue to do what Miles set out to do with this business in September 2021 when he first came out to the market. We are investing in product development, as we've touched on. We do have a lot more and a lot larger customers. So our reliance on one customer, which is where we were in 2022 as a large customer is not there anymore. We have lots. And we are now into systems, and that business is going very well. And we do have real partnerships, which is helping us in terms of providing that whole systems content. And all that is reflected into the 5-year financial position, as you can see on the right-hand side. Next, please.

So Kim mentioned 2021. And in September that year, I set out 3 key pillars for our strategy. The first was to grow our computerboards products business. The most important thing in a business like this is to be early, if not first to market with the latest technology. When Intel, for example, released brand-new processes, for our defense customers, in particular, they can only access that new enhanced competitive advantage if somebody like us designs a computer that is compliant to their very specific architectural and technological needs that utilizes that technology. So think of us as the matchmaker, the broker that connects our customers to the very latest innovation from companies like Intel being first to market is game changing. And we've got a really good track record in doing just that. Substantial proportion of our design wins are because we were first to the marketplace with latest technology, really important. The second pillar then was systems, making good progress there. The phase the business is in at the moment is dominated by customers paying us to do custom designs for them ahead of reaching a production phase. Worth noting that margin on design work is typically rather low. So we will enter a period of healthier margins as we get a better balance between production and design. We then also said that we are acquisitive in nature. And yes, we acquired Phillips, and we've taken a little bit of time establishing that start-up as something that can perform. But frankly, when we look at the pipeline for systems, it's really becoming quite healthy. So that prior business that would run at $1 million or $2 million a year, I see no reason whatsoever over the medium to long term why that won't become bigger than our products business. And we continue to be acquisitive, and I'll talk about that in a moment. Next. So we're investing. We're investing for growth. We've talked about investing in Los Angeles. There's a picture of it there. Visited by a very high profile, very novel, fast-growing defense company in L.A. They're viewed as the Space X of defense, but I won't say who they are here, but you may know. And when they visited us, they said, one, what a fantastic facility, but they also said, your culture is really compatible with ours. We're looking forward to working together. So that's -- Los Angeles is going very well for us. In Colchester, we have taken lease of the first floor of a building, very large building, which is next to our existing factory. So over the coming weeks, we'll be moving office-based staff out of our current building. Their next door, immediately next door in a newly refurbished wing. And then we'll be knocking down walls, et cetera, in our existing facility to double the size of the factory area, and we'll be investing in machines to do that. The capital cost of doing that work is GBP 5.4 million of cash coming out of this year. Roughly 1/3 of that is for new machines and the other 1/3 is for refurbishing, but also new IT, new security, et cetera. The running cost of this new enhanced facility will be about GBP 2 million worst case year-on-year. That liberates like-for-like about GBP 40 million of capacity. So if we're at capacity today in that business at about GBP 40 million, by the time we get to the end of the summer, our annual capacity will be GBP 80 million. So pleased with that, we're going to need that capacity. We've also continued to invest in people, and I'll highlight 2 in particular that we recently hired. John Jayal, you may know him as having been the Chief Executive of an A listed company called Nexteq. That's a company that provides embedded computing capability into gaming machines and casinos. I asked the recruiter to find somebody who was a very experienced general manager and business person, but with specific and deep knowledge in the world of Intel-based embedded computing. That's pretty hard find, and we found John. So he's well up to speed running the products business for us, very good indeed. We also hired a gentleman called Cody Cox. Now after serving in the military, Cody spent 8 to 9 years in academia at Georgia Tech. And we talk here often about the American-led initiative called SOSA, which is all about open standards architecture, extremely technical work, but driving industry to all use the same technical standards so that, for example, they can open up competition such that companies like us can now tend for work that we were previously locked out on. Anyway, Cody was one of the arguably 2 principal engineers government side for that whole endeavor. Many of our design wins are because we align technically to the SOSA standard. So hiring Cody is a bit of a coup and will be extremely visible across our competitive marketplace. Next, please. So in terms of organic growth drivers, we've -- the market has gone towards these open standards. That's good for us. We do a number of things to additionally enhance growth. We secure what is now called prestige status with Intel. That's hard to maintain. And that gives us early access to their technology so that we can accelerate our time to market. And it is time to market that dictates our growth ultimately. We're investing in developing much better relationships with customers and many more customers. We're finding customers now formally putting us on to framework contracts. These are vehicles through which they can much more effectively place purchase orders and is a commitment on route to ideally becoming their preferred supplier for this sort of work and so much more. So we've got a really good organic growth engine. If I think about acquisition then, you could summarize our scope for acquisition as companies that we believe we could tag on to that same growth engine, whereby our existing salespeople could sell wider computing technology and capability to existing and new customers. That specifically goes in 2 areas. There's technology inside of our systems that we don't yet own and we rely on partnership. So owning more of the content of our own systems is an obvious place to look when it goes to M&A. And then there is other computing equipment that is different to what we do, but also exists on platforms that we're on. So if you take a ship or an aircraft or a radar, there are computers in there, which, for example, are physically much smaller than ours, small form factor or indeed physically much larger rackmount server. So we're looking at a number of candidate organizations there. We're putting the work in -- let's see when and what we yield when it comes to acquisition. Critically important that we find companies that are a good cultural fit. We are looking for something this time around, which is somewhat larger than the last one, needs to be well run, needs to be accretive, and we need to not pay over the odds for it. Next. Outlook then 2025 was excellent. Candidly, it could have been even better if there wasn't some slowness in the U.S. market. Kim alluded to that. It's just a fact in an ecosystem that is experiencing deep scrutiny from their own government. tariffs, government shutdowns, it does slow things down. So 2025, excellent, could have been even better. We continue to see some of that lethargy in the placement of purchase orders in the first quarter of '26. But equally, I'm hopeful that, that will resolve. '26 is looking extremely strong. Combination of the backlog that we came into the year with GBP 24 million, plus our pipeline, which we have excellent visibility of. It's as always with defense, a question of timing, gives us real confidence that we'll deliver against the current market expectations for 2026. Thank you very much.

