# Dear shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/LSE_ABDP.L_2022/LSE_ABDP.L_2022.mmd` · pages 78-84_

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Dear shareholders,

I am pleased to present the Nomination Committee's report for the year ended 31 August 2022.

## Membership of the Committee

The Nomination Committee's key role is to ensure that the Board has the appropriate skills, knowledge and experience to operate effectively and deliver the Group's strategy. There were no changes in the membership of the Committee during the last twelve months and all members are considered to be independent Non-Executive Directors. I chair the Committee but will not do so where the Committee is dealing with my own re-appointment or my replacement as Chair of the Board. The Company Secretary acts as secretary to the Committee. Details of attendance of members of the Committee at the one meeting held during the year are shown on page 70.

Meetings of the Committee are attended, at the invitation of the Chairman by the Chief Executive Officer and the Chief Financial Officer when considered appropriate. Members of the Committee do not participate in any discussions relating to their own appointment or replacement.

## Responsibilities

The Nomination Committee's terms of reference were reviewed and updated during the year. The Committee's key responsibilities are:

• To review the size, structure, composition and independence of the Board and its Committees

• To make recommendations to the Board for the appointment of new Executive and Non-Executive Directors and their re-appointment following retirement by rotation

• To manage the search for and selection of suitable candidates for the appointment or replacement of Directors

• To consider succession planning for all Group Directors taking into account the challenges and opportunities facing the Group
• To keep under review the time commitment of Non-Executive Directors and external appointments of Board members

• To implement, review and respond to the results of Board evaluation processes

The Committee remains focused on ensuring the Group benefits from strong leadership and that the Board continues to operate in an open and transparent manner. In considering changes to the Board and its Committees, the Nomination Committee is focused on the recruitment of the best available talent based on merit and assessed against a set of objective criteria of skills, knowledge and experience. Diversity and gender inclusiveness span the whole Group and are important and enduring considerations in the search for and selection of new Board members.

## Board composition

The Committee regularly reviews the composition and balance of the Board and its Committees, and considers Non-Executive Directors' independence, whether the balance between Non-Executive and Executive Directors remains appropriate, and whether the Board has the requisite skills and experience to oversee the delivery of the agreed strategy for the Group.

The Committee remains comfortable with the balance of two Executive and three Non-Executive Directors but will continue to keep this under review and will consider the appointment of additional Directors at an appropriate time having regard to the growing scale and complexity of the Group's activities and the collective skills, knowledge and experience available to the business.

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## Nomination Committee report continued

## Board evaluation

The skills and experience of Board members are set out in their biographies on pages 62 to 63 of this Annual Report.

On the recommendation of the Nomination Committee, the Board instructed Savendie to undertake an independent Board review and evaluation that was performed in two phases. The first phase conducted in July and August 2021 focused on a review of Board materials and individual interviews with Directors to assess whether the Board is spending its time together effectively, considering and discussing the correct matters and with good quality information. Part 2 was completed in August 2022 and focused on whether the Board is operating effectively with a good balance of support and constructive challenge, and has the combined skills to realise its growth ambitions and to cover the strategic challenges that the Group faces.

Part 2 of the evaluation found a collaborative board with good constructive challenge and an open sharing of viewpoints. The evaluation found that all the Directors are aware of both the Group's achievements and challenges and are pulling in the same direction for the benefit of the Group which is a sound basis for good decision making. The evaluation found that there is evidence of significant progress with the actions identified in the 2021 report particularly regarding improvements with Board processes, agenda planning, and quality of Board papers and minutes. Overall, the Board is operating effectively with the Directors engaged in continuous development to avoid complacency noting the need for the Board to change and develop when required by business strategy.

## Diversity, equality and inclusion

The Committee recognises the importance of diversity, equality and inclusion to the effective performance of the Board, and to our wider business operations. We are committed to promoting diversity across the Group in all forms, including diversity of gender identity, ethnicity, age, disability, neurodiversity, sexual orientation, social and cultural background and belief.

The Committee is cognisant of the voluntary targets set out in the Hampton-Alexander Review that at least 33% of Board and Executive Committee members, and their direct reports, should be female. We have met this target from a Board perspective and we continue to aspire to further improve female representation across the broader senior leadership team over the next few years. The Committee will also have regard to the recommendations set out in the Parker Review on ethnic diversity when recommending future appointments to the Board.

