Final Results

RNS Number : 3880G

AB Dynamics PLC

25 November 2020

 

25 November 2020

AB Dynamics plc

Final Results for the Year Ended 31 August 2020

"A resilient performance and continued delivery of our strategy for sustainable growth"

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 2020.

	Audited 2020 £m	Audited 2019 £m
Revenue	61.5	58.0	+6%
Adjusted operating profit1	11.3	12.9	(12%)
Adjusted operating margin	18.4%	22.3%	(390 bps)
Adjusted profit before tax1	10.9	13.1	(16%)
Statutory operating profit	5.4	10.8	(50%)
Statutory profit before tax	5.0	11.0	(54%)
Statutory profit after tax	4.6	8.7	(47%)
Cash flow from operations	6.9	9.9	(31%)
Cash	31.2	36.2	(14%)
	Pence	Pence
Adjusted diluted earnings per share1	39.9	51.4	(22%)
Statutory basic earnings per share	20.2	42.9	(53%)
Statutory diluted earnings per share	20.1	42.1	(52%)
Total dividend per share	4.4	4.4	-

¹ Before amortisation of acquired intangibles, inventory impairment, acquisition related charges and restructuring costs. A reconciliation to statutory measures is given below. Prior year comparatives have been restated to reflect the inclusion of share based payments which were previously reported as an adjustment.

Financial highlights

· Strong first half performance, offset by challenging trading conditions in the second half due to the COVID-19 pandemic

· Track testing revenue increased by 4% reflecting a combination of strong growth in ADAS platforms and testing, offset by a reduction in sales of driving robots and a suspension of testing operations as a result of the pandemic

· Laboratory testing and simulation revenues increased by 18% as a result of significant growth in SPMM and simulation revenues, despite experiencing deferments of orders in the second half

· Reduction in adjusted operating margins to 18.4% driven by continued strategic investment in capability to support long term growth drivers

· Significant cash balance of £31.2m (2019: £36.2m) after investing £8.2m in capital expenditure in the period, which continues to provide resources to support the Group's investment requirements

· Reinstatement of dividends, with a proposed final dividend of 4.4p per share, equal to the total dividend for 2019 and reflecting the Board's confidence in the Group's financial position and prospects

Operational and strategic highlights

· Strong geographic growth in the USA and Japan following the successful establishment of new sales and support offices

· Successful launch of new products including Halo driving robot, aNVH, Guided Soft Target 120 and Radar Cart

· Further development of the simulation sector with new products including Static Simulator, Data Farming, Linux OS version and highly accurate digital twins

· Growth in recurring revenue to 28%, up from 10% of Group revenue through acquired businesses and increased sales of service and support contracts

· Continued investment in management capability, processes and systems, including progress towards implementation of a Group-wide ERP system

· Construction of the new Engineering Design Centre nearing completion

· Solid performance from companies acquired during 2019, including significant growth of track testing services in the USA

Current trading and outlook

· Q1 trading to date in line with Q4 FY20 exit rate

· Progress in laboratory testing and simulation, with a number of the deferred 2020 orders secured either side of the financial year end

· Second wave impacts of the pandemic make order intake patterns difficult to predict into 2021, particularly for laboratory testing and simulation

· Long-term, sustainable structural and regulatory growth drivers remain intact

· Continued innovation and capability investment generating positive commercial momentum

· Well placed and sufficiently invested to capitalise on opportunities when levels of demand return

· The Group has resumed its acquisition strategy and is actively exploring a number of opportunities

There will be a presentation for analysts this morning at 9.30am via conference call.  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 a robust and resilient performance in 2020 against a backdrop of challenging market conditions due to COVID-19. After a very strong first half of the financial year, the Group took rapid and effective actions to mitigate the risks of the pandemic. Whilst the backdrop has been uncertain, the Group's strong financial position has enabled us to remain focussed on maintaining our strategic momentum. The Group continued to invest in its capabilities, systems and business infrastructure which, despite a softening in operating margins over the near term, ensures the Group remains well placed to capitalise on the long-term regulatory and structural growth drivers, which remain intact.

