Avon Technologies Plc (AVON) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Paul McDonald, CEO of Avon Rubber, and thank you for listening to our 2020 interim results. Before we start, I want to quickly take a second to say I hope you and your family is all safe and coping with the current situation. Despite the challenging backdrop of COVID-19, the first half has seen impressive trading across the group. We've delivered top line revenue growth of 28.7%, which I'm sure you will agree is a pleasing number in the current climate. We took early action on COVID-19 to ensure our employees' safety, and we secured our global sites. As a result, we've been able to continue to operate with only minor disruption and no material impact to date. Our current COVID-19 protocols are working, and we do not feel the need to change anything quickly. So we'll continue to remain cautious and vigilant as we navigate COVID-19 during the second half of the year. This has only been possible with the exceptional contribution of our people. So it would be remiss not to start the results presentation, which details their collective achievements, without taking the opportunity to thank them for their efforts and ongoing support. For our presentation this morning, I will start with the key highlights; Nick Keveth, our CFO, will present the financial review and outlook. And I will close by summarizing the key takeaway from today's results and provide my thoughts for the medium-term outlook. We will then take questions from those of you that have dialed in, followed by questions from those of you that are logged into the webcast at the end. We've made excellent progress over the first half in both revenue and EBITDA margin improvement. We've continued to grow on an organic basis, and we've also begun to see the immediate benefit from our recent Helmets & Armor acquisition, winning $600 million of body armor contracts since completion, and we're very pleased by their initial integration progress. To date, we've seen no material impact from COVID-19, are financially robust, and we're confident in achieving expectations for the full year. Our investor proposition should be a familiar slide, and we continue to believe these are the KPIs you should measure our performance against. The slide broadly speaks for itself. Nick will go into more detail on the cash conversion performance. But from my end, I want to make it clear that we're confident these are one-off delays, and we expect cash to unwind during the second half. Beyond that, we're doing what we said we would, and we remain confident in our ongoing commitment across these targets, which is why we've maintained our progressive dividend policy with a 30% proposed increase in the interim dividend. With that, I'll hand over to Nick.