## Succession planning

The Committee is responsible for promoting effective succession planning for the Board and the Executive Committee, to ensure that the leadership of the business remains aligned to the Group's strategy. The Committee reviewed the succession plan for individuals in key leadership roles at the Group level. The Committee is satisfied that an appropriate succession plan is in place for the Board and key members of the Executive Committee, including emergency replacements. Over the longer term, appointments will be considered on a case-by-case basis, including internal candidates where available or external recruitment where deemed more appropriate.

With the receipt of Part 2 of Savendie's Board evaluation, the Committee will continue to build on its current practices and enhance elements of its activities in line with the Group's continued growth. The Directors will guard against any complacency to ensure the Board continues to operate in an open and transparent manner supported by high quality debate and constructive challenge.

Richard Elsy CBE
Nomination Committee Chair
23 November 2022

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## Audit and Risk Committee report

# Monitoring all aspects of financial reporting and risk

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## Meetings

## 3

## Audit and Risk Committee members

• Louise Evans (Chair)

• Richard Hickinbotham

## Key activities for the year

• Approval of the 2022 Annual Report and Accounts and 2022 Half year report

• Tender process to recommend Grant Thornton UK LLP as external auditor to shareholders at the AGM 2023

• Review of the Group's risk and internal control framework

## Dear shareholders,

I am pleased to present my report as Chair of the Audit and Risk Committee.

The Audit and Risk Committee continues to play a very important role in the governance of the Group's financial affairs, both through monitoring the integrity of the Group's financial reporting and reviewing material financial reporting judgements. During the early part of the financial year, the Committee was focused on matters relating to the 2021 financial statements, which were covered in detail in last year's report. This report therefore focuses on the Committee's activities in relation to the 2022 half year and full year results, and the external and internal audit activity during 2022.

## Membership of the Audit and Risk Committee

The Audit and Risk Committee has been established by the Board and is responsible for monitoring the integrity of the Group's financial statements and the effectiveness of the internal and external audit process. Both members of the Committee are independent Non-Executive Directors, and each brings a broad range of financial and business expertise. I have previously served as the Finance Director of public companies and currently serve as an Audit Committee Chair in an additional listed company. Therefore, I possess recent and relevant financial experience. The Board considers that the Committee members possess an appropriate level of independence and offer a depth of financial and commercial experience across various industries. The qualifications and experience of the members of the Committee can be found on pages 62 to 63.

## Operation of the Committee

Meetings of the Committee are attended, at the invitation of the Chair, by the external auditor, the Chair of the Board, the Chief Executive Officer, the Chief Financial Officer and representatives of the Group finance function. The Committee meets with the external auditor at least once per year without the Executive Directors being present. The Company Secretary acts as secretary to the Committee. A verbal report on key issues discussed by the Committee is provided to the Board after every meeting.
The Chair of the Committee meets regularly with both the Chief Financial Officer and the external audit lead partner outside of scheduled meetings.

The Committee is authorised to obtain any external legal or other professional advice it requires at the Group's expense.

The Committee relies on regular reports from the Executive Directors, the wider management team, and the external and internal auditors in order to discharge its responsibilities. The Committee is satisfied that it received, timely, sufficient and reliable information to enable it to fulfil its obligations during the year.

## Audit and Risk Committee activities

The Committee's responsibilities are set out in its terms of reference which are available on the Group's website. The Committee reviews its terms of reference annually and recommends to the Board any changes required as a result of its review.