"Demand in the first quarter of the current year has been consistent with the Q4 FY20 exit rate. The disruption associated with further waves of infection means that visibility is limited and there remains short-term uncertainty as to the shape and rate of this recovery. Looking further ahead, we remain confident that demand will recover to pre-crisis growth patterns over the medium term.

"Despite the uncertain backdrop, we see significant scope to deliver on the Group's strategic priorities, such as further product development and executing on our pipeline of potential acquisition opportunities. We are very encouraged by the initial progress already evident from our key strategic investment initiatives. The market drivers are compelling, the medium-term outlook for AB Dynamics remains positive and the Board is confident the Group can continue to deliver on its strategic priorities"

Enquiries:

AB Dynamics plc	01225 860 200
Tony Best, Chairman
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
Deborah Roney

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014) ("MAR") prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

The person responsible for arranging the release of this information is Felicity Jackson, 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

Against a backdrop of very challenging macroeconomic conditions due to the COVID-19 pandemic, the Group delivered a resilient performance in 2020, whilst continuing to invest to ensure the Group can capitalise on the significant long-term structural and regulatory growth drivers underlying its markets. This year's performance demonstrates the strength of the Group's sustainable business model and was supported by recent investments to diversify the business and strengthen systems, processes and infrastructure. During this challenging period, our employees around the world have shown their skills, professionalism and commitment to continue to deliver class-leading products to our valued customers.

During the second half of the year the Group saw a significant slow down in customer activity as customers attempted to conserve cash.  This impacted Group order intake, particularly for larger, capital equipment orders.  There was a gradual recovery through Q4 as customer activity and order intake improved, although timing remains uncertain going into H1 2021.  Our continued investments in the second half strengthened the Group's market position to enable the business to emerge strongly as markets slowly recover.  However, the long term structural and regulatory growth drivers that underpin our markets remain firmly intact.

Financial performance

The Group delivered revenue growth of 6% to £61.5m (2019: £58.0m), reflecting the resilience of the business model and the Group's strong market positions. The increase was driven by growth of 19% from the acquisitions made in the previous year, offset by an organic revenue decline of 13% as a result of COVID-19 specific disruption to our international customers. At the half year the Group had delivered significant revenue growth of 34%, of which 11% was organic, however the second half was impacted by COVID-19 and revenues declined 18% against a very strong prior year comparator. In spite of the backdrop, the proportion of recurring revenue increased substantially to 28% of sales (2019: 10%) due to the impact of the businesses acquired in 2019, in addition to an increase in longer-term service and support contracts.

Group adjusted operating profit decreased 12% to £11.3m (2019: £12.9m) resulting in a decrease in adjusted operating margin of 390 bps to 18.4% (2019: 22.3%). The margin has been impacted by our continued investment in our strategy for growth and building out the senior management team, partly offset by mitigating actions to reduce discretionary spending.

Gross margins increased by 1,020 bps to 58.4% as a result of relative product mix between the Group's two sectors, coupled with the relatively higher margin contributions from both rFpro and DRI acquired towards the end of the last financial year. Our direct sales model in key territories also contributed to the improved gross margin as the Group utilises fewer third-party sales agents and resellers.

Net finance costs were £0.4m (2019: net income £0.2m), with interest income of £0.2m offset by lease interest of £0.1m and the unwinding of the discounted value of the deferred consideration on DRI and rFpro.

This left adjusted profit before tax of £10.9m (2019: £13.1m).

The Group adjusted tax charge totalled £1.9m (2019: £2.5m), an adjusted effective tax rate of 17.7% (2019: 19.3%). The effective tax rate is lower than the current UK corporation tax rate due to allowances for research and development and patent box. In future years, the effective tax rate is expected to remain stable with UK allowances offsetting higher tax rates in overseas territories.

Adjusted diluted earnings per share were 39.9p (2019: 51.4p), a decrease of 22%. The drop through was higher than the decrease in adjusted operating profit due to the increased number of shares after the prior year equity issue.

Statutory operating profit reduced by 50% to £5.4m and after net finance costs of £0.4m (2019: interest income £0.2m), statutory profit before tax was down 54% from £11.0m to £5.0m, giving statutory basic earnings per share of 20.2p (2019: 42.9p). The statutory tax charge was £0.4m (2019: £2.3m). A reconciliation of statutory to underlying non-GAAP financial measures is provided below.