Thanks, Paul, and good morning, everybody. So now turning to our half year financials and our outlook for the rest of the year. I'm delighted to present another strong set of results today with strong organic growth from both Avon Protection and milkrite | InterPuls as well as the first 3 months of contribution from Helmets & Armor. Revenue growth of 28.7% comprises 9.5% organic constant currency growth and 18.8% upon the inclusion of Helmets & Armor for the first time. Revenue also benefited from a small currency tailwind with an average exchange rate for the half year of $1.283 to the pound compared to $1.294 last year. Moving further down the slide. You'll see that we have continued to grow our profit ahead of revenue with an adjusted EBITDA of GBP 20.6 million, a 50% increase on last year, with an organic increase of 27% in addition to the Helmets & Armor contribution. On an organic constant currency basis, the EBITDA margin increased by 330 basis with improved margins in both Avon Protection and milkrite | InterPuls. The strong organic performance and first contribution from Helmets & Armor resulted in an adjusted EPS of 38.1p, an increase of 64.2%, and that is up 37.5% on an organic constant currency basis. Cash conversion was lower than usual due to a delay in receiving the cash from last year's GBP 16.6 million Rest of World mask contract as well as the Helmets & Armor working capital outflow as a result of the transitional arrangements with 3M. Excluding Helmets & Armor and the impact of the one-off delay, organic cash conversion was 102.9%, in line with our normal expectations. Following completion of the acquisition and adoption of IFRS 16 lease accounting, net debt was GBP 66.9 million at the end of March. Excluding lease liabilities of GBP 21.1 million, bank borrowings, net of cash, was GBP 45.8 million. I've highlighted at previous results presentations that our cash balances were holding back our return on capital employed. Having put our cash to work through the acquisition, we have delivered a return on capital employed of 24.2%, up 400 basis points from this time last year. Reflecting our continued confidence in the business as well as our balance sheet strength and liquidity, we have once again proposed a 30% increase in our interim dividend, in line with our progressive policy. I now want to give you a quick overview of the drivers of our organic revenue growth. Both of our businesses delivered strong organic growth, contributing to organic constant currency revenue growth of 9.5%. Avon Protection grew by 10% and milkrite | InterPuls by 8.5%. Avon Protection saw exceptionally strong Military growth of 20.2%, more than offsetting the impact on First Responder of our exit from the Fire SCBA market. Our Military revenue growth was driven by Rest of World revenues of GBP 19.7 million, up from GBP 8 million last year, reflecting the benefits of our focus on developing a broader customer base. U.S. DOD revenues were, as expected, lower at GBP 17.5 million compared to GBP 22.9 million last year. This is as a result of the shift in the portfolio to higher-margin M69 and M53A1 products, offsetting lower margin M50 deliveries. Our First Responder business grew revenues by 6.6%, with strong underlying demand for mask filters, spares and accessories. Positive global dairy market conditions over the period benefits all lines of business in milkrite | InterPuls. With moderate production growth and stable milk and feed prices, increasing pharma confidence and order intake, this resulted in an 8.5% increase in revenues on a constant currency basis. So I now want to talk to you about our cash flow and net debt. As you can see on the slide, following the acquisition, we have moved from a net cash to a net debt position. And as I mentioned earlier, our net debt of GBP 66.9 million also reflects the adoption of IFRS 16 lease accounting, with GBP 21.1 million of lease liabilities now included in our net debt. The GBP 84.3 million increase in net debt, due to the Helmets & Armor acquisition, comprises initial cash consideration of GBP 70.8 million, assumed lease liabilities of GBP 8.8 million plus deal and transition costs of GBP 4.7 million. One final comment on the deal consideration. The previously announced $3 million contingent consideration, triggered by the first order under the legacy ESAPI body armor contract, was paid in the second half. Future orders under this contract will trigger further payments up to a maximum total of $25 million. You will also see on the right-hand side of the bridge that there has been GBP 6.2 million working capital outflow from Helmets & Armor. This is due to the timing of cash receipts from 3M to settle amounts due to us under the transitional services arrangements. This will reverse when we exit the transitional arrangements in the first half of our next financial year. Now moving back to the left-hand side of this chart. You'll see that the organic working capital outflow of GBP 15.6 million. As mentioned earlier, the delayed cash receipt relates to the Rest of World mask contract, resulting in an organic cash conversion of 20.1%. Excluding this one-off delay, as I said earlier, organic cash conversion was 102.9%. Receivable is due from a wealthy Middle Eastern state. The products has been formally accepted by the customer, but we have faced bureaucratic delays, which were then compounded by further delays due to the COVID lockdown in the country. Before moving on to look at the division results, I'd like to say a few final words on CapEx. We remain committed to investing for growth, developing our next generation of products whilst continuing improving the existing portfolio. Also, maintain our leading positions for innovation in both businesses. We've invested GBP 4.6 million of CapEx in the last 6 months. This includes GBP 2.7 million of capitalized development costs, and Paul will talk more about our investment product development a little later. Okay. I'd now like to turn to look at Avon Protection in a little more detail. Avon Protection's results reflect a strong organic performance and the acquisition of Helmets & Armor. Order intake was up 31%, revenue up 39% and operating profit up 91%, with a closing order book of