The key roles and responsibilities of the Committee are as follows:

• To review the Group's risk management framework, assist the Board in conducting a robust assessment of the Group's principal risks and ensure adherence to policies and effectiveness of mitigating actions

• To review the published half year and annual financial reports and advise the Board on whether such information represents a fair, balanced and understandable assessment of the Group's position and prospects; monitor compliance with relevant statutory reporting requirements; review and consider any changes in accounting standards; and considering the suitability of, and any changes to, accounting policies used by the Group, including the use of estimates and judgements
• To manage the appointment of the Group's external auditor, agreeing the nature and scope of the external audit as well as the terms of remuneration, and assess the effectiveness of the audit and auditor independence including approval of any non-audit services undertaken together with the level of non-audit fees

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## Audit and Risk Committee report continued

## Audit and Risk Committee activities continued

• To review the internal control environment and consider the need for an internal audit function

• To review the adequacy of the Group's procedures for employees to report wrongdoing or raise concerns and review the systems in place to detect and prevent bribery, fraud and money laundering

• To monitor compliance with the UK corporate governance guidelines contained in the Quoted Companies Alliance (QCA) Code in respect of audit and risk committees

## Review of financial statements

The Committee monitors the integrity of the Group's financial statements and has reviewed the presentation and content of the Group's interim and preliminary results announcements and the Annual Report. It considered whether the Annual Report was fair, balanced and understandable, as well as the appropriateness and disclosure of accounting policies, key judgements and key estimates. As part of this review, it considered matters raised by the CFO together with reports presented by the external auditor summarising the findings of its annual audit.

The significant accounting judgements considered for the year ended 31 August 2022 were:

• Review of the valuation and recoverability of goodwill and other intangible assets: the Committee considered the carrying value of goodwill and intangible assets in relation to VadoTech, rFpro and DRI against the latest forecasts for the businesses concerned and the future strategic plan for the Group. The Committee was satisfied that the valuation is appropriate and that no impairment is required

• Review of revenue recognition on long-term contracts: the Group has established processes in relation to estimating the stage of completion, milestones and expected profitability of long-term contracts. The Committee reviewed these assumptions and was satisfied that they are appropriate

• Review of inventory provisions: the Committee considered the level of the inventory provisions and was satisfied that the valuation of inventory is appropriate

• Review of the going concern assumption: the Group has substantial cash resources and a £15m undrawn revolving credit facility at year end. In the current environment, particular emphasis was placed on the review of the going concern assessment and viability statement, particularly with regard to the impact of the inflationary cost pressures and macro economic environment

• The Committee reviewed the adequacy of the Group's financial resources to ensure there is sufficient headroom to enable the Group to continue trading for the foreseeable future. The Group's future funding requirements were also considered. Based on its review of the Group's forecasts and discussions with the external auditor, the Committee recommended to the Board the adoption of the going concern basis for the preparation of the interim and full year results

The Committee reviewed the form and content of the 2022 Annual Report and confirmed to the Board that, taken as a whole, the Annual Report is fair, balanced and understandable. The Committee also concluded that the Annual Report provides the information necessary to assess the Group's position and performance, business model and strategy.

## External audit

Crowe U.K. LLP was re-appointed as external auditor at the 2022 AGM, completed the audit for the year ended 31 August 2022 and provided the Independent auditor's report on pages 94 to 97.

The Audit and Risk Committee reviewed the audit plan including scope and materiality thresholds. It also considered the independence and objectivity of the external auditor, and reviewed the effectiveness of the audit process through inviting feedback from people involved with the external auditor's work across the business, and additional meetings between the Chair of the Committee and the audit partner. The Committee received confirmation from the auditor that it had complied with independence rules and with the Ethical Standards for Auditors. Having reviewed the audit plan, audit findings report and enquiries of management, the Committee concluded that audit effectiveness was satisfactory.

The Committee also reviewed the nature, extent, impact on objectivity and cost of non-audit services provided by the auditor. During the year, Crowe provided no non-audit services. The Committee concluded that the external auditor was independent during the financial year.

The auditor independence policy, which was reviewed by the Committee during the year, prohibits the provision of certain non-audit services by the external auditor, in line with regulatory requirements and UK ethical guidance. It requires the Committee's prior approval of any individual non-audit services with a fee above £25,000, or £50,000 in any aggregate in any financial year.

In response to feedback from investors following the publication of the Group's Annual Report 2021, the Group undertook a tender process for its external auditor this year as Crowe U.K. LLP has provided audit services to the Group for more than nine years. Crowe U.K. LLP was invited to participate in the tender process. The Audit and Risk Committee, assisted by the Chair of the Board, Chief Executive Officer, Chief Financial Officer and members of the Finance function, conducted a detailed tender process and as a result recommend the appointment of Grant Thornton UK LLP. A resolution will be proposed at the AGM to be held on 11 January 2023 (please see the Notice of the AGM on pages 129 to 133) to appoint Grant Thornton UK LLP and to authorise the Directors to determine the external auditor's remuneration.

