# Strategic report

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/LSE_ABDP.L_2022/LSE_ABDP.L_2022.mmd` · pages 1-7_

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Strategic report

1 Highlights of 2022

2 At a glance

4 How we are evolving

5 Investment case

6 Chairman's statement

8 Our markets and strategy

12 AB Simulation

14 Business model

16 Chief Executive Officer's review

19 Q&A with Dr James Routh

20 Operational review – Track testing

23 Operational review – Laboratory testing and simulation

26 Chief Financial Officer's review

30 Key performance indicators

32 ABD Solutions

33 ABD Solutions architecture

34 Environmental, social and governance (ESG) strategy

52 S172(1) statement and stakeholder engagement

54 Risk management

56 Principal risks and uncertainties

## Governance

60 Chairman's introduction to corporate governance

61 Statement of corporate governance

62 Board of Directors

64 Executive Committee

66 Statement of corporate compliance

77 Nomination Committee report

79 Audit and Risk Committee report

81 ESG Committee report

82 Remuneration Committee report

90 Directors' report

93 Statement of Directors' responsibilities

![](images/1_0.jpg)

Discover more at abdynamics.com

## Financial statements

94 Independent auditor's report

Consolidated statement of comprehensive income

99 Consolidated statement of financial position

100 Consolidated statement of changes in equity

101 Consolidated cash flow statement

102 Notes to the consolidated financial statements

123 Company statement of financial position

123 Company statement of changes in equity

124 Notes to the Company financial statements

129 Notice of Annual General Meeting

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## Strong strategic progress and financial performance

## Operational highlights

• Whilst the current macroeconomic operating environment still presents challenges in relation to supply chain disruption, the Group has been successful in delivering output and mitigating inflationary cost pressures through price increases for new orders

• Revenue increased by 23% with the recovery of sales to China and the full year's contribution of VadoTech. Organic revenue increased by 18%

• Further progress made on the implementation of strategic initiatives targeting diversification alongside the established pillars and opening up new markets beyond automotive through the launch of ABD Solutions

• ABD Solutions was awarded its first development contract by an industrial equipment supplier in Japan for a driverless retrofit solution for mining vehicles
• New product development continued in line with our technology roadmap for existing track testing and simulation markets and development of the core technology for ABD Solutions. Along with the successful launch of our new range of ADAS dummies, the full AB Dynamics LaunchPad product range and GST 120 have now been certified for use in Euro NCAP testing

• VadoTech Group has been successfully integrated into the Group and delivered a solid performance since it was acquired in March 2021

• Growth in percentage of Group's recurring revenue to 41%, up from 35%, enhanced by the strengthening of the APAC regional footprint

• Post-year-end acquisition of Ansible Motion and the creation of a new market-facing business unit, AB Simulation, enhances the Group's simulation capabilities, expands its simulator product range and achieves critical mass in this attractive sector

## Financial highlights

Revenue
£80.3m +23%
(2021: £65.4m)

EBITDA
£16.4m +21%
(2021: £13.5m)

Adjusted* operating profit
£12.7m +18%
(2021: £10.8m)

Adjusted* operating margin
15.8% -80 bps
(2021: 16.6%)

Net cash
£29.2m
(2021: £22.3m)

Adjusted* diluted earnings per share (EPS)
44.5p +19%
(2021: 37.4p)

Dividend per share
5.3p +10%
(2021: 4.8p)

* Adjusted to exclude amortisation of acquired intangibles, acquisition related charges and exceptional items. All profit and earnings per share figures going forward refer to adjusted business performance as defined on page 28 with a reconciliation to statutory measures.

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## At a glance

## Developing
our business

![](images/3_0.jpg)

UK/Europe
Asia Pacific
North America
Rest of World

![](images/3_1.jpg)

Laboratory testing and simulation
Track testing

![](images/3_2.jpg)

![](images/3_3.jpg)

Automotive OEMs
Service providers
Tier 1 suppliers and technology

![](images/3_4.jpg)

Recurring
Original equipment

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## At a glance continued

## Track testing

Track testing products and services represent 81% of total Group revenue. The products are used for the test and verification of Advanced Driver Assistance Systems (ADAS), autonomous systems and vehicle dynamics. Test vehicles and ADAS platforms, such as the Guided Soft Target (GST) and LaunchPad, are controlled using complex control software for accurate control and synchronisation of multiple test objects.

