AVON.LAVON.LLSE
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Mark Sclater: Good morning, everybody. Thank you very much for those of you that have come in person, and welcome to those on the phones. I thought I'd start by thanking our employees. The speed of change across Avon has been challenging at times but people love being part of a team that is up to something exciting. We've grown the company and EPS has doubled since 2023. We now have an exciting pipeline of new products, a solid balance sheet and more strategic options. We could only do all this with such a great team. We made excellent progress in 2025. Revenue and profitability grew rapidly. We've transformed every factory using our strengthened system. We reduced costs by closing our Californian factory. In 2025, we invested $14 million in R&D, most of it expensed, fueling a pipeline of innovative products and generating excitement amongst our customers. The order book and pipeline are both stronger than ever. We have a scalable platform facing into growing markets and we're firmly on track to exceed our revenue targets and reach our margin target range in 2026. I'll now hand over to Rich and he'll talk you through the numbers.
Richard Cashin: Thank you, Jos. Good morning, everyone. So as you can see then, the headlines demonstrate another year of strong progress. As usual, all of the comparators will be on a constant currency basis. The order book at the end of 2025 has hit another record at $263 million, 16% higher than the prior year. This leaves us very well covered for FY '26 across both helmets and respirators. Revenue growth of 14% dropped through to strong adjusted operating profit, up 31% at $40.3 million. And my preferred area of focus, return on invested capital came in at 18.6% after significant progress was made reducing the average level of working capital tied up in the business. Cash conversion of 90% represents another good year even after a late burst in Q4 resulted in a high receivables balance as we crossed into FY '26. And the combination of all of these factors saw the balance sheet strengthen further with net debt leverage of below 0.9x despite considerable investment into the business during the year. Revenue growth, ROIC, cash conversion and leverage are now all better than our medium-term targets and operating margin is well on its way. Moving on to the P&L. Order intake in the year was very healthy at $352 million, giving a book-to-bill of 1.12. Orders were slightly lower year-on-year, reflecting very high call-offs against the U.S. Department of War helmet programs in '24 and a slightly lower share of IHPS awards in '25. The phasing of these call-offs will always be fairly lumpy in nature but the record closing order book of $263 million benefited from strong growth in Avon Protection, more than offsetting a modest decline in Team Wendy, largely reflecting the increased Department of War deliveries and the phasing of orders already mentioned. Revenue growth of 13.8% reflects a strong performance across the board with 16% growth in Avon Protection and 12% growth in Team Wendy. Operating profit of $40.3 million, over 30% above prior year levels, results in margin of 12.8%, an improvement of 130 basis points year-on-year and a helpful step on the road to achieving our medium-term objective of 14% to 16%. I will walk through an operating profit bridge shortly to pick out the key moving parts. Net finance costs reduced 16% to $5.4 million, driven by lower average net debt and the tax charge of $8 million represents an effective tax rate of 23%, which is roughly where we would expect it to stay absent further changes to the tax regime. This all adds up to adjusted basic EPS of $0.912 per share, an increase of 35% despite the step-up in tax from last year's 17%, which benefited from some one-off adjusting items. Avon Protection has had a tremendous year. Order intake up 18%, order book up 63%, revenue up 16% and operating profit margin up 160 basis points at almost 20%. This shows the ability of the business to lean into a strong demand environment and deliver profitable growth. The growth in orders and backlog has been largely driven by strength in international markets, offsetting a softer year in Commercial Americas following a particularly strong 2024. Ukraine-related demand now accounts for just $13 million in the backlog for delivery in FY '26. This may not repeat, but even after stripping this out, you can see that the order book has grown very well. Revenue growth was driven by Australian FM54 deliveries, strong demand for CBRN boots and gloves to NATO customers and some Ukraine support, coupled with another good year for rebreather deliveries. The excellent drop-through margin was helped by operational gearing, improving productivity and sales mix. Given the strength of the order book, Avon Protection is exceptionally well positioned to deliver further profitable growth in FY '26. Order intake in Team Wendy came in a little softer year-on-year, largely owing to lower receipts from the Department of War following very strong intake in '24. The backlog remains robust at around 1x sales with the strengthened product portfolio driving an excellent pipeline of opportunities as we enter FY '26. Revenue growth of 12% was driven by further growth in ACH II deliveries as we move towards full rate production, further aided by strong demand for bump helmets from a number of end customers, including the U.S. Air Force and Navy. Operating profit margin nudged forward from 4.6% -- to 4.6%, excuse me, from 3.9% in the prior year, which is a good improvement, but still some way off our medium-term ambitions. We are confident in further progress in 2026 as we demonstrate the sustainability of the production rate increases in Q4 and as the benefits of cost reduction following the Irvine site closure start to wash through. As a reminder, ACH II shipments, although driving top line growth, will remain dilutive at the gross margin level. We expect financial performance to accelerate through the year as we improve quality and productivity, which will skew Team Wendy operating margins towards the second