Concurrent Technologies : 2020 Annual Report And Accounts

Annual

Report & Accounts 2020

Corporate Overview

• Established in the UK in 1985
• Established a US subsidiary in 1986
• Listed on AIM (formerly the Alternative Investment Market) in 1996
• Designs, manufactures & sells Embedded Computer products (boards) based on processors from Intel
• Extensive customer base, with blue chip customers and long term relationships
• Key markets: defence, telecommunications, aerospace, transportation, scientific and industrial
• Sales and marketing channels in USA, many European Economic Area (EEA) countries, Israel, China, India, Japan, South Korea, Australia and Singapore
• Solid dividend record

Contents

STRATEGIC REPORT		ACCOUNTS AND OTHER INFORMATION
Business Summary ...........................................	1	Consolidated Statement of Comprehensive Income ......	30
Financial Highlights ...........................................	2	Consolidated Balance Sheet ..........................................	31
Dividend ............................................................	3	Company Balance Sheet................................................	32
Operational Highlights ......................................	3	Consolidated Cash Flow Statement ...............................	33
Annual General Meeting ...................................	3	Company Cash Flow Statement.....................................	34
Future Plans and Outlook..................................	3	Consolidated Statement of Changes in Equity ...............	35
Principal Risks and Uncertainties .....................	4	Company Statement of Changes in Equity.....................	36
Performance Monitoring ...................................	5	Notes to the Financial Statements..................................	37
Section 172(1) Statement..................................	6	Company Information .....................................................	61
REPORT AND GOVERNANCE
Report of the Directors ......................................	7
Corporate Governance Statement ....................	10
Report of the Remuneration Committee............	18
Report of the Auditors .......................................	20

	Strategic Report
Business	The Group is a leading specialist in the design, manufacture and supply of innovative high-end embedded
Summary	computer products aimed at a wide base of customers within the defence, telecommunications, aerospace,
	transport, scientific and industrial markets.
	The Group's core product range is central processing unit ("CPU") boards, designed using Intel® processors
	including the high performance 11th generation embedded Intel® Core™ and Intel ® Xeon ® processors. These
	CPU boards, together with complementary accessory products such as switches, storage and I/O boards are
	designed to be compliant with the CompactPCI®, OpenVPX™, VME, AMC and XMC open architecture
	standards. Most product lines are available in both commercial and ruggedized variants, making them suitable
	for a wide range of applications, including those in harsh environments and at temperatures from -40°C to
	+85°C.
	The Group's products also support many of today's leading operating systems including Microsoft® Windows ®,
	Linux®, Solaris™, QNX® and VxWorks®, all of which are commonly used as standard in embedded
	applications. An increasing range of complementary software products has been developed to provide
	enhanced security capabilities, configuration tools and high-performance communications middleware.
	Historically the Group's sales revenue comes from selling its hardware products to companies which complete
	the integration themselves. This model still dominates the Group's sales, aided by sales of software and
	firmware products such as security software, developed specifically to complement the hardware products.
	However, for the newer architectures such as OpenVPX™, the Group has seen an increasing number of
	requests for the supply of fully integrated development systems which include both the Group's own products
	and, in some cases, products supplied by partners and third parties.
	Manufacturing and production testing take place in the Group's headquarters in the UK. The Group has design
	and engineering teams working in the UK and the USA, whilst its sales, marketing and customer support
	teams operate from the UK and overseas facilities including those in the USA and China.
	The Group's previous Chairman, Michael Collins, retired from the Board in September 2020, after 31 years'
	service to the Group. Mike's knowledge and experience helped to guide the Group from start up to PLC. Mark
	Cubitt was appointed as the Group's new Chairman at the AGM, having previously joined the Board as a Non-
	Executive Director in March 2020. Mark is a Chartered Accountant and is a member of the Association of
	Corporate Treasurers. He has extensive multinational experience gained over the last 33 years, including 23
	years in the listed PLC environment.
	2020 was an extremely unpredictable year for all businesses, but the Group proved to have the flexibility and
	resilience necessary to navigate the uncertainty. This resulted in the Group finishing the year ahead of market
	forecasts in terms of revenue and profitability, while delivering strong cash generation such that it retains a
	strong balance sheet which provides the foundation for future growth. The Group also began 2021 with a
	healthy order book, which has grown significantly during recent weeks.
	The long-awaited agreement over trading terms with the European Union has now been published and the
	impact on the Group is as expected: there being minimal impact to trading conditions with no tariffs levied on
	the Group's products. There has been some disruption to the movement of goods across the UK border, but,
	insofar as the Group's products are concerned, delays have been minimal and certainly no greater than
	anticipated or planned for, so there has been little adverse impact on production and sales to date.
	Very early on in the first lockdown (March 2020 - May 2020) Concurrent Technologies was directed by
	customers as a flow down from the UK Government and other western governments to remain open as part of
	the essential defence supply chain. As such the production facility and the design and development functions
	have remained open and for the most part fully operational throughout the pandemic. The Group has not
	participated in any government aid scheme such as the Coronavirus Business Interruption Loan Scheme
	(CBILS) or VAT payment deferral and no employees have been furloughed during the pandemic.
	The Group has amended its working practices in line with the respective jurisdictional guidelines and laws.
	Where possible, staff have worked from home throughout the crisis; office layout and working practices have
	been amended to ensure that social distancing is observed; travel and customer, supplier and inter-office visits
	have been restricted. As a result of these measures being effectively implemented within the Group,
	production has been maintained during 2020. The Board would like to acknowledge the contribution of all of
	the Group's employees during this difficult time, and offers its particular thanks to those who continued to work
	full time at the Group's production facilities. Without their commitment, continued production and satisfaction of
	customer orders would not have been possible.

