Final Results

RNS Number : 3336T

AB Dynamics PLC

24 November 2021

 

24 November 2021

AB Dynamics plc

Final Results for the Year Ended 31 August 2021

"Robust performance supported by recovering demand and strategic progress"

AB Dynamics plc ("AB Dynamics", the "Company" or the "Group"), the designer, manufacturer and supplier of advanced testing systems and measurement products to the global automotive market, is pleased to announce its final results for the year ended 31 August 2021.

	Audited 2021 £m	Audited 2020 £m
Revenue	65.4	61.5	+6%
Gross margin	56.8%	58.4%	(160 bps)
Adjusted operating profit1	10.8	11.3	(4%)
Adjusted operating margin1	16.6%	18.4%	(180 bps)
Statutory operating profit2	4.2	4.8	(12%)
Adjusted cash flow from operations1	16.0	6.9	+131%
Net cash	22.3	30.0	(26%)
	Pence	Pence
Adjusted diluted earnings per share1	37.4	39.9	(6%)
Statutory diluted earnings per share2	13.1	17.8	(26%)
Total dividend per share	4.8	4.4	+10%

¹ Before amortisation of acquired intangibles, acquisition related charges and exceptional items. A reconciliation to statutory measures is given below.

² The prior year comparative has been restated to reflect the write off of previously capitalised ERP development costs on adoption of the IFRIC update on cloud computing arrangements.

Financial highlights

· Strong second half performance, managing supply chain disruption and currency headwinds effectively in order to meet strengthening demand during the period

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

· Revenue for the first half of the year was broadly comparable to H2 2020 with COVID-19 impact continuing into the current year

· Track testing revenue decreased by 4%, impacted by COVID-19 disruption to customer testing activity, although driving robot and Advanced Driver Assistance System (ADAS) platform revenue recovered well during the second half

· Laboratory testing and simulation revenues increased by 62% as a result of significant growth in SPMM and simulation revenues following the deferments in the prior year and successful sales campaigns

· Reduction in adjusted operating margins to 16.6% driven by product mix and continued strategic investment in capability to support long-term growth drivers

· Significant cash generation of £16.0m (2020: £6.9m) leaving net cash at year end of £22.3m (2020: £30.0m) after funding the acquisition of Vadotech and investing £6.6m in capital expenditure in the period

· Proposed final dividend of 3.2p per share, with total dividend of 4.8p per share (2020: 4.4p per share) reflecting the Board's confidence in the Group's financial position and prospects

Operational and strategic highlights

· 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 through acquired businesses and increased sales of service and support contracts

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

· 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

Current trading and outlook

· Q1 trading to date in line with H2 2021 exit rate

· Customer operations remain disrupted in some locations, but underlying demand recovery continues to strengthen with sustainable long-term structural and regulatory growth drivers remaining intact

· Supply chain disruption expected to persist into the current year, with further operational initiatives in train to meet demand  

· Progress in development of ABD Solutions with investment required during 2022 to generate incremental growth opportunities thereafter

· Continued innovation and capability investment generating positive commercial momentum

· Well placed and sufficiently invested to capitalise on opportunities

There will be a presentation for analysts this morning at 9.30am at the London Stock Exchange.  Please contact [e-mail] if you would like to attend.

Commenting on the results, Dr James Routh, Chief Executive Officer said:

"The Group has delivered another year of strong performance, despite the ongoing impacts of COVID-19, particularly in the first half of the year. The second half delivered record levels of order intake, revenue and cash generation, which provides a strong foundation for continued growth in 2022.

Against the backdrop of continued market uncertainty, the Group continued to invest in all areas of the business, further supporting our ambitious growth plans. During the year, we made demonstrable progress in evolving the Group's strategic direction, both with the acquisition of Vadotech and also through the launch of ABD Solutions, a major new growth initiative to diversify the business. The Group also continued to strengthen the operational and commercial platform of the business through investing in new product development, capabilities and the senior management team.

Our market drivers remain strong. Against that background and based on the recent track record of strong order intake and continued strategic investment, the Board is confident of delivering progress during 2022 and beyond."

 

Enquiries:

AB Dynamics plc	01225 860 200
Dr James Routh, Chief Executive Officer
Sarah Matthews-DeMers, Chief Financial Officer
Peel Hunt LLP	0207 418 8900
Mike Bell Ed Allsopp
Tulchan Communications	0207 353 4200
James Macey White
Matt Low
Laura Marshall

The person responsible for arranging the release of this information is David Forbes, Company Secretary.

About AB Dynamics plc

AB Dynamics is a leading designer, manufacturer and provider of advanced products for testing and verification of Advanced Driver Assistance Systems ("ADAS") technology, autonomous vehicle development and vehicle dynamics to the global automotive research and development sector. 