The Group delivered operating cash flow of £6.9m with the cash position at year end of £31.2m underpinning a robust balance sheet. During 2020 we invested in the Group's new Engineering Design Centre, R&D, payment of deferred consideration for the acquisition of Dynamic Research Inc and working capital to support the growth in the business.

COVID-19

The emergence of the COVID-19 pandemic in early 2020 saw unprecedented impacts on global economies, with the automotive sector impacted particularly significantly. As reported at the end of the Group's first half, we took rapid steps to limit discretionary spend and conserve cash whilst we gained clarity on the overall short-term impact on the business.

The Group did not see any significant adverse impacts on its supply chain or manufacturing facilities, but many larger, capital equipment orders were initially deferred by our customers. Through the second half of the year, the Group saw orders increase, particularly in the fourth quarter, albeit these were still below pre-pandemic levels at the year end. At the end of the financial year, one of the anticipated larger capital equipment orders was received and the pipeline for further orders is strong, although we remain mindful of uncertainty relating to timing.

Throughout the period of lockdown, the Group was able to maintain key manufacturing and track testing operations, whilst approximately 70% of our global workforce worked remotely. This balance proved to be effective and we were able to continue delivering for our customers whilst maintaining our investment activities, particularly in product development. The restrictions on travel prevented certain installation, commissioning and training activities from taking place, however our recently added international sales and support offices were able to continue to support customers where required.

Looking forward there remains uncertainty around the ongoing impact of COVID-19 and the Board continues to be cautious and alert to conditions in the wider automotive market. Timing of order intake is likely to be variable and we expect this uncertainty to continue through at least the first half of the new financial year, particularly in relation to capital equipment.

However, we are confident that the long-term structural and regulatory drivers that underpin our markets remain firmly intact and the Group is therefore continuing to invest in new product development as well as business infrastructure, which the Board believes are critical to delivering its long-term growth and strategic development objectives for the business.

Furthermore, after a brief pause in the early stages of the pandemic, we have now resumed our acquisition strategy and the Group is actively exploring a number of opportunities. We see good opportunity to put our strong balance sheet to work with strategic acquisitions that will enhance earnings, broaden our product offering and extend our geographic footprint in key markets.

Sector review

Track testing

The track testing sector delivered overall revenue growth of 4% to £51.8m (2019: £49.8m) through a combination of strong growth in ADAS platforms and testing services, offset by a reduction in sales of driving robots.

Driving robot sales reduced by 30% to £21.1m (2019: £30.1m) as demand slowed, particularly in the second half, albeit against a very strong prior year comparator. In the previous two financial years, strong growth was delivered through the Chinese market as new entrant vehicle OEMs established their testing capability. Once established, the demand for driving robots slowed and the Group expects sales revenues in this sector to slow in the short term, before growing again once new regulatory requirements for new ADAS technologies are released.

The strong growth in ADAS platforms continued despite the impact of COVID-19 in the second half of the year, delivering 22% revenue growth to £24.1m (2019: £19.7m). Demand for ADAS platforms, particularly the Launchpad, continues to build as new test protocols are released from regulatory bodies and consumer bodies such as Euro-NCAP. 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.

Through the acquisition of Dynamic Research Inc (DRI) in August 2019, the Group is able to provide track testing services to the US market. DRI provides testing services to evaluate the performance of ADAS systems, autonomous vehicles and vehicle dynamics through its extensive test facility. DRI delivered revenue of £6.6m (2019: £Nil) associated with track testing services through a significant series of test programmes for NHTSA, the US regulatory body, and by supporting US OEMs and technology companies.

As part of the Group objective to increase recurring revenue, AB Dynamics launched tiered service and support packages to the existing customer base. These multi-tiered contracts proved successful with many high profile customers entering into long-term support contracts which increase the Group's overall proportion of recurring revenue.

The establishment of the Group's overseas sales and support offices in Japan, Germany and the USA has delivered improved sales revenue, gross margin enhancement and closer relationships with key customers. These investments have yielded significant sales revenue growth, particularly in Japan and the USA.