## Risk and internal control framework

During the year, the Committee reviewed the Group's risk, compliance and internal control framework.

## This included:

• Reviewing and updating the Group's delegation of authority framework, in order to ensure appropriate controls are in place for the approval of certain matters and actions relating to expenditure, contractual exposure and other potential liability for the Group

• Reviewing the effectiveness of the Group's internal control environment and how this has been strengthened through the design and implementation of the new ERP system

• Reviewing the provision of internal oversight and the development of internal audit

• Reviewing the ongoing development of the Group's risk management framework, including assessing the Group's emerging and principal risks and mitigating actions, more information on which can be found on pages 56 to 58

• Reviewing the Group's insurance coverage

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## ESG Committee report

# Embedding sustainability across all aspects of our business

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Meetings

## 5

## ESG Committee members

• Louise Evans (Chair)

• Dick Elsy

• James Routh

## Key activities for the year

• Promoting the Group's contribution to road safety and the associated reduction in road accidents and fatalities

• Promoting the Group's sustainability objectives by assisting in the roll-out of electric vehicles and other lower carbon transport technologies

• Growth of the Group's ESG strategy

• Reviewing the Group's ESG policies, programmes, targets and initiatives

## Dear shareholders,

I am delighted to present my second report as Chair of our ESG Committee.

ESG is an intrinsic part of our core purpose to accelerate our customers' drive towards net zero emissions and to improve road safety and the automation of vehicle applications through leadership and innovation in engineering and technology.

The ESG Committee has continued to set the overall ESG strategy for the Group and provide Board level oversight of the various ESG activities which are embedded throughout our business.

## Role and activities

The role of the Committee includes:

• Promoting the Group's contribution to road safety and the associated reduction in road accidents and fatalities

• Promoting the Group's sustainability objectives by assisting in the roll-out of electric vehicles and other lower carbon transport technologies

• Setting the ESG strategy

• Reviewing the Group's ESG policies, programmes, targets and initiatives

## "We are committed to embedding ESG principles throughout everything we do."

## Activities during the year

The Committee met five times during the year to set out the Committee's role, develop the ESG strategy and bring together the current activities under coherent policies and procedures.

We have set our environmental goal to be carbon neutral by 2030 and are already making good progress against this objective.

Employee health, safety and wellbeing are of paramount importance and this year the Group launched its employee engagement programme and developed the Code of Conduct. We embedded our Vision and Values programme, an initiative developed and led by a group of our emerging leaders from across the business units.

Building on the already well-established governance programme, a continuous improvement approach has been adopted to formalise ESG policies and procedures.

We have appointed CEN-ESG to advise us on optimising our ESG performance and improving our communication to our stakeholders.

## Looking forward

In the coming year we plan to continue with the implementation of our strategy and refine our ESG performance delivery.

Louise Evans
ESG Committee Chair
23 November 2022

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## Our remuneration policy reflects market best practice

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## Meetings

## 7

## Remuneration Committee members

• Richard Hickinbotham (Chair)

• Dick Elsy

• Louise Evans

## Key activities for the year

During the year, the Committee considered:

• Salary reviews for the Executive Directors and senior management

• The 2022 annual bonus plan outturn

• Approval of the 2023 annual bonus plan financial targets and personal objectives for the Executive Directors

• Approval of 2022 LTIP awards and performance conditions

• Review of the Directors' remuneration report

## Dear shareholders,

## Foreward

I am pleased to present the Directors' remuneration report for the year ended 31 August 2022. As a Group listed on the Alternative Investment Market, we are required to comply with AIM Rule 19 in respect of remuneration disclosures. However, the Committee has chosen to provide additional disclosures in line with AIM best practice to enable shareholders to better understand and consider our remuneration arrangements. The report is divided into three sections, being:

• My Annual report, which summarises the Committee and its work, remuneration outcomes in respect of the year just ended and how the remuneration policy will be operated for the forthcoming financial year

• The Remuneration policy report, which summarises the Group's remuneration policy

• The Annual report on remuneration, which discloses how the remuneration policy was implemented in the year ended 31 August 2022 in detail

Consistent with AIM best practice, this Remuneration Committee report will be put to an advisory vote at the AGM in January 2023.