AB Dynamics is an international group of companies headquartered in Bradford on Avon.  AB Dynamics currently supplies all the top automotive manufacturers, Tier 1 suppliers and service providers, who routinely use the Group's products to test and verify vehicle safety systems and dynamics.

 

Group overview

The Group delivered a robust performance against continued macroeconomic challenges due to the ongoing COVID-19 pandemic, in what has been another year of fluctuating market conditions and change.

The performance during the year was split by two markedly differing halves. As expected, the first half performance was characterised by ongoing market impacts from COVID-19, followed by an exceptional second half performance with the Group delivering record levels of order intake and revenue for a half year period, despite certain supply chain constraints and the impact of staff isolation in the UK.

The Group continued to deliver progress against our stated strategic priorities, with the acquisition of Vadotech delivering both expansion of our international footprint and increasing our service capability. We have also expanded our strategy and put in place plans to diversify the business into large, attractive adjacent markets through our new business unit, ABD Solutions.

The current market conditions and strong second half order intake performance provide a solid platform for continued growth and performance during 2022.

Financial performance

The Group results show revenue growth of 6% to £65.4m (2020: £61.5m) with the significant majority of £38.1m delivered in the second half of the financial year, which is the highest half-year revenue during the Group's history. Despite the adverse impacts of UK-based staff isolations, supply chain constraints and adverse foreign exchange impacts, the Group second half revenue growth of 42% (H2 2020: £26.8m) was strong, driven by ADAS platforms, laboratory testing and simulation sales and the acquisition of Vadotech and is 19% higher than the comparable period in the pre-COVID-19 financial year (H2 2019: £32.1m). 

Organic revenue decreased by 3%, or 1% on a constant currency basis, with the first half of the prior year being a particularly strong comparative, having been concluded before the impact of COVID.

Excluding the distortive H1 comparative, organic revenue has improved, increasing from £26.8m in H2 2020 to £32.2m in H2 2021, growth of 20%.

The Group continues to increase the proportion of recurring revenue which grew to 35% (2020: 28%) through a higher proportion of sales relating to software and services and further enhanced by the recent acquisition of Vadotech Group.

Gross margins reduced by 160 bps to 56.8% (2020: 58.4%), impacted by a higher proportion of large capital equipment revenues in laboratory testing and simulation, which are lower margin than the Group's other products and services.

Adjusted operating profit decreased 4% to £10.8m (2020: £11.3m), a reduction in adjusted operating margin of 180 bps to 16.6% (2020: 18.4%). The reduction in operating margin was impacted by the dilution of the gross margin and continued investment to further strengthen the Group's operational and commercial platform through investment in senior management, people and systems.

The Group delivered strong adjusted operating cash flow of £16.0m with the net cash position at year end of £22.3m (2020: £30.0m) underpinning a robust balance sheet, despite the acquisition of Vadotech Group for gross consideration of £17.3m and capital investment in our new Engineering Design Centre, an expanded test track facility in California and ongoing new product development, totalling £6.6m.

Net finance costs were £0.4m (2020: £0.4m), with lease interest of £0.1m and the unwinding of the discounted value of the deferred consideration on Vadotech of £0.3m.

This left adjusted profit before tax of £10.4m (2020: £10.9m).

The Group adjusted tax charge totalled £1.9m (2020: £1.9m), an adjusted effective tax rate of 18.2% (2020: 17.7%). The effective tax rate is lower than the current UK corporation tax rate due to allowances for research and development and patent box.

Adjusted diluted earnings per share were 37.4p (2020: 39.9p), a decrease of 6%.

Statutory operating profit decreased by 12% to £4.2m (2020: £4.8m) and after net finance costs of £0.4m (2020: £0.4m), statutory profit before tax decreased by 14% from £4.3m to £3.8m, giving statutory basic earnings per share of 13.2p (2020: 17.9p). The statutory tax charge was £0.8m (2020: £0.3m). A reconciliation of statutory to underlying non-GAAP financial measures is provided below.

Sector review

The track testing sector delivered revenue of £49.7m (2020: £51.8m), a 4% reduction on the prior year and a 2% reduction at constant currency. The first half of the financial year showed a continued impact of COVID-19 with revenues at £20.9m (H1 2020: £29.6m), with a strong recovery in second half revenues to £28.8m (H2 2020: £22.2m). 

The track testing performance was characterised by a reduction in sales of driving robots, ADAS platforms and track test services at Dynamic Research Inc (DRI), offset by the initial contribution from road-based testing at Vadotech.

Driving robot sales reduced by 20% to £16.9m (2020: £21.1m), particularly in the second half, as lower H1 order intake impacted H2 revenues. Order intake for driving robots recovered strongly in H2 with full- year order intake significantly higher than 2020. The Group expects a moderate growth in driving robots once new regulatory requirements for new ADAS technologies are released.

