Welcome to the AB Dynamics 2025 full-year results presentation. Thanks for joining us. I'm Sarah Matthews-DeMers, currently CFO and from 1st of December, CEO, and I'm joined by Ed Haycock, our Director of Financial Reporting. I'll take you through the highlights before Ed takes you through the financial performance. I'll then provide an update on progress against our medium-term growth strategy and the outlook for next year. During the year, we made a strong start to delivering our medium-term growth plan, delivering operating profit and earnings per share growth of 15%, slightly ahead of upgraded expectations despite macroeconomic challenges in the second half of the year. Revenue increased by 3%, with double-digit revenue growth in half one, followed by a more challenging half two as timing of order intake was impacted by macroeconomic disruption.
Encouragingly, customer activity improved towards the end of the year, and the group carries forward GBP 32 million of orders into FY26, providing good trading momentum into the first half of the year. New product development continues at pace and in line with the technology roadmap for testing products and simulation markets. We received an order just prior to the year-end for the recently launched S3 Spin Simulator, which has advanced capability for the growing road car market. Operating profit grew by 15%. Operating margin grew by 210 basis points to 20.3%, achieved through operational improvements and a richer mix of revenue, largely resulting from the timing of order intake and delivery. The operational improvements implemented in recent years have contributed to building a strong platform to support further growth. The benefit of the revenue mix is not expected to be repeated in FY26.
However, in the medium term, the board is confident of achieving its sustainable margin target of greater than 20%. The group acquired Bolab, a niche supplier of electronics testing equipment, in half one. The integration is progressing as planned, and performance is in line with expectations. Net cash at year-end was GBP 41.4 million after GBP 8.1 million of investment in acquisitions and other capital projects. Our strong operating cash generation and cash conversion of 106% supports further organic and inorganic investment. I'll now hand over to Ed to take you through our financial performance.
Thanks, Sarah. It's great to be able to present another set of strong financial results. I'll start by taking you through the group's performance, followed by a dive down into each of our three segments, and I'll finish by covering our key financial enablers for future growth. In FY25, we are pleased to report a strong financial performance, where we've continued our track record of delivering consistent revenue and profit growth backed up by cash conversion. We have delivered significant operating margin expansion, resulting in a 15% increase in operating profit to GBP 23.3 million, which represents a three-year compound annual growth rate of 19%. The effective tax rate reduced slightly to 18% due to a change in the geographic mix of profits. We expect this to trend back upwards in future years in line with our medium-term guidance.
EPS has increased by 15% to GBP 80.3, and we have proposed a 20% increase in the dividend, reflecting the board's confidence in our financial position and prospects. Cash conversion of 106% and our three-year average cash conversion of 112% demonstrates that we are consistently able to turn these growing profits into cash. The order book at the year-end was GBP 32 million. This, combined with post-year-end order intake and additional sources of recurring revenue, such as renewal of licenses, gives good visibility into FY26. The 15% increase in operating profit was achieved through a combination of volume, sales mix, and operational improvements. The GBP 3.4 million increase in revenue dropped through to a GBP 2 million increase in operating profit.
Sales mix, which is impacted by the timing of order intake and delivery across our portfolio of products and services, was favorable in FY25, generating a GBP 1.2 million increase to profit year on year. The net benefit of the operational improvements that we have continued to implement across the business has contributed to a GBP 1.1 million increase in profit. The overhead increase of GBP 1.3 million includes the impact of the Bolab acquisition, inflation, and increases to employers' National Insurance contributions in half two. Although the benefit of the revenue mix is not expected to be repeated in FY26, the operational improvements have been embedded in the business and are expected to contribute to achieving our sustainable medium-term target margin of greater than 20%.
Our cash conversion of 106% demonstrates the continuation of our track record of turning profits into cash, despite the somewhat lumpy cash profile of our large simulator and SPMM contracts. We have achieved this by maintaining our focus on commercial contracting, inventory levels, and ensuring a disciplined approach to cash management. We have reinvested this operating cash into the business, with GBP 4.2 million invested in capital projects, including on new product development in line with our technology roadmap. The acquisition of Bolab for an initial GBP 3.9 million was funded through in-year cash generation. After returning cash to shareholders in the form of dividends, we had a significant net cash balance at the period end of GBP 41.4 million available to support strategic priorities. Moving on to the performance of each segment and starting with testing products, the group's largest segment.