GBP 110.6 million, providing excellent visibility for the second half and beyond. Removing the GBP 13.8 million of revenue and GBP 2.6 million of adjusted operating profit contribution from Helmets & Armor, organic revenue was up 10%, and the organic adjusted operating profit increased by 55%, with organic EBITDA margins up 420 bps. Organic order intake was down 9%, impacted by the timing of orders under the M53A1 contract. Following receipt of the first order for $20 million in this first half of last year, we're now receiving regular smaller orders spread out throughout the year, rather than 1 large annual order. The increase in organic EBITDA margins reflects both higher revenues and improved product mix, with a larger proportion of revenues from higher-margin products on the new U.S. DOD programs, Rest of World customers and our exit from the lower margin Fire SCBA business. The results include the first 3 months of Helmets & Armor. The revenue of GBP 13.8 million reflects ongoing IHPS helmet deliveries to the U.S. DOD, completion of the low rate production volumes for VTP ESAPI as well as sales of helmets to First Responder customers and flat armor deliveries to rotary wing aircraft manufacturers. We now expect revenue to continue at a similar run rate in the second half due to the initial deliveries under the U.S. DOD body armor contracts, moving out into the next financial year. Profit impact from the lower than previously guided revenues expected to be fully offset by the earlier than previously guided delivery of cost synergies. We are firmly on track to deliver the targeted cost synergies of $5 million, and we also see potential for further efficiencies over the longer term. As you can tell, we continue to be delighted with the Helmets & Armor acquisition and its future growth prospects, which Paul will talk some more about a little later in the presentation. I now want to turn to milkrite | InterPuls, which has delivered an excellent set of numbers in the first half. A combination of moderate milk price growth at around 2% and stable milk and feed prices, as you can see on the chart in the top right corner, has resulted in continued positive global dairy market conditions. This benefited all 3 lines of business, with order intake up 7.5% on a constant currency basis, revenues increasing by 8.5% and an opening order book for the second half of GBP 4.9 million, up 33% on this time last year. Revenue grew by 7.1% in Interface, 8.7% in PCI and 17.8% in Farm Services. We also saw a 60 basis points increase in EBITDA margin, constant currency, taking it to 22%. Margins benefited from both the increased revenue and the actions we took last year to consolidate all of our European commercial operations into Italy, and transfer our European line of production to our U.K. facility. Milkrite | InterPuls order intake and revenues have continued in line with the first half trends in April and May. The global market conditions remain stable, as you can see on the slide, despite the wider macroeconomic uncertainties arising as a result of COVID-19. Together with the strong opening order book, this gives us confidence in our full year expectations. Paul gave a brief overview at the beginning, but I want to run through the impact of COVID-19 in a bit more detail, particularly from an operational and financial perspective. The well-being of our employees has been our top priority. And as Paul outlined at the start of the call, we took early action to protect their safety. By doing so, both Avon Protection and milkrite | InterPuls have continued to operate throughout, with only minor disruption, continuing to play a crucial role in supporting our customers' ongoing requirements. As a result, there's been no material impact on our financial performance to date or our expectations for the full year. We have not accessed government furlough or loan schemes either. To reiterate what Paul said earlier. This has been -- has only been possible with exceptional contribution from our people. Our people adapted well to the COVID situation. And we have implemented a number of measures to ensure our sites remain a safe working environment for those who cannot work from home. We've also been focused on maintaining the strength of our balance sheet and liquidity, with cash of $9.5 million and undrawn bank facilities of $19.5 million, giving us headroom of $29 million at the end of March. I expect our headroom will continue to grow in the second half as we generate cash and continue to grow our earnings. The net debt-to-EBITDA covenant of our bank facility is a ratio of less than 3x, excluding lease obligations. And it's tested on a rolling 12-month basis at calendar quarter end. At the end of March, our net debt-to-EBITDA on this basis was 1x, and we expect this ratio to reduce in the second half. We will remain vigilant and continue to monitor and manage the situation closely and adapt as needed as the U.S. and the U.K. start to move out of lockdown. Now I want to talk to you in a little bit more detail about the strength of our GBP 115.5 million order book. Helmets & Armor is a large chunk of this, with GBP 64.8 million of orders under the IHPS helmet legacy ESAPI body armor and flat armor contracts. This is alongside GBP 36.5 million of Military orders across the product portfolio with the DOD and Rest of World customers, and GBP 9.3 million First Responder orders with strong ongoing demand for mask filters and accessories. And finally, at milkrite | InterPuls, as I mentioned earlier, the positive global dairy market conditions has resulted in a very healthy opening order book of GBP 4.9 million for the second half. So before I hand back to Paul, I'd just like to finish with a summary of our outlook for the rest of the year. We're confident in delivering our full year expectations as a result of the revenue visibility from our long-term contracts and our strong opening order book, order intake and trading for both businesses continuing in line with expectations in April and early May. And most importantly, our ability to adapt and protect our employees whilst continuing to operate normally with minimal disruption. Thank you very much for your time, and I will now hand back to Paul.