Revenues in ADAS platforms reduced 6% to £22.7m (2020: £24.1m) due to the weaker first half of the financial year with revenue recovering strongly in H2 to £13.1m (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.

The 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.

Revenue related to the provision of testing services increased 53% to £10.1m (2020: £6.6m) due to the impact of the acquisition of Vadotech Group in March 2021, partly offset by a weaker performance at DRI. Track testing operations at DRI were impacted in H1 by the COVID-19 pandemic preventing physical testing taking place and the change in the US government delayed the award of new contracts from the government agency NHTSA.

The laboratory testing and simulation sector delivered strong overall revenue growth of 62% to £15.7m (2020: £9.7m), through significant growth of 28% in Suspension Parameter Measurement Machine (SPMM) sales revenue and a very strong simulation performance, growing by 98%. Many of the H2 2020 deferred orders for larger capital items such as SPMM and Advanced Vehicle Driving Simulator (aVDS) were received, which supported the strong revenue performance.

The growth in sales revenue in laboratory testing equipment (including SPMM) of 28% to £6.4m (2020: £5.0m) was due to continued strong demand from China, with order intake continuing through H2 to support the delivery of FY 2022 revenue. The manufacture of the first ANVH test machine to a major automotive OEM is nearing completion, which contributed to the laboratory testing and simulation sector performance.

The simulation sector performed very well with revenue growth of 98% to £9.3m (2020: £4.7m) due to the delivery of several aVDS simulator systems and a recovery in revenues at rFpro following the delays to the motorsport season in FY 2020. The outlook for simulation is robust with a strong order book for aVDS simulators and the market for rFpro simulation software supporting continued growth.

Strategic progress

The Group continues to make good progress against its stated core strategic priorities, as well as expanding the strategy to include diversification and further integrating ESG as a core tenet.

Following a comprehensive review of the potential market for leveraging our core technologies, the Group established ABD Solutions, a new business unit focused on the application of robotics technology and control in attractive adjacent markets to automate selected vehicle applications. Initial market sectors for ABD Solutions are mining, agriculture, materials handling and defence applications.

It is important to emphasise that this new business unit is incremental to our existing business and our previously stated strategic plans around the core business remain firmly in place. During the year, we continued to invest in both R&D and capabilities to expand this attractive core market. AB Dynamics completed the build and fit out of the new Engineering Design Centre in the UK, housing the engineering teams of AB Dynamics, a simulation development area and demonstration suite, laboratories and prototyping facilities. A range of new products were launched to market, in particular, the LaunchPad 80, Guided Soft Target 120 and aVDS Mk2. All new product launches have gained significant market traction and provided a strong contribution to the recent growth in order intake.

Significant ongoing investment has been made in building the bench strength and capabilities in senior management. During the year, the Group established a divisional management structure, with the recruitment of senior regional leadership, and further build out of the corporate team with the appointment of a Chief Strategy Officer. Additional investments have been made at all levels of management to ensure solid foundations are established for our ambitious growth plans.

Acquisitions

During the second half of the year, the Group acquired Vadotech Group for a maximum consideration of up to €26m. Vadotech Group is a leading supplier of testing services in the Asia Pacific region, headquartered in Singapore with key operations in China, Japan and Germany. Vadotech Group expands the range of services offered by the Group into full vehicle assessments, particularly to German OEMs, under long-term customer framework agreements and has established an electric vehicle and e-mobility training centre in Germany. The acquisition provided a strategically important footprint in the Asia Pacific region, allowing the introduction of our new divisional operating hub in Singapore. Vadotech Group has performed well since acquisition and in line with the Board's expectations.

Acquisitions have and will continue to be a significant part of our overall strategy.

Alternative performance measures

In the analysis of the Group's financial performance and position, operating results and cash flows, alternative performance measures are presented to provide readers with additional information. The principal measures presented are adjusted measures of earnings including adjusted operating profit, adjusted operating margin, adjusted profit before tax and adjusted earnings per share.

This financial information includes both statutory and adjusted non-GAAP financial measures, the latter of which the Directors believe better reflect the underlying performance of the business and provide a more meaningful comparison of how the business is managed and measured on a day-to-day basis. The Group's alternative performance measures and KPIs are aligned to the Group's strategy and together are used to measure the performance of the business and form the basis of the performance measures for remuneration. Adjusted results exclude certain items because if included, these items could distort the understanding of the performance for the year and the comparability between the periods.

We provide comparatives alongside all current year figures. The term 'adjusted' is not defined under IFRS and may not be comparable with similarly titled measures used by other companies. All profit and earnings per share figures in this financial information relate to underlying business performance (as defined above) unless otherwise stated.