half. Now as we move on to the usual operating profit walk for the year, starting with the $30.8 million jumping off point for last year after adjusting for FX. The first positive bar of $15.4 million shows the effect of the 14% revenue growth seen in the year, split roughly 2/3, 1/3 in favor of Avon Protection. Then you can see a further $7.6 million benefit through the combination of operational gearing, product mix and CI activities that have improved efficiency and reduced scrap costs. Note that as previously guided, there was a dilution effect of $2 million from growth in sales of the lower-margin ACH II helmet. There is a $7.1 million headwind from the step-up in investment in future growth, which includes increased sales and marketing, commissions, training and the increased net R&D charge to the P&L. There's a further $2.6 million headwind for increased comp, including share scheme costs. And I've also pulled out the $1 million drag on earnings from tariff costs and increased national insurance in the U.K. And then finally, the other bar of $2.8 million inevitably covers a multitude of things, but the big ones are increased travel, additional investment in IT and costs incurred in tidying up some of our back-office processes. Moving on to the cash flow statement. You can see that net debt ticked up by $6.6 million in the year. The big driver was the $12 million outflow in working capital as production rates in Team Wendy ramped up, culminating in very strong product deliveries in Q4. This resulted in a high receivables balance at the end of September, all of which has now unwound. The pension contribution of $6 million was as expected. And as usual, guidance on future contributions and other financial matters is provided in the appendix to the slides. Purchase of shares to fund discretionary comp schemes increased by $4 million to $9 million during FY '25, reflecting the increase in share price and the strengthening outlook. This prevents future dilution. It's worth pointing out that cash tax will remain lower than P&L tax for the next couple of years as we burn off historical tax losses. The big items to highlight on the balance sheet include inventory remaining broadly flat despite the 14% growth in revenue, resulting in improved inventory turns and the high receivables balance at the end of the year impacting the other current assets line. As already mentioned, this has now normalized following strong cash receipts in the first quarter. Despite the modest increase in net debt, the leverage ratio continued to improve, driven by the increased profitability of the business. Overall, average working capital returns, which is a measure I like as it eliminates the impact of period-end ROIC improved by 15%. The other item worth drawing to your attention is the further increase in the pension deficit or decrease, I think, in the pension deficit to $13.8 million, down from $17.2 million last year. This is due to our $6 million contributions, offset by modest asset underperformance. I've included the capital allocation slide in the deck again this time, reflecting a further reduction in the year-end net debt-to-EBITDA ratio, which is now comfortably below our target level of 1 to 2x. As Jos will cover shortly, we are expanding the revolutionize point of our STAR strategy to incorporate acquisitions as one explicit avenue to future growth, which, if executed thoughtfully, will present opportunities to deliver compounding shareholder returns. While we're still at the very early stages of developing this muscle, we felt it worthwhile to call out. And beyond that, the chart is essentially unchanged, highlighting the prioritization of organic growth and the progressive nature of the dividend. Moving on to transformation. It's worth highlighting that transformation costs came in a little higher than expected in FY '25, reflecting a crescendo in effort in second half activity as we aggressively ramped up production rates in Cleveland. As flagged when we launched the transformation project back in 2023, expenditure will fall significantly in FY '26 with the expected outlay of approximately $6 million linked to two specific projects. The first and already communicated is the completion of transition away from SAP in our Salem facility, which we expect to save us over $1 million per year. This is progressing well and will be complete by the end of the first half. The second and new project is a continuation of the functional excellence work stream with the focus on the way we deploy IT services across the group. We expect to invest up to $4 million of OpEx plus a little bit of CapEx in the design and execution of a new target operating model for IT, which we believe will deliver significant returns in a very short time scale. The investment will be completed in FY '26 and the overall project will have a payback of less than 24 months. This project reflects the end of transformation-related costs taken below adjusted operating profit. So finally, moving on to our expectations for the full year. We expect further good growth in helmet deliveries as we finish the ACH II ramp-up with additional growth coming from commercial and international markets. We also expect good growth in Avon Protection, underpinned by the robust order book in this business. These factors combined equate to high single-digit revenue growth at the group level. We expect the financial benefits of the transformation program to drop through this year with a modest weighting to the second half. Even after the additional dilution from the growth in low-margin ACH sales, we are confident that we can deliver our operating margin within our 14% to 16% target range. As highlighted on the previous slide, we expect transformation investment in FY '26 to drop to around $6 million and return on invested capital will continue to progress nicely. And finally, we expect cash conversion to remain above 80% with continued improvements in operating efficiency being partially offset by further investment in future growth. And with that, I'll now hand back to Jos to update you on the operational and strategic progress and focus for the coming year.
