24 January 2024

AB Dynamics plc

Final results for the year ended 31 August 2023

"Strong financial performance and clear strategic progress"

AB Dynamics plc ("AB Dynamics", the "Company" or the "Group"), the designer, manufacturer and supplier of advanced testing, simulation and measurement products to the global transport market, is pleased to announce its final results for the year ended 31 August 2023.

 

	Audited 2023 £m	Audited 20222 £m
Revenue	100.8	83.2	+21%
Gross margin	59.5%	56.6%	+290 bps
Adjusted EBITDA1	20.5	17.3	+18%
Adjusted operating profit1	16.6	13.7	+21%
Adjusted operating margin1	16.5%	16.4%	+10 bps
Statutory operating profit	12.6	6.2	+103%
Adjusted cash flow from operations1	23.5	20.7	+14%
Net cash	32.0	29.2
	Pence	Pence
Adjusted diluted earnings per share1	60.8	48.1	+26%
Statutory diluted earnings per share	47.4	20.7	+129%
Total dividend per share	6.36	5.30	+20%

 

¹Before amortisation of acquired intangibles, acquisition related charges and exceptional items. A reconciliation to statutory measures is given below.

²Restated for change in interpretation of revenue recognition, see note 10.

 

Financial highlights

·    Record revenue and operating profit delivered alongside an improved operating margin reflecting strong growth enhanced by improved operational efficiency and effective cost management

·    Market and customer activity levels have remained positive, with strong activity in both track testing and laboratory testing and simulation, particularly in Europe

·      Revenue increased by 21% of which 7% was organic growth

o  Track testing revenue grew by 6% reflecting increases in robots and Advanced Driver Assistance (ADAS) platforms

o  Laboratory testing and simulation organic growth of 10% driven by a strong performance at rFpro and delivery of SPMM systems. Total sector revenue growth of 74% includes the contribution from the acquisition of Ansible Motion

·      The proportion of recurring and service-based sales was maintained at 40% (2022: 40%)

·     The Group has remained effective in mitigating inflationary cost pressures, with gross margins improving to 59.5% (2022: 56.6%)

·    Operating margin improved by 10bps to 16.5% as a result of the increased levels of activity and the benefits of enhanced performance initiatives, partially offset by the continued investment of £1.8m in ABD Solutions to support the Group's strategic long-term growth drivers

o  Excluding ABD Solutions, the operating margin increased to 18.3% (2022: 18.2%)

·      Significant operating cash generation of £23.5m (2022: £20.7m) with cash conversion of 114% (2022: 119%), resulting in net cash at year end of £32.0m (2022: £29.2m) after funding the initial consideration for the acquisition of Ansible Motion

·      Proposed final dividend of 4.42p per share, bringing the total dividend for the year to 6.36p per share (2022: 5.30p per share), an increase of 20%, reflecting the Board's confidence in the Group's financial position and prospects

Operational and strategic highlights

·      Continuing progress made in the strategic initiative to open up new markets beyond automotive

o  ABD Solutions won a £1m contract for delivery of a retrofit pedestrian detection system for construction machines for delivery during FY 2024, illustrating the wide range of applications for its technology

·      VadoTech has been awarded an extension of its existing contract to provide testing services in Beijing, as well as a new, smaller contract to provide similar services near Shanghai

·      The integration of Ansible Motion is continuing as planned and the business has delivered a strong performance since acquisition in September 2022

·      New product development continues in line with the technology roadmap for existing track testing and simulation markets and development of the core technology for ABD Solutions

o  Along with the launch of the new range of ADAS motorcycle and pedestrian dummies, and LaunchPad Spin, the Group has also released ray-tracing capability for its simulation software

·      Well placed to sustain growth momentum into the medium term, supported by:

o  Strong organic growth across automotive markets, supported by regulatory tailwinds and rapid technology change, with a greatly strengthened operational and commercial platform

o  The substantial opportunity beyond automotive markets presented by ABD Solutions, transitioning from technology development to commercialisation 

o  Significantly enhanced simulation and software capabilities enabled by the expanded product range created through the acquisitions of rFpro and Ansible Motion

o  A strong financial position that provides scope for further value-enhancing growth investment in FY 2024 and beyond

Current trading and outlook

·    Trading in FY 2024 to date has been encouraging, supported by the solid current order book which provides good visibility into the second half of the year

·      Whilst being mindful of timing of pipeline conversion and customer delivery schedules, the Board remains confident that the Group will make further financial and strategic progress with its expectations for FY 2024 unchanged

·      Future growth prospects remain supported by long-term structural and regulatory growth drivers in active safety, autonomous systems and the automation of vehicle applications

 

There will be a presentation for analysts this morning at 9.30am at Teneo, 85 Fleet Street, EC4Y 1AE.  Please contact abdynamics@teneo.com if you would like to attend.