The Group continues to invest in new product development in this sector with a number of new product launches expected in 2021 including enhancements and new variants of ADAS platforms, new driving robot technologies and a significant new release of the Ground Traffic Control software.

Laboratory testing and simulation

The laboratory testing and simulation sector delivered strong overall revenue growth of 18% to £9.7m (2019: £8.2m), through significant growth of 15% in SPMM revenue, a small contribution from revenue recognised during the build of our first aNVH and growth of 24% in simulation.

The growth in SPMM sales revenue of 15% to £4.6m (2019: £4.1m) was due to construction of machines for customers in Japan and China, however this growth was constrained in the second half of the financial year as customers deferred their decision making to conserve cash in the face of the COVID-19 pandemic. Order intake activity recovered towards the end of the financial year and the current pipeline of opportunities is promising.

During the first half of the year the Group received its first order for the aNVH machine from a major automotive OEM. The contract commenced during the second half of FY20 with delivery expected during FY21, therefore only a small element of the total contract revenue was recognised during the financial year.

The Group delivered a further simulator system to the Alfa Romeo Formula 1 team during the year and the technical partnership is generating significant opportunities in other areas of motorsport. Similar to the SPMM orders, many highly probable simulator orders were deferred due to COVID-19 and the pipeline of opportunity is encouraging.

Overall simulation sales grew by 24% to £4.7m (2019: £3.8m) driven predominantly by a strong performance from rFpro in the first half of the financial year. However, a significant proportion of rFpro revenue relates to motorsport series, particularly Formula 1, Formula E and the US motorsport series such as Nascar and Indycar. Most motorsport was postponed due to the COVID-19 pandemic which impacted rFpro revenues in the second half. Towards the end of the financial year, motorsport restarted which provided some initial recovery in revenues.

The Group has made solid progress during the year in laboratory testing and simulation, delivering strong sales growth against difficult market conditions. During the period impacted by the COVID-19 pandemic, the Group invested in new technologies and launched a number of new products during the financial year including the aNVH test machine, the static simulator expanding the family of simulator products and the launch of new capabilities in rFpro such as Data Farming and Linux development.

The Group's new Engineering Design Centre will house a simulation research and development facility to accelerate the development of new simulator technologies. A number of significant simulation R&D projects are currently in progress and will be launched during 2021.

Progress on our strategy

We are pleased with the ongoing progress made against the five-point strategy announced in April 2019. Investments in geographic diversification, direct routes to market and our service and support offering provide direct sales channels and improved customer intimacy, whilst enhancing margins and recurring revenue. These investments have been complemented by the commencement of important initiatives to improve our systems, processes and structure. Together with continued investment in infrastructure, people and new product development, this will result in a resilient, sustainable business able to effectively take advantage of the significant structural and regulatory changes in our end markets.

Investment in product development continued with new products including the aNVH, Halo driving robot, GST 120, Launchpad 60, Static Simulator and Data Farming capabilities within the rFpro simulation software. These new products address future regulatory requirements for testing of ADAS systems and the market need to rapidly accelerate autonomous system verification. Significant investment in product development continues and we expect to announce further product launches in 2021, which supports our model of sustainable revenue growth.

To deliver the required capability and capacity to drive our future growth, the Group has further invested in strengthening and developing the senior management team and the continued build of our new Engineering Design Centre. Investment in building our business infrastructure continues with the ERP implementation project due to go live during 2021. This is a significant change project that will transform the business processes across the Group and provide strong foundations to support current and future growth.

Acquisitions

The Group has been pleased with the integration of the two acquisitions completed during 2019. DRI has performed beyond expectations and was able to deliver outstanding results despite the impact of COVID-19 in the USA. Due to this strong performance, the Group paid the maximum of $3.5m in deferred consideration to the previous owners of DRI. rFpro has integrated well and had a very strong first half of the year but was adversely affected by the COVID-19 impact on motorsport in the second half. The pipeline for acquisitions remains promising and the Group continues to identify value enhancing acquisition opportunities that facilitate our stated strategic priorities.

