Business
AB Dynamics : Annual Report 2024
AB Dynamics : Annual Report
About this update from Ab Dynamics Plc
Driving delivery AB Dynamics plc Annual Delivering performance and a platform for sustainable growth Revenue growth and margin expansion Having invested in our Group product range, capability, leadership and new product development and along with leveraging our existing core strategy and technologies, the Group has delivered a very strong set of results. It now has a solid and scalable platform from which to capitalise on an ambitious multi-year growth opportunity, supported by strong long-term structural and regulatory growth drivers. Investment case Our markets Our strategy READ MORE ABOUT OUR READ MORE ABOUT OUR READ MORE ABOUT OUR INVESTMENT CASE ON PAGE 4 MARKETS ON PAGE 8 STRATEGY ON PAGE 11 Strategic report Highlights of 2024 At a glance Investment case Chairman's statement Our markets and strategy M&A strategy Acquisition of Venshure Test Services Our business model Chief Executive Officer's review Operational review - Testing products Operational review - Testing services Operational review - Simulation Chief Financial Officer's review Key performance indicators Sustainability 50 Task Force on Climate-related Financial Disclosures (TCFD) report 56 S172(1) statement and stakeholder engagement 58 Risk management 60 Principal risks and uncertainties 63 Non-financial and sustainability information statement Governance Chairman's introduction to corporate governance Statement of corporate governance Board of Directors 68 Executive Committee Statement of corporate compliance Nomination Committee report Audit and Risk Committee report ESG Committee report Directors' remuneration report Directors' report Statement of Directors' responsibilities Financial statements 97 Independent auditor's report Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated cash flow statement Notes to the consolidated financial statements Company statement of financial position Company statement of changes in equity Notes to the Company financial statements 134 Notice of Annual General Meeting 2025 Discover more at abdplc.com Strategic report Governance Financial statements Highlights of 2024 Strong revenue and profit growth with margin expansion Operational highlights Strategic highlights Financial highlights Revenue £111.3m +10% (2023: £100.8m) Adjusted* EBITDA £24.2m +18% (2023: £20.5m) Adjusted* operating profit £20.3m Record revenue and operating profit and improvement in operating margin New product development continues at pace and in line with the technology roadmap for testing products and simulation markets, alongside development of the core technology for ABD Solutions Initial contract win for ABD Solutions of £2m for an automated mileage accumulation solution for delivery in FY 2025 with potential for further follow-on orders The Group acquired Venshure Test Services (VTS), a provider of mileage accumulation, electric vehicle and environmental testing services in the US, with the integration progressing as planned Since the year end, the Group has acquired Bolab Systems GmbH (Bolab), a niche supplier of automotive power electronics testing solutions MSCI AAA rating achieved Well placed to sustain growth momentum over the medium term, supported by: Target organic growth of 10% per year across core markets, supported by regulatory tailwinds and rapid technology change, with a significantly strengthened and scalable operational and commercial platform Further margin expansion to 20% target, through operating leverage, supply chain improvements and operational efficiencies Strong cash generation that provides scope for further value-enhancing investment in FY 2025 and beyond The opportunity beyond automotive markets presented by ABD Solutions, transitioning from technology development to commercialisation +22% (2023: £16.6m) Adjusted* operating margin 18.2% +170bps (2023: 16.5%) Net cash £28.6m (2023: £32.0m) Adjusted* diluted earnings per share (EPS) 70.0p +15% (2023: 60.8p) Dividend per share 7.63p +20% (2023: 6.36p) Adjusted to exclude amortisation of acquired intangibles, acquisition related charges and exceptional items. All profit and earnings per share figures in this Annual Report refer to adjusted business performance as defined on page 28 with a reconciliation to statutory measures. AB Dynamics plc Annual Report and Accounts 2024 01 Strategic report Governance Financial statements At a glance A global leader AB Dynamics is a leading global provider of development, test and verification solutions to the global transport market, facilitating the development of vehicles that are safer, more efficient and more sustainable. With over 40 years of experience and a global network of partners, our solutions cover a