This enables our customers to conduct complex, multi-object test scenarios with a simple-to-use software interface to satisfy internal or external regulatory test requirements.

The Group also provides testing services including the provision of ADAS and vehicle dynamics tests through a comprehensive test facility based in California, USA. Following the acquisition of VadoTech, the Group also offers on-road testing services, with operations in China and Japan.

Revenue

£64.7m

Read more about our track testing page 20

![](images/4_0.jpg)

## Delivering a stronger business

As we expand our portfolio of products and services, we are reducing our reliance on specific market sectors and geographic territories. Continued progress in developing our service and support offering through both organic and acquisitive growth has increased the proportion of recurring and service-based revenue.

## Laboratory testing and simulation

Laboratory testing and simulation represents 19% of total Group revenue and includes products relating to simulation, noise and vibration and the assessment of kinematics and compliance in vehicles; and simulation software. These products are used to evaluate vehicle dynamics, noise, vibration and harshness and ADAS across a wide range of applications including conventional vehicles, motorsport and automated vehicles.

Our simulator products along with our market-leading physics based simulation software reduce new vehicle development timescales by allowing meaningful testing earlier in the development process which form the core of our new market-facing business unit, AB Simulation. The use of simulation reduces new vehicle development timescales by allowing meaningful evaluation earlier in the development process.

Revenue

£15.6m

Read more about our laboratory testing and simulation page 23

The launch of ABD Solutions in the prior year and the formation of AB Simulation enables us to drive growth in core and adjacent markets, and our investment in skills, capacity and leadership ensures we have a platform for sustainable long-term growth. ABD Solutions leverages the core technologies of AB Dynamics into new adjacent markets where the customer is the end user of the equipment, developing solutions to automate vehicle applications specifically in the mining, defence and agriculture sectors.
In the current year AB Simulation has been formed as a market-facing business unit focusing on the supply of advanced simulation products and services to the automotive and motorsport industries. This brings together the Group's existing simulators and simulation business as well as the recently acquired Ansible Motion as a coherent unit with critical mass in this attractive market.

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## How we are evolving

## Investing for the future

Along with investing in new product development in our core and adjacent markets, we have invested in capabilities in terms of talent and leadership and built a solid foundation as a platform for sustainable long-term growth.

Our investment case page 5

![](images/5_0.jpg)

## ABD Solutions

Since the launch of ABD Solutions at the end of the previous financial year, the team has successfully developed the core modular technology required for our targeted areas of penetration and has been successful in winning funded R&D from a major Japanese mining customer. We are also working with a mining customer based in Greenland.

Our investment case page 5

## Acquisition of Ansible Motion

The post-year-end acquisition of Ansible Motion has strengthened the Group's product range, capability and customer base, providing critical mass to the new AB Simulation business unit through the addition of talented employees, premium products and leading R&D capabilities.

Read more on page 16

![](images/5_1.jpg)

![](images/5_2.jpg)

## Investing in our people

We have a growing number of staff members and the Group has focused on development and employee engagement. This year we launched a Professional Development Programme for a selection of employees, we also saw a 70% increase in the amount of training hours undertaken by the Group to equip our staff with the training required to support their career development aspirations.

Hours of training
5,767

Read more on page 41

## ESG evolution

Our ESG strategy has developed significantly over the last financial year and continues to be a strategic priority for the Group. This has resulted in our MSCI ESG rating improving to AA and we aim to develop this further in 2023.

Read more on page 34

Health and safety

Ethics and compliance

Our people

Environmental leadership

Sustainable products

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## Investment case

## Why invest in AB Dynamics

With a track record of revenue growth and strong margins, we deliver sustainable value for our stakeholders through our market-leading engineered products and services. Our strong cash generation and clear capital allocation framework enables us to invest for future growth.