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Financial Highlights

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Strategic Report (continued)

While the production facility has continued to operate throughout the pandemic, the Company did suffer from some specialised subcontracted supply chain issues which affected its overall On Time Delivery (OTD) performance for the year. Identified as a potential ongoing risk to the business, the Group has made a further investment in its own production line capabilities to mitigate the risk for the future. Lead times within the supply chain continue to be challenging as the world recovers from the pandemic and demand in other industries increase and take up capacity. The Group has taken steps to mitigate the impact of these supply chain issues as far as possible by continuing its policy of increasing inventories of components, purchasing earlier than usual in the production cycle.

The Group's customer base continues to be well diversified with large, high quality, international businesses in multiple sectors across various geographic regions of the world.

As previously announced, the Board took the decision to cease operations in the Group's engineering facility in India in order to gain from the efficiencies of re-focusing the Group's engineering team in the UK. This process is nearly complete: all Research and Development functions have been re-located back to the UK and final closure of the office is expected in the very near future, at which point the Indian company will remain dormant for two years before it ceases entirely. The process has taken longer than anticipated, partly due to the impact of national and regional lockdowns in India throughout the pandemic which resulted in the legal processes being extended due to availability of the appropriate Government officials. The consequential and unexpected additional costs have been accounted for in 2020 expenses. The Board is very sorry to lose colleagues from the Indian office, many of whom have been with the company for several years.

Revenues in 2020 exceeded forecasts, despite a fall-off in shipments to the Group's telecoms customers, believed to be for logistic issues as a result of the Covid pandemic. The overall increase in revenue was in part due to an element of the defence business that was expected to be reflected in future years which has been pulled into 2020. The increased revenues resulted in profit before tax also exceeding market expectations and the Group ended the year with cash of £11.8m.

The order book at the end of 2020 remained healthy and, since the start of 2021, order intake in the telecoms business, in particular, has recovered strongly. The Group has also seen an influx of additional orders from existing customers for defence projects, in particular, resulting in a new record backlog of orders due for delivery during this year and beyond.

Management have stress tested 2021 and 2022 budgets to include pessimistic outcomes from the exit of lockdown across the globe. Even in these circumstances, the Group's strong cash reserves of £11.8m (2019: £10.5m) are not forecast to reduce substantially, leading the Board to believe there is sufficient headroom within the Group to be confident in its future trading capability.

			2020			2019
	Revenue		£21.1m		£19.4m
	EBITDA		£5.0m		£5.1m
	Profit before tax*		£2.8m		£4.1m
	Profit before tax (adjusted)**		£2.8m		£3.1m
	Earnings per share		3.75p		5.51p
	Adjusted EPS		3.75p		4.38p
	Dividend per share		2.55p		2.50p
	Cash (including Deposits)		£11.8m		£10.5m
	Total Assets		£29.0m		£28.3m
	Shareholders' Funds		£22.6m		£21.9m

* 2019 Included non-recurring Other Income of £1m

** 2019 Adjusted profit removes the Other Income of £1m

The Group generated record Revenue for the year of £21.14m (2019: £19.38m). This converted into Gross

Profit of £11.36m (2020: £10.21m) while the gross margin improved to 53.7% (2019: 52.7%).

