# Chief Executive Officer's review

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/LSE_ABDP.L_2022/LSE_ABDP.L_2022.mmd` · pages 18-24_

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Chief Executive Officer's review continued

## Financial performance

The Group delivered significant revenue growth in the year of 23%, to £80.3m (2021: £65.4m). The second half of the year was particularly strong with revenue of £42.5m (H2 2021: £38.1m), a record half-year period. This growth was delivered despite the ongoing impacts of inflation and supply chain constraints, which were successfully mitigated through proactive inventory management and price increases to the market.

The growth in revenue was delivered by track testing which grew 30%, with laboratory testing and simulation broadly flat. The proportion of recurring revenue continued to increase growing to 41% (2021: 35%), benefitting from the full year impact of the acquisition of VadoTech, which supplemented an increase in sales of software, long-term service and support contracts, spares, maintenance and calibration. The level of recurring revenue is now expected to broadly stabilise ahead of new market offerings which will be released in the near future.

Group adjusted operating profit increased by 18% to £12.7m (2021: £10.8m), a reduction in operating margin of 80bps to 9.0% (2021: 16.6%). The reduction in operating margin was entirely due to our investments in ABD Solutions and capabilities in terms of talent and leadership. Overall Group gross margins improved by 70bps to 57.5% (2021: 56.8%) due to an improvement in the relative mix between the higher margin track testing sector and the lower margin laboratory testing and simulation sector.

Group earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 21% to £16.4m (2021: £13.5m), an EBITDA margin of 20%. The Group delivered strong adjusted operating cash flow of £20.7m with the net cash position at year end of £29.2m (2021: £22.3m) underpinning a robust balance sheet and providing significant funding headroom to support the post-year-end acquisition of Ansible Motion. The strong year-end cash position was delivered despite ongoing investments in new product development, our Group-wide ERP system and payment of the final earnout of £6m to the previous owners of VadoTech.

## Sector review

The track testing business delivered revenue of  \( £64.7m \)  (2021:  \( £49.7m \) ), a 30% increase against the prior year, with growth in sales of driving robots and ADAS platforms and the full year impact of the prior year acquisition, VadoTech. The first half of the financial year showed a strong recovery in track testing activity levels post-COVID with revenues of  \( £30.4m \)  (H1 2021:  \( £20.9m \) ), followed by an even stronger second half with revenues of  \( £34.3m \)  (H2 2021:  \( £28.8m \) ).

Laboratory testing and simulation revenue was flat year-on-year at £15.6m (2021: £15.7m) against a very strong prior year comparator during which revenues grew by 62%. Significant growth in simulation sales with high demand for our simulation software and a VDS simulators was offset by lower SPMM sales due to timing of delivery. The post-year-end acquisition of Ansible Motion will enable further development and growth in this segment in future years.

## Strategic progress

During the year, the Board conducted its annual strategic review which has endorsed the continued focus on building and growing the core business, coupled with delivering on the Group's diversification plans through ABD Solutions. This organic-led growth strategy, compounded through value-enhancing acquisitions, enables the Group to set ambitious aspirational growth objectives.

Following the launch of ABD Solutions at the end of the last financial year, the Group has made strong progress against its stated strategic priorities. ABD Solutions has successfully developed the core modular technology required for our initial market focus in mining and defence and has been successful in winning funded R&D from a major Japanese mining customer and a gold mining operation in Greenland.

In the core business the Group has developed and launched several new products including the new variant of our driving simulator product, the aVDS-HP, aimed at the general automotive market.
The Group also expanded its track testing product offering to cover ADAS testing dummies, including a market-leading articulating pedestrian, a scooter/moped and a motorcycle that can be used in conjunction with the LaunchPad 80 and high test speeds. A new ADAS platform product, LaunchPad Spin, is currently nearing completion, which expands the LaunchPad product family to lower speed, high manoeuvrability applications. We expect that these new products will be market leading and will drive growth in order intake and revenue during 2023.