A reconciliation of statutory measures to adjusted measures is provided below:

	2021			2020
	Statutory	Adjustments	Adjusted	Statutory*	Adjustments*	Adjusted
Operating profit (£m)	4.2	6.6	10.8	4.7	6.6	11.3
Operating margin (%)	6.4	10.2	16.6	7.7	10.7	18.4
Profit before tax (£m)	3.8	6.6	10.4	4.3	6.6	10.9
Taxation (£m)	(0.8)	(1.1)	(1.9)	(0.3)	(1.6)	(1.9)
Profit after tax (£m)	3.0	5.5	8.5	4.0	5.0	9.0
Diluted earnings per share (pence)	13.1	24.3	37.4	17.8	22.1	39.9
Cash flow from operations	14.3	1.7	16.0	6.2	0.7	6.9

The adjustments comprise:

	2021	2020 (Restated)*
	£m	£m
Amortisation of acquired intangibles	4.4	3.5
Acquisition related (credit) / costs	0.8	(1.9)
ERP development costs	1.4	0.7
Inventory impairment	-	3.3
Restructuring	-	1.0
Adjustments	6.6	6.6

*Comparatives have been restated following the adoption of IFRIC update on cloud computing arrangements.

Adjustments totalled £6.6m (2020: £6.6m), of which £4.4m related to amortisation of acquired intangible assets, £0.8m to acquisition costs and £1.4m to ERP development costs, which, following an update to the accounting standards in relation to cloud computing arrangements, can no longer be capitalised.

Return on capital employed (ROCE)

Our capital-efficient business and high margins enable generation of strong ROCE (defined as adjusted operating profit as a percentage of capital employed). However, in the years in which we acquire businesses or new properties, our capital base grows disproportionately with profit, therefore the ratio will be impacted. The current year has been impacted by the acquisition of Vadotech and commissioning the new Engineering Design Centre, accounting for the decrease in ROCE in the year from 15.2% in 2020 to 11.5% in 2021.

Research and development

While research and development forms a significant part of the Group's activities, a significant proportion relates to specific customer programmes which are included in the cost of the product. Development costs of £1.2m (2020: £0.2m) have been capitalised in relation to projects for which there are a number of near-term sales opportunities. Other research and development costs, all of which have been written off to the income statement as incurred, total £0.5m (2020: £0.8m).

Foreign exchange translation has provided a minor headwind on revenue and profit, with the US dollar, euro and yen all weakening against sterling. On a constant currency basis, restating the current year at 2021 average rates, revenue would have been £1.5m higher and adjusted operating profit £0.2m higher. 

Dividends

The Board is recommending a final divided of 3.24p per share giving a total dividend for the year of 4.84p per share, which is an increase of 10% over the prior year, resuming the Board's progressive dividend policy.

Summary and outlook

The Group has delivered another year of strong performance, despite the ongoing impacts of COVID-19, particularly in the first half of the year. The second half delivered record levels of order intake, revenue and cash generation, which provides a strong foundation for continued growth in 2022.

Against the backdrop of continued market uncertainty, the Group continued to invest in all areas of the business, further supporting our ambitious growth plans. During the year, we made demonstrable progress in evolving the Group's strategic direction, both with the acquisition of Vadotech and also through the launch of ABD Solutions, a major new growth initiative to diversify the business. The Group also continued to strengthen the operational and commercial platform of the business through investing in new product development, capabilities and the senior management team.

Our market drivers remain strong. Against that background, and based on the recent track record of strong order intake and continued strategic investment, the Board is confident of delivering progress during 2022 and beyond.

 

Directors' Responsibility Statement on the Annual Report and Accounts

The responsibility statement below has been prepared in connection with the Group's full annual report and accounts for the year ended 31 August 2021. Certain parts thereof are not included within this announcement.

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare such financial statements for each financial year. Under that law, they have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and applicable law and have elected to prepare the Parent Company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under Company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of their profit or loss for that year. In preparing each of the Group and Parent Company financial statements, the Directors are required to:

· Select suitable accounting policies and apply them consistently;

· Make judgments and accounting estimates that are reasonable and prudent;

· State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

They are further responsible for ensuring that the Strategic report and the Directors' report and other information included in the Annual Report and Accounts are prepared in accordance with applicable law in the United Kingdom.

The maintenance and integrity of the AB Dynamics plc web site is the responsibility of the Directors; the work carried out by the auditors does not involve the consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred in the accounts since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of the accounts and the other information included in annual reports may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

• the Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

• the Strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the Principal Risks and Uncertainties that they face; and

• the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

This responsibility statement was approved by the Board of Directors on 24 November 2021 and has been  signed on its behalf by James Routh and Richard Elsy CBE.