	Strategic Report (continued)
Financial	Profit before tax was £2.85m (2019: £4.06m: 2019 included other, non-recurring income of £1.0m). Earnings
Highlights	per share was 3.75 pence (2019: 5.51 pence) while earnings per share on normal activities, adjusted to
(continued)	remove the impact of Other Income, was 3.75 pence (2019: 4.38 pence). EBITDA (measured as Operating
	Profit plus Depreciation and Amortisation) for the Group in 2020 was £4.99m (2019: £5.07m).
	The Group continued its long-term commitment to R&D by spending £3.89m in 2020 (2019: £3.51m), of which
	£1.88m was capitalised (2019: £2.26m) and £0.69m related to closure costs of the Indian R&D centre. In light
	of the slowdown in the sales of some projects, an unusually large impairment charge of £888,579 (2019:
	£483,630) was included during the year to reflect relatively pessimistic cash generating expectations of
	itemised projects.
	The Group continues to have no borrowings and again paid increased dividends during the year. Its cash
	balances plus short to medium term cash deposits at the year-end were £11.8m (2019: £10.5m).
Dividend	The Board has declared a second interim dividend of 1.45 pence per share (2019: 1.45 pence) which, when
	added to the first interim dividend of 1.10 pence per share (2019: 1.05 pence), will make a total of 2.55 pence
	per share for the year (2019: 2.50 pence). This is an increase of 2.0% on dividends paid for 2019. The total
	cost of this second interim dividend amounts to £1,063,771. As in previous years, the Directors do not intend
	to recommend a final dividend.

Operational Highlights

Annual General Meeting

During 2020, the Group introduced several new high-performance embedded computer boards and accessory modules. These included products based on the 9th generation embedded Intel® Xeon® processor for use in AMC, CompactPCI® and OpenVPX™ architectures. These products were introduced as part of the Group's policy to provide existing customers with products that can be used as upgrade paths from previous generations where additional processing power or enhanced features are required. New customers benefit from choosing products based on the latest technologies. As required by many applications, these new products offer support for enhanced security features and most are suitable for both commercial and harsh environments. In addition, support for additional partner software and hardware products was announced to broaden the Group's product range. The Group's AI technology product is currently being developed for use on a prototype third party end product that may come to market this year.

As part of the Group's long-term continuous improvement strategy, and to mitigate an identified risk to the business during 2020, a further investment of £155,000 was made within manufacturing to introduce a new circuit board processing line. This line will significantly help to reduce lead times for particular product variants.

The Group has made good progress towards implementing the new Enterprise Resource Planning system, even within the limitations imposed by the various lockdowns. The 'Go Live' date is still scheduled for later in 2021 and training, data migration and User Acceptance Testing modules are underway.

Due to the COVID-19 crisis and social distancing requirements the date and arrangements for the AGM will be announced separately. The Group's long standing Non-Executive Director, Clive Thomson will be retiring by rotation and will not offer himself for re-election. The Board would like to thank Clive for his advice and contribution to the Group since he joined the Board in 2004. The Company is in the process of identifying a successor and will make a further announcement in due course.

Future Plans	The new financial year of 2021 started with a healthy order book which has seen a significant increase during
and	the first quarter of the year. The Group's telecoms business is now recovering and growing after last year's
Outlook	second half slow down, and several customers in the defence and telecoms sectors have placed orders for
	previous generation products that have been offered under extended manufacturing to protect and extend the
	lifecycle of their projects. These orders are due for delivery in 2021 and beyond. Several of the Group's
	customers have made the decision to upgrade to its newer generation products.
	The Group plans to maintain its policy of investing in R&D to expand its current range of advanced technology
	products with a particular focus on the OpenVPX™ bus architecture, featuring the latest Intel processors
	suitable for the long lifecycle embedded markets in which the Group operates. Support for third party software
	and hardware products will be continued in order to enhance the Group's capability to provide development
	systems. These ready-to-use development systems enable customers to reduce their product development
	times by focussing on their own areas of expertise to develop specialised applications.

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