This includes driving robots and ADAS platforms, the large SPMM machines, as well as Bolab's test equipment for electronic subsystems. Revenue increased by 7%, with growth in robots and the contribution of Bolab offset by lower SPMM sales. The market drivers for testing products continue to support increased track testing activity levels with additional regulation and increased complexity of testing. The increase in margin was delivered through operational efficiencies in supplier quality and production layout, together with the effective revenue mix. In this segment, the timing benefit of revenue mix, which was driven by a higher proportion of high-margin robots and lower SPMM revenue, is not expected to be repeated in FY26. Testing services includes our proving ground in California, on-road testing in China, as well as powertrain and environmental testing in Michigan.
Revenue increased by 8%, driven by strong growth in the U.S., where activity levels benefited from new regulatory requirements from the U.S. regulator, NHTSA. After a two-month delay for review by the incoming administration, these have now been confirmed with an implementation date of 2029. Strong customer relationships facilitated cross-selling of VTS's services to a major OEM to whom they were previously not able to gain access, as well as initial sales being made to a number of new market entrants. A long-term testing services contract in China was renewed for delivery in FY26 and beyond. Our simulation segment includes our simulation software, rFpro, and driving simulators designed and manufactured by Ansible Motion. The decrease in revenue was driven by the timing of simulator order intake in the final quarter of the year, with macroeconomic disruption contributing to delays to customer order placement.
Our range of driving simulators was expanded during the year with the launch of the S3 Spin, and we were pleased to receive the first order for this new product towards the end of FY25. High-value simulator sales are individually material, and revenue recognition continues to be impacted by the timing of order intake and delivery, as does margin. The key enablers for the delivery of our growth plan include our great people, with over 200 qualified engineers and technicians supported by an experienced team of professionals across sales, operations, and finance. Having been with the group for just over a year now, I can personally attest to the breadth of industry knowledge and technical expertise among my colleagues. Our retention rate, which at circa 90% is above industry averages, is testament to the investment that has been made in our people.
Our cash conversion record, which we aim to continue at 100% through the cycle. Our strong balance sheet, which gives us flexibility with GBP 40 million of cash in a GBP 20 million RCF facility. While we prefer to remain debt-free, our debt capacity at two times EBITDA is now over GBP 50 million, which for the right acquisition, we could use for a short period, then pay down from cash generation. We will deploy this balance sheet in line with our capital allocation policy, which I'll cover on the next slide. Our capital allocation policy is unchanged, and we are pleased to demonstrate how this is supporting the year-on-year progression of the group's return on capital employed. Our first priority is to invest in organic R&D and CapEx, then M&A, and finally dividends.
We have a disciplined approach to R&D and CapEx, assessing each potential project using structured financial and strategic criteria to ensure alignment with our medium-term growth plan. New product development is critical to our business to ensure our solutions meet the evolving technical requirements of our customers. Our technology roadmap for testing products is designed to address the opportunities of NCAP testing over the next five years, based on the long-standing deep customer relationships we have with OEM R&D teams and service providers. Our roadmap covers both hardware improvements, such as the speed and reliability of ADAS platforms, as well as software enhancements. Where appropriate, we will invest CapEx to increase production capacity, and we will complete our global ERP system rollout, having now embedded this in our core testing products business and driving margin improvement as a result. In M&A, we will continue to target profitable cash-generative businesses.
Any transaction should be EPS accretive and meet or exceed our internal benchmarks on financial returns. Where this is not the case, we maintain a patient and disciplined approach to ensure we only invest when we can create long-term shareholder value. We have a progressive dividend policy, as shown by our track record of consistent double-digit dividend increases over the last five years. We will only consider returning further capital to shareholders if we are holding surplus cash and acquisition multiples ever become unattractive. The graph on the right illustrates that we have deployed capital in a number of ways over the last four years in a disciplined manner and are now starting to see the benefits in the group's return on capital employed metric, which has increased to 20.2% in FY25. I'll now hand over to Sarah to give an update on our growth strategy.