Mark Sclater: Thank you very much, Rich. We continue to focus on delivering our STAR strategy, refining it each year with new initiatives. Our strengthened system has become a powerful engine for continuous improvement, and we still see lots of opportunity ahead. Much of our transformation program is complete with two newer projects running into 2026. The transformation program will finish in 2026 but the strengthened system will continue. Kaizen is forever, as we say internally. In advance, we're increasing investment into R&D, sales, marketing and people. 2026 will see our most ambitious new product development program yet. In revolutionize, we've been very successful in securing customer-funded development programs. This year, we're expanding revolutionize to include acquisitions. Our long-term vision is to compound shareholder value by complementing our organic growth with targeted acquisitions. We have the team, the capability and the business improvement system to extract value from acquired assets. That said, our immediate focus remains on organic growth. While acquisitions are part of our long-term strategy, we're not in a rush. We will wait until we find the right opportunities at the right price. As a reminder, this is our scalable business improvement system. The STAR strategy and objective setting process keeps our people focused on action. Our STAR Academy builds the capability of our people and the strengthened system enables us to continuously improve our processes, creating cash to invest into the front end of the business. During the year, we trained every employee on our strengthened system, developed 20 proprietary courses in our STAR Academy and took 30 of our senior employees to Japan for intense continuous improvement training. Another 20 people are going next week. We believe that improving our operating metrics ultimately drives growth and profit versus 2023, when we originally set out our ambitions, productivity has improved 28%, scrap has reduced 62% and inventory turns have improved 46%. But this is just the start. There is more to come. At the midyear, we highlighted the operational risk in Team Wendy associated with production ramp-up and the move from batch to flow manufacturing. This turned out to be prescient. The speed of the ramp-up was difficult. Yet as these graphs show, we are making progress. Over the summer, we tripled production on our Department of War lines as we implemented flow manufacturing. This demonstrates the potential of our new lines. We now need to increase production rates again on the ACH lines by another 50%, and we need to ensure we can deliver consistently every week. We are not out of the woods yet. We learned a lot over the summer and have used this to improve our strength and system. We learned that teams can go much faster than they think. We ran 14 improvement projects over 8 weeks. Leadership from the front is critical. We need to show people rather than just tell them. A line that flows can only run as fast as its slowest operation. The fastest way to speed up a line is to deeply understand each process and tackle the biggest bottleneck one at a time. Lines cannot be improved by sitting in an office. Change needs employee buy-in. We spent a lot of time explaining what we expected of our operators and training them on the strength of the system. From a strategic perspective, our aim is to make the most advanced and best looking helmets with the lowest lead times and cost of production. Avon Protection also made excellent progress as this slide illustrates. In the electronics value stream, which includes rebreathers, productivity increased 79% and scrap halved. In boots and gloves, production increased 47%, improving return on capital and helping us deliver on high customer demand. Both divisions have transformed every production line from batch to flow manufacturing. We've moved almost every single piece of equipment across the entire group, often more than once. You can see the scale of the change in this time lapse video of our U.K. site over the past year. One of the reasons that we're happy to share our strengthened system is that it's not about knowing what to do. It's about actually doing it. Real progress comes from making tangible change every week. That's what delivers sustainable benefits. Moving on to transformation. As you can see, most of our initiatives are nearly complete. We expect to see benefits this year and beyond. Just to pick out a few points. In footprint optimization, we closed a factory in California and built a new one in Cleveland. In operational excellence, we've transformed all four of our factories. In functional excellence, we've reduced costs and improved quality in the finance function and we have a plan to make IT more efficient. In commercial optimization, Stacy Stern, our new VP of Sales, has developed a strategy to improve our sales capability and we have more bid activity than ever before. We will also hold more marketing events where we arrange for our customers to shoot our helmets so they can see how good they are for themselves. 