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, adjusted EBITDA 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:

	2020			2019
	Statutory	Adjustments	Adjusted	Statutory	Adjustments*	Adjusted*
Operating profit (£m)	5.4	5.9	11.3	10.8	2.1	12.9
Operating margin (%)	8.8	9.6	18.4	18.7	3.6	22.3
Profit before tax (£m)	5.0	5.9	10.9	11.0	2.1	13.1
Taxation (£m)	(0.4)	(1.5)	(1.9)	(2.3)	(0.2)	(2.5)
Profit after tax (£m)	4.6	4.4	9.0	8.7	1.9	10.6
Diluted earnings per share (pence)	20.1	19.8	39.9	42.1	9.3	51.4

*Comparatives have been restated to include share based payments within underlying figures

The adjustments comprise:

	2020	2019
	£m	£m
Amortisation of acquired intangibles	3.5	0.3
Inventory impairment	3.3	-
Acquisition related (credit) / costs	(1.9)	1.3
Restructuring	1.0	0.5
Adjustments	5.9	2.1

Adjustments totalled £5.9m (2019: £2.1m), of which £3.5m related to amortisation of acquired intangible assets, £1.9m to a credit in relation to acquisitions and £1.0m to restructuring costs. A further £3.3m related to a write down of inventory. Following a detailed review of stock levels and usage, a number of items previously included in the carrying value have been written off and the system of accounting for inventory has been updated to better reflect the Group's current operations. Further details of the adjustments are provided in note 3.

The Group has previously reported the share based payment charge as an adjustment to operating profit. However as this is expected to be an ongoing expense for the Group, for the year ended 31 August 2020 onwards, the charge will be included within adjusted reporting measures. Prior year comparatives have been restated to reflect this change. Adjusted operating profit includes a charge of £1.3m (2019: £0.6m).

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 investment in building the new Engineering Design Centre, accounting for the decrease in ROCE in the year from 19.3% in 2019 to 15.2% in 2020.

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 £0.2m (2019: £Nil) 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 profit and loss account as incurred, total £0.8m (2019: £0.8m).

Foreign currency exposure

The Group faces currency exposure on its foreign currency transactions and, with the acquisition of DRI and international expansion of our sales offices, exposure to both foreign currency translation and transaction risk has increased.

The Group maintains a natural hedge whenever possible to transactional exposure by matching the cash inflows and outflows in the respective currencies.

There was no material difference between the reported profit for the year and that calculated on a constant currency basis as the exchange rates were broadly similar to the comparative period.

Leases

IFRS 16 'Leases' has been adopted in the period. This new standard introduces the principle that all leased assets should be reported on the balance sheet of the lessee, recognising an asset for the right to use the leased item and a liability for the present value of its future lease payments. This resulted in the recognition of a right-of-use asset of £1.3m and a corresponding lease liability being recognised on 1 September 2019.

It has also resulted in an increase in depreciation and interest costs of £0.6m with a similar decrease in operating lease rental costs.

Dividends

Against a background of significant macroeconomic uncertainty, the Board took the decision in April 2020 to suspend the interim dividend pending the conclusion of the financial year. The Board has reviewed the position in light of our results for the year and is recommending a final dividend of 4.4p per share, resulting in an unchanged total dividend for the year. It is the Board's intention to pursue a sustainable and growing dividend policy in the future having regard to the development of the Group.

Summary and Outlook

The Group has delivered a robust and resilient performance in 2020 against a backdrop of challenging market conditions due to COVID-19. After a very strong first half of the financial year, the Group took rapid and effective actions to mitigate the risks of the pandemic. Whilst the backdrop has been uncertain, the Group's strong financial position has enabled us to remain focussed on maintainting our strategic momentum. The Group continued to invest in its capabilities, systems and business infrastructure which, despite a softening in operating margins over the near term, ensures the Group remains well placed to capitalise on the long-term regulatory and structural growth drivers which remain intact.

Demand in the first quarter of the current year has been consistent with the Q4 FY20 exit rate. The disruption associated with further waves of infection means that visibility is limited and there remains short-term uncertainty as to the shape and rate of this recovery. Looking further ahead, we remain confident that demand will recover to pre-crisis growth patterns.