Thanks, Ed. Having presented our medium-term growth ambition last November, I'm pleased to say we are on track to deliver in line with the plan. The graph demonstrates the compounding effects of delivering 10% organic revenue growth each year, expanding operating margins to 20%+ , and investment in acquisitions, continuing our disciplined approach against well-defined acquisition criteria. This will deliver our medium-term aspiration of doubling revenue and tripling operating profit. I'm pleased to confirm that despite the change in CEO, you won't be surprised to hear there is no change to this ambition. I am fully committed to delivering the plan. In half one 25, we delivered an 11% increase in revenue, expanded our operating margin to 18.6%, and completed the acquisition of Bolab. Half two was tougher following the macroeconomic uncertainty, which followed U.S.-led tariff changes, and revenue growth slowed.
However, through delivery of our continuing program of driving operational efficiency and cost control, aided by a positive mix impact, we delivered improvement in operating margin and operating profit slightly ahead of expectations. I'll give further detail on each of these elements in turn on the next slides. Our growth is supported by very long-term structural and regulatory growth drivers in four main areas: new vehicle models, new powertrains, consumer ratings, and regulation. The first two relate to the wider automotive market, and the third and fourth are linked to the rapid developments in safety technology for assisted and automated driving functions and the increasing regulation and certification requirements in this area. During FY25, our sales growth has been driven by industry advances in technology, the drive for efficiency by OEMs, and increased complexity of testing. There are a number of well-publicized factors creating uncertainty in the automotive market.
The impact of tariffs is causing disruption, but OEMs remain committed to R&D in order to remain competitive. In half two, we saw the impact of many customers pausing to take stock and delaying procurement decisions while they determined how best to respond to tariff changes. The challenge to traditional automotive OEMs posed by the rise of new entrants is resulting in the need to innovate and develop faster, more cost-efficient methods of developing new models, giving rise to further opportunities for our simulation capabilities, which enable manufacturers to accelerate the efficiency and speed of development by allowing customers to test in a virtual environment. As the transition to EVs is occurring more slowly than originally forecast, there is renewed growth in hybrid platform development, and ICE vehicles are expected to be around for longer, supporting significant levels of activity in new platform development.
The new U.S. regulation, FMVSS 127, mandating new requirements for automatic emergency braking that comes into force for cars sold into the U.S. from 2029, remains in place despite lobbying from the U.S. car industry and is beginning to drive development activity in the U.S. market. Combined with the extension of Euro NCAP testing to other vehicle categories, increases in the complexity of testing, safety regulation, and the growth in active safety and autonomy provide tailwinds for growth. Our business is resilient against short-term market disruption, and our market drivers support double-digit revenue growth in the medium term and beyond. We are OEM-agnostic in the sense that we supply to all major automotive OEMs with over 150 different customers, therefore providing protection from downside risk from the current competitive environment between conventional manufacturers and Chinese EV makers. Our global, diversified customer base and high-quality, long-term customer relationships provide resilience.
Our global footprint allows us to remain close to our customers and gives us flexibility in dynamic market conditions. We are powertrain agnostic. All new models need to be tested and certified, whether EV, hybrid, or ICE, leaving us well placed whatever the mix between differing powertrains. We sell into R&D functions and the organizations independently conducting testing. We don't sell anything that goes into a production vehicle. Therefore, production volumes are not directly relevant to us. As OEMs seek to innovate and develop faster, more cost-efficient methods of developing new models, this will lead to a faster adoption of simulation and further opportunities for our simulation capabilities. In summary, all of these market drivers and our high-quality, long-term customer relationships provide resilience against the challenging near-term dynamics in the automotive industry, and long-term, are moving in the right direction to support sustainable double-digit revenue growth across our business.