2026 marks an important milestone. The transformation phase we started in 2023 will end in 2026 as planned. During this phase, we've fixed a lot and have done much to improve the business. There's more to do this year but we are starting to get our heads up and look to the future as we move from the fixed phase to growth. Our markets are supportive. Defense spending is up, CBRN threats are growing and user numbers are increasing. We are investing more in innovation and are building a strong pipeline of new products, and we're not just reacting to demand, we're shaping it. We have a repeatable and scalable business improvement system that creates the platform for future growth, supported by a strong balance sheet and the potential for acquisitions. In Avon Protection, the order book is -- the order book of $117 million is up 63%. As you can see, both revenue and the order book are well diversified across customers and product lines. This year, we reached a milestone of $100 million of total orders under our NATO framework contracts to 16 countries for restorators, boots and gloves. Each country we win creates recurring revenue for the future. Beyond the order book, our pipeline of opportunities is bigger than ever. We have large potential filter orders from the U.S. Department of War and from the Middle East. Our MITR lightweight Half Mask and powered goggles were launched this year. We have opportunities for MITR sales with the special forces of 4 out of 5 of the 5 I's. This is important because regular forces tend to follow the lead of the special forces. In rebreathers, we won orders with Canada and 2 European Navies and have bid for 2 additional new navies. In addition, we're actively engaged with the U.S. Navy, U.S. SOCOM and the U.S. Marines on rebreather opportunities and expect to receive invitations to tender this year. In Ensemble, we have opportunities for our lightweight chemically resistant suit in the Middle East with NATO and the United States. Overall, our pipeline of opportunities is up considerably and we are going for some big pieces of business. We will not win everything. But with a weighted pipeline up more than 80%, we should continue to grow. We mentioned at our interims that we are working with the U.S. Marines to develop MITR further on a program called ENBD. Since then, we've been awarded another development program by the Department of War as part of their push to combat irregular warfare. The aim of this program is to develop a scalable tactical assault respirator, which they call STAR. I suppose I should be flattered that they've chosen to copy our acronym. STAR builds on the MITR platform and adds functionality and equipment. The exciting thing about STAR is that it has a very wide range of interested user groups, including the U.S. Special Forces, the Air Force, LAPD and the FBI. These programs will enhance the capability of MITR and develop it into a complete system that will create an entirely new market for us. In addition, we've achieved CE and NIOSH approval of the MITR Half Mask and particulate filter, which opens the U.S. Federal market to us. Interest in our EXOSKIN suit increased during the second half. We're optimistic that our lightweight, low-burden suit is what the users want. Two different versions of our EXOSKIN suits have been chosen by the U.S. Department of War for trials, which could lead to the sale of 700 suits. There is potential for a larger program beyond that but competition will no doubt be fierce. We've also won a key order with the Turkish MoD for a full ensemble system, including suits, boots, gloves, masks and CS-PAPR systems. This shows that our strategy to sell full ensemble packages meets the needs of our customers. So far, we're working with technology partners in this area, but there is potential for selective technology acquisitions to help us accelerate. We continue to launch new products to drive growth. This year, we'll launch the next-generation CS-PAPR. This has been trialed at several end-user events, and they love the way it helps enable them to escape from sudden high-threat situations by seamlessly switching to supplied air. We've also developed a new voice protection unit for our 50 series of masks, which we plan to start delivering in the first half. The new unit offers users improved functionality and less complexity. Looking further out, we're working on a new shallow water rebreather and expect to bid for funding to help us accelerate this program. We're also looking to exploit our new multilayer filter bed technology, which provides a far broader spectrum of protection than existing carbon filters. Team Wendy's order book of $146 million largely consists of next-generation IHPs, ACH and EXFIL for the Australian Defense Force. We saw good growth in the U.S. police and first responder market, which was up 15%. And we had another year of very strong demand for combat helm pads and liner systems. Our support for Navy for EXFIL bump helmets has also been a key driver of growth with over 25,000 helmets shipped to the U.S. Navy in 2025. These helmets offer enhanced impact and work with hearing protection, addressing long-standing gaps in legacy