Welcome to the AB Dynamics 2026 half-year results presentation. I'm Sarah Matthews-DeMers, the CEO, and I'm joined today by our Interim CFO, Andrew Lewis. I'm going to be taking you through the highlights before Andrew takes you through the detailed financial performance. Following this, I'll provide my initial observations from my first few months as CEO and an update on our progress against our medium-term growth strategy before wrapping up with a summary of FY 2026 to date and the outlook for the remainder of the year. We set out our medium-term growth ambitions in November 2024, and I remain committed to delivering these. We have continued to make strategic progress in shaping the group to take advantage of the structural market drivers that underpin the significant medium-term growth opportunity.
As we had already signposted, revenue was softer in the first half due to the order intake delays in the second half of last year caused by tariff disruption, with only GBP 44 million of orders received. In half one of FY 2026, it is pleasing to see positive customer activity and order intake recovering to more positive levels, with GBP 64 million of orders received. Our closing order book of GBP 47 million, together with revenue delivered in half one, provides approximately 70% coverage of expected full-year revenue. Combined with our confidence in operational execution, this leaves us well positioned to deliver in the second half of the year. We have enhanced our focus on innovation to drive future growth, an area I will cover in more detail later in the presentation. Our second value creation pillar is margin expansion.
Our operating margin was maintained at 18.6% as the impact of lower volume was offset by operational improvements, management of discretionary spend, and a positive revenue mix. This shows the benefits of the investment made over the last five years to make the business more agile and responsive to dynamic market conditions. Our full-year margin is expected to show year-on-year progression given the expected half two revenue bias. In addition, the lower-margin Chinese testing services business, VadoTech, will now become a smaller proportion of the group, which will also benefit margin. In the operations function, we have a further program of continuous improvement underway to drive our incremental margin growth, and I am confident of achieving our sustainable margin target of greater than 20%. We have a promising pipeline of value-enhancing and strategically compelling acquisition opportunities that we are continuing to develop.
Our significant net cash balance of GBP 39.3 million supports further organic and inorganic investment opportunities. I'll now hand over to Andrew to take you through our financial performance.
Thanks, Sarah, and good morning, everyone. It's been a privilege to join a group with AB Dynamics' pedigree and to work with Sarah and the team over the last two months. I found a business with talented people, great products, and excellent long-term, high-quality customer relationships. On to the business of the day and the results for the first half of 2026, revenue and profit in the first half were consistent with the previously guided second half bias for the full year in 2026. We expect this to result in a trading performance weighted approximately 55%-60% towards the second half of the year, set against the context of a greater first half bias in 2025 than typically expected.
Order intake in the first half strengthened, showing that the market and customer activity is returning to a more positive level after a more subdued third quarter of FY 2025, which was heavily impacted by global trade tariff issues. Looking at the numbers in more detail, revenue was down 16%, reflecting the previously communicated delays in the timing of order intake and customer delivery requirements, including the weaker than anticipated volumes at our Chinese testing services business, VadoTech, which I'll cover in more detail later in the presentation. Operating profit decreased by 16% to GBP 9.1 million. Operating margin was maintained at 18.6% with the negative impact of operational gearing offset by the full-year effect of operational improvements, management cost actions, and a positive revenue mix. The effective tax rate remained flat at 20% and earnings per share decreased by 15% to GBP 31.3.
On a rolling 12-month basis, cash conversion of 102% on our rolling three-year average cash conversion of 105% demonstrates that we're consistently able to turn our profits into cash. We are increasing the interim dividend by 10%, reflecting our strong financial position and confidence in the business. The order book at the end of the period was GBP 47 million, of which GBP 29 million is for delivery in the second half. This, combined with first half revenue, provides approximately 70% cover of full-year 2026 expected revenue. Moving on and looking at the year-on-year operating profit bridge, the negative impact of operational gearing was offset by a combination of the full-year effect of operational improvements, primarily in testing products, management-implemented cost mitigation actions, largely around the timing of discretionary spend, and revenue mix, which contained a number of components.