![](images/6_0.jpg)

## Structural and regulatory growth drivers across all our markets

• We are a leader in structural long-term growth markets, supported by favourable regulatory environments and global focus on active safety and autonomous systems development

• Our offering spans both physical and simulated testing across ADAS, autonomous vehicle R&D and vehicle testing

• We are using our core technology portfolio to leverage adjacent markets including mining, defence, materials handling and agriculture

• We have a global presence and diverse geographic end markets, including a new Asia Pacific divisional operating hub

• The proportion of recurring revenue continues to grow as we increase our service and support offering and software sales

Read more about our markets page 8

## 1

## Highly resilient business solving customers' sustainability challenges

• The wider focus on road safety and reduction in accidents as well as the focus on electric vehicle and battery technology is an important long-term trend that will support continued growth

• The resilience of our business model has enabled us to continue to invest in the business and grow revenue despite the COVID-19 pandemic and recent macroeconomic challenges

• We actively focus on the wellbeing of our workforce through a strong health and safety culture and employee engagement and assistance

• Our global, diversified customer base provides resilience. With direct sales and support facilities in the UK, Germany, Japan and the USA and indirect sales channels in all other key customer territories, we are well placed to deliver support where our customers need it

Read more in our Chief Executive Officer's review page 16

## 2

## Strong margins with clear strategy for expansion

• Differentiated products and strong, long-term relationships with customers underpin strong margins

• Continued investment in innovation to deliver differentiated products to drive strong gross margins

• Ability to increase prices enables maintenance of gross margins during inflationary periods

• Current investment in ABD Solutions impacts overheads and margins during the pre-revenue phase. Margin expansion will be delivered once this new business unit delivers positive contribution

• Investment in people, business systems and capacity will deliver future efficiencies and margin expansion

## 4

## Highly cash generative with clear capital allocation framework

• Our strong cash generation enables us to fund ongoing investment in organic growth across our core markets and ABD Solutions, to strengthen business infrastructure for the next phase of expansion and to fund acquisitions

• Our capital allocation priorities are: investment in innovation to grow core business; investment in ABD Solutions; bolt-on acquisitions; and our progressive dividend policy

Read more about our capital allocation framework on 29

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## Strengthening our platform for growth

![](images/7_0.jpg)

Richard (Dick) Elsy CBE, Non-Executive Chairman

## Highlights

• Continued investment in new product development in our core markets

• Good progress made by ABD Solutions

• Post-year-end acquisition of Ansible Motion strengthens our simulation offering

## Overview

I am pleased to report a year of very positive financial and strategic performance for the Group.

Following on from our strong set of results in the first half of the year, the Group continued to build on the strategic priorities and focus on building a sustainable and resilient business. Overall results for the year showed revenue growth of 23% to £80.3m, organic growth of 18%, and an 18% increase in operating profit to £12.7m, predominantly due to growth in track testing products and services.

The Group continued to invest in the core automotive sector, which is characterised by strong regulatory and structural growth drivers. At the same time, we have seen good progress in our strategy to diversify the business and provide the foundations for continued growth. To support this growth and diversification the Group invested in ongoing professionalism, in senior leadership talent and in the development of our Group-wide ERP system.

ABD Solutions has made good progress, successfully proving the concept of retrofitting existing technologies to enable the automation of conventional vehicle fleets. This has resulted in winning R&D funding from a major Japanese mining customer.

The acquisition of Ansible Motion shortly after the year end expands our capability in the key simulation sector and I am pleased to welcome the employees of Ansible Motion to the AB Dynamics family.

Our strategy and the detailed financial results are covered in the Chief Executive Officer's review on pages 16 to 18 and in the Chief Financial Officer's review on pages 26 to 29.

## 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 successful year, responding to changing demands and adapting to changing work patterns as the Group navigates the current supply chain and wider macroeconomic issues. 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 around 434 employees, with around half located in the UK. The Board takes our responsibility towards employee engagement and development seriously and during the year launched a Professional Development Programme for emerging talent to develop our future leaders. In parallel, the Group continued the rolling process of employee engagement surveys, the results of which are used to continuously develop and improve our employee experience.

## Investments

The acquisition of Ansible Motion and the establishment of a new market-facing business unit, AB Simulation, 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.