systems. The pipeline in Team Wendy is also promising. The EPIC helmet range has taken our leading military technology into commercial helmets. This has helped us win market share. Internationally, we're working with two militaries on new opportunities that look hopeful. We launched RIFLETECH in the first half and have seen encouraging early demand. It delivers elite ballistic protection and all-day comfort in a lightweight mission-ready design. The new pad system is so comfortable that during testing, one user forgot to take the helmet off at the end of their shift. Furthermore, I'm told that the first rule of being in the military is to look cool, and RIFLETECH certainly delivers on that. We've now shipped Rifle Tech to an international military, made our first e-commerce sales and sold units to U.S. police forces. This demonstrates that there is demand for a very high-end helmet in the market. In 2026, we'll launch our most ambitious development program yet with two new ballistic helmets built around our latest technology and our no through-hole attachment system. These will upgrade our range with higher protection at lower weight. We also plan to launch a new generation of bump helmets, offering leading protection and multi-certification to cover a broader range of user requirements. Together, these launches will increase our range into new markets and further differentiate Team Wendy from its competitors. We'll share more at the midyear. Meanwhile, demand for Integrated Head Protection continues to grow. In 2025, we secured a new Department of War funded program to develop a helmet that can withstand an even higher ballistic threat with integrated eye and hearing protection and night vision compatibility. This is important because it positions us well for the next generation of Department of war helmets. As you can see from this slide, we have achieved most of our goals that were originally set for 2027. The only exception is margin where our aim is to achieve our target this year. With regard to risk, we still need to increase production rates on ACH Gen II. We know how to do this, but there is a lot to do. Recruiting good people at the speed we need remains challenging. There is a risk of increased competition on the NextGen IHPS program with a new supplier potentially entering the market. This would take the number of suppliers from 2 to 3 with demand continuing to look strong. The government shutdown currently prevents the delivery of helmets to the DOW but does not slow production. We expect to see a temporary impact on working capital in the first half but no long-term impact. Looking at opportunities, we are bidding for several major U.S. and international programs, which are not currently in our forecast as timing is uncertain. There may be upside here but it's too early to tell for now. The strength of the system does have the potential to deliver higher margins than guided but we remain of the view that it's rare for everything to go right. To wrap up, nearly 2 years ago, we set out to transform the group through our business improvement system. The original transformation projects are largely complete. We've launched world-leading products and technologies and partnered on a record number of development programs, further strengthening our competitive moat. Our markets remain highly attractive with rising defense spending and a record order book backed by a robust pipeline of new opportunities. We have a scalable business improvement system, which is a powerful tool for improving businesses and generating shareholder value. In summary, we see opportunities ahead and believe that we have the people and the processes to realize those opportunities. Thank you very much for listening, and thanks to the guys in the room. We'll now open up for questions.
Andrew Douglas: It's Andrew Douglas from Jefferies. I've got a few questions. I'll maybe go into two spots and come back later. On the IHPS, can you explain to us why there's new competition to the market? You've got two people who are doing a good job. Is the DOW wanting a third one? And if a third entrant does come to the market, is it not going to take them a while to get fully up to speed with FAT approval, ramp-up approval, et cetera, et cetera?
Mark Sclater: Yes, it's a very good question. We asked the same thing. The answer is that Gentex was slow getting FAT. In fact, I think it failed that first time around. And as a result, the Department of War reached out to another company and asked them whether they have been interested for applying for FAT. Somewhat irritating that Gentex then did pass FAT but the other party was some way down the road of working how to build the helmet itself. So they are now in FAT. We don't yet know whether they're going to pass or not. It is a difficult technical challenge that helmet. And even if they do get FAT, one thing to get FAT is another thing to work out how to make it as we've discovered ourselves, it's quite tricky. But I think there is a possibility that we'll get a third player in the market, annoyingly nothing to do with us because we pass FAT first time around.