Commenting on the results, Dr James Routh, Chief Executive Officer said:

"The Group has delivered a strong performance in FY 2023, demonstrating the benefits of the investment made in recent years in the commercial and operating capability of the business. The financial results show further strong progress, with record levels of revenue and operating profit and an improvement in operating margin. In parallel, the Group has further strengthened its platform for growth through both organic investments and acquisitions.

"We see significant opportunity in our core markets in automotive, which are supported by long-term structural and regulatory growth drivers, and are continuing to invest in new product development and technology. In addition, we are investing in new technologies to diversify the business into attractive adjacent markets through ABD Solutions.

"Trading in FY 2024 has been encouraging, supported by a solid order book providing good visibility into the second half of the year. Whilst being mindful of timing of pipeline conversion and customer delivery schedules, the Board remains confident that the Group will make further financial and strategic progress and its expectations for FY 2024 are unchanged.

"Our market drivers both in our core business and in ABD Solutions remain strong. This backdrop, along with the Group's recent investments in capability and new products, provides confidence of delivering continued progress in 2024 and beyond."

Enquiries:

AB Dynamics plc	01225 860 200
Dr James Routh, Chief Executive Officer
Sarah Matthews-DeMers, Chief Financial Officer
Peel Hunt LLP	0207 418 8900
Mike Bell Ed Allsopp
Teneo	0207 353 4200
James Macey White
Matt Low

 

The person responsible for arranging the release of this information is Felicity Jackson, Group Legal Counsel.

 

About AB Dynamics plc

AB Dynamics is a leading designer, manufacturer and supplier of advanced testing, simulation and measurement products to the global transport market. 

AB Dynamics is an international group of companies headquartered in Bradford on Avon. AB Dynamics currently supplies all the top automotive manufacturers, Tier 1 suppliers and service providers, who routinely use the Group's products to test and verify vehicle safety systems and dynamics.

 

 

Group overview

 

The Group delivered a strong set of results driven by recent investments in its commercial and operating capabilities, underpinned by positive market dynamics in both sectors. The Group has evolved significantly over the last four years, building a solid and scalable platform from which to capitalise on a multi-year growth opportunity.

 

The Group delivered record levels of revenue and operating profit, while continuing investment to support its long-term growth objectives.

 

The Group continued to deliver against its strategic priorities by launching new products, developing its service offering to drive recurring revenues and delivering on its diversification plans through progress in ABD Solutions. The acquisition of Ansible Motion also expanded its presence in the simulation market, complementing the existing product range.

 

The Group is well positioned, with market-leading products and services, and remains supported by regulatory and structural growth drivers that provide a strong position for continued growth and performance during FY 2024.

 

Financial performance

 

The Group delivered significant revenue growth in the year of 21%, to £100.8m (2022: £83.2m), of which 7% related to organic growth and the remainder to the acquisition of Ansible Motion.

 

Laboratory testing and simulation revenue grew by 74% due to the contribution from Ansible Motion as well as a significant increase in SPMM revenue driven by an increase in demand and timing of delivery for new units. Track testing saw more modest growth of 6% overall due to reduced testing services revenue impacted by local lock downs in China and the availability of new vehicles for testing in H1 2023. The proportion of recurring revenue was consistent at 40% (2022: 40%). The level of recurring revenue is now expected to broadly stabilise ahead of new market offerings which will be released in the near future.

 

Gross margin was 59.5%, up 290bps on 2022 due to operational efficiencies and mitigation of the ongoing impacts of inflation through price increases to the market.

 

Group adjusted operating profit of £16.6m (2022: £13.7m) increased 21% against 2022. The adjusted operating margin increased against 2022 to 16.5% (2022: 16.4%), as a result of the increased levels of activity and the benefits of enhanced performance initiatives, partially offset by the investment in ABD Solutions to support the strategic long-term growth drivers. Excluding ABD Solutions, the adjusted operating margin increased to 18.3% (2022: 18.2%).