Despite the uncertain backdrop, we see significant scope to deliver on the Group's strategic priorities, such as further product development and executing on our pipeline of potential acquisition opportunities. We are very encouraged by the initial progress already evident from our key strategic investment initiatives. The market drivers are compelling, the medium-term outlook for AB Dynamics remains positive and the Board is confident the Group can continue to deliver on its strategic priorities.

 

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 2020. Certain parts thereof are not included within this announcement.

The Directors are responsible for preparing the Strategic Report, Directors' Report, any other surrounding information and the Group and Parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare group and parent company 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) as adopted by the European Union (EU) 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 Report of the Directors and other information included in the Annual Report and Financial Statements is 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.

This responsibility statement was approved by the Board of Directors on 25 November 2020 and has been  signed on its behalf by James Routh and Anthony Best.

 

AB Dynamics plc

Consolidated statement of comprehensive income

For the year ended 31 August 2020

	Note	2020 £'000		2019   £'000
Revenue	2	61,514		57,957
Cost of sales		(25,592)		(30,039)
Gross profit		35,922		27,918
Administrative expenses		(29,229)		(16,505)
Share based payment costs Operating Profit		(1,282) 5,411		(586) 10,827
Finance income		218		171
Finance expense		(594)		-
Profit before tax		5,035		10,998
Tax expense		(483)		(2,340)
Profit for the year		4,552		8,658
Other comprehensive income:
Items that may be reclassified to consolidated income statement:
Exchange (losses) / gains on foreign currency net investments		(1,978)		178
Total comprehensive income for the period		2,574		8,836
Earnings per share - basic (pence)	6	20.2p		42.9p
Earnings per share - diluted (pence)	6	20.1p		42.1p
Alternative performance measures
		2020		2019
	Note	£'000		£'000
Operating profit		5,411		10,827
Amortisation of acquired intangibles		3,549		279
Inventory impairment		3,267		-
Acquisition related (credit) / charge		(1,865)		1,272
Restructuring		969		550
Adjusted operating profit		11,331		12,928
Net finance (expenses) / income		(376)		171
Adjusted profit before tax		10,955		13,099
Adjusted tax charge		(1,939)		(2,524)
Adjusted profit after tax		9,016		10,575
Adjusted earnings per share - basic (pence)	6	40.1p		52.4p
Adjusted earnings per share - diluted (pence)	6	39.9p		51.4p

AB Dynamics plc

Consolidated statement of financial position

As at 31 August 2020

		2020 £'000		2019 (restated)* £'000
ASSETS
NON-CURRENT ASSETS
Goodwill		16,170		17,029
Acquired intangible assets		17,623		21,803
Intangible assets		1,114		268
Investment		12		14
Property, plant and equipment		24,309		17,922
Right-of-use assets		701		-
Deferred tax assets		-		1,952
		59,929		58,988
CURRENT ASSETS
Inventories		9,180		11,149
Trade and other receivables		12,844		12,986
Contract assets		2,926		1,885
Taxation		2,838		939
Cash and cash equivalents		31,183		36,225
		58,971		63,184
TOTAL ASSETS		118,900		122,172
LIABILITIES
CURRENT LIABILITIES
Borrowings		505		-
Trade and other payables		12,370		16,920
Short-term lease liabilities		473		-
		13,348		16,920
NON-CURRENT LIABILITIES
Deferred tax liabilities		2,549		3,206
Long-term lease liabilities		249		-
Deferred consideration		-		3,239
		2,798		6,445
NET ASSETS		102,754		98,807
EQUITY
Share capital		226		222
Share premium		61,736		60,049
Reconstruction reserve		(11,284)		(11,284)
Merger relief reserve		11,390		11,390
Translation reserve		(1,800)		178
Retained earnings		42,486		38,252
TOTAL EQUITY		102,754		98,807

*Restated following finalisation of provisional fair value adjustments on the acquisition of DRI

 