wide range of testing and development requirements, in areas such as simulation, active safety, durability, steering, suspension and autonomous driving. We help customers to achieve their goals in testing the performance, safety or comfort of their vehicles, developing the next generation of Advanced Driver Assistance Systems (ADAS) technologies and providing driverless solutions in controlled environments. Global automotive clients 145 Employees 555 TAP TO DISCOVER MORE UK Germany USA Japan China Singapore Global revenue by region Revenue by customer category 3% 23% 33% 18% 79% 44% UK/Europe Automotive OEMs - 79% Asia Pacific Service providers - 18% North America Tier 1 suppliers and technology - 3% 02 AB Dynamics plc Annual Report and Accounts 2024 Strategic report Governance Financial statements At a glance continued Our solutions Testing products Testing services Simulation Testing products are used during road vehicle development for Our test facility in California, USA, uses our products to provide Simulation includes simulation software and driving simulators. the test and verification of ADAS, autonomous systems and ADAS and vehicle dynamics tests on behalf of customers for These products are used during vehicle development to replicate vehicle dynamics. Robots and ADAS platforms are used to test development or certification of new vehicles. The Group also the real world in a simulated environment and to characterise the performance of prototype vehicles around the test track. Our offers on-road testing services, with operations in China and vehicle dynamics and performance across a wide range of laboratory testing equipment is used to assess vehicle dynamics Germany, as well as laboratory compliance testing through the applications including conventional vehicles, motorsport and including noise and vibration. We also provide driverless solutions newly acquired VTS, based in Michigan, USA. automated vehicles. used in adjacent markets such as mining and specialist vehicles. Our simulator motion platforms along with our market- leading physics based simulation software reduce new vehicle development timescales, risks and costs by allowing meaningful Revenue by sector evaluation earlier in the development process. Testing products revenue Testing services revenue Simulation revenue £69.4m £16.7m £25.2m 62% of total revenue 15% of total revenue 23% of total revenue READ MORE ON PAGE 20 READ MORE ON PAGE 22 READ MORE ON PAGE 24 AB Dynamics plc Annual Report and Accounts 2024 03 Strategic report Governance Financial statements Investment case Market leader in growing markets 1 Structural and regulatory growth drivers across all our markets The market for vehicle development products and services is supported by: Road safety - the significant increase in regulation of active safety systems, in terms of complexity of requirements and across new geographies and vehicle categories, will drive growth in products and services and incremental use of simulation New powertrains - the emergence of electric vehicles (EVs) and hybrids and new original equipment manufacturers (OEMs) drives growth in the number of vehicle models, all of which need certification across each market in which they are sold. Speed to market and cost efficiencies offered by simulation also drive adoption of our simulation range. New powertrains (e.g. hydrogen/reduced emission fuels) will result in further increases in new models READ MORE ABOUT OUR MARKETS ON PAGE 8 TAP TO DISCOVER MORE 2 Highly resilient business solving customers' sustainability challenges Our global, diversified customer base and high-quality, long-term customer relationships provide resilience. We support customers throughout the vehicle development cycle. The wider focus on road safety and reduction in accidents as well as the focus on new powertrains such as EVs are important long-term trends that will support continued growth, as the emergence of new vehicle models and technologies requires additional development work, testing and validation. READ MORE IN OUR CHIEF EXECUTIVE OFFICER'S REVIEW ON PAGE 16 04 AB Dynamics plc Annual Report and Accounts 2024 Strategic report Governance Financial statements Investment case continued 3 Strong margins with clear strategy for expansion Highly differentiated products with continued investment in innovation underpin strong gross margins. Now the Group has a solid and scalable operating platform, operating margin expansion will be delivered through operational gearing, improvements in the supply chain and operational efficiency. READ MORE IN OUR CHIEF FINANCIAL OFFICER'S REVIEW ON PAGE 26 TAP TO DISCOVER MORE 4 Highly cash generative with clear capital allocation framework Our strong cash generation enables us to fund ongoing investment