Andrew Douglas: Second -- just I've got some for Jos, some for Rich. On the M&A side, where are we in terms of the pipeline? I mean it sounds to me like we're now thinking about it. Do we have a pipeline of -- I don't know how many companies you need in the pipeline, but do we have one and then you're trying to work your way through to figure out what's the best? Or do you know what you want to buy? It's a question of when it comes up and at the right price?
Mark Sclater: I think it's early days. We are focused this year very much on organic growth and getting the margin into our range. We want to deliver on our promises before focusing on other things. I think this is the year where we'll start to get our heads up and look a bit more externally and go and visit more companies. But with M&A, you have to kiss a lot of frogs to find a princess. And it's going to take us a while to build up a pipeline of opportunities. I think the only potential exception to that is I think we've got a good set of partnerships for suits but there are some options there where acquisition might help us accelerate better than partnerships, but they'd probably be very small.
Andrew Douglas: And then just a few quick ones for Rich. On the receivables, how much was it? And is that just a question of you delivering lots in the fourth quarter and get paid in the first quarter? Or is there something else going on?
Richard Cashin: No, it was exactly that. So the overhang, $25 million to $26 million was $17 million, all owed by one customer and now all paid by set customer.
Andrew Douglas: And then on one of the slides, you talked about a GBP 10 million benefit in '26 from transform basically finishing. Is that all in '26? Or is that an annualized number that we should think about by '26?
Richard Cashin: It is an annualized number, but most of it will come from...
Richard Paige: It's Richard Paige from Deutsche Numis. Three from me as well, please. Given what you've said on Q4, it sounds like there was not -- for want of a better word, not a scramble but quite a surge towards the end of the period. Could you just talk through a bit more what happened, please? I think you're on the ground lately.
Mark Sclater: I don't know if you're set up for that. Yes. I mean the summer was pretty intense. I was actually in Cleveland for 2 months solidly on the factory floor for the entire 2 months. I actually spent the first 3 weeks in the paint booth trying to get that to working, which we did eventually do. We have an automated paint line, but it was not painting in an automated way to start with. After that, we just started debottlenecking the lines and knocking down problems one at a time. I think it was very intense. It was very tiring for people. There were a lot of 12-hour days. I'd say it was also very rewarding though because every week, we could see the production rates coming up and more helmets getting approved by the DoD. So -- but yes, it was a hard push for sure. Not for the faint-hearted and actually, you've given me the opportunity to thank all the team in Cleveland. I mean it was really hard work. It's not -- I mean, they probably don't -- I think they did love having the CEO there for 2 months, but probably in the first week, they say, "Oh my God." But we ended up creating a really strong team, and they work really, really hard. So I'm very grateful to them.
Richard Paige: You've alluded to second half weighting for the year ahead. Could you just give us a little bit more flavor around that, please? Yes.
Richard Cashin: I think we're trying to get the numbers. So we can come back to that. But the drivers for the weighting are twofold. So firstly, demonstrating ability to hit rate was the important thing for Q4 '25, which we did. In the first half of '26, two things need to happen. So firstly, we need to demonstrate to ourselves that, that rate we have hit is sustainable. And then secondly, as Jos mentioned in his slides, we've got to increase it again by another 50% on one of the helmet types. So there is still a lot to do. And of course we operate [indiscernible] margin level, it is helpful from an operational gearing perspective. So that clearly weights margin a little bit on in the first month, then great. But I don't think we will. I think it will take us the half. So maybe instead of 48%, 52%, think 46%, 54%.
Richard Paige: My last one is a little bit selfish. I think of my Christmas stocking list, you've moved all of your facilities to flow manufacturing. In your own words, you moved almost every bit of equipment in the firm. What are you writing a book about, Jos?
Mark Sclater: I'm not writing. We are going to -- I think we're going to do a second edition of the strength of the system just to put in some of the learning. So I think we should continuously improve it as we learn ourselves. It's one reason -- I've actually got a longer deck of what we learned over the summer in Cleveland that we've started training our people internally on you've just got one slide from it in this deck. But I actually do have a new mission. I don't think we're very good at helping our people transition from being technical specialists to leading teams. So I want to write a training program around that to help them kind of make that important career move from technical specialists to leader of bigger teams. We have had a number of people where I think we probably could have helped them more than we have done. So that's my next mission.