AB Dynamics plc

Consolidated statement of comprehensive income

For the year ended 31 August 2021

		2021				2020
	Note	Adjusted £'000	Adjustments £000	Statutory £'000		Adjusted £'000	Adjustments (Restated)* £'000	Statutory (Restated)* £'000
Revenue	2	65,380	-	65,380		61,514	-	61,514
Cost of sales		(28,269)	-	(28,269)		(25,592)	-	(25,592)
Gross profit		37,111	-	37,111		35,922	-	35,922
General and administrative expenses		(26,288)	(6,630)	(32,918)		(24,591)	(6,574)	(31,165)
Operating profit		10,823	(6,630)	4,193		11,331	(6,574)	4,757
Operating profit is analysed as:
Before depreciation and amortisation		13,500	(2,198)	11,302		13,421	(3,025)	10,396
Depreciation and amortisation		(2,677)	(4,432)	(7,109)		(2,090)	(3,549)	(5,639)
Operating profit		10,823	(6,630)	4,193		11,331	(6,574)	4,757
Finance income		15	-	15		218	-	218
Finance expense		(91)	-	(91)		(30)	-	(30)
Other finance expense		(332)	-	(332)		(564)	-	(564)
Profit before tax		10,415	(6,630)	3,785		10,955	(6,574)	4,381
Tax expense		(1,895)	1,095	(800)		(1,939)	1,580	(359)
Profit for the year		8,520	(5,535)	2,985		9,016	(4,994)	4,022
Other comprehensive income
Items that may be reclassified to consolidated income statement:
Cash flow hedges		(31)	-	(31)		-	-	-
Exchange loss on foreign currency net investments		(614)	-	(614)		(1,978)	-	(1,978)
Total comprehensive income for the year		7,875	(5,535)	2,340		7,038	(4,994)	2,044
Earnings per share - basic (pence)	6	37.7p	(24.5p)	13.2p		40.1p	(22.2p)	17.9p
Earnings per share - diluted (pence)	6	37.4p	(24.3p)	13.1p		39.9p	(22.1p)	17.8p
*Restated following adoption of IFRIC update on cloud computing arrangements (see note 1).

AB Dynamics plc

Consolidated statement of financial position

As at 31 August 2021

		2021 £'000		2020 (Restated)* £'000
ASSETS
Non-current assets
Goodwill		22,221		16,170
Acquired intangible assets		28,282		17,623
Other intangible assets		1,565		460
Investment		12		12
Property, plant and equipment		25,815		24,309
Right-of-use assets		913		701
		78,808		59,275
Current assets
Inventories		6,771		9,180
Trade and other receivables		15,500		12,844
Contract assets		4,269		2,926
Taxation		1,443		2,962
Fixed term deposits		-		5,000
Cash and cash equivalents		23,282		26,183
		51,265		59,095
Assets held for sale		1,893		-
LIABILITIES
Current liabilities
Borrowings		-		505
Trade and other payables		10,933		10,387
Contract liabilities		3,568		1,983
Derivative financial instruments		31		-
Short-term lease liabilities		456		473
Deferred consideration		4,929		-
		19,917		13,348
Non-current liabilities
Deferred tax liabilities		6,552		2,549
Long-term lease liabilities		511		249
		7,063		2,798
Net assets		104,986		102,224
Shareholders' equity
Share capital		226		226
Share premium		62,210		61,736
Reconstruction reserve		(11,284)		(11,284)
Merger relief reserve		11,390		11,390
Translation reserve		(2,414)		(1,800)
Hedging reserve		(31)		-
Retained earnings		44,889		41,956
Total equity		104,986		102,224

*Restated following reclassification of fixed term deposits with a maturity date of greater than three months at inception and following adoption of IFRIC update on cloud computing arrangements.

 

AB Dynamics plc

Consolidated statement of changes in equity

For the year ended 31 August 2021

	Share capital	Share premium	Merger relief reserve	Reconstruction reserve	Translation reserve	Hedging reserve	Retained earnings	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 September 2019	222	60,049	11,390	(11,284)	178	-	38,252	98,807
Share based payments	-	-	-	-	-	-	1,282	1,282
Total comprehensive income	-	-	-	-	(1,978)	-	4,022*	2,044*
Deferred tax on share based payments	-	-	-	-	-	-	(974)	(974)
Dividend paid	-	-	-	-	-	-	(626)	(626)
Issue of shares	4	1,687	-	-	-	-	-	1,691
At 31 August 2020	226	61,736	11,390	(11,284)	(1,800)	-	41,956	102,224
Share based payments	-	-	-	-	-	-	1,139	1,139
Total comprehensive income	-	-	-	-	(614)	(31)	2,985	2,340
Deferred tax on share based payments	-	-	-	-	-	-	165	165
Dividend paid	-	-	-	-	-	-	(1,356)	(1,356)
Issue of shares	-	474	-	-	-	-	-	474
At 31 August 2021	226	62,210	11,390	(11,284)	(2,414)	(31)	44,889	104,986
*Restated following adoption of IFRIC update on cloud computing arrangements.