AB Dynamics plc

Consolidated statement of changes in equity

For the year ended 31 August 2020

	Share capital	Share premium	Merger relief reserve	Reconstruction reserve	Translation reserve	Retained profits	Total equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 September 2018	195	10,258	11,390	(11,284)	-	27,484	38,043
Share based payment expense	-	-	-	-	-	586	586
Profit after taxation and total comprehensive income for the financial year	-	-	-	-	178	8,658	8,836
Tax impact of exercised share options	-	-	-	-	-	2,271	2,271
Dividend paid	-	-	-	-	-	(747)	(747)
Issue of shares, net of share issue costs	27	49,791	-	-	-	-	49,818
At 31 August 2019	222	60,049	11,390	(11,284)	178	38,252	98,807
Share based payment expense	-	-	-	-	-	1,282	1,282
Profit after taxation and total comprehensive income for the financial year	-	-	-	-	(1,978)	4,552	2,574
Tax impact of exercised share options	-	-	-	-	-	(974)	(974)
Dividend paid	-	-	-	-	-	(626)	(626)
Issue of shares, net of share issue costs	4	1,687	-	-	-	-	1,691
At 31 August 2020	226	61,736	11,390	(11,284)	(1,800)	42,486	102,754

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 Ltd 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 Ltd were transferred to the reconstruction reserve.

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

AB Dynamics plc

Consolidated cash flow statement

For the year ended 31 August 2020

	2020		2019
	£'000		£'000
Cash flow from operating activities Profit before tax	5,035		10,998
Adjustments for: -
Depreciation and amortisation	5,639		1,324
Interest income	(188)		(171)
Acquisition related (credit) / charge	(2,548)		768
Share based payment	1,282		586
Operating cash flows, before working capital changes	9,220		13,505
Decrease / (increase) in inventories	1,992		(3,447)
Increase in trade and other receivables	(565)		(1,667)
(Decrease) / increase in other payables	(3,737)		1,554
Cash flow from operations	6,910		9,945
Interest received	218		171
Income tax paid	(2,229)		(1,350)
Net cash flow from operating activities	4,899		8,766
Cash flow used in investing activities
Acquisition of businesses	(2,823)		(32,792)
Purchase of property, plant and equipment	(7,276)		(4,706)
Capitalised development costs	(886)		(228)
Net cash flow used in investing activities	(10,985)		(37,726)
Cash flow from financing activities
Movement in loans	477		-
Dividends paid	(626)		(747)
Proceeds from issue of share capital, net of share issue costs	1,691		49,818
Repayment of lease liabilities	(592)		-
Net cash flow generated from financing activities	950		49,071
Net (decrease) / increase in cash and cash equivalents	(5,136)		20,111
Cash and cash equivalents at beginning of period	36,225		15,942
Effect of exchange rates on cash and cash equivalents	94		172
Cash and cash equivalents at end of period	31,183		36,225

 

AB Dynamics plc

Notes to the consolidated financial statements

For the year ended 31 August 2020

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 is the specialised area of design and manufacture of test equipment for vehicle suspension, steering, noise and vibration. The company also offers a range of services which include analysis, design, prototype manufacture, testing and development.

The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted for use by the European Union. A copy of the statutory accounts for the year ended 31 August 2019 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 2019, with the exception of updating accounting policies to reflect changes required by the adoption of IFRS 16 and to reflect inclusion of the share based payment charge within adjusted operating profit. This charge was previously reported as an adjustment. 

Certain new standards, amendments to standards and interpretations are not yet effective for the year ended 31 August 2020 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

With £31.2m of cash at 31 August 2020, 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 this interim financial information. 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:

			2020 £'000		2019 £'000
United Kingdom			2,146		2,028
Rest of Europe			14,775		15,741
North America			15,606		9,499
Asia Pacific			27,788		28,949
Rest of the World			1,199		1,740
			61,514		57,957

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

Assets and liabilities by segment are not reported to the Board of Directors on a monthly basis, 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:

			2020 £'000		2019 (Restated) £'000
United Kingdom			41,135		41,083
Rest of Europe			747		347
Asia Pacific			107		-
North America			17,940		17,558
			59,929		58,988

Revenues are disaggregated as follows:

					2020 £'000		2019 £'000
	Revenue by sector
	Track testing				51,760		49,796
	Laboratory testing and simulation				9,754		8,161
					61,514		57,957

 

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, adjusted EBITDA and adjusted earnings per share.

The financial statements 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 report relate to underlying business performance (as defined above) unless otherwise stated.