 

Adjusted earnings before interest, tax, depreciation and amortisation ('EBITDA') increased by 18% to £20.5m (2022: £17.3m). Adjusted EBITDA margin was 20.4% (2022: 20.8%), a decrease of 40bps.

 

Adjusted net finance costs were consistent at £0.4m (2022: £0.4m).

 

Adjusted profit before tax was £16.3m (2022: £13.3m). The Group adjusted tax charge totalled £2.1m (2022: £2.3m), an adjusted effective tax rate of 13.2% (2022: 17.1%). The effective tax rate is lower than the current UK corporation tax rate due to allowances for research and development and patent box. In future years, the effective tax rate is expected to increase as a result of the full year effect of the increase in the UK corporation tax rate. 

 

Adjusted diluted earnings per share was 60.8p (2022: 48.1p), an increase of 26%, reflecting the increase in operating profit and a lower tax rate.

 

The Group delivered strong adjusted operating cash flow of £23.5m (2022: £20.7m) with cash conversion of 114% (2022: 119%). The cash generated was used to fund the acquisition of Ansible Motion, £3.4m of investment in product development and property, plant and equipment and dividends of £1.3m.

 

Net cash at the end of the year was £32.0m (2022: £29.2m), underpinning a robust balance sheet. Along with the Group's £15.0m revolving credit facility which extends to February 2026, this provides significant funding headroom to continue the Group's investment programme.

 

Statutory operating profit increased by 103% to £12.6m (2022: £6.2m) and after net finance costs of £1.1m (2022: £0.4m), statutory profit before tax increased by 98% from £5.8m to £11.5m. Statutory basic earnings per share was 48.0p (2022: 21.0p). The statutory tax charge was £0.5m (2022: £1.0m). A reconciliation of statutory to underlying non-GAAP financial measures is provided below.

 

Sector review

		2023 £m	*Restated 2022 £m
Driving robots		25.2	20.6	+22%
ADAS test products		30.5	29.7	+3%
Testing services		12.9	14.4	-10%
Track testing		68.6	64.7	+6%
Laboratory testing		7.3	5.3	+38%
Simulation		24.9	13.2	+89%
Laboratory testing and simulation		32.2	18.5	+74%
Total revenue		100.8	83.2	+21%

*See note 10.

 

Track testing

 

The track testing business delivered revenue of £68.6m (2022: £64.7m), a 6% increase against the prior year, with growth in sales of driving robots and ADAS platforms offset by a reduction in testing services revenue due to local COVID-19 restrictions in China delaying the delivery of services and impacting the availability of test vehicles in the first half of the year.

 

Driving robot sales increased by 22% to £25.2m (2022: £20.6m), driven by the increase in complexity and volume of testing required for ADAS assessment. The Group expects continued growth in driving robot sales at more normalised levels, as new regulatory requirements for evolving ADAS technologies are released, such as the launch of the Euro NCAP 2030 roadmap and its new Truck Safe rating scheme. It is expected that there will be over 700 Euro NCAP test scenarios by 2025, up from 591 in 2023. New tests for commercial vehicles offer further opportunities for market expansion.

 

Revenue from ADAS platforms increased by 3% to £30.5m (2022: £29.7m). The new higher speed versions of the GST and LaunchPad, which can operate at speeds of up to 120kph and 80kph respectively, enable customers to perform a greater range of tests, particularly the assessment of automated lane-keeping technology and vehicle interactions with Vulnerable Road Users such as motorcyclists, and are continuing to gain traction. The recent launch of a new range of soft targets including motorcycles and articulating pedestrians and a new, more manoeuvrable platform, the LaunchPad Spin, will drive further growth.

 

Testing services revenue decreased 10% to £12.9m (2022: £14.4m) due to local COVID-19 restrictions delaying the provision of testing services in China during the first half of the year and continued delays in availability of test vehicles more widely due to the well documented supply chain challenges in the automotive market.

 

The Group continues to build customer relationships, drive improvement in revenue and gross margins and invest in new product development to meet the growing demand from manufacturers and test providers to keep up to date with changes in regulations.

 

The growth in testing volume and complexity continues to drive demand for ADAS platforms and driving robots that are both more capable and more versatile. To recognise the need for new test tools, this year Euro NCAP updated its listing of equipment used in official testing to include AB Dynamics' Soft Motorcycle 360.

 

Laboratory testing and simulation

 

Laboratory testing and simulation delivered strong growth in revenue up 74% on 2022 to £32.2m (2022: £18.5m) due to the contribution from Ansible Motion as well as strong organic growth from both rFpro and SPMM sales, reflecting the continued demand for laboratory testing equipment.