in organic growth across all our markets and to fund acquisitions. Our capital allocation priorities are: investment in innovation to grow the core business; investment in ABD Solutions; bolt-on acquisitions; and our progressive dividend policy. READ MORE ABOUT OUR CAPITAL ALLOCATION FRAMEWORK ON PAGE 17 AB Dynamics plc Annual Report and Accounts 2024 05 Strategic report Governance Financial statements Chairman's statement Driving delivery of our ambitious strategy Highlights Continued investment in new product development in our core markets Contract win for ABD Solutions and first production units delivered Acquisition of VTS strengthens our services offering Overview I am very pleased to report another year of strong profitable growth for AB Dynamics, and one of strategic significance as the Group positions itself for the next stage of growth. These results are evidence of the value customers place on our offering, as the team continues to win new customers globally and strengthen relationships with existing ones. The Group continued to focus on building a sustainable and resilient business. Overall results for the year showed revenue growth of 10% to £111.3m and a 22% increase in operating profit to £20.3m, driven by increases across all three sectors of the business. The Group continued to invest in the core automotive sector, which is characterised by strong regulatory and structural growth drivers. The continued increase in regulation and the requirements of consumer organisations for safety ratings covering additional classes of vehicles and increasingly sophisticated safety systems are supportive of future growth in demand for our products and services. At the same time, we have seen good progress by ABD Solutions which has delivered the initial units of a product for construction vehicles and won a contract with a major automotive OEM which enables expansion into a new sector in that market. ABD Solutions has successfully proved the concept of retrofitting existing technologies to enable the automation of conventional vehicle fleets and developed a pipeline of commercial opportunities. 06 AB Dynamics plc Annual Report and Accounts 2024 Strategic report Governance Financial statements Chairman's statement continued Overview continued The acquisition of VTS expands our capability in the services sector and I am pleased to report that we are already progressing a number of new opportunities through expanding our offering across our wider customer base. Employees I would like to take this opportunity to thank our global team of hard-working and committed employees who have all contributed to a very successful year, responding to changing demands in what remains a challenging and fast-moving market. The Group attracts talent at all levels within the business and continues to invest in training all the way through from apprentices to graduates and continuing professional development. The Group has grown strongly in recent years and we now have over 550 employees, with around half located in the UK. The Further information on our approach to sustainability can be found on pages 32 to 49 and the activities of the ESG Committee are summarised on page 84. Corporate governance Strong corporate governance and risk management are essential elements of the Board's activities and are key to ensuring the ongoing stability and growth of the Group. I am pleased to confirm that AB Dynamics plc is in compliance with the Quoted Companies Alliance Code (the QCA Code) as required under the AIM Rules. The Board takes into consideration feedback provided by various ratings agencies in setting policies and in developing our sustainability strategy as part of our continuous improvement in corporate governance. I report separately on the Group's approach to governance and its procedures in the Statement of corporate governance, which can be found on pages 71 to 79. "The Group delivered another year of strong profitable growth and now has a solid and scalable platform from which to deliver further revenue growth and margin expansion, with a strong balance sheet to support that growth." Richard Elsy CBE Non-Executive Chairman Board takes our responsibility towards employee engagement and development seriously and we were particularly pleased to launch our second Professional Development Programme for emerging talent to develop our future leaders. Investments The acquisition of VTS during the year and Bolab since the year end will continue to drive the Group strategy forward in order to deliver sustainable growth. Other investments included continued new product development, progress in the implementation of our ERP system and investment in ABD Solutions. Sustainability I am pleased to report that the hard work and determination by