Richard Paige: [indiscernible] Very grateful for having something to do to keep him busy in the afternoon.
Toby Thorrington: Toby Thorrington from Equity Development. Question is all for Rich, I think. So good improvement in gross margin in the period. Scrap looked like a decent size. Scrap reduction looked like a decent sized contributor to that. If I read the chart correctly, scrap rates not much more than 1% now. Is there much more to come from that? And what's the gross margin outlook generally?
Richard Cashin: That's 2 questions, that's cheating. I finished yet. On scrap, yes, there's plenty more to go. I mean, interestingly, I remember standing up here 2 years ago pointing out that we were scrapping $1 million a month in one of our factories. That $1 million has now gone down to $0.25 million, which is obviously great, but that's still $0.25 million a month that we're scrapping in that factory, and we've got 4 factories. So there's still plenty to go at on scrap. Gross margin improvements, we do expect that they will continue to come through. We've got the annualized effect of closing Irvine that we expect will come through in 2026 and a lot of that will come through in gross margin. The cost of doing business on an operating level in California is somewhat different to Ohio. So that will come through in gross margin. Going the other way, of course, as we increase ACH deliveries by another 50%, that will be dilutive to gross margin. But I expect to see good solid progression in '26.
Toby Thorrington: Okay. And relatedly, but further down the P&L, I think SG&A increased more than revenue in the period but it's sort of consistently so first half, second half. Just what's behind that and the outlook again for that, please?
Richard Cashin: Yes, that was the $7.3 million bar that I picked out in the operating profit walk. And I picked out because it's healthy SG&A, that's kind of investment in future growth. So you've got R&D in there. And don't forget, we capital -- we expense almost all of our R&D costs now. So every dollar we spend is an effective headwind in the year. But it's also sales and marketing. Jos called out the new appointee to head the sales team. The activity of taking helmets out to customers and shooting them or allowing customers to shoot them, that doesn't come for nothing. But it's an incredibly high-quality investment in our product. It allows customers to pick it up, play with it, see it, see what it's capable of and then buy it. So pretty good quality investment in SG&A. Actually, run rate SG&A, which is all the stuff that we've always done, came down year-on-year despite a 14% revenue growth.
Mark Sclater: Yes. We have -- it's a good piece of analysis that we have a view that many companies are not thoughtful enough about reallocating resource. And what we've done is we've taken a lot out of what you might call the back office and operations. And then we've invested into the front end of the business, sales, marketing, bids. We've stepped our bids because we've got a lot more bids, so we had to recruit some people to support that and R&D. And that was always our intention 3 years ago to invest more into that area.
Toby Thorrington: Sure. Okay. And final one, just on cash, I'm not sure whether transformation costs and cash out were aligned in FY '25. But is that -- will that be the case in FY '26, $6 million all in cash out?
Richard Cashin: Yes. So '25, no, it wasn't aligned because $3 million of the transformation was accelerated depreciation, which is obviously noncash. We've now done with accelerated depreciation. So basically, all of '26, this $6 million will be cash.
Andrew Humphrey: Andrew Humphrey at Peel Hunt. Just a couple. Just building on that question about investing for future growth. Clearly, the year ahead guidance includes a fairly meaningful step-up in self-funded R&D and CapEx. Sort of -- and that kind of seems to match up with the pretty kind of full list of bids and opportunities that you've outlined in the statement. Maybe can you tie those two things together? Does that kind of step-up in the money you're investing in the business kind of tie up to conversion of 50%, 75%, 90% of those opportunities? How should we be thinking about how that kind of gets toggled next year? I've got one more.
Richard Cashin: Do you want to start on that?
Mark Sclater: I think you go for that.
Richard Cashin: I mean talking about the jump from '25 to '26 is actually quite hard because it's contingent on a lot of things happening that we don't yet know will happen. So it might be easier if we look at '24 to '25. The sort of things that we were investing heavily in, in 2024 included finalizing development of the Half Mask, sort of getting beyond 50% through the development of the goggle that go with the MITR system and essentially starting and finishing development of RIFLETECH. And all of those things have started to contribute to revenue in '25. So if you think about that linkage, that's quite important. The other thing I would think about is Avon Protection is an international business and has been for 20 years. So very significant sales outside of the U.K. and U.S. Team Wendy is not in that same situation yet. 90-something percent of everything that Team Wendy sells is inside the Continental U.S. with the balance really being the Australian Defense Force. If Team Wendy is to grow in the way that we think it is capable of growing, it needs to push its boundary into the Rest of the World, which requires investment. And so we've talked about investing in sales. We've talked about investing in marketing. A large part of that push has been building a sales team that's capable of addressing international opportunities. And that is a team that is qualified to talk to international customers in a language that they understand. U.S. Department of War customers have a very specific language. U.S. police forces have a very specific language. That doesn't always translate into international customers.