Thanks, Nick. Having covered the financials, I'd like to spend some time talking about the opportunities for delivering sustainable growth and why we remain optimistic for the medium-term outlook. As I look back at the progress of the group. It's the continuing ability to deliver on our strategy, which is the heart of our success. We're nearly 3 years into this strategy based on creating value through 3 key elements: growing the core by maximizing revenue from our current portfolio and improving our operational efficiency; pursuing selective product development to maintain and expand our leading product positions through organic product development activity; and targeting value-enhancing acquisitions to further accelerate growth and add value to the group. The strategy is consistent, and we're building a consistent track record of delivering against it. This has transformed the group in recent years. So I'd like to highlight a few areas to explain our confidence in the future and how we will continue this progress over the medium-term outlook. Having invested in the capabilities of our respiratory products and invested in the acquisition of our ballistic protection products, we are a significant buyer for life-critical protection products that enhance the efficiency and capability of the end user through the use of our technology. Put simply, we rely on our customers, and they rely on us, and we are relentless in our pursuit to push the boundaries of technology to give them the advantage and to protect their lives. When you look at our portfolio, you realize we are one of the major suppliers to protect all areas above the waist -- under a key system supplier for most customers. In addition to the current portfolio, we have the opportunity to expand our organic R&D activities to develop tomorrow's products of the future or we will consider additional M&A when we believe the barriers to entry are too high and we can find opportunities to further complement our portfolio and further accelerate growth. And together, they provide further areas of opportunity for the group. When looking at the strength of the Avon Protection portfolio, we have long-term contract frameworks with the DOD for the M69 mask and M53A1 system, underpinning our Military term outlook, and are in advanced-stage discussions with the DOD for a further 5-year sole-source contract on the M50. This, along with the potential for further upside from our broader Rest of World and escape hood portfolio, underpins the medium-term order guidance of GBP 85 million to GBP 120 million per annum. Now moving away from the organic business. Helmets & Armor has come into the group with equally strong long-term contract positions. So I wanted to give you some similar guidance for what to think about when considering this business. We see similar framework contract agreements, which are complemented by short-term delivery orders. So the operating dynamic for Helmets & Armor is consistent with the Avon Protection approach. The IHPS helmet is the next-generation combat helmet for the U.S. Army, and is just starting the low-rate fielding stage. We expect this product line to receive orders of GBP 35 million to GBP 45 million per annum over the next 5 years. When we acquired the business, Helmets & Armor had already secured a share of the $704 million full-year framework contract for the U.S. Army VTP program. This included the VTP ESAPI plates and XSAPI plates. And since completion, we've won the third XSBI contract, which is a dual-source contract award on the same platform. Collectively, we're guiding to annual orders of GBP 20 million to GBP 35 million across these 3 VTP body armor products. The legacy ESAPI body armor contract, with the Defense Logistics Agency, is an 18-month base contract with two 1-year extension options, with a maximum ceiling value of $333 million. This was the outstanding legacy contract that triggered the contingent consideration related to the acquisition. We've already received the first $20 million delivery order and expect deliveries to begin during H1 FY '21, which further underpins our medium-term outlook and are guiding for orders of GBP 30 million to GBP 45 million per annum over the lifetime of the contract. When we also include the additional running repeat orders from flat armor, Rest of World and First Responder, we are anticipating annual orders of GBP 95 million to GBP 140 million from the Helmets & Armor business per year. Turning to First Responder. Revenues