Towards the end of the financial year the Group launched a new market-facing business called AB Simulation, which encompasses our physics based simulation software, rFpro, the existing AB Dynamics simulator product line and the newly acquired Ansible Motion simulator technology to provide a market-leading range of products to address the growing automotive simulation market.

Following our initial investments in 2022, the Group continues to build both the robust and capabilities in the senior management team with the appointment of a Chief Operating Officer, President Asia Pacific, Managing Director AB Simulation and Group Operational Excellence Director. In addition to these senior hires the Group continues to build out the wider capabilities and has initiated a Professional Development Programme for leaders of the future. More details of the senior management team can be found on page 64, where we describe the structure of the Executive Committee (Excom).

The development of our Group-wide ERP system has progressed significantly during the year, with the first modules having gone live in the UK and the implementation for the wider Group due to commence in 2023.

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## Chief Executive Officer's review continued

## Acquisitions

Shortly after the financial year end, the Group acquired Ansible Motion Limited, a UK-based provider of advanced simulator solutions to the automotive market, for an initial cash consideration of £16.0m and shares in AB Dynamics plc to the value of £3.2m. Subject to financial performance in 2023, there is a potential earnout payment of up to £12.0m, providing a maximum potential consideration of £31.2m.

Ansible Motion designs and manufactures high end motion platform systems for Driver-in-the-Loop development of vehicle dynamics, ADAS and automated systems and already utilises rFpro as its physics based virtual environments. The Ansible Motion range of driving simulators complements the existing product offering from AB Dynamics and provides a comprehensive range of simulators that addresses a wider range of simulator applications.

Ansible Motion will be integrated into the newly formed AB Simulation business unit and will be immediately earnings accretive and is expected to deliver approximately £12m of revenue and approximately £2.2m of adjusted EBIT during 2023.

Following the acquisition of VadoTech Group in March 2021, the business has delivered in line with our expectations at the time of acquisition and integration has now been fully completed, reporting to the President Asia Pacific.

Acquisitions continue to form a key part of the long-term strategic development of the Group and we operate a continuous process to identify and execute acquisition opportunities. The current long-term pipeline remains positive and we expect to continue to deliver further value enhancing acquisitions moving forward.

## Summary

The Group has delivered an outstanding performance against a challenging market backdrop which includes the ongoing impacts of inflation and supply chain constraints. The financial results show further strong progress, delivering record levels of order intake, revenue, adjusted EBITDA and cash generation. In parallel, the Group has further strengthened in terms of strategic position through both organic investments and acquisitions and has now fully built out the senior leadership and operating capabilities.

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

Momentum into the early part of the new financial year has been encouraging, supported by a solid order book providing good visibility through the first half. Whilst being mindful of ongoing supply chain disruption and wider economic uncertainty, the Board remains confident that the Group will make further financial and strategic progress this year and its expectations for FY 2023 are unchanged.

Our market drivers both in our core business and in ABD Solutions remain strong. Despite some potential short-term headwinds relating to global macroeconomic conditions, this backdrop, along with the Group's recent investments in capability and new products, provides confidence of delivering continued progress in 2023 and beyond.

Dr James Routh
Chief Executive Officer
23 November 2022

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# Driving forward

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Social

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## Staff celebration of 40-year anniversary

This year marks the 40 \( ^{th} \)  anniversary of AB Dynamics. The business started in 1982 supplying noise, vibration and suspension engineering services to the automotive industry. Since then, AB Dynamics has grown into an international group of businesses employing more than 500 staff across three continents.

This achievement has only been made possible by the incredible talent within the Company that enables the business to grow and reach its strategic goals. To acknowledge this we invited employees to the headquarters in Bradford on Avon for a celebration event. It was an opportunity to bring all the teams together to enjoy games, wood-fired pizza, ice cream and a pop-up bar.

The event helped to recognise and thank the people in the business, whilst also encouraging an environment of teamwork and communication.

