AB Dynamics plc

Good morning and welcome to the AB Dynamics PLC investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and could be submitted at any time by the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all 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 the management team. Sarah, Ed, good morning.

Good morning. Welcome to the AB Dynamics 2025 full year results presentation. Thanks for joining us. I'm Sarah Matthews-Demiers, currently CFO and from 1st of December, CEO. And I'm joined by Ed Haycock, our Director of Financial Reporting. I'll take you through the highlights before Ed takes you through the financial performance. I'll then provide an update on progress against our medium term growth strategy and the outlook for next year. And then Ed and I will be happy to take questions afterwards. During the year, we made a strong start to delivering our medium term growth plan, delivering operating profits and earnings per share growth of 15%, slightly ahead of upgraded expectations, despite macroeconomic challenges in the second half of the year. Revenue increased by 3%, with double-digit revenue growth in half 1, followed by a more challenging half 2, as timing of order intake was impacted by macroeconomic disruption. Encouragingly, customer activity improved towards the end of the year, and the group carries forward 32 million of orders into FY26, providing good trading momentum into the first half of the year. New product development continues at pace and in line with the technology roadmap for testing products and simulation markets. We received an order just prior to the year end for the recently launched S3 Spin Simulator, which has advanced capability for the growing road car market. Operating profit grew by 15%. Operating margin grew by 210 basis points to 20.3%, achieved through operational improvements and a richer mix of revenue, largely resulting from the timing of order intake and delivery. The operational improvements implemented in recent years have contributed to building a strong platform to support future growth. The benefit of the revenue mix is not expected to be repeated in FY26. However, in the medium term, the board is confident of achieving its sustainable margin target of greater than 20%. The group acquired Bolab, a niche supplier of electronics testing equipment, in half one. The integration is progressing as planned and performance is in line with expectations. Net cash at year end was £41.4 million, after £8.1 million of investment in acquisitions and other capital projects. Our strong operating cash generation and cash conversion of 106% supports further organic and inorganic investment. I'll now hand you over to Ed to take you through our financial performance.

