Concurrent Technologies PLC (LON:CNC), a world leading specialist in high-end embedded computer products for critical applications, has announced its interim results for the six months to 30 June 2023.
Financial Performance
Strengthened order intake has translated into record H1 2023 revenue at £12.1M (representing a 63% increase on H1 2022, and a 22% increase on H1 2020, which was the best revenue year to date). Demand for the Company’s products remains strong with a H1 order intake of £14.5M (H1 2022: £14.2M) and record backlog of £29M (31 December 2022: £26.7M). Despite ongoing challenges with component supply, it is reducing in both difficulty of supply and lead times, beginning to unlock what had otherwise been a major constraint to revenue for the previous 2 years, and will ease further throughout the remainder of this year.
· Revenue of £12.1M (H1 2022: £7.4M) – remained constrained by components, however, represents a record half year, with an increase of 63% on prior year.
· Gross profit of £6.0M (H1 2022: £3.7M); an increase of 62% on prior year.
· Gross margin of 49.7% (H1 2022: 50.4%) – reduced as the result of price increases of some components due to high demand and limited supply, and increased manpower costs.
· Operating profit of £1.0M (H1 2022: £0.0M) – predominantly driven by increase revenue, and hence gross profit (+£2.3M); net costs increased by c£1.3M, in line with investment strategy (Enabling Functions e.g. People, Commercial, Procurement; Operations e.g. talent, 2 shifts; Engineering talent; Facilities e.g. Theale office; Leadership team).
· Profit before tax of £1.0M (H1 2022: £0.0M).
· EPS of 1.54 pence (H1 2022: 0.75 pence); increase of 105% on prior year.
· Cash Balance (including cash deposits) as at 30 June 2023 of £3M (31 Dec 2022: £4.5M).
o Increased cash from Operations of £0.5M (due to a stronger H1), including increased inventory of £1M.
o Decrease of £2M from investment activity, predominantly driven by R&D (£1.7M).
Operational Summary
· Strong order intake of £14.5M as at 30 June 2023, with significant backlog of £29M compared to £20.3M backlog as at 30 June 2022, up 42%.
· Revenue defined by components availability in H1.
· Defence remains the largest market sector at 73% revenue.
· Global customer base is solid with exports generating +90% of revenue.
· Investment in R&D costs (talent, improved process & analysis, materials) have continued (+£0.4M), in line with stated strategy to improve the cadence and time to market of products that offer the very latest technology.
· Launched new product Hermes, the latest processer plug-in card.
· Key Partnership agreement announced with Alpha Data to act as a reseller of their FPGA (Field Programmable Gate Array) based plug in card.
· New distributor agreement with SoC-e to enable the company to offer the portfolio of Relyum Advanced Networking Solutions.
· Component shortages have remained challenging, limiting the company’s ability to ship product. This is expected to ease in H2 2023.
· Major new systems order with FTSE 250 customer for £1.25M.
Miles Adcock, CEO of Concurrent Technologies, commented: “We are delivering on our commitment to transition our core Single Board Computer business into growth. We maintained focus and investment throughout a difficult period of component constraints; and are now seeing the customer demand for our new products reflected as increased revenues. In parallel we have been underpinning capability in relation to a wider systems offering, utilising our own products, but also partners’ products for use in higher value products and services. This progress on multiple fronts creates the right conditions for our recently announced equity raise and associated acquisition of Phillips Aerospace to accelerate our Systems strategy. Together these developments provide us with confidence for the future.”
CHAIRMAN’S STATEMENT
The first half of 2023 has seen a significant recovery in the trading performance of the Company, with record revenues as the component shortages ease, although key shortages are still an issue impacting our ability to convert backlog into revenue. Order intake remains strong and our improved time to market with new innovative products will further grow and broaden our customer base.
The acquisition of Phillips Aerospace in September 2023 is an important step in growing our Systems business, transforming the Company beyond our historic Single Board focus, with the potential for a step change in the available market opportunity for the Company.
Although an interim dividend is not being declared, we are confident we will continue the recovery in the second half of 2023 which will allow us to consider the re-introduction of a full year dividend.
CHIEF EXECUTIVE’S REVIEW
Financial Summary
The performance of the Company has remained challenged through limitations of component supply in H1 2023, resulting in a restricted, although record, revenue of £12.1M (H1 2022 £7.4M), a significant increase of 63% on prior year. The company continues to have strong backlog (contracted work) at £29M at H1 2023 (H1 2022: £20.3M), and the Company expects H2 2023 component supply to be improved over that of H1 2023, following a critical delivery in July 2023.
Gross margin is 49.7% (H1 2022; 50.4) which is driven primarily by cost of components. The company has seen a rise in prices during the period of shortage and high demand.
The Company has delivered an unaudited profit before tax of £1M (H1 2022; £0.0M). This is a £1M increase on 2022, represented by the increase revenue (+£4.7M on H1 2022) and corresponding gross profit (+£2.3M), however net operating expenses were up on prior year, in line with the investment strategy at £5.0M (H1 2022: £3.7M). This is driven predominantly by additional investment in talent in R&D (+£0.4M), enabling functions and the Leadership team (+£0.7M). The Company also benefitted from a £0.4M foreign exchange rate gain in H1 2022, not repeated in H1 2023.
The balance sheet remains strong with no debt and £3M of cash balances (including cash deposits) as at 30 June 2023 (31 December 2022: £4.5M). Component supply issues have continued to dominate H1 2023, and this has meant a further investment in inventory and a restricted level of revenue, resulting in a lower cash profile. The Company expects to see this start to reverse in H2 2023, as component supply eases. Inventory holdings have increased to £11M by the end of H1 2023 (H1 2022: £9.5M), an increase of a further £1M since 31 December 2022. The Company is confident in the quality of the inventory held and that it will see a reduction in the levels during H2 2023. Trade receivables were relatively high at the end of H1 2023 at £5.3M (H1 2022: £3.5M) due to the timing and level of revenue, which was £4.7M higher than H1 2022.
With a record order intake in 2022, and further order intake in H1 2023 of £14.5M, and therefore a significant contracted backlog of £29M, plus easing component supply issues, the Company is confident in its H1 2023 outlook.
Post Interim Close Events
On 6 September 2023 Concurrent Technologies completed the acquisition of Phillips Aerospace for US$3.4m through a combination of US$1.9m cash and the issue of equity of $1.5m to the owners of Phillips Aerospace. Simultaneously the Company raised £6.8m through the issue of fresh equity approved by shareholders at a General Meeting held on 4 September 2023. These events broaden our product offering and strengthen the balance sheet to drive further growth.
Current Trading & Outlook
With a record H1 backlog of £29M and the component supply chain issues easing, the Company is in a good position to begin to revert to strong trading (largely no longer defined by component availability). The Company continues on its growth journey, with the underpinning of its systems strategy through the acquisition of Phillips Aerospace (post H1), and the continued drive in maximising capacity (additional shifts, maximising space, use of third-party manufacturer) allowing for further growth into 2024 and beyond. The product portfolio continues to strengthen with continued investment in R&D and sales, enabling a strong pipeline of opportunities, and conversion of these, to underpin future revenue growth.
Together, these strategic developments continue to provide confidence for the future performance of Concurrent Technologies.