Operating margin expansion will be achieved through delivering operational gearing as we scale the business. The investment we have put in means we have the capacity to deliver the next phase of growth without a corresponding step change in overheads. Simplifying the business, we are focusing on improving our supply chain, rationalizing the number and quality of suppliers to obtain discounts and improve quality and efficiency, as well as rationalizing the number of product variations and combinations in the market. Standardizing our processes and procedures. We have already made many improvements in this area, but there is significant opportunity to streamline our manufacturing, improve design for manufacture, and drive the benefits from our ERP system.
In our main manufacturing facility in the U.K., we have delivered a net improvement of GBP 1.1 million through the implementation of a supplier quality management system and increasing quality testing at the sub-assembly level, leading to reduced rework and wastage. We have reduced direct labor input times through planning and layout improvements. We have also rationalized the number of product configuration options. We have demonstrated a strong track record in delivering and implementing value-enhancing acquisitions, and this will continue to be an important area of focus for the group. Our pipeline includes a range of near-term opportunities and longer-term relationships. There are no changes to our well-defined strategic and financial criteria against which targets are screened. Importantly, we have the resources in place to execute transactions. The market is fragmented, consisting of a high number of small to medium-sized businesses, which are filtered down into targeted approaches.
These are usually off-market opportunities with vendors with whom we've built a relationship over a period of time, but are sometimes structured M&A transactions. We typically have several acquisition opportunities in various phases of the transaction process at any one time. We are looking for cash-generative businesses with high gross margins at reasonable multiples, which are EPS accretive and capable of achieving strong return on investment. Typically, targets will offer new product or service capabilities that can be sold through our existing international sales channels. In terms of geography, we're most likely to pursue opportunities in Europe and the U.S., while being mindful that given the current disruption, we will need to be comfortable that any business is resilient to changes in market conditions.
During the year, we completed the acquisition of Bolab, which has been integrated into our testing product sector, opening opportunities for Bolab to access new sales channels. We continue to apply our highly disciplined and well-structured approach to deal execution, which led us to withdraw from a further transaction in the year. We are continuing to build relationships with a number of other targets. In summary, we have a promising pipeline and sufficient resources to take advantage of opportunities that arise. The group has made a strong start to delivering the medium-term growth plan, which we articulated in November 2024. Trading in the first half of FY25 was strong, with double-digit revenue and profit growth. Despite challenges in the second half caused by macroeconomic and political disruption, the group delivered full-year profit growth of 15% and improved margin to 20.3% from a combination of operational improvements and revenue mix.
Diluted EPS grew by 15%, and we have proposed a 20% increase in the dividend, reflecting the board's confidence in the group's financial position and prospects. Our strong operating cash generation and cash conversion of 106% leaves us with GBP 40 million of cash, which supports further organic and inorganic investment. In terms of the outlook for FY26, the group is OEM-agnostic, powertrain-agnostic, and sells into automotive R&D functions, providing resilience against short-term industry headwinds. The group is also geographically diversified and supplies market-leading products, which are critical to our customers' future success. Encouragingly, underlying demand drivers remain strong, and customer activity increased towards the end of FY25. As a result, the group carries forward 32 million of orders into FY26, providing good trading momentum into the first half of the year.
Whilst mindful that short-term macroeconomic disruption may continue into the first half of FY26, the board remains confident that the group will make further financial and strategic progress this year and expects to deliver FY26 adjusted operating profit in line with current expectations, with an expected bias towards the second half of the year. Future growth prospects remain supported by long-term structural and regulatory growth drivers in active safety, autonomous systems, and the automation of vehicle applications, underpinning our medium-term financial objectives.
To summarize our growth strategy and value creation plan, our ambition is to double revenue and triple operating profit over the medium term from our FY24 baseline of £20 million of profit, through the compounding effect of 10% organic revenue growth, improving margins to 20% and beyond, converting these profits into cash with 100% cash conversion through the cycle, and a self-funded acquisition spend of GBP 30 million - GBP 50 million per year. That concludes the presentation. Thank you for joining us.