Thanks, Sarah. It's great to be able to present another set of strong financial results. I'll start by taking you through the group's performance, followed by a dive down into each of our three segments, and I'll finish by covering our key financial enablers for future growth. In FY25 we are pleased to report a strong financial performance, where we have continued our track record of delivering consistent revenue and profit growth, backed up by cash conversion. We have delivered significant operating margin expansion, resulting in a 15% increase in operating profit to 23.3 million, which represents a three-year compound annual growth rate of 19%. The effective tax rate reduced slightly to 18% due to a change in the geographic mix of profits. We expect this to trend back upwards in future years in line with our medium-term guidance. EPS has increased by 15% to 18.3 pence, and we have proposed a 20% increase in the dividend, reflecting the Board's confidence in our financial position and prospects. Cash conversion of 106% and our three-year average cash conversion of 112% demonstrates that we are consistently able to turn these growing profits into cash. The order book at the year-end was £32 million. This, combined with post-year-end order intake and additional sources of recurring revenue such as renewal of licences, gives good visibility into FY26. The 15% increase in operating profit was achieved through a combination of volume, sales, sales mix and operational improvements. The 3.4 million increase in revenue dropped through to a 2 million increase in operating profit. Sales mix, which is impacted by the timing of order intake and delivery across our portfolio of products and services, was favourable in FY25, generating a 1.2 million increase to profit year on year. The net benefit of the operational improvements that we have continued to implement across the business has contributed to a £1.1 million increase in profit. The overheads increase of £1.3 million includes the impact of the BOLAB acquisition, inflation and increases to employers national insurance contributions in half too. Although the benefit of the revenue mix is not expected to be repeated in FY26, The operational improvements have been embedded in the business and are expected to contribute to achieving our sustainable medium term target margin of greater than 20%. Our cash conversion of 106% demonstrates a continuation of our track record of turning profits into cash, despite the somewhat lumpy cash profile of our large simulator and SVMM contracts. We have achieved this by maintaining our focus on commercial contracting, inventory levels and ensuring a disciplined approach to cash management. We have reinvested this operating cash into the business, with £4.2 million invested in capital projects, including on new product development in line with our technology roadmap. The acquisition of Bolab for an initial £3.9 million was funded through in-year cash generation. After returning cash to shareholders in the form of dividends, we had a significant net cash balance at the period end of £41.4 million available to support strategic priorities. Moving on to the performance of each segment and starting with testing products, the group's largest segment. This includes driving robots and ADAS platforms, the large SPMM machines, as well as Bolab's test equipment for electronic subsystems. Revenue increased by 7% with growth in robots and the contribution of Bolab offset by lower SPMM sales. The market drivers for testing products continue to support increased track testing activity levels with additional regulation and increased complexity of testing. The increase in margin was delivered through operational efficiencies in supply quality and production layout, together with the effect of the revenue mix. In this segment, the timing benefit of revenue mix, which was driven by a high proportion of high margin robots and lower SPMM revenue, is not expected to be repeated in FY26. Testing services includes our proving ground in California, on-road testing in China, as well as powertrain and environmental testing in Michigan. Revenue increased by 8%, driven by strong growth in the US, where activity levels benefited from new regulatory requirements from the US regulator, NHTSA. After a two-month delay for review by the incoming administration, these have now been confirmed with an implementation date of 2029. Strong customer relationships facilitated cross-selling of VTS's services to a major OEM to whom they were previously not able to gain access, as well as initial sales being made to a number of new market entrants. A long-term testing services contract in China was renewed for delivery in FY26 and beyond. Our simulation segment includes our simulation software RFPro and driving simulators designed and manufactured by Ansible Motion. The decrease in revenue was driven by the timing of simulator order intake in the final quarter of the year, with macroeconomic disruption contributing to delays to customer order placement. Our range of driving simulators was expanded during the year with the launch of the S3 spin we were pleased to receive the first order for this new product towards the end of FY25. High value simulator sales are individually material and revenue recognition continues to be impacted by the timing of order intake and delivery, as does margin. The key enablers for the delivery of our growth plan include our great people. With over 200 qualified engineers and technicians, supported by an experienced team of professionals across sales, operations and finance. Having been with the group for just over a year now, I can personally attest to the breadth of industry knowledge and technical expertise among my colleagues. Our retention rate, which at circa 90% is above industry averages, is testament to the investment that has been made in our people. Our cash conversion record, which we aim to continue at 100% through the cycle. Our strong balance sheet, which gives us flexibility with £40 million of cash and a £20 million RCF vicinity. While we prefer to remain debt free, our debt capacity at 2 times EBITDA is now over £50 million, which for the right acquisition we could use for a short period, then pay down from cash generation. and we will deploy this balance sheet in line with our capital allocation policy, which I'll cover on the next slide. Our capital allocation policy is unchanged, and we are pleased to demonstrate how this is supporting the year-on-year progression of the Group's return on capital employed. Our first priority is to invest in organic R&D and CapEx, then M&A, and finally dividends. We have a disciplined approach to R&D and CapEx, assessing each potential project using structured financial and strategic criteria to ensure alignment with our medium-term growth plan. New product development is critical to our business to ensure our solutions meet the evolving technical requirements of our customers. Our technology roadmap for testing products is designed to address the opportunities of NCAP testing over the next five years based on the long-standing deep customer relationships we have with OEM R&D teams and service providers. Our roadmap covers both hardware improvements, such as the speed and reliability of our ADAS platforms, as well as software enhancements. Where appropriate, we will invest capex to increase production capacity and we will complete our global ERP system rollout, having now embedded this in our core testing products business and driving margin improvement as a result. In M&A, we will continue to target profitable cash generated businesses Any transactions should be EPS-accretive and meet or exceed our internal benchmarks on financial returns. Where this is not the case, we maintain a patient and disciplined approach to ensure we only invest when we can create long-term shareholder value. We have a progressive dividend policy, as shown by our track record of consistent double-digit dividend increases over the last five years. We will only consider returning capital to shareholders if we are holding surplus cash and acquisition multiples ever became unattractive. The graph on the right illustrates that we have deployed capital in a number of ways over the last four years in a disciplined manner and are now starting to see the benefit in the group's return on capital employed metric, which has increased to 20.2% in FY25. I'll now hand over to Sarah to give an update on our growth strategy.