In Testing Services, growth in the high-margin U.S. mileage accumulation business, together with lower revenue in the low-margin Chinese testing services business, and in Simulation, a higher proportion of high-margin rFpro software, this delivered an operating margin, which was maintained at 18.6%. Looking into the second half, we expect the volume to be higher and thus will benefit from operational gearing. Operational improvements are embedded into the business. Revenue mix is harder to forecast, as it is often dependent on the timing of some large individual deliveries. Overheads will be managed carefully to balance financial performance with investment in innovation and our people. Now looking at cash.
While in the period working capital increased due to the timing of customer deliveries falling later in the period than usual, driving an increase in receivables, our rolling 12-month cash conversion of 102% demonstrates a continuation of our track record of turning profits into cash. 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 2 million invested in capital projects, including on new product development in line with our technology roadmap. After returning cash to shareholders in the form of dividends, we had a significant net cash balance at the period end of GBP 39.3 million available to support strategic priorities. Moving on to the performance of each segment and starting with Testing Products, this segment includes driving robots, ADAS platforms and soft targets, and laboratory-based test equipment.
Revenue was down 17% as a material delivery of robots to a North American OEM made in the first half of 2025 did not recur in the period. Underlying demand drivers remained strong and order intake was encouraging during the first half of 2026, particularly in Asia-Pacific and North America. The increase in margin was driven by operational efficiencies together with cost control measures focused on the timing of discretionary spend. Testing Services includes our proving ground in California, powertrain and environmental testing in Michigan, and on-road testing in China. Revenue decreased by 29%, which was very much a tale of two geographies. Performance has been positive at our U.S. businesses, where new customer wins for our mileage accumulation business and increased track testing activity on behalf of the U.S. regulator drove good revenue growth.
However, our business in China, VadoTech, has seen significantly weaker than anticipated volumes under the new contract with a European OEM awarded at the end of last year. The customer has faced challenging local market conditions as its market share as a premium European brand has been replaced by domestic brands such as Geely and BYD, and the lower consequent on-road testing activity has resulted in a reduction in our revenue. The VadoTech Testing Services business remains in continuing activities in the half-year numbers as a strategic review commenced shortly after period end. This slide illustrates the financial impact of the VadoTech business on the Testing Services segment in the first half of this year with comparatives for last year's half and full year.
In light of the performance of the VadoTech business in the first half of this year and customer intelligence about their revised expected volumes, the group recorded an impairment of the VadoTech business of GBP 16.8 million, the majority of which is non-cash. The detail on the slide should provide sufficient information to allow modeling of the U.S.-based testing services segment, which as can be seen, is a higher margin segment without the VadoTech results in it. It is important to stress that this is an isolated issue with a single European OEM who is facing challenging local market conditions in China and has no bearing on the opportunities to sell testing products to Chinese OEMs for local use in China, which has been a strong market for our testing products in the first half of the year. Simulation includes our simulation software, rFpro, and driving simulator motion platforms.
The slight decrease in revenue was driven by lower motion platform sales, where we expect revenue to be more heavily weighted to the second half, offset by higher software sales. Customer activity in this area was buoyant in the first half and included the EUR 9.7 million contract win to supply advanced Driver-in-the-Loop simulation equipment to a major European OEM, which we announced in December. Margins were impacted by the mix of higher software and lower equipment sales in the period. As a reminder, high value simulator sales are individually material and two further order wins are assumed in our second half revenue expectations. Our key financial enablers are unchanged and include our great people with over 200 qualified engineers and technicians, supported by an experienced team of professionals across sales, operations, and finance.