## Tell us about AB Simulation and Ansible Motion?

As the market for advanced simulators and simulation software continues to grow and develop, we have made the strategic decision to establish AB Simulation to capitalise on the opportunities in this sector. AB Dynamics already had a strong position in driving simulators through the aVDS product range and in physics-based simulation software through rFpro, and the acquisition of Ansible Motion expands the driving simulator product range and adds significant R&D and manufacturing capability. The combined business now has a comprehensive product, technology and commercial offering.

## What progress has ABD Solutions made since launching in 2021?

ABD Solutions has made significant technical and commercial progress during the year. From a standing start we have created a highly capable team with a combination of both internal and external talent and established the brand and market proposition. We have successfully demonstrated the core technology on articulated, hydrostatically steered mining trucks, including the integration of sensor technology and perception algorithms.

In parallel, we were successful in gaining R&D funding from a major Japanese mining customer who will further assist us in refining the applications specific elements of the control software and gain system sales in the region.

## How is the balance of focus being maintained between the core business and ABD Solutions?

We are of course committed to our core business in terms of continuous investment in new product development, expanding our capabilities and working in partnership with our customers on new technologies. In parallel, we have invested into ABD Solutions to provide a degree of diversification by market sector. Both areas are equally important and are subject to a balanced approach in terms of management focus.

## How has the Group's ESG strategy progressed?

ESG is an intrinsic part of our stated strategic purpose and during the year we have significantly developed our ESG strategy by refining our ESG operating model and engaging with an independent adviser on ESG strategy and disclosure. Earlier in the year we were proud to have gained MSCI AA rating, as well as ISO 14001 in our UK and German operations. We have increased our environmental disclosure to ensure we have a clear baseline on which to base our CO \( _{2} \)  reduction activities towards our 2030 goal of becoming carbon neutral. We have redefined our CSR criteria and expanded our employee engagement programme and for another year we continue to be proud of our strong health and safety record.

## What does the future look like for the Group?

The Group has a strong track record of both organic and acquisitive growth. Our resilient business model is supported by long-term regulatory and structural growth drivers in the fields of ADAS, electrification and automation of vehicle applications. These growth drivers, coupled with our ongoing investment in new products and technology, capabilities and talent, position AB Dynamics very well for ongoing future growth.

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Operational review – Track testing

# Advancement of ADAS testing
solutions and broadened portfolio
drives growth

## Introduction

The Group's track testing sector provides products and services utilised on proving grounds, test tracks and public roads to evaluate the performance of vehicle active safety systems, autonomous technologies, electric vehicles and vehicle dynamics. The sector is broadly split into the three primary sub-sectors of driving robots, ADAS platforms and testing services and all track based systems are controlled by our comprehensive control software.

Driving robots are used to replace a test driver in the vehicle under test to provide highly accurate and repeatable driving performance and can be delivered through direct electromechanical actuation or via drive-by-wire systems. The driving robot system is controlled by the Group's Synchro or Ground Traffic Control software and integrates with other test objects including the ADAS test platforms.

ADAS test platforms are used as vehicle or vulnerable road user (e.g. pedestrians, cyclists, motorcyclists) objects in each test scenario and include the GST and LaunchPad. The GST is a very low-profile electric vehicle onto which a radar representative soft car is mounted. The LaunchPad has similar characteristics to the GST but is smaller and used to mount other potential objects such as pedestrians, cyclists and motorcycles. In both cases, the platforms are designed to withstand failed tests whereby the vehicle under test strikes the test object and moves over the platform. The ADAS platforms are controlled and synchronised with the vehicle under test by our comprehensive suite of software.
The Group operates a test facility in Bakersfield, USA, where testing of ADAS systems and vehicle dynamics is performed using the ABD track testing product range for OEMs, technology developers and government agencies.

In China the Group provides on-road vehicle testing services for the assessment of all aspects of vehicle performance, particularly focusing on electric vehicle performance, charging capability and vehicle connectivity.