The share premium account is a non-distributable reserve representing the difference between the nominal value of shares in issue and the amounts subscribed for those shares.

The reconstruction reserve and merger relief reserve have arisen as follows:

The acquisition by the Company of the entire issued share capital of Anthony Best Dynamics Limited in 2013 was accounted for as a Group reconstruction. Consequently, the assets and liabilities of the Group were recognised at their previous book values as if the Company had always been the parent company of the Group.

The share capital for the period covered by these consolidated financial statements and the comparative periods is stated at the nominal value of the shares issued pursuant to the above share arrangement. Any differences between the nominal value of these shares and previously reported nominal values of shares and applicable share premium issued by Anthony Best Dynamics Limited were transferred to the reconstruction reserve.

Retained earnings represent the cumulative value of the profits not distributed to shareholders but retained to finance the future capital requirements of the Group.

The items included in the consolidated statement of changes in equity that relate to transactions with owners are share based payments, dividends paid and issues of shares.

AB Dynamics plc

Consolidated cash flow statement

For the year ended 31 August 2021

			2020
	2021 £'000		(Restated)* £'000
Cash flows from operating activities Profit before tax	3,785		4,381
Depreciation and amortisation	7,109		5,639
Finance expense / income	408		(188)
Share based payment	1,240		1,282
Acquisition related costs / (credit)	304		(2,548)
Operating cash flows, before changes in working capital	12,846		8,566
Decrease in inventories	2,409		1,992
Increase in trade and other receivables	(3,913)		(565)
Increase / (decrease) in trade and other payables	2,956		(3,737)
Cash flows from operations	14,298		6,256
Cash impact of adjusting items	1,663		654
Adjusted cash flows from operations	15,961		6,910
Interest received	15		218
Finance costs paid	(154)		-
Income tax received / (paid)	1,062		(2,229)
Net cash flows from operating activities	15,221		4,245
Cash flows used in investing activities
Acquisition of businesses	(14,329)		(2,823)
Purchase of property, plant and equipment	(5,536)		(7,276)
Capitalised development costs and purchased software	(1,104)		(232)
Net cash used in investing activities	(20,969)		(10,331)
Cash flows used in financing activities
Net movements in loans	(493)		477
Purchase of fixed term deposits	-		(20,000)
Maturity of fixed term deposits	5,000		15,000
Dividends paid	(1,356)		(626)
Proceeds from issue of share capital	474		1,691
Repayment of lease liabilities	(656)		(592)
Net cash flow generated from / (used in) financing activities	2,969		(4,050)
Net decrease in cash, cash equivalents and bank overdrafts	(2,779)		(10,136)
Cash, cash equivalents and bank overdrafts at beginning of the year	26,183		36,225
Effects of exchange rate changes	(122)		94
Cash, cash equivalents and bank overdrafts at end of the year	23,282		26,183
*Restated following reclassification of fixed term deposits with a maturity date of greater than three months at inception and following adoption of IFRIC update on cloud computing arrangements.

 

AB Dynamics plc

Notes to the consolidated financial statements

For the year ended 31 August 2021

1.  Basis of preparation

The Company is a public limited company limited by shares and incorporated under the UK Companies Act.  The Company is domiciled in the United Kingdom and the registered office and principal place of business is Middleton Drive, Bradford on Avon, Wiltshire, BA15 1GB.

The principal activity of the Group is the design, manufacture and development of advanced testing and measurement products and services to the global automotive industry. The Group's products and services are used primarily for the development of road vehicles, particularly in the areas of active safety and autonomous systems.

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ('IFRS') adopted pursuant to Regulation (EC) No 160612002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 as applicable to companies reporting under IFRS. A copy of the statutory accounts for the year ended 31 August 2020 has been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified and did not contain any statements under section 498(2) or (3) of the Companies Act 2006.

The same accounting policies, presentation and methods of computation have been followed as those which were applied in the preparation of the Group's annual statements for the year ended 31 August 2020, with the exception of updating accounting policies to reflect changes required by the IFRIC update on cloud computing arrangements which has given rise to a prior year adjustment of £0.7m to reduce other intangible assets and retained earnings.  

Certain new standards, amendments to standards and interpretations are not yet effective for the year ended 31 August 2021 and have therefore not been applied in preparing the annual financial statements.

