AB Dynamics plc

Unaudited interim results for the six months ended 28 February 2023

"Strong performance, strategic progress and sustainable growth"

AB Dynamics plc (AIM: ABDP, 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 interim results for the six-month period to 28 February 2023 (the "Period").

¹Before amortisation of acquired intangibles, acquisition related charges, and exceptional items. A reconciliation to statutory measures is given in the Alternative Performance Measures section of the Half Year Review.

Financial highlights

·      Market and customer activity levels have remained positive throughout H1, with strong activity in both track testing and laboratory testing and simulation, particularly in Europe

·      Revenue increased by 30% against H1 2022 of which 14% was organic growth

o  Track testing revenue grew by 13% reflecting increases in robots and ADAS platforms

o  Laboratory testing and simulation revenue grew by 99%, of which 20% was organic driven by a strong performance at rFpro and delivery of SPMM systems. The remainder related to the acquisition of Ansible Motion

·      The proportion of recurring and service-based sales has been maintained at 41% (H1 2022: 41%)

·      The Group has remained effective in mitigating inflationary cost pressures, with gross margins robust at 57.1% (H1 2022: 57.7%)

·      Operating margin improved by 80bps to 15.9% 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

o  Excluding ABD Solutions, the operating margin increased to 18.0% (H1 2022: 16.4%)

·      Operating cash generation remained strong at £9.5m (H1 2022: £8.5m). Significant net cash balance of £21.3m at the period end (28 February 2022: £27.7m, 31 August 2022: £29.2m) after funding the initial consideration for the acquisition of Ansible Motion

·      Interim dividend of 1.94p per share (H1 2022: 1.76p), growth of 10%

Strategic highlights

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

·      ABD Solutions has 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

·      The integration of Ansible Motion is continuing as planned and the business has delivered a solid 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

·      Performance in the first half of the year was strong, with good conversion of orders to revenue together with improved operational efficiency and effective cost management

·      The Group has a solid order book, providing visibility into the second half of the year

·      Whilst mindful of ongoing economic uncertainty, as well as timing of pipeline conversion, the Board remains confident that the Group will make further financial and strategic progress this year, with its expectations for FY 2023 performance 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

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

"The Group has delivered a strong financial and operational performance in the first half of the year, with growth in the core business as well as progress in the development of ABD Solutions and in our simulation business with the acquisition of Ansible Motion. Against the backdrop of ongoing external challenges in relation to supply chain disruption and wider economic uncertainty, the Group has delivered growth in revenue, operating profit and operating margins. We have also continued to invest in all areas of the business, supporting improved capability as well as our ambitious growth plans.

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

"Despite the risk of short-term volatility relating to global macroeconomic conditions and timing of order intake, 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 in achieving the Board's expectations during the second half of 2023 and delivering further progress in the years beyond."

There will be a presentation for analysts this morning at 9.00am at the London Stock Exchange. Please contact abdynamics@teneo.com if you would like to attend.

Enquiries:

Half Year Review

Group overview

Despite the challenging economic and operational backdrop, the Group has delivered a strong performance, with record levels of revenue, supported by recent investments in its capabilities to capitalise on the significant long-term structural and regulatory growth drivers within its markets.

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 Group also expanded its presence in the simulation market through the formation of AB Simulation and the acquisition of Ansible Motion.

Financial performance

Revenue increased by 30% to £49.0m against H1 2022, of which 14% related to organic growth and the remainder to the acquisition of Ansible Motion.  

Gross margin was 57.1%, down 60bps on H1 2022 due to a higher proportion of laboratory testing and simulation revenue, offset by effective pricing management and increased recurring revenue.

Group adjusted operating profit of £7.8m increased 37% against H1 2022. The adjusted operating margin increased against H1 2022 to 15.9% (H1 2022: 15.1%), as a result of the increase in sales volumes.

Adjusted net finance costs were £0.2m (H1 2022: £0.2m, FY 2022: £0.4m).

Adjusted profit before tax was £7.6m (H1 2022: £5.5m). The Group adjusted tax charge totalled £1.3m (H1 2022: £1.0m), an adjusted effective tax rate of 16.5% (H1 2022: 18.0%).

Adjusted diluted earnings per share was 27.5p (H1 2022: 19.9p), an increase of 38%, reflecting the increase in operating profit and a lower tax rate.

Statutory operating profit increased by 16% to £2.9m and after net finance costs of £1.0m (H1 2022: £0.2m), statutory profit before tax was down 17% from £2.3m to £1.9m, giving statutory basic earnings per share of 6.7p (H1 2022: 8.6p). The statutory tax charge was £0.3m (H1 2022: £0.4m). A reconciliation of statutory to underlying non-GAAP financial measures is provided below. The adjustments to operating profit of £4.9m comprise £3.7m of amortisation of acquired intangibles, £0.8m of ERP cloud computing costs and £0.4m of acquisition related costs (H1 2022: £3.2m comprising £2.7m of amortisation of acquired intangibles and £0.5m of ERP cloud computing costs). The £0.8m adjustment to the interest charge relates to the unwind of the discount on the deferred contingent consideration for Ansible Motion (H1 2022: £nil). The tax impact of these adjustments was £0.9m. The statutory net finance costs were £1.0m (H1 2022: £0.2m).  

The Group delivered strong adjusted operating cash flow of £9.5m (H1 2022: £8.5m) with the net cash position at the period end of £21.3m (31 August 2022: £29.2m) underpinning a robust balance sheet and providing the resources to continue the Group's investment programme.