The market drivers for growth in the track testing sector are detailed in our markets and strategy section on page 8

![](images/21_0.jpg)

## Highlights 2022

• AB Dynamics' newest range of ADAS platforms (GST 120 and LaunchPad 80) approved as test tools for official Euro NCAP testing

• New test requirements aimed at protecting motorcyclists drive strong demand for LaunchPad 80

• Increased demand for driving robots to support core vehicle development and development of new electric vehicle models

• Requirements for automated driving functions fulfilled using guided soft targets as Mercedes-Benz introduces 'Drive Pilot' (first approved level 3 Automated Lane Keeping System (ALKS))

• Group collaboration sees the launch of next generation of VRU ADAS targets including new pedestrian and motorcycle dummy

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## Operational review – Track testing continued

## Financial performance

The track testing business delivered revenue of £64.7m (2021: £49.7m), a 30% increase against the prior year and a 32% increase at constant currency. The first half of the financial year showed a strong recovery in track testing activity levels post-COVID-19 with revenues of £30.4m (H1 2021: £20.9m), followed by an even stronger second half with revenues of £34.3m (H2 2021: £28.8m).

The track testing performance was driven by notable sales growth across driving robots, ADAS platforms and testing services following the recovery of order intake in H2 2021. The full year impact of the prior year acquisition, VadoTech, delivered an additional £4.3m of revenue.

Order intake within track testing was significantly higher than revenue, with orders strongly weighted to the second half of the financial year. Overall book to bill ratios were positive for all track testing product categories, including driving robots, which provides confidence for FY 2023.

Driving robot sales increased 22% to £20.6m (2021: £16.9m), following the recovery of order intake during H2 2021. The Group expects continued moderate growth in driving robots once new regulatory requirements for new ADAS technologies are released.

Revenues in ADAS platforms increased 31% to £29.7m (2021: £22.7m) due to the strong first half of the financial year with revenue recovering strongly in H1 to £13.3m (H1 2021: £9.6m). Demand for ADAS platforms, particularly the LaunchPad family of products, continues to build, in particular the Group's new LaunchPad 80 product used for testing higher speed objects such as motorcycles. The Group also launched the GST 120 during the year, providing the ability to test up to 120 kph and providing enhanced deceleration capabilities through its anti-lock braking system (ABS). The LaunchPad 80 and the GST 120 have now been approved as official Euro NCAP testing equipment, which will further strengthen demand.
The regulatory trend towards multi-object test scenarios will further drive demand for a range of platforms that meet these test requirements, including platforms to carry a range of objects (e.g. pedestrian dummies, cyclists, scooters, motorcycles, etc.) that can operate at a range of speeds and can interact with a variety of test vehicles from passenger cars to commercial vehicles. The recent launch of a range of ADAS testing dummies, including an articulated pedestrian and a motorcycle further expand the Group's offering in this area.

Revenue related to the provision of testing services increased 43% to £14.4m (2021: £10.1m) due to the full year impact of the acquisition of VadoTech Group in the prior year, partly offset by a weaker performance at DRI. Track testing operations at DRI were impacted due to the US government delaying the award of new contracts from the government agency NHTSA.

## Progress during the year

The Group continues to build customer relationships, drive improvement in revenue and gross margins and invest in new product development to meet the growing demand from manufacturers and test providers to keep up to date with changes in regulations.

The growth in testing volume and complexity continues to drive demand for ADAS platforms and driving robots that are both more capable and more versatile. To recognise the need for new test tools, this year Euro NCAP updated its listing of equipment used in official testing to include AB Dynamics' latest and most capable platforms (LaunchPad 80 and GST 120). These, together with the new articulating dummy and soft motorcycle 360, the Group continues to expand its end-to-end market offering.

The Group delivered continued growth in the proportion of recurring revenue through further success in the sales of tiered service and support packages to the existing customer base.