from the underlying business have grown during the period. And on the back of an increase in COVID-19 orders, we expect to see continued underlying growth during H2. We continue to see a wider global opportunity for the First Responder products. And whilst our current Helmets & Armor priority is delivering the programs for the Military customers, we also see a longer-term opportunity within the wider First Responder market for the combined portfolio. As Nick outlined earlier, we've continued to invest in our R&D pipeline, with the largest spend being on the next generation of escape hoods on the slide, the IHPS helmets and VTP body armor as part of the DOD's next-generation soldier protection system. R&D is not just about new products for us. We are committed to working closely with our customers to push the boundaries of technology and maximize their performance and capability. I spoke to you 6 months ago about the MCM100 and having undergone a full dive test program with the U.S. Navy. We're working on a few small improvements that will position us for the upcoming contract. Likewise, we continue to work with the U.K. MOD on developing the capabilities of the U.K. General Service Respirator, having only just started production during March. The key point here is that our technology leadership and capability is core to our relationship with our customers. And we are committed to driving this through ongoing R&D to create further value for the future, and is why we maintain such a strong R&D pipeline with our customers. Hopefully, you will have been able to see the benefits of the Helmets & Armor acquisition throughout this presentation. But I just want to give you an insight to the work we've done so far. After completion, Nick and I spent a lot of time in the U.S., getting to know the people, focusing on the key priorities and putting our transition plans in place. And we made considerable progress in the first 3 months of ownership. What I can say is that we have cemented our views on the quality of this business and its fit with Avon Protection. Culturally, it's very, very similar to Avon Protection with employees who take a great deal of pride in producing life-saving equipment every day. The existing management team are incredibly capable with the business being led by Terry Griffith, who is the President for Helmets & Armor; and we've also appointed Kiana Hughes as President of Protection Operations, who is responsible for all Avon Protection sites who have both joined the group executive team. The integration plans are firmly on track, with us bringing Helmets & Armor into the wider Avon management and operational frameworks. We're focused on integrating our IT systems, which is progressing well, and we are confident of delivering the $5 million of synergies we initially targeted as well as identifying further long-term efficiencies. When taken in combination, our focus on delivering against our strategic priorities continues to drive the group forward and create sustainable growth. I'm very pleased by our first half achievements and the progress we've delivered across the group. We continue to navigate our way through COVID-19, taking early decisive action to ensure that our employees, factories and supply chains remain safe and we're able to operate at normal efficiency levels. Our full year and medium-term outlook is underpinned by a strong order book and growing number of long-term contracts, which continues to make progress. We continue to reinforce our technological leadership and capabilities, working with our customers to ensure that our products continue to match their evolving requirements and developing the technologies of tomorrow. And where we believe there are further opportunities to accelerate growth, our balance sheet remains strong and will allow us to fund further M&A when the timing is right. This gives us confidence for the future. In what has been one of the most challenging economic environments, we remain confident for both this year and the medium-term outlook for the group. Ladies and gentlemen, that's it from me. I'd like to thank you for listening, and we'll move to the Q&A. Just one final point. In our new digital age, I'd just like to make some quick logistical points. We'll take questions from the conference call first. And then for those who've submitted questions via the webcast, we'll read them out and answer them. We'll now take questions from the conference call. [Operator Instructions]