Going concern basis of accounting

The Directors have assessed the principal risks discussed in note 8, including by modelling a severe but plausible downside scenario for COVID-19, whereby the Group experiences:

· A reduction in demand of 25% over the next two financial years

· 10% increase in operating costs from supply chain disruption

· Increase in cash collection cycle

· Increase in input cost resulting in reduction in gross margin to 40%

With £23.3m of cash at 31 August 2021 and a £15m undrawn revolving credit facility, in this severe downside scenario, the Group has sufficient headroom to be able to continue to operate for the foreseeable future. The Directors believe that the Group is well placed to manage its financing and other business risks satisfactorily, and have a reasonable expectation that the Group will have adequate resources to continue in operation for at least 12 months from the signing date of the financial statements. They therefore consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements.  

 

2.  Segment information

The Group derives revenue from the sale of its advanced measurement, simulation and testing products derived in assisting the global automotive industry in the laboratory and on the test track. The income streams are all derived from the utilisation of these products which, in all aspects except details of revenue, are reviewed and managed together within the Group and as such are considered to be the only segment.

The operating segment is based on internal reports about components of the Group, which are regularly reviewed and used by the Board of Directors being the Chief Operating Decision Maker ('CODM').

Analysis of revenue by country of destination:

			2021 £'000		2020 £'000
United Kingdom			4,449		2,146
Rest of Europe			11,352		14,775
North America			15,884		15,606
Asia Pacific			32,717		27,788
Rest of the World			978		1,199
			65,380		61,514

No customer individually represents 10% or more of total revenue.

Assets and liabilities by segment are not reported to the Board of Directors, therefore are not used as a key decision making tool and are not disclosed here. 

A disclosure of non-current assets by location is shown below:

			2021 £'000		2020 £'000
United Kingdom			41,174		40,482
Rest of Europe			1,009		747
North America			15,522		17,940
Asia Pacific			21,103		106
			78,808		59,275

Revenues are disaggregated as follows:

					2021 £'000		2020 £'000
	Revenue by sector
	Track testing				49,680		51,760
	Laboratory testing and simulation				15,700		9,754
					65,380		61,514

 

3.  Alternative Performance measures

In the analysis of the Group's financial performance and position, operating results and cash flows, alternative performance measures are presented to provide readers with additional information. The principal measures presented are adjusted measures of earnings including adjusted operating profit, adjusted operating margin, adjusted profit before tax and adjusted earnings per share.

The financial statements include both statutory and adjusted non-GAAP financial measures, the latter of which the Directors believe better reflect the underlying performance of the business and provide a more meaningful comparison of how the business is managed and measured on a day-to-day basis. The Group's alternative performance measures and KPIs are aligned to the Group's strategy and together are used to measure the performance of the business and form the basis of the performance measures for remuneration. Adjusted results exclude certain items because if included, these items could distort the understanding of the performance for the year and the comparability between the periods.

We provide comparatives alongside all current year figures. The term 'adjusted' is not defined under IFRS and may not be comparable with similarly titled measures used by other companies. All profit and earnings per share figures in this report relate to underlying business performance (as defined above) unless otherwise stated.

			2021 £'000		2020 £'000
Amortisation of acquired intangibles			4,432		3,549
Acquisition related costs / (credit)			840		(1,865)
ERP development costs			1,358		654
Inventory impairment			-		3,267
Restructuring			-		969
			6,630		6,574

Amortisation of acquired intangibles

The amortisation relates to the acquisition of Vadotech Group on 3 March 2021 and the businesses acquired in 2019, DRI and rFpro.

Acquisition related costs / (credit)

The costs relate to the acquisition of the Vadotech Group as well as staff retention payments to the employees of rFpro. The cash to pay this was contributed by the previous owner of rFpro prior to acquisition, but as the employees had to remain within the business for a period prior to receiving payment, a charge had to be recognised in the income statement in both the current and the prior year. The credit in the prior year relates to the release of deferred consideration on the rFpro acquisition which, due to COVID-19 disruption, was not payable.

ERP development costs

During April 2021 the IFRS Interpretations Committee finalised their agenda decision regarding configuration and customisation costs in Cloud Computing Arrangements (Software as a Service, 'SaaS') under IAS 38. The agenda decision specifies that where ERP systems are hosted on the cloud, no intangible asset arises and configuration and customisation costs should be written off. The ERP system currently being implemented is hosted on the cloud; therefore the capitalised expenditure for development costs has now been expensed.

Inventory impairment

In the prior year, following a detailed review of inventory levels and usage, a number of items previously included in the carrying value were written off and the system of accounting for inventory updated to better reflect the Group's current operations.   

Restructuring

The restructuring costs in 2020 relate to rebalancing the skill base of the business and termination of agents.