Mark Sclater: I don't know whether this is answering your question, but there's obviously a bit of a -- there's a period where you have to develop a new product, which takes time, probably quicker on helmets than MITR, MITR took us about 18 months. Then there's a period where we have to seed the market, build the marketing materials, they have to assess it. That probably all takes you a year. We're starting to see RIFLETECH sales. We're starting to see a lot of interest in MITR but actually it's this year that the sales should step up on those. The new helmets we launched, I think they'll probably benefit us maybe the back end of this year, but probably the real sales are going to come next year, 2027 on those. Suits, we actually developed the suits maybe 2 to 3 years ago. We probably carried on refining them. They're probably the best. We would say they're the best chemical resistant suits in the world. They're way lighter than anyone else's. They're more breathable but it's taken us a long time to get the market to buy into the fact that they are an improvement over what's out there at the moment. And now suddenly, we're seeing customers super interested in them, but the sales at the moment are very small suits. So it's kind of all upside for us. And then the new -- the bid team we've got, again, we're bidding for a lot more of it, it's going to take us a while to see it. And the new international sales team in helmets, we're bidding for more there as well, but it's going to take a little while to come through. So this could be a year where we start seeing all the bidding activity from '25 coming through in 2026. You also asked about CapEx. I don't think we need a lot of CapEx this year. And the guys, we have a phrase internally of used wisdom before money. The area where we're absolutely stacked at the moment in addition to helmets is boots and gloves. We've got a very long order backlog. We bought 4 secondhand presses from another company that's sort of shrinking in the U.K. We're refurbing those. They cost us like $15,000 each. They're $250,000 new. So we've got basically no depreciation on them, so that should let us be very competitive.
Andrew Humphrey: Okay. And maybe one more on U.S. government shutdown that you called out as a risk factor and particularly around the working capital impact. Like clearly, we're through a phase of that now and one would hope that kind of in the next few months, things will normalize. But have you sort of put that down as a risk with sort of half an eye on what may happen again in January? Or is that just that it kind of -- it all takes time to work through the system?
Mark Sclater: Before the latest movement in the shutdown ending. But I would say actually, our program office was very helpful. We have a plan with them that we could actually carry on shipping ACH and carry on being paid for it even in government shutdown. So it was only IHPS where we were making but not shipping. Could we get another shutdown in January, perhaps, but we would expect that still to apply. So it would only be IHPS affected. The other thing that was quite interesting about the shutdown is our program offices did not shut down because they're essential. And perhaps more interestingly for us, the suits program with the U.S. DoD, they were furloughed, but then they came back and they issued the contracts and then they went back on furlough. So I guess what I'm saying is it's so important to the U.S. government that they actually took people off furlough to issue the contracts.
Andrew Humphrey: Going back to the rebreather in the U.S., we had a deal a couple of years back in those big numbers. We've now got 3 customers would appear. Now it might be one customer in 3 ways. I don't know what 3 different customers -- so is the opportunity there as we kind of previously thought? And does that include the shallow water thing is that a non-U.S.?
Mark Sclater: They're still refining their requirements. Some of them seem to want everything, something that does deepwater and shallow water. I think we're going to end up developing a shallow water variant. But the numbers are the same for the Navy and then Marines and Special Forces are on top of the original numbers but they are smaller. But you certainly look at 700 or 800 units, but we may not win. I think we're working with them closely and I've had a number of meetings with them so as the team. I'm sure our competitors are doing the same.
Andrew Humphrey: Still down to 1 or 2 competitors?
Mark Sclater: Still seems to be the same number of competitors. touch wood, we still haven't lost a bid but that could happen at some point. Unfortunately, it's a capitalist world, and we have competitors. Thank you for coming.