That's great, Miles. Thank you very much indeed for your presentation. [Operator Instructions] I would also like to remind you that recording of this presentation along with a copy of the slides and published Q&A can be accessed by our investor dashboard. Miles, we have received a number of questions, both pre-submitted and throughout today's meeting for investors. And I want to start off the Q&A session with these. The first one reads as follows. How is the quest to acquire or develop intellectual property progressing?

Well, we're certainly developing a great deal of deep know-how. So if it comes to how do you manage heat in these products with new technology like air flow-through technology or mixed conduction and convection cooling technology, we're doing very well there. We have no patents, but the know-how is very good. And hiring people like Cody that I mentioned really boosts our intellectual capacity even over and above what we currently have. As we acquire, of course, that will also build both more know-how and potentially very specific intellectual property too. So I'm pleased with how we're doing there.

Thank you. Moving on to the next question here. How is Concurrent impacted by rising memory prices?

So a common question. Thank you. What we've done is we've been able to secure volumes for the whole of this year and well into next year. So access to parts is assured for us, which is the most crucial thing for us and our customers. We came into the year with enough stock to get us through to late summer. As we receive parts then later this year and into next year, we will be subject to spot pricing, so the price on the day as we take delivery. We've built what we think that will be into our price book. And in any case, we can update our price book. So our default position is to pass the cost on. So summary, it's a situation that we've managed. It's not going to be a defining characteristic of performance this year, but it does take some management.

Thank you. Next question here is on the appointments you made. John Jayal joined as Managing Director of Products and Cody Cox as Director of Embedded Technology. What specifically are they building or changing that was not possible or happening before they arrive?

I've largely covered that, but I would add that having somebody as credible running the project products business as John means that he will -- he technically understands what happens in that business even better than I do. So he'll directly add value there. But it also liberates me to focus a little bit more of my time on strategic matters such as acquisition. And Cody is just world-leading at the technology that he understands that will add immediate value day 1. He's going to be substantially externally facing. So he'll work closely with our sales team.

Fantastic. Thank you very much. Another question here is, at what point does the Board consider a move from AIM to the Main Market? And as you expand broker coverage and institutional visibility, at what point does Investor Relations risk becoming a distraction from running the business? And is hiring a dedicated Head of IR something you are actively considering?

So we're not considering moving to the Main Market at this point in time, but let's see what the future brings, but we're not exploring that at all at the moment. Yes, you're right, there will come a time where we need some internal IR support. It's not yet. It's not yet, but at some point, it will be.

What is the single most difficult operational or strategic challenge you are managing in 2026? And what is the single most exciting opportunity you see ahead that the market may not yet fully appreciate?

So the biggest challenge this year is timing. That's also the biggest opportunity. So our pipeline now has a number of really significant in terms of size orders. Now will we get 4, 5 of those in the next 3 months? Or will they all happen in December? Or will we get half of them this year and half of them next year? That is a genuine variable. So we strive to set market expectations at the lower end of what we think the performance window could be. But there is the potential for upside in the event that one of these large binary items crystallizes early in the plan.

Thank you, Miles. The next question here is, it seems that drones will become an increasing feature of warfare. Does this create a headwind or tailwind for Concurrent? Or is it just business as usual as you adapt to customer requirements?