## "All AB Dynamics platforms are now included on the official Euro NCAP listing of test equipment."

## Track testing revenue

![](images/22_0.jpg)

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## Operational review – Track testing continued

## Principal operations

The track testing sector principally operates from the AB Dynamics headquarters in Bradford on Avon (UK), with sales and support offices located in Giessen and Munich (Germany), Yokohama (Japan) and Wixom (Michigan, USA). The track testing services business is based in Torrance and Bakersfield (California, USA). The on-road testing services business is based in Beijing (China) with a regional HQ in Singapore.

![](images/23_0.jpg)

## Growth potential

The anticipated launch of Euro NCAP's new roadmap for 2025-2030 brings the prospect of further new test requirements, including:

• New tests for automated driving functions

• Enhancements to vehicle safety assist functions

• The inclusion of testing of heavy trucks, expanding the newly introduced commercial vehicle rating scheme

• Additional and enhanced categories of test targets to complement diversity in road users and increased sophistication of sensors

AB Dynamics contributes to the development of the Euro NCAP roadmap for safer vehicles through participation in industry collaboration projects, such as Safety Enhancement through Connected Users on the Road (SECUR), a consortium project set up to establish test methods for evaluating connected vehicle technology.

## Track testing sales growth (£m) – CAGR 36%

<table><tr><td></td><td></td><td>64.7</td></tr><tr><td>2022</td><td></td><td>49.7</td></tr><tr><td>2021</td><td></td><td>51.8</td></tr><tr><td>2020</td><td></td><td>49.8</td></tr></table>

## Product sales breakdown

![](images/23_1.jpg)

£64.7m

Driving robots £20.6m

ADAS platforms £29.7m

Track testing services £14.4m

"New regulatory requirements driving growth."

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## Operational review – Laboratory testing and simulation

# Strong operational delivery and ongoing organic and acquisitive investment in simulation

## Introduction

The Group's laboratory testing and simulation sector provides advanced products used to characterise the dynamics of vehicles and replicate the real world in a simulated environment for applications such as vehicle dynamics, ADAS and autonomy. The sector is split into two primary sub-sectors of laboratory testing equipment such as Suspension Parameter Measurement Machines (SPMM) and simulation.

In simulation the Group provides both physical simulators and advanced, physics based simulation software. Simulators are used by both automotive manufacturers and motorsport teams to accurately represent the real world utilising the rFpro software, coupled with state-of-the-art, high frequency response and low latency motion platforms and static driving simulators. Parameters such as vehicle dynamics, tyres, environmental conditions, material properties, sensors and light conditions (including shadows and reflections) can be adjusted, and the variance simulated in a highly accurate model.

The Group's SPMM products are large scale testing rigs used to characterise the kinematics and compliance of vehicles. These machines are widely used by automotive OEMs and tier one suppliers to characterise vehicle dynamics, as well as providing vital input data to be used in simulation. The ANVH product is a testing machine used to optimise suspension systems early in the development cycle to reduce noise, vibration and harshness (NVH) transmission to the vehicle cabin. This is particularly useful in electric vehicles, where road noise and vibration are the predominant source of noise.

![](images/24_0.jpg)

"Our simulation sector continues to perform well, supported by our organic and acquisitive investment in capability and market growth drivers."

## Highlights 2022

• Good simulation growth of 12% against a very strong prior year comparator with a particularly strong increase in sales of rFpro software

• Delivery of the new, highly capable aVDS-HP simulator to a major automotive OEM and its subsequent market launch

• The Group delivered SPMM number 40 to Toyota in Japan, highlighting the longevity and market-leading performance of our kinematics and compliance capability

• Post-year-end acquisition of Ansible Motion in the UK expands the simulator product portfolio to address a wider range of applications and will be immediately earnings accretive

• Acquisition of simulator technology intellectual property will further accelerate simulator product development with the intention of releasing new products to market in late 2023

• A new market facing business unit formed during the year and includes rFpro (acquired in 2019) and Ansible Motion acquired post-year-end