Concurrent Technologies plc (LON:CNC) Chief Executive Officer Miles Adcock and Chief Financial Officer Kim Garrod caught up with DirectorsTalk for an exclusive interview to discuss order intake and backlog, progress in strategic initiatives, increased the volume and frequency of product launches, US strategy and the outlook for the business.
Q1: Now, despite the component supply issues, I see demand for your products is higher ever. Could you give us some more detail on order intake and backlog?
A1: Miles: So, for the first half we have very strong order intake, Kim will take us through some of the numbers very quickly in a minute, but what we are seeing is the new products that we’ve been designing and focusing on very much for the last 12 months are starting to really dominate our order intake.
So, this is an order book which is now strongly aligned to our new and current products and less dependent on perhaps legacy products. Kim?
Kim: A couple of points on that so in the first half, we delivered orders of £14.2 million, which has taken us to a backlog of £20.3 million which is a record for the company. In fact, if you look at H1 to H1, prior year to this year, it looks like we did slightly more last year, but that was actually dominated by a £5 million end-of-life last-time-buy, and this year’s numbers are dominated by orders for current and new products.
So, a really positive swing in the right direction for us, and currently a post trading update, we are sitting at about £24.2 million backlog, which just shows it’s continuing to grow.
Q2: I can see that you’ve made progress with a number of strategic initiatives in the period, including introducing new functions, fleshing out the leadership and sales teams, and opening up new offices. Could you just talk us through the rationale behind these developments?
A2: Miles: This is a company that has enormous potential but in order to deliver that potential, you’ve got to have talented people, you’ve got to recruit and retain the best and you have to invest in a business to make it capable of being scaled. So yes, these all seem like investments, they are investments, but we are starting to see the early signs of that strategy, focusing on talent, a strategy for growth, wisely spending our strong balance sheet of cash in order to drive a growing business as we begin to work through this headwind in supply chain.
Kim: If I could just add to that. An important point with the Theale office, we need engineers and we need good talented engineers and the M4 corridor is a great place to go to look for those, hence the positioning of the Theale office. Actually, that’s really starting to bear fruit, we’ve had about eight new starters in terms of engineers in the last month to six weeks. So, we’re starting to see the return on our investment.
Q3: Importantly, you’ve increased the volume and frequency of product launches, are you selling these new products and how do they effect margins and growth potential?
A3: The business was created in order to concurrently deliver single board computers based on Intel processor technology, and it’s just a statement of fact that if you were to look at recent years, there’s been something of a lag between Intel launching its products and Concurrent Technologies launching our single board computers.
So, we have a substantial drive to return to being concurrent so when Intel launch product we will as well, is the intent. We’ve made very good progress towards that. So having set a target for the year of launching eight new products, which is broadly doubled the cadence of prior years, we’re well on track to achieve that. It’s really important to be early, if not first to market with our products.
Q4: I see that you’re looking to move beyond developing and supplying single systems boards to a systems business, how is that progressing?
A4: That’s progressing very well. So, delivering single board computers has been a fantastic business for us and will remain so, but our single board computers exist alongside other cards in chassis and boxes called systems.
So, we’ve recruited some real expertise in systems, both in terms of selling, business development, but critically also engineering and management, and we are now in the thick of designing products that are not only our single board computers, but with other partners incorporating their cards, designing, and developing systems. Systems are much higher value, imagine if there’s 4/5/7 cards in one system, then it’s a much more valuable sale.
That typically is a little less margin than a card so we will very strongly track the difference between the P&L of our cards business and our systems business.
Q5: Are you making progress with your US strategy?
A5: Kim: So, we have qualified a US built print which is really important for us because it enables us to start manufacturing product in the US, which is very key. One, it gives us capacity and two, it plays to the ‘made in the US’ or ‘assembled in the US
So, what we would look to do as we become more capacity strained in Colchester, although we’ve done a lot of work on that as well, we will start to move the US products out to build to print in the US which is really important.
Miles: Today, more than 40% of our revenue is derived from our single biggest market which is the United States so being a domestic supplier in that market will materially increase access to market share there.
Q6: Just look ahead, what the outlook for Concurrent Technologies like? Obviously, the microchip shortage situation should resolve?
A6: Kim: So this is a really interesting point. The outlook for the business is really good in the medium to long term, really, really good. We have a really strong order book, we have a really strong backlog, we’re prepared for the growth so we’re opening up our capacity, we’re investing in new products etc.
The big question is when does the component shortage start to ease? We have seen some movement in the first half, in that we are better supplied with our basic components, we now have some real problems with our niche components, but at some point, this will unhinge.
We expect that to be sometime into FY23 so even though we’ve got some short term headwind, the outlook is really strong for this business.
Miles: So, we have a record order intake year to date, we’re at £20.8 million order intake already, as of the middle of September, with a record backlog so we’re building up an enormous opportunity to process revenue as we’re able to ship.
The real question, as Kim says, is exactly when will that ease, all of the speculation suggests it should be sometime next year.