 

SPMM revenue of £7.3m grew by 38% (2022: £5.3m) demonstrating continued demand for our market leading kinetics and compliance machines. This long-standing product which has been supplied to global customers for the past 25 years has evolved significantly over this period, culminating in the recent launch of the SPMM Plus.

 

Organic simulation revenue was flat with revenue at £13.1m (2022: £13.2m). The contribution from Ansible Motion was £11.8m reflecting the strong order book at the time of acquisition and delivery of sales synergies, giving total simulation revenue of £24.9m (2022: £13.2m).

 

Strategic progress

 

The Group continues to make good progress against its organic-led growth strategy, supplemented with  value-enhancing acquisitions. During the year, the focus on building and growing the core business continued, coupled with delivering on the Group's diversification plans through ABD Solutions and building critical mass in the attractive simulation market through the acquisition of Ansible Motion.

 

Investment continued in the core automotive sector, which is characterised by strong regulatory and structural growth drivers and rapid technology change. New product development and the strengthened operational and commercial platform leaves the Group well placed to benefit from increasing regulation and the increasing number and complexity of test scenarios required by NCAP bodies.

 

Ansible Motion has been successfully integrated into the Group's simulation business, enhancing the Group's simulation capability and expanding its range of products and services in this area which includes the physics-based simulation software, rFpro.

 

As part of the objective to diversify into adjacent markets, ABD Solutions continues to make significant progress in its mission to add automated solutions to existing vehicles fleets faster and more cost effectively. ABD Solutions has demonstrated its product offering in contrasting environments for potential customers in mining, defence and other specialist vehicles and successfully proved its concept and market solution, Indigo Drive. A digital twin has been developed which provides operational environment validation and a platform for accelerated product testing.

 

Its focus is transitioning from technology development to commercialisation with negotiations ongoing around mining related contracts. The Japanese mining development contract is progressing as planned and a Memorandum of Understanding has been signed with Jevons Robotics in Australia for mining applications. In addition, ABD Solutions has been awarded a £1m contract for delivery during FY 2024 of a retrofit pedestrian detection system for a UK customer for construction industry applications.

 

Acquisitions 

 

On 20 September 2022, the Group acquired Ansible Motion Limited, a UK based provider of advanced simulator solutions to the automotive market, for an initial cash consideration of £14.4m and shares in AB Dynamics plc to the value of £3.2m. Based on the financial performance in FY 2023, a further cash payment of approximately £5.7m will be made, along with retained consideration of £0.5m, bringing the total consideration to £23.8m.

 

Ansible Motion designs and manufactures high-end motion platform systems for Driver in the Loop development of vehicle dynamics, ADAS and automated systems and already utilises rFpro as its physics based virtual environments. The Ansible Motion range of driving simulators complements the existing product offering from AB Dynamics and provides a comprehensive range of simulators that addresses a wider range of simulator applications.

 

Ansible Motion has been integrated into the Group's simulation sector and has been earnings accretive, delivering £11.8m of revenue and £2.4m of adjusted operating profit during FY 2023.

 

Acquisitions continue to form a key part of the long-term strategic development of the Group and we operate a continuous process to identify and execute acquisition opportunities. The current long-term pipeline remains positive and we expect to continue to deliver further value-enhancing acquisitions.

 

Alternative performance measures

 

In the analysis of the Group's financial performance and position, operating results and cash flows, alternative performance measures are presented to provide readers with additional information. The principal measures presented are adjusted measures of earnings including adjusted operating profit, adjusted operating margin, adjusted EBITDA, adjusted profit before tax and adjusted earnings per share.

 

This financial information includes both statutory and adjusted non-GAAP financial measures, the latter of which the Directors believe better reflect the underlying performance of the business and provide a more meaningful comparison of how the business is managed and measured on a day-to-day basis. The Group's alternative performance measures and KPIs are aligned to the Group's strategy and together are used to measure the performance of the business and form the basis of the performance measures for remuneration. Adjusted results exclude certain items because if included, these items could distort the understanding of the performance for the year and the comparability between the periods.

 

We provide comparatives alongside all current year figures. The term 'adjusted' is not defined under IFRS and may not be comparable with similarly titled measures used by other companies. All profit and earnings per share figures in this financial information relate to underlying business performance (as defined above) unless otherwise stated.