the members of the ESG Committee and wider staff have delivered good progress on our sustainability strategy, including achievement of an MSCI AAA rating. The Board is committed to ongoing improvements in all aspects of sustainability. Our strategy and the detailed financial results are covered in the: CHIEF EXECUTIVE OFFICER'S REVIEW ON PAGES 16 TO 19 CHIEF FINANCIAL OFFICER'S REVIEW ON PAGES 26 TO 29 Dividends The Board recognises that dividends continue to be an important component of total shareholder returns, balanced against maintaining a strong financial position, and intends to pursue a sustainable and growing dividend policy in the future having regard to the development of the Group. Based on the very strong financial performance and the Board's confidence in continued growth and delivery in 2025, the Board is recommending a final dividend of 5.30p per share, payable on 31 January 2025 subject to shareholder approval at the AGM. The ex-dividend date will be 16 January 2025 and the record date will be 17 January 2025. The total dividend for the year will therefore be 7.63p per share, which is an increase over the prior year of 20%, continuing the Board's progressive dividend policy. Outlook AB Dynamics operates within markets that are supported by long- term regulatory and structural growth drivers in automotive and holds an enviable market-leading position in the sectors in which it operates. These market growth drivers, coupled with the ongoing investments in all areas of the business, provide the Board with strong confidence that the outlook remains positive. Our continued operational delivery and ongoing investments provide a strong platform for future growth and the Board remains confident in delivering continued progress in the forthcoming year. Richard Elsy CBE Non-Executive Chairman 26 November 2024 AB Dynamics plc Annual Report and Accounts 2024 07 Strategic report Governance Financial statements Our markets and strategy Market drivers Our solutions Testing products Testing services Simulation support growth Consumer ratings • Improving safety technology • Increasing number and complexity of tests • Euro NCAP standards becoming global • Standards expanded to multiple vehicle Regulation US - NHTSA Europe - UNECE Japan China New vehicle models Development Certification Speed to market Cost effectiveness New sensor technology Increasing automation New powertrains EVs Hybrid Hydrogen Reduced emission fuels Our market drivers The automotive sector continues to evolve and adapt to the structural and regulatory changes driving rapid unprecedented change: The ongoing societal need for improvements in road safety is driving the development of active safety, ADAS and increasing levels of autonomous systems OEMs need AB Dynamics' testing products and services for development of vehicles and certification of active safety systems across all types of powertrains. The Group's simulation capabilities enable OEMs to accelerate the efficiency and speed of development by allowing customers to test in a virtual environment. categories Our solutions: Our solutions: Our solutions: Our solutions: Euro NCAP roadmap 2030 2026 2029 2032 The global challenge of climate change is driving strong demand for the acceleration of the implementation of EVs, hybrids and development of other alternative powertrains New entrants into the automotive market, particularly in EVs and autonomy, have placed pressures on traditional automotive OEMs to rapidly develop new technologies which require more complex tests Consequently, whilst the automotive sector is experiencing disruption to production volumes and a slower rate of increase in EV sales than anticipated, it remains fully committed to investing in R&D in these key areas as each OEM needs to respond to these challenges. "Our growth is supported by significant long-term structural and regulatory market drivers, such as road safety improvements, the introduction of new vehicle powertrains and development of driverless solutions, as well as our own initiatives in innovation and diversification." Safe Driving M1: Beyond Intelligent speed assistance M2: Driver Awareness: impaired driving to cognitive distraction M3: AD Grading: Domain extension and driver engagement Crash Avoidance M4: Improved robustness and real-world effectiveness M5: Leveraging vehicle connectivity M6: Pedal misapplication Crash Protection M7: Senior protection: low severity testing with sled M8: Far-side and side pre-crash incentives M9: Protection equity through modelling M10: Whiplash protection parity M11: Passive Vulnerable Road User (VRU) protection - A-pillar and micro-mobility Post-Crash Protection M12: Next-gen updates including D-call and thermal scanning 08 AB Dynamics plc Annual Report and Accounts 2024