AB Dynamics plc

Good morning and welcome to the AB Dynamics PLC investor presentation. Throughout this recorded presentation, investors will be in listening mode. Questions are encouraged and can be submitted at any time. By the Q&A tab, sit right in the right corner of your screen, just simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, the company can review the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO James Rath. Good morning to you, sir.

Good morning, everyone, and welcome to the AB Dynamics 2024 Full Year Results presentation. I'm James Routh, the CEO, and I'm joined today by Sarah Matthews Demeers, our CFO. I'm going to be taking you through some highlights before Sarah takes you through the detailed financial performance, followed by a summary of ABD's transformation since 2020, demonstrating our track record. Following this, I'm excited to provide an illustration of our medium-term growth ambitions and the details of our value creation roadmap before wrapping up with a summary of 24 and the outlook. So starting with the highlights. During the year and in line with our performance model, we delivered strong financial results with 10% growth in revenue and 22% growth in operating profit. Activity levels within our markets and customers have remained positive with strong activity across all three of our sectors. As a core element of our strategy, new product development continues at pace and in line with the technology roadmap for our testing products and simulation markets, and we launched multiple new products to market. I'm very pleased to announce an initial contract win for ABD Solutions for £2 million for an automated mileage accumulation solution for delivery during FY25, with potential for further follow-on orders, demonstrating the value of our investment in this technology accelerator. During the second half, we completed the acquisition of VTS, providing testing services in the US, with integration progressing as planned. And after the period end, we acquired BOLAB Systems, a German supplier of testing products, continuing our track record of successful inorganic growth. And finally, for the highlights, we were particularly pleased to achieve MSCI AAA rating, reflecting excellent progress on our sustainability strategy and strong governance. So I'll now hand over to Sarah to take you through our detailed financial performance.

Thanks James. I'm delighted to be able to present results that show the impact of the effort and investment put in over the last five years. We now have a strong and stable platform that has enabled us to deliver consistent revenue and profit growth backed up by cash conversion. Revenue increased by 10% with strong growth across testing products and services. operating profits increased by 22% to 20.3 million. We've delivered operating margin expansion up 170 basis points to 18.2%, a significant step towards our target of 20% plus margins. Despite an increase in the tax rate to 18.7% due to the increase in the UK rate, EPS has increased by 15% to 70 pence. We're increasing the dividend by 20%, reflecting our confidence in the business. Cash conversion of 115% and our rolling three-year average cash conversion of 116% demonstrates that we are consistently able to turn these growing profits into cash. The order book of 30.3 million covers approximately 25% of FY25 expected revenue, reflecting the standard lead time for testing products of around three months. This, combined with additional sources of recurring revenue, such as renewal of licenses, gives good visibility into the first half of FY25. Revenue increased across all three sectors. Testing products, the group's largest sector, increased by 10%, or 8.4 million, with growth in robots and ADAS platforms supported by the increasing volume and complexity of testing on new vehicle models. Testing services saw a significant increase, with revenue up 29%, following a relaxation of 2023's pandemic restrictions and improved access to vehicles for testing. The acquisition of BTS contributed a million pounds of revenue in the second half. Simulation revenue increased by 1%, with growth in simulation software offset by lower revenue from simulator motion platforms. due to the timing of order intake for these large capital items. The three simulators that were in build at the half year were delivered during the second half. Currency provided a small headwind, but had no material impact. Turning to profit, the volume increase dropped through to a £6.2 million increase in gross profit. Gross margin remained consistent with the previous year, with operational improvements in testing products and increased utilisation in US testing services, offset by a change in mix in simulation. The overhead increase reflects the impact of high levels of inflation seen at the beginning of the year. Delivery of 20 million of profit represents a step forward in operating margin to 18.2%, demonstrating continued margin progression. Our continued operating cash generation enabled us to invest 22 million in the future of the business through capex and acquisitions. The acquisition of VTS was funded through in-year cash generation, as was the final answer for motion payment. After returning cash to shareholders in the form of dividends, we had a significant net cash balance at the year end of 28.6 million available to support strategic priorities. £4.2 million of this was used to fund the acquisition of Bolab after the year end. Moving on to the performance of each segment and starting with testing products, this segment includes driving robots and ADAS platforms and the large SPMM machines. The revenue growth was driven by the increased regulation and the increased complexity of testing, along with new product launches of the launchpad spin and additional soft targets. The increase in margin demonstrates the benefit of the investment in the business infrastructure and capability made in previous years, with operating leverage of higher volumes dropping through. Testing services includes our creaming ground in California, which benefits from the same increases in regulation as testing products, and on-road testing in China, as well as mileage accumulation and environmental testing in Michigan. As I mentioned, we saw strong recovery in US activity levels, with better availability of customer vehicles and new contract awards from the US regulator NHTSA. The Chinese market returned to the pre-pandemic operating environment. The acquisition of VTS in half two performed in line with expectations, with the integration progressing as planned. Margin improvement was driven by the increase in volume. Simulation includes our simulation software RFPro and driving simulator motion platforms. Following the 2023 acquisition of Ansible, the simulator product range is now fully aligned across the group's portfolio and we saw strong growth in simulation software across the motorsport and OEM markets. We've also established agreements with technical partners in both software and motion platforms to deliver advanced simulation and testing capabilities. High-value simulator sales are individually material, and revenue recognition continues to be impacted by the timing of delivery, as does margin. The prior year benefited from a significant high-margin contract, which was not repeated in the current year. We thought it would be useful to set out how we've developed the business we inherited to bring it to the point where we have a solid platform for the next period of growth, more of which from James later. As a reminder, here are the objectives we set out in 2019 and achievements against them. We've invested in R&D to enhance our product range, invested in people, infrastructure, skills and capabilities to right-size the business for the next phase of growth, and invested in geographical coverage to improve our support capability, which, along with the expansion of testing services, has led to an increase in recurring revenue to 45%. This, along with six acquisitions, has built out our customer offering. We've also built out our governance framework. The share price performance and key valuation metrics reflect the improvement in maturity and quality of the group. In short, we've done what we said we were going to do. As a result, we now have a business which has coverage, recurring revenue, resilience, and strong financial fundamentals of organic growth improving margins and strong cash generation. The graphs show our strong track record of improvement in our key metrics. Our ability to turn our profits into cash is demonstrated by the rolling three-year average cash conversion of 116%. We've delivered this while investing in our operating capability and capacity to build robust foundations for further profitable growth. All of this puts us in a great place to continue to grow revenue, expand margins and invest in further acquisitions. The key financial enablers behind this include our capital allocation policy, which is unchanged. Our first priority is to invest in organic R&D and CapEx and in ABD solutions. Then M&A and finally dividends. We aim to continue our cash conversion record at 100% through the cycle. Our strong balance sheet gives us flexibility, with £30 million of cash and a £15 million RCF facility. While we prefer to remain debt free, our debt capacity at 2 times EBITDA is now approximately £50 million, which for the right acquisition we could use for a short period, then pay down from cash generation. All this is underpinned by our great people, with 200 qualified engineers and technicians, forced by an experienced team of professionals across sales, operations and finance. I'll now hand over to James to set out the next stage of growth and our medium term objectives.