It's business as usual really. It doesn't affect the volume or nature of opportunities that we can seek to win. But it is part of the reason why when I mentioned small form factor earlier, which is literally smaller computers, that is attractive to us. Whether we do that through acquisition or organically ourselves, we are starting to talk to customers now about much smaller computers that has obvious application to things like drones.

Understood. A question on IP. Who owns the IP when you design systems for a third party?

We do. Unless it includes any of their own proprietary IP, which we build in, they retain ownership of that, but we own the design of our own product.

Perfect. You reported design wins of GBP 345 million in total for 2023, '24 and '25. Is the GBP 345 million still a decent estimate for the value of the wins in those 3 years, noting that programs could have been changed, lost since announcements?

Yes. So we strive to pitch that relatively conservatively so that if there are any outs, they are more than offset by that conservatism or indeed any ins. So yes, it's a good metric, but think of it like an intelligent traffic light rather than literally precisely that number.

Perfect. And a follow-up question is there was a step-up in design wins from 2023 and '24, GBP 100 million each year into the first half of '25, GBP 90 million. How in broad terms do you see the trajectory for design wins in future?

Well, that's the question, isn't it? So we've got great momentum. My hope and expectation is that we grow in size, grow momentum, secure more new customers that we should -- we will definitely have access to more work to bid for, staying early to market and ideally first to market is the key. So how we operationally perform today in terms of designing our products will have an immediate impact on the design wins that we secure next year, which in turn will have a massive impact on the revenue that we might start to enjoy 3 years later. So our actions of today define really our progress in doing design wins in the next 12, 18 months.

Thank you very much. A quick question here. What companies are currently your top 3 customers?

Now that does move around and our customers tend to be a little sensitive about us quoting them. But it's -- last year, it was a European customer, Italy. In America, it's all customers you would have heard of. So if you think about who are big defense primes, it's people like Raytheon, General Dynamics, BAE Systems. In Europe, big customers are Thales, MBDA, Leonardo, Rheinmetall. These are all the sorts of customers that we work with.

Perfect. Thank you very much. A question on gross margin. Can gross margin increase further in 2026?

So gross margin in the products business probably won't. If anything, it might depend on mix, it might come down a little bit; depend on DRAM, it might come down a little bit. And the difference that will happen in 2026 is the systems business. So as we start to go through less custom design and get some more production work, you'll see the gross margins start to eke up. Whether that's really '26 or whether that start to happen in '27, '28, but it's coming. It will come, and that will be the impact on our gross margin.

Thank you very much, Kim. Next question here is, what's your estimate on the potential of the systems business over the next 5 years?

5 years' time, I'd like to see it nudging the same size as the products business. But bear in mind, we are still really a start-up, and it depends exactly the nature of what we do win. But we are involved in discussions, these discussions that might take a handful of years to mature for programs that might include hundreds of systems. Now system can cost maybe 100,000 or even 200,000. So you times that number by hundreds, you get in some very big programs. That's the prize. That's why we have the systems business, but it will take a little bit of time.

Another question on drones. The defense industry appears to be changing quickly with drones automated products. How involved are you in this trend?

At the moment, we're not particularly. But don't assume that just because drones are changing the way that militaries work means that they, therefore, need a lot less of the heavy-duty stuff. So we're seeing a lot of increasing programs. Having said we're not involved, we are on a very large program, which is a pod that sits underneath an aircraft, and that pod has the ability from high altitude to track and potentially eliminate hundreds of drones. So actually, that is driving business for us. But in terms of delivery on to drones ourselves, other than possibly very large ones, that's not business that we're engaged in today, but we'd like to tomorrow.

Perfect. A couple of more questions here is R&D and P&L expense declined in 2025. Why was that? And is it expected to increase again in 2026?

Sorry, can you just repeat that question?

Yes, of course. So R&D and P&L expense declined in 2025. Why was that? And is it expected to increase again in 2026?

R&D expense in 2025 actually went up. So we spent something like GBP 3.9 million in 2025. It was about 3 million in 2024. So actually, we're going the other way.

Perfect. Thank you,. And perhaps one last question here is, will there be a period of hiatus in production in Colchester in the current year?

No. So the existing lines will keep running. It's -- so we'll be adding new capacity, but we won't be moving around or reconfiguring existing capacity too much. So we should see no interruption in production.

Fantastic. Well, look, guys, thank you very much indeed for addressing those questions from investors today. But Miles, before I redirect investors to provide you with their feedback, which I know is particularly important to you and the company, could I just please ask you for a few closing comments?

Yes, of course. I'd just like to thank everybody for being interested. As a slightly personal story, I received some really heartwarming messages around the end of last year, investors who've been very pleased and perhaps done interesting things with their funds. Really nice. So whatever your particular story is, thank you very much for being interested in ours.

Fantastic, Miles, Kim. Thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we would like to thank you for attending today's presentation, and good afternoon to you all.