# Strategic report

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/LSE_ABDP.L_2021/LSE_ABDP.L_2021.mmd` · pages 1-7_

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Strategic report

01 Highlights of 2021
02 At a glance
04 How we are evolving
05 Investment case
06 Chairman's statement
08 Our approach to ESG
10 Our markets and strategy
14 Launch of ABD Solutions
16 Our approach to acquisitions
18 Business model
20 Chief Executive Officer's review
24 Operational review – Track testing
27 Operational review – Laboratory testing and simulation
30 Chief Financial Officer's review
34 Key performance indicators

36 Environmental, social and governance (ESG) strategy
50 S172(1) statement and stakeholder engagement
54 Risk management
56 Principal risks and uncertainties

## Governance

60 Board of Directors
62 Chairman's introduction to corporate governance
63 Statement of corporate governance
75 Nomination Committee report
77 Audit and Risk Committee report
79 ESG Committee report
80 Remuneration Committee report
87 Directors' report
90 Statement of Directors' responsibilities

## Financial statements

91 Independent auditor's report
95 Consolidated statement of comprehensive income
96 Consolidated statement of financial position
97 Consolidated statement of changes in equity
98 Consolidated cash flow statement
99 Notes to the consolidated financial statements
120 Company statement of financial position
120 Company statement of changes in equity
121 Notes to the Company financial statements

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## Robust performance supported by
recovering demand and strategic progress

## Financial highlights

Revenue
£65.4m +6%
(2020: £61.5m)

Net cash
£22.3m -26%
(2020: £30.0m)

Adjusted* diluted earnings per share (EPS)
37.4p -6%
(2020: 39.9p)
Adjusted* operating profit
£10.8m -4%
(2020: £11.3m)

Adjusted* operating margin
16.6% -180 bps
(2020: 18.4%)

Dividend per share
4.8p +10%
(2020: 4.4p)

## Operational highlights

• Continued recovery in the Group's markets translated into improved order intake with a positive book to bill ratio across both divisions

• The Group performed well during the second half of the year, managing supply chain disruption and currency headwinds effectively in order to meet the strengthening in demand during the period. Revenue for the first half of the year was broadly comparable to H2 2020 with COVID-19 impact continuing into the current year

• Solid performance from Vadotech which was acquired in the second half of the year

• Further progress made on implementation of strategic initiatives to enhance commercial and operational capability and provide a platform for sustainable long-term growth

• New product development continued as planned with successful launches including high speed ADAS platforms and a next generation simulator

• Growth in recurring revenue to 35%, up from 28% of Group revenue

• Significant work undertaken to evolve the next phase of the Group's strategy targeting diversification alongside the established pillars and opening up new markets beyond automotive

• Post year-end launch of ABD Solutions, a new business unit focused on providing retrofit solutions that enable the automation of conventional off-road vehicle fleets rapidly and cost effectively

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## Developing
our business

![](images/3_0.jpg)

02 AB Dynamics plc Annual Report and Accounts 2021

![](images/3_1.jpg)

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## At a glance continued

## Track testing

Track testing products and services represent 76% 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 now also offers on-road testing services, with operations in China and Japan.

![](images/4_0.jpg)

Read more about our track testing page 24

## Laboratory testing and simulation

Laboratory testing and simulation represents 24% 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 autonomy across a wide range of applications including conventional vehicles, motorsport and automated/autonomous 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.

![](images/4_1.jpg)

Read more about our Laboratory testing and simulation page 27

## 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. Overseas expansion with the opening of new sales offices and strengthening of our APAC regional footprint through the acquisition of Vadotech enables deeper penetration of international markets.

The launch of ABD Solutions enables us to drive growth in adjacent markets leveraging our core technology to diversify the business and enter larger, growth-focused markets.

![](images/4_2.jpg)

Delivering a stronger business page 14

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## How we are evolving

![](images/5_0.jpg)

## Investing

for the future

Along with investing in new product development in our core markets, we are developing our organic capability and capacity to ensure the business can support continued growth.

Our investment case page 5

## Developing

new opportunities

ABD Solutions is a new market-facing business unit established to leverage our core technology into new adjacent markets. It is developing solutions to automate vehicle applications specifically in the mining, defence, materials handling and agriculture sectors.

Innovation and technologies page 14

![](images/5_1.jpg)

![](images/5_2.jpg)

## Growing

our business

In conjunction with our organic growth, the acquisition of Vadotech expanded our capability into on-road testing services and established a regional hub in the strategically important APAC region.

Our markets page 17

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## 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 balance sheet enables us to invest for future growth.

## 1. Structural and regulatory growth drivers

• 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 10

## 2. Sustainability and resilience

• 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 enabled us to continue investing in the business during the COVID-19 pandemic. While there was a short-term impact on demand, structural and regulatory drivers remain intact, demonstrated by the recent improvement in order intake

• 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 20

## 3. Strong margins

• 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

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

Read more in our Chief Financial Officer's review page 30

## 4. Strong balance sheet

• Our strong balance sheet gives the financial flexibility to enable ongoing investment in organic growth and to strengthen business infrastructure for the next phase of expansion

• With capital expenditure having peaked in 2021, free cash generation is expected to step up significantly post investment

• Our ability to deliver strategically compelling and accretive acquisitions further supports the growth strategy

▶ Read more about our approach to ESG page 8

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# Well positioned
for the future

![](images/7_0.jpg)

Richard (Dick) Elsy CBE, Non-Executive Chairman

## Overview

I am pleased to report a strong year of progression for the Group in terms of strategic development. I had the honour of being appointed Non-Executive Chairman during the year and I have been greatly impressed with the talented team of employees with whom I have engaged.

Whilst the first half of the financial year continued to be impacted by COVID-19, the second half was very strong, delivering a record output for a single half-year period. Overall results for the year showed revenue growth of 6% to £65m and a moderate reduction in operating profit to £11m, predominantly due to product mix, investment in talent and in new technology development.

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 developed incremental strategies to diversify the business and provide the foundations for continued growth. To support this growth and diversification the Group invested in ongoing professionalism, in particular in senior leadership talent and in the development of our Group-wide ERP system.

During the second half of the year the Group completed the acquisition of Vadotech Group, expanding our service offering and accessing a valuable stream of recurring revenue. It also gives the Group a significant physical presence in Asia Pacific, which is currently the fastest growing territory in our core markets.

Our strategy and the detailed financial results are detailed in the Chief Executive Officer's review on pages 20 to 23 and in the Chief Financial Officer's review on pages 30 to 33.

## Employees

I would like to take this opportunity to thank our global team of outstanding employees who have all contributed to a successful year, whilst adapting to changing work patterns due to various periods of lockdowns and travel restrictions. The Group attracts talent at all levels within the business and continues to invest in training at all levels, from apprentices to graduates and continuing professional development.

The Group has grown strongly in recent years, and we now have around 400 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 major new project, led by representative employees, to define and communicate our Group vision and values. In parallel, the Group initiated a rolling process of employee engagement surveys, the results of which are used to continuously develop and improve our employee experience.

## Investments

As part of our ongoing plan to invest in the infrastructure and systems required to provide the foundation for ongoing growth, the Group completed the investment in our new Engineering Design Centre in the UK. This state-of-the-art facility provides an inspiring working environment for engineering and innovation including laboratory space and an impressive vehicle simulator demonstration suite.

The acquisition of Vadotech facilitated the establishment of our Asia Pacific operating hub based in Singapore, with operations in Beijing and Tokyo. Other investments included continued new product development, progress in the implementation of our ERP system and the expansion of our test track facility in California to grow operational capacity.