## Remuneration policy

The Committee is conscious of the need to demonstrate good governance. Whilst we recognise our status as an AIM quoted company, the Committee has adopted remuneration structures which reflect good practice. In particular, I would highlight the following:

• The annual bonus for Executive Directors is based on delivering against key financial and strategic performance metrics which are aligned to our business strategy

• 20% of any bonus earned is deferred into shares for a period of three years

• Awards made under the long-term incentive plan (LTIP) vest based on sliding scale, three-year performance metrics measured over a three-year performance period with a further two-year holding period

• LTIP awards are subject to malus and clawback provisions

• Shareholding guidelines operate for the Executive Directors

In addition, the Remuneration Committee will continue to keep abreast of corporate governance and regulatory developments to ensure the continued application of best practice and transparency.

## Performance outcomes

The Group delivered very positive strategic performance and a strong set of financial results during the year, with record levels of order intake, revenue, EBITDA and cash generation, despite the headwinds of global inflation and supply chain constraints. Revenue increased by 23% to £80.3m while operating profit grew by 18% to £12.7m.

Further developments against the Group's strategic priorities included the launch of several new products, development of our service offering to drive recurring revenues, and delivering on our diversification plans through ABD Solutions. We also established a new market facing simulation business, AB Simulation, and further expanded our presence in this market through the acquisition of Ansible Motion which completed shortly after the financial year-end.

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## Remuneration Committee report continued

## Implementation of the policy for the year ended 31 August 2022

In respect of implementing the remuneration policy for the year ended 31 August 2022:

• As detailed in last year's Directors' remuneration report, Executive Director base salary levels were market aligned from 1 September 2021

• Pension provision continued to be aligned to the Company's UK workforce at 10% of salary

• As a result of the Company's performance against the financial and strategic/operational performance targets, the annual bonus paid out at 86% of the maximum for the CEO and 86% of the maximum for the CFO. 20% of the bonus award will be deferred into shares for three years. Details of the performance targets set, and performance against them, are set out in the Annual report on remuneration

The Committee consulted major shareholders at the start of 2022 in respect of a proposal to change the approach to long-term incentive provision in 2022 which included a combination of performance and restricted shares. However, following the consideration of shareholder feedback, the Committee reverted to a more conventional, market aligned and performance based approach for the 2022 LTIP awards. Details of the 2022 LTIP grants are set out in the Annual report on remuneration

• As a result of the threshold EPS and total shareholder return targets not being met, the LTIP awards granted in 2020, with performance targets measured up to 31 August 2022, will lapse in full

## Implementation of the Policy for the year ending 31 August 2023

In respect of implementing the remuneration policy for the year ending 31 August 2023:

• Executive Director base salary levels will be increased from 1 January 2023 in line with the general workforce in respect of both quantum and timing (noting that this is later than the normal 1 September 2022 review date for Executive Directors)

• Pension provision will continue to be aligned to the Group's UK workforce at 10% of salary

• Annual bonus will continue to be capped at 125% of salary for the CEO. Reflecting her performance and increasing experience in the role and noting that her package was set below market levels at recruitment, the CFO's bonus potential will be aligned to the CEO's for the year ending 31 August 2023. Performance metrics for both the CEO and CFO will be based on adjusted EBIT, order intake, cash conversion, gross margin, strategic and ESG

• LTIP awards will be granted over shares equal to no more than 125% of salary (a reduction from the 150% of salary awarded in 2022). In addition to sliding scale earnings per share and relative total shareholder return targets, a three-year cash based target will be introduced given the importance of this metric. The targets for the 2022/23 LTIP award will be set out in an RNS to be announced to the market following their consideration by the Committee in December.

The Committee continues to welcome feedback from shareholders and I hope that we receive your support in future remuneration related votes at our forthcoming AGM.

## "Our remuneration policy accords with the long-term interests of our shareholders."