Our retention rate, which at circa 90% is above industry averages, is testament to the investment that's been made in our people, our cash conversion, which we aim to continue at 100% through the cycle, and our strong balance sheet, which gives us flexibility with GBP 40 million of cash and a GBP 20 million revolving credit facility. Whilst we prefer to remain debt-free, our debt capacity at approximately 2x EBITDA is now GBP 55 million, which for the right acquisition we could use for a short period, then pay down from cash generation. Our capital allocation policy is unchanged, and we're 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 the 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 both regulation and NCAP testing over the next five years based on the longstanding deep customer relationships we have with OEM, R&D teams, and service providers. Our roadmap covers both hardware improvements, such as the speed and reliability of our ADAS platforms, as well as software enhancements. In simulation, new product development is targeted at addressing evolving customer requirements and ensuring our product range provides solutions for a range of use cases and budgets across the road and motorsport markets.
We have well-invested facilities across the group, but where appropriate, we'll invest CapEx to increase production or service 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 where we can create long-term shareholder value. We have a progressive dividend policy, as shown by our track record of consistent double-digit 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 21% in the first half of 2026. I'll now hand over to Sarah, who will provide an insight into the first few months in her new role and to recap on the progress against our medium-term growth strategy.
Thanks, Andrew. Having been in the CEO role since the 1st of December, I'd like to share my initial observations. We have made a huge amount of progress at ABD over the last five years, and it's a very different business to the one I joined. We have great people, great products, and a great market position, which underpin my confidence in the future of the business. There is no change to our overall strategy, and going forward, you should expect evolution, not revolution. We've reviewed the portfolio of prior acquisitions and taken early decisive action, given the changes in market dynamics for our VadoTech business. I'm passionate about driving the group forward and will focus on innovation, continuous improvement, and developing and growing our people. During the last few months, I visited nine out of 10 of our business units and personally met around 90% of the group's employees.
I've really enjoyed my time visiting our sites and talking to some of our very talented people. We've run innovation workshops attended by all levels of the organization, designed to generate new ideas for innovation, continuous improvement, and excellence, and to promote a culture of respect. I was delighted that these workshops attracted full attendance, and the engagement and enthusiasm of my colleagues reinforced my view that the group is awash with talented and engaged people. Over 500 ideas have been generated and are currently being reviewed and actioned. A broad range of opportunities have been identified to drive both revenue growth and operational improvements. As a reminder, our medium-term ambition is to double revenue and triple operating profit from our FY 2024 baseline, and I am fully committed to delivering the plan.
The graph demonstrates how this will be achieved by the compounding effect of delivering average organic revenue growth of 10% each year, expanding operating margins to 20%+, and investment in acquisitions, continuing our disciplined approach against well-defined acquisition criteria. When we articulated the plan in November 2024, we clearly didn't have visibility of some of the geopolitical and macroeconomic issues and challenges that the second half of FY 2025 brought or the more recent developments in the Middle East. We have always said the medium-term progression was unlikely to be delivered in a perfectly linear fashion. As expected, half one 2026 had a softer trading performance due to the macroeconomic disruption we experienced in the second half of last year, with revenue down 16%. We expect FY 2026 to have a greater weighting towards the second half.
Despite the decrease in revenue, we have maintained the group operating margin at 18.6%, and in M&A, our pipeline continues to progress. I will give further detail on each of the three 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. These long-term tailwinds support the growth of the group's end markets across each of its three sectors, but have also led to volatility in the wider automotive market that can impact the timing of specific customer procurement activity over a short-term period.
At a macro level in the wider automotive market, we note a continuation of the regional trends noted previously, whereby traditional European OEMs are losing market share to new entrants and are under pressure to innovate in response. Overall, in 2025, the global automotive market recovered to near pre-COVID highs, with growth driven by APAC, where the group has a strong market position. A divergence internationally in terms of the rate of EV adoption following changes implemented by the U.S. administration, which will mean EVs and ICE vehicles are likely to coexist for longer, driving increased platform churn and therefore testing demand. Rising investment in Level 2 ADAS systems, which provide partial driving automation such as lane keeping assist with premium technologies filtering into more affordable cars. Our product lineup is well suited to continue to capitalize in this area of development and testing.