[Operator Instructions] We will now take our first question.

I didn't quite hear -- my line was out, I'm going to go for it anyways. It's Henry Carver from Peel Hunt. Just a couple of queries from me, and it's around the sort of the product innovation in both GSR for the MOD and also the MCM100. The GSR one, I sort of thought that was -- you were working to design, that was done and dusted and already had been supplied by [ Scott ] in the past. I just wondered what sort of changes are sort of being put into that and how they've come about. And why is that just sort of normal -- sort of product innovation and any conversations that you have with the MOD on a normal basis? And then secondly, on the MCM100, just again obviously it had been through some pretty rigorous testing with the Norwegians. And I know the MOD would like to sort of put their stamp on it. But can you give us a feel for, a, what sort of changes the MOD are looking to make; and b, what sort of other options they would or could be looking at in that market?

Yes. No problem, Henry, I'll take both of those. In terms of the GSR, it's a good product. It's been out in the market for a few years. We reverse engineered it. Within doing that, what we've actually done is presented the sort of the Avon opportunities for how to improve it. We've actually presented sort of 25 to 30 options of areas of improvement where we can improve the capability of that mask platform, extend it and improve it further. So we've started production in the as-is design. What we've now done is sort of flooded all of the opportunities for further improvement, and we're then working with the customer about how they can sort of take the current product and how they can further that forward. So they're the sort of things that we do with them. In terms of the MCM. The physical product itself is pretty similar to where we are. What we're really sort of looking at doing is how we can improve some of the software systems and the interaction with the end user. So that's sort of the areas that we've continued developing with them, and it's sort of how can they sort of convert their operating metrics into the software platforms and how can we get them closer to them. So that's the sort of areas that we've been doing in there.

And in terms of the DOD -- just in terms of DOD sort of other options and what else they might be looking at for that particular diving solution?

For MCM, it is software, it's software-related. The physical hardware, they're very pleased with that and what it does. It's another level to the current product that they use.

We will now take the next question.

It's Anthony Plom at Berenberg. Okay. A few questions, if that's all right. Okay, firstly, just looking at your gross margins, they're up at kind of 41.5% in H1, as I said, but a bit ahead of prior periods. Do you mind sort of fleshing out maybe a little bit on the mix there? I don't know how much of that is sort of Ceradyne impact or maybe exit from the Fire SCBA market. And then second question, I guess, how much of a concern is this payment delay on the Rest of World mask system? It obviously has been an issue back in the end of 2019. So just wondering if that's a new customer, maybe it changed your mentality at all with some of the other Rest of World customers and the payment terms there. And then finally, just as a follow-up on that one. I might be being quite stupid here but just looking at the footnotes on Page 25 of the RoS, it says Rest of World sales were only about GBP 4.5 million last year. Obviously the delayed receipt from Middle East and Rest of the World contracts is about $60.5 million. I don't know whether I'm missing anything. It's really obvious there.

No problem. Nick, do you want to deal with the first question on the gross margins with the mix?

Yes. So yes, there is -- in both business, a mixture of operational leverage because of the higher revenues. And then on the Protection side, it is about selling more of the higher-margin products. M50 was sort of lower end of the range margin product for us. And that has now been replaced by M53A1 on commercial terms, strong Rest of the World Military performance, which is on commercial terms as well. So I would say around half of Protection's margin improvement is around operational leverage and the other half, product mix. In dairy, it's more a case of a bit of operational leverage, and then the benefit of the streamlining of the business that we did last year here in Europe to consolidate all of the sort of sales order processing activity into Italy, and to bring the line of manufacturing into our [indiscernible] facility. So there, again, it's probably more operational efficiency on the dairy side and 50-50 product mix and leverage on Protection. I do -- with your question -- agree with you question on Page 25, that is revenue by origin. So most of the Rest of World business in that chart comes out of the U.S. and supplied out of the U.S. facility. So that's the driver there is, And that's why it doesn't tally up.

Yes. That makes sense. I thought it was probably something like that.

Paul, do you want to talk about the...

Yes. With the payment, I'm very comfortable with the payment situation. It's a sovereign national debt with a wealthy country. It should have been paid, Anthony. There is a letter of credit process in place, and it was really sort of bureaucracy with the paperwork that had slowed it down. But unfortunately, they entered a formal lockdown since the 2nd of March. And they've done a full lockdown. They're not working remotely, which is a little bit different to some other countries, which is why they haven't gone back. We expect them to go back probably the end of this month. I am speaking with the sort of the U.K. Embassy by the ambassador. The customer has accepted that this -- the product was accepted, the obligation is there and that they'll pay it when people are coming back. So I'm very relaxed with where we are in that process.

[Operator Instructions] We will now take the next question.

It's Andy Chambers, Edison. Sorry, just a couple of points, really. I mean obviously you've laid out, as usual, a very encouraging order potential across the Avon Protection business in the medium term. I'm just wondering if in the short term you're at all concerned that the diversion of resources, particularly in the U.S. towards dealing with the pandemic, may actually defer some orders during the second half of this year, that we should maybe not be surprised if there are some delays to activity or whether you're reasonably confident that, that will not occur. And on a follow-up point on that, really, just -- could you say a bit more about the M50: a, with respect to volumes that you achieved during the first half and how it compared to the prior year period? Was it at all a drag on performance, even though the Military performance is very strong organically? And when -- I mean, we've been looking for renewed orders from the DOD on this product for probably a couple of years now, I think, unless I'm mistaken. When would you expect them to actually finally get to the point of starting to replenish and top up the systems?