			2020 £'000		2019 £'000
Amortisation of acquired intangibles			3,549		279
Inventory impairment			3,267		-
Acquisition related (credit) / charge			(1,865)		1,272
Restructuring			969		550
			5,920		2,101

Amortisation of acquired intangibles

The amortisation relates to the businesses acquired in the previous year, DRI and rFpro.

Inventory impairment

Following a detailed review of stock levels and usage, a number of items previously included in the carrying value have been written off and the system of accounting for inventory has been updated to better reflect the Group's current operations.  

Acquisition related (credit) / charge

The credit relates to the release of deferred consideration on the rFpro acquisition which, due to COVID-19 disruption is unlikely to become payable. This is offset by costs, mainly in relation to staff retention payments to the employees of rFpro. The cash to pay this was contributed by the previous owners of the business prior to acquisition, but as the employees have to remain within the business for a period prior to receiving payment, a charge has to be recognised in the income statement.

Restructuring

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

Tax

The tax impact of these adjustments was as follows: amortisation of acquired intangibles £0.5m, inventory £0.6m, acquisition £0.1m and restructuring £0.3m.

 

4.  Tax

The statutory effective rate of tax for the year is lower than (2019: higher than) the standard rate of corporation tax in the UK of 19% (2019: 19%).

The adjusted effective tax rate, adjusting both the tax charge and the profit before taxation is 17.7% (2019: 19.3%).

5.  Dividend paid

			2020 £'000		2019 £'000
Final 2018 dividend paid of £0.022 per share			-		430
Interim 2019 dividend paid of £0.016 per share			-		317
Final 2019 dividend paid of £0.028 per share			626		-
			626		747

In respect of the year ended 31 August 2020, the Board has proposed a final dividend of 4.4p per share totalling £993,000. No interim dividend was paid in respect of 2020. If approved, the final dividend will be paid on 22 January 2021 to shareholders on the register on 8 January 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:

		2020 £'000	2019 £'000
Profit after tax attributable to owners of the Company		4,552	8,658
Adjusted profit after tax		9,016	10,575
Weighted average number of shares ('000)
Basic		22,482	20,201
Diluted		22,622	20,585
Earnings per share
Basic		20.2 pence	42.9 pence
Diluted		20.1 pence	42.1 pence
Adjusted basic		40.1 pence	52.4 pence
Adjusted diluted		39.9 pence	51.4 pence

 

7.  Share capital

The allotted, called up and fully paid share capital is made up of 22,576,553 ordinary shares of £0.01 each.

	Note	Number of shares 000	Share capital £'000	Share premium £'000	Total £'000
At 1 September 2018		19,537	195	10,258	10,453
6 December 2018	(i)	143	1	564	565
7 June 2019	(ii)	2,277	23	48,195	48,218
22 July 2019	(iii)	263	3	1,032	1,035
At 31 August 2019		22,220	222	60,049	60,271
27 September 2019	(iv)	200	2	770	772
11 December 2019	(v)	32	-	142	142
3 March 2020	(vi)	64	1	256	257
4 May 2020	(vii)	33	-	410	410
2 June 2020	(viii)	16	-	64	64
19 August 2020	(ix)	11	1	45	46
At 31 August 2020		22,576	226	61,736	61,962

(i)  On 6 December 2018, a total of 142,702 share options were exercised of £0.01 each for £3.95.

(ii)  On 7 June 2019, a total of 2,050,000 new ordinary shares were placed of £0.01 each for £22.00 and a total of 227,500 new ordinary shares of £0.01 were admitted to trading on AIM following the issue of Open Offer Shares.

(iii)  On 22 July 2019, a total of 263,246 share options were exercised of £0.01 each for £3.95.

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

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

(vi)  On 3 March 2020, a total of 58,086 share options were exercised of £0.01 each for £3.95 and a total of 6,173 share options were exercised of £0.01 each for £4.45.

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

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

(ix)  On 19 August 2020, a total of 11,321 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 43-47 of our Annual Report 2020.

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, 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

Anthony Best, Chairman of the Company, is a trustee and beneficiary of the Best Middleton Trust. Rental payments of £48,000 (2019: £48,000) were made to the Trust in the year. No amounts were due to or from the trust at the end of the period (2019: £nil).

 

END

 

 

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