While the development of autonomous vehicles has been well-publicized, we do not expect full-scale adoption of AVs until well into the future. With that said, the products and services we offer are critical to AV development, be that in high-fidelity simulation or physical track testing scenarios. Our business is resilient against short-term market disruption, and our market drivers support sustainable double-digit revenue growth in the medium term and beyond. We are OEM and powertrain agnostic with over 150 different customers globally, including conventional manufacturers and Chinese EV makers. 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 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. We have a number of organic growth opportunities, and on this slide, we've broken them down across each of our three segments to help illustrate how we expect to sustain increases in both volume and pricing going forward. The key takeaway is that across all segments and product or service offerings, we operate in growing end markets, which in the long term, we expect to drive incremental sales volumes. The timing of this is fluid across different geographies and OEM customers. As technological advances in safety technology continue, the associated regulatory and certification environment is expected to follow, thus driving demand for our equipment.
In addition to this overall market growth, there are further opportunities for growth in areas where the group can increase its market share. For example, in platforms and soft targets where it competes with two other main competitors and has greater scope to win new customers. The group has a strong position in the market and a premium offering, which gives it strong pricing power and has enabled it to consistently increase prices above inflation in recent years. In areas where the group has strong niche positions such as robots and its simulation software, we will continue to maximize this opportunity. Finally, while replacement cycles underpin a level of steady-state revenue, our continued investment in new product development will help to stimulate demand and enhance growth prospects.
While opportunities exist across each segment, there are particularly strong opportunities in robots and platforms as our equipment evolves to keep pace with ADAS technology and for driving simulators as we incorporate new customer requirements into new product launches. Operating margin expansion will be achieved through delivering operational gearing as we scale the business, simplifying the business, and standardizing our processes and procedures. In our main manufacturing facility in the U.K., we delivered a net improvement of GBP 1.1 million in FY 2025, with initiatives spanning supply chain efficiencies, planning and layout improvements, and product rationalization. In half one 2026, the full year effect of last year's initiatives delivered a further GBP 0.3 million. The innovation workshops I've conducted over the last few months will drive the next wave of incremental margin improvement opportunities, which we are working to monetize in FY 2027.
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 have 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. During the year, we have refocused our pipeline of opportunities and continued to develop relationships with a number of targets.
We continued to apply our highly disciplined and well-structured approach to deal execution, which led us to withdraw from a potential transaction in the period. In summary, we have a promising pipeline and sufficient resources to take advantage of opportunities that arise. To summarize half one performance and the outlook for the remainder of the year, revenue and profit in half one were consistent with the previously guided second half bias for FY 2026. Order intake in the first half of GBP 64 million shows that the market and customer activity are returning to more positive levels after a more subdued third quarter of FY 2025. Despite the lower revenue, we maintained margin at 18.6% from a combination of operational improvements, cost mitigation actions, and positive revenue mix. We have proposed a 10% 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 102% leaves us with GBP 40 million of cash, which supports further organic and inorganic investment. In terms of the outlook for FY 2026, the group is OEM and powertrain agnostic and sells into automotive R&D functions, providing resilience against short-term industry headwinds. The group's geographic diversification and critical nature of its market-leading products and services have created a highly resilient platform that is well-positioned to support customers navigating dynamic market conditions. We have good visibility into the second half of the year with an order book of GBP 47 million, of which GBP 29 million is for delivery in half two, giving coverage of around 70% of expected revenue for the full year.
We note the emerging situation in the Middle East, and whilst the group has no operating footprint in the region, we continue to monitor any potential impacts from broader risks to trade and cost inflation. The group has strong pricing power and a proven agile approach to managing the business through changing conditions, and so we remain confident in delivering on our key strategic and operational priorities. Whilst we are mindful of the current geopolitical uncertainty, absent an extended disruption, we expect adjusted operating profit for FY 2026 to be in line with current expectations, with an expected 55%-60% revenue 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. That concludes the presentation. Thank you for joining us.