 

A reconciliation of statutory measures to adjusted measures is provided below:

 

		2023			20221
	Adjusted	Adjustments	Statutory	Adjusted		Adjustments		Statutory
EBITDA (£m)	20.5	3.1	23.6	17.3		(2.0)		15.3
Operating profit (£m)	16.6	(4.0)	12.6	13.7		(7.5)		6.2
Operating margin	16.5%		12.5%	16.4%				7.4%
Finance expense (£m)	(0.3)	(0.8)	(1.1)	(0.4)		-		(0.4)
Profit before tax (£m)	16.3	(4.8)	11.5	13.3		(7.5)		5.8
Taxation (£m)	(2.2)	1.7	(0.5)	(2.2)		1.2		(1.0)
Profit after tax (£m)	14.1	(3.1)	11.0	11.0		(6.3)		4.7
Diluted eps (pence)	60.8	(13.4)	47.4	48.1		(27.4)		20.7
Operating cash (£m)	23.5	(4.2)	19.3	20.7		(2.0)		18.7

1 Restated, see note 10

 

The adjustments comprise:

	2023		2022
	Profit impact £m	Cash flow impact £m	Profit impact £m	Cash flow impact £m
Amortisation of acquired intangibles	7.2	-	5.5	-
Acquisition related (credit)/costs	(4.5)	2.8	0.3	0.3
ERP development costs	1.3	1.4	1.7	1.7
Adjustments to operating profit / cash flow	4.0	4.2	7.5	2.0
Acquisition related finance costs	0.8	-	-	-
Adjustments to profit before tax	4.8	4.2	7.5	2.0

 

The tax impact of these adjustments was a credit of £1.7m (2022: £1.2m).

Return on capital employed (ROCE)

 

Our capital-efficient business and high margins enable generation of strong ROCE (defined as adjusted operating profit as a percentage of capital employed, being shareholders' equity less net cash plus deferred tax and contingent consideration). During the year, ROCE has increased from 15.3% to 15.4% benefitting from operating leverage.

 

Research and development

 

While research and development form a significant part of the Group's activities, a significant and increasing proportion relates to specific customer programmes which are included in the cost of the product. Development costs of £0.5m (2022: £1.7m) have been capitalised in relation to projects for which there are a number of near-term sales opportunities. Other research and development costs, all of which have been expensed as incurred, totalled £0.2m (2022: £0.4m).

 

Foreign currency exposure

 

Foreign exchange translation has provided a minor tailwind on revenue and profit, due to the weakening of Sterling against the US dollar and Euro. On a constant currency basis, restating the current year at 2022 average rates, revenue would have been £1.2m lower and both adjusted and statutory operating profit £0.1m lower.

 

Dividends

 

We recognise that dividends continue to be an important component of total shareholder returns, balanced against maintaining a strong financial position. The Board is recommending a final dividend of 4.42p per share, giving a total dividend for the year of 6.36p per share, which is an increase of 20% over the prior year.

 

Summary and outlook

 

The Group has delivered a strong performance, demonstrating the benefits of the investment in the commercial and operating capability of the business. The financial results show further strong progress, with record levels of revenue and operating profit and an improvement in operating margin. In parallel, the Group has further strengthened its platform for growth through both organic investments and acquisitions.

 

We see significant opportunity in our core markets in automotive, which are supported by long-term structural and regulatory growth drivers, and are continuing to invest in new product development and technology. In addition, we are investing in new technologies to diversify the business into attractive adjacent markets through ABD Solutions.

 

Trading in FY 2024 has been encouraging, supported by a solid order book providing good visibility into the second half of the year. Whilst being mindful of timing of pipeline conversion and customer delivery schedules, the Board remains confident that the Group will make further financial and strategic progress and its expectations for FY 2024 are unchanged.

 

Our market drivers both in our core business and in ABD Solutions remain strong. This backdrop, along with the Group's recent investments in capability and new products, provides confidence of delivering continued progress in FY 2024 and beyond.

 

 

 

Directors' Responsibility Statement on the Annual Report and Accounts

 

The responsibility statement below has been prepared in connection with the Company's full annual report and accounts for the year ended 31 August 2023. Certain parts thereof are not included within this announcement.

 

We confirm to the best of our knowledge:

1.	the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
2.	the strategic report and directors' report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

 

This responsibility statement was approved by the Board of Directors on 23 January 2024 and has been signed on its behalf by James Routh and Richard Elsy CBE.