Sector review

Track testing

Track testing revenue of £34.3m was up 13% against H1 2022 (£30.4m).

Driving robot sales increased 46% against H1 2022 to £14.2m (H1 2022: £9.7m), following strong order intake during H2 2022. The Group expects continued growth in driving robots at more normalised levels, as new regulatory requirements for evolving ADAS technologies are released, such as the recent 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.

ADAS platform sales increased 5% to £14.0m in H1 2023 (H1 2022: £13.3m). 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 further drive demand.

Testing services revenues decreased 18% to £6.1m (H1 2022: £7.4m) due to local COVID restrictions delaying the provision of testing services in China 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 invest in new product development in this sector in order to meet forthcoming regulatory requirements and to ensure we retain our market leadership in track testing products and technology.

Laboratory testing and simulation

The laboratory testing and simulation business delivered strong growth, with revenue of £14.7m, an increase of 99% on H1 2022 (£7.4m) of which 20% was organic growth in simulation software and delivery of SPMM systems, with the remainder from Ansible Motion which was acquired at the beginning of the period.  

SPMM revenue of £2.8m grew by 40% in H1 2023 (H1 2022: £2.0m) and the division carries forward a solid order book, which provides good coverage for the remainder of the financial year.

Organic growth in simulation revenue was 13% reflecting high customer demand for our simulation software, with revenue of £6.1m (H1 2022: £5.4m). The contribution from Ansible Motion was £5.8m reflecting the strong order book at the time of acquisition.

Progress on our strategy

The Group continues to make good progress against its strategic priorities, as well as further integrating ESG as a core tenet of its strategy and operating model.

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.    

AB Simulation, launched at the beginning of the period, has successfully consolidated the simulation business, including Ansible Motion, into a dedicated and focused market-facing business unit. AB Simulation enhances the Group's simulation capabilities, expands its product range and achieves critical mass in this attractive sector.

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 defence and mining 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 contract for delivery of a retrofit pedestrian detection system for a UK customer for construction industry applications.  

 Acquisitions

On 20 September 2022, the Group acquired 100% of the issued share capital of Ansible Motion Limited, a leading provider of advanced simulators to the global automotive market for an initial consideration of £18.1m, of which £3.2m was satisfied in new ordinary shares in AB Dynamics plc and the remainder in cash. Contingent consideration of up to £12.0m will become payable in cash subject to certain performance criteria being met for the year ending 31 August 2023. The integration of Ansible Motion is progressing well with the product range having been incorporated into the Group's other simulation offerings.

Acquisitions have been and will continue to be a significant part of the overall strategy, and there is a promising pipeline of potential acquisition opportunities.

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, EBITDA, adjusted operating margin, adjusted profit before tax and adjusted earnings per share.

The interim report 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.

Comparatives are provided alongside all current period 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 interim report relate to underlying business performance (as defined above) unless otherwise stated.

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

The adjustments comprise:

Research and development

While research and development forms a significant part of the Group's activities, a significant proportion relates to specific customer programmes which are included in the cost of the product. Development costs of £0.3m (H1 2022: £0.1m) 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 to the profit and loss account as incurred, total £0.1m (H1 2022: £0.1m).

Foreign currency exposure

The Group faces currency exposure on its foreign currency transactions and with significant overseas operations, also has exposure to foreign currency translation risk. The Group maintains a natural hedge whenever possible to transactional exposure by matching the cash inflows and outflows in the respective currencies.

On a constant currency basis, revenue would have been £0.9m lower than reported and operating profit would have been £0.1m lower as both the US dollar and the Euro strengthened against H1 2022. Constant currency revenue growth was 27% and growth in operating profit was 35%.  

Dividends

The Board has declared an interim dividend of 1.94p per ordinary share (H1 2022: 1.76p) which will be paid on 19 May 2023 to shareholders on the register on 5 May 2023. The ex-dividend date will be 4 May 2023.

A final dividend of 3.54p per share was paid on 27 January 2023 in respect of the year ended 31 August 2022 totalling £810,000. It is the Board's intention to pursue a sustainable and growing dividend policy in the future having regard to the development of the Group.

Summary and Outlook

The Group has delivered a strong financial and operational performance in the first half of the year, with growth in the core business as well as progress in the development of ABD Solutions and in the simulation business following the acquisition of Ansible Motion. Against the backdrop of ongoing external challenges in relation to supply chain disruption and wider economic uncertainty, the Group has delivered growth in revenue, operating profit and operating margins. The Company has also continued to invest in all areas of the business, supporting improved capability as well as the ambitious growth plans.

There is significant opportunity in the core markets within automotive, which are supported by long-term structural and regulatory growth drivers. There is continued investment in new product development and technology whilst also investing in innovative technologies to diversify the business into attractive adjacent markets through ABD Solutions.

In 2023, revenue and profit are expected to be more evenly weighted across the two halves of the year than in previous years. Despite the risk of short-term volatility relating to global macroeconomic conditions and timing of order intake, the market drivers both in the core business and in ABD Solutions remain strong. This backdrop, along with the Group's recent investments in capability and new products, provides confidence in achieving the Board's expectations during the second half of 2023 and delivering further progress in the years beyond.

Directors' Responsibility Statement

The Directors confirm that this condensed consolidated half year financial information has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' as adopted by the United Kingdom, and that the half year management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·      an indication of important events that have occurred during the first six months and their impact on the condensed consolidated half year financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·      material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.

By order of the Board

Dr James Routh

Chief Executive Officer

25 April 2023