Tax

The tax impact of these adjustments was as follows: amortisation £0.7m (2020: £0.5m) acquisition related £0.1m (2020:£0.1m), ERP £0.3m (2020:£0.1m), inventory nil (2020: £0.6m) and restructuring nil (2020: £0.3m).

4.  Tax

The statutory effective rate of tax for the year is higher than (2020: lower than) the standard rate of corporation tax in the UK of 19% (2020: 19%).

The adjusted effective tax rate, adjusting both the tax charge and the profit before tax is 18.2% (2020: 17.7%).

5.  Dividend paid

			2021 £'000		2020 £'000
Final 2019 dividend paid of £0.028 per share			-		626
Final 2020 dividend paid of £0.044 per share			994		-
Interim dividend paid of £0.016 per share			362		-
			1,356		626

In respect of the year ended 31 August 2021, the Board has proposed a final dividend of 3.24p per share totalling £733,000. An interim dividend was paid of 1.6p per share totalling £362,000. If approved, the final dividend will be paid on 28 January 2022 to shareholders on the register on 31 December 2021.

6.  Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potentially dilutive shares. The Company has one category of potentially dilutive shares, namely share options.

The calculation of earnings per share is based on the following earnings and number of shares:

		2021 £'000	2020 £'000
Profit for the year attributable to owners of the Group		2,985	4,022
Adjusted profit after tax		8,520	9,016
Weighted average number of shares ('000)
Basic		22,602	22,482
Diluted		22,782	22,622
Earnings per share
Basic		13.2 pence	17.9 pence
Diluted		13.1 pence	17.8 pence
Adjusted basic		37.7 pence	40.1 pence
Adjusted diluted		37.4 pence	39.9 pence

7.  Share capital

The allotted, called up and fully paid share capital is made up of 22,622,344 ordinary shares of £0.01 each.

	Note	Number of shares 000	Share capital £'000	Share premium £'000	Total £'000
At 1 September 2019		22,220	222	60,049	60,271
27 September 2019	(i)	200	2	770	772
11 December 2019	(ii)	32	-	142	142
3 March 2020	(iii)	58	1	229	230
3 March 2020	(iv)	6	-	27	27
4 May 2020	(v)	33	-	410	410
2 June 2020	(vi)	16	-	64	64
19 August 2020	(vi)	11	1	45	46
At 31 August 2020		22,576	226	61,736	61,962
8 October 2020	(vii)	8	-	29	29
4 December 2020	(ix)	1	-	18	18
15 March 2021	(x)	33	-	412	412
17 May 2021	(xi)	4	-	15	15
At 31 August 2021		22,622	226	62,210	62,436

(i)  On 27 September 2019, a total of 199,526 share options were exercised of £0.01 each for £3.95.

(ii)  On 11 December 2019, a total of 31,970 share options were exercised of £0.01 each for £3.95.

(iii)  On 3 March 2020, a total of 58,086 share options were exercised of £0.01 each for £3.95.

(iv)  On 3 March 2020, a total of 6,173 share options were exercised of £0.01 each for £4.45.

(v)  On 4 May 2020, a total of 33,333 share options were exercised of £0.01 each for £12.30.

(vi)  On 2 June 2020, a total of 16,162 share options were exercised of £0.01 each for £3.95.

(vii)  On 19 August 2020, a total of 11,321 share options were exercised of £0.01 each for £3.95.

(viii)  On 8 October 2020, a total of 7,631 share options were exercised of £0.01 each for £3.95.

(ix)  On 4 December 2020, a total of 692 shares were issued to James Routh of £0.01 in satisfaction of 20% of his respective annual bonus payments for the year ended 31 August 2020, and a total of 349 shares were issued to Sarah Matthews-DeMers of £0.01 in satisfaction of 20% of her respective annual bonus payments for the year ended 31 August 2020.

(x)  On 15 March 2021, a total of 33,333 share options were exercised of £0.01 each for £12.30.

(xi)  On 17 March 2021, a total of 3,786 share options were exercised of £0.01 each for £3.95.

8.  Principal risks

The principal risks and uncertainties impacting the Group are described on pages 56-58 of our Annual Report 2021. They include: COVID-19, downturn or instability in major markets, loss of major customers and change in customer procurement processes, failure to deliver new products, dependence on external routes to market, acquisitions integration and performance, supply chain, cybersecurity and business interruption, competitor actions, loss of key personnel, threat of disruptive technology, product liability, failure to manage growth, foreign currency, credit risk and intellectual property/patents.

9.  Related party transactions

Mr A Best, former Chairman of the Company, is a trustee and beneficiary of the Best Middleton Trust. Rental payments of £44,000 (2020: £48,000) were made in the year to the Trust. In July 2021 the lease was terminated and therefore all agreements with a controlling shareholder have now ceased.

 

END

 

 

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