Good question. Thanks, Andy. Nick, do you want to sort of -- if I start in the first slide on order book, we're actually very confident in terms of where we are with the timing. I would actually say, Andy, the reverse of your question has happened. This is a -- COVID-19 is a biological threat. Everyone's had to go away and look at their responses. We've seen quite a lot of accelerated purchase in our First Responders, which is what's driven that sort of high order book that you've seen come through. And we certainly saw strong orders in March and April on that basis. So that's started to sort of derisk that situation. Similar in the U.S., we were waiting for these orders. Actually, this situation has accelerated and prioritized respiratory protection. So we're at -- we get an inside knowledge of where we are with those people. They're all coming through, and they're pretty imminent. So I think we're happy with that. Nick, do you just want to cover the sort of the U.S. revenues last year versus this year, and sort of where we were on the M50?

Yes. I mean we've sold a very small number of M50s in this first half of the year, it's a few thousand. Just sort of -- we've been more focused on M69 and M53A1 in this first half. So we are, as we said in the statement, advanced conversations with the DOD around the sustainment phase. We have good visibility of that. And there is an RFQ out at the moment on the web, so it can be found, that talks about the 5-year IDIQ with 2 extension years, commercial price, sole-sourced with Avon Protection. So yes, that we are very progressed with the conversations with DOD around the sustainment contract. We expect that to come through in the second half, and we expect to be receiving orders and shipping M50s in the second half as we move forward.

We will now take the next question.

This is [ Andy Buffer ] at Schroders. Just on the GBP 0.6 million adjustments. Can you just tell me what the GBP 5.7 million acquisition accounting adjustment is?

Sure. So the GBP 5.7 million, 2 elements to that. One is GBP 5 million relating to the fair value adjustment to the opening inventory, which under the IFRS accounting, we have to uplift the historic cost value to fair value. So we've removed that to give a view of the underlying performance, the go-forward performance of that business as we move forward. The other GBP 700,000 revenue expenses related to the transition program. So they are -- the restructure real costs that -- and that's part of the total GBP 10 million of both revenue and CapEx that we flagged last August as being required to deliver that synergy.

So will it be fair to say they had a more conservative stock provision than you, if you have to uplift the...

So I just, under the -- it's just a technical IFRS that we have to state the inventory in the balance sheet at fair value, which is estimated sales cost, less cost in [indiscernible].

[indiscernible], it takes away any profit, right?

Yes. Yes. So it's just showing everyone what the underlying profit is on an ongoing continuity basis.

There are no further phone question.

Perfect. Thank you, operator. There's also a few questions which have come through the webcast. So I'll read those, and then we'll answer them. The first is coming through from Andy Douglas from Jefferies and it says, "On the 7% organic growth in First Responder sales, is that coming from new customers or higher demand from existing customers? And if it's the latter, how do you see the opportunity for new customers' growth going forward?" So I think I'll take that. First Responders, you'll remember that we've sort of grown the market share in recent years. When we sell the initial mask system, it's a sort of high dollar intake, but then you get the sort of follow-on spares and accessories, filters. And during this period, we've seen sort of an increase in the filter side of those sales. So we've immediately got sort of more aftersales revenue from our existing customer base. We also continue to grow new customers, particularly in North America, and you're now starting to see our European customers come on. So there's also sort of a mixture of that. I'm not too sure sort of the top of my head what that revenue split is. We'll probably look at that when we meet with shareholders later. But we are actually seeing it from all 3 areas. We consistently saw that last year and sort of over the last couple of years. And we also added the path of sales, which have been quite strong during this year as well. So it's really been a combination of sort of more from the existing customers, new customers and additional products. Second question, which is also from Andy, "Has COVID thrown up any new M&A opportunities that were not in the pipeline 6 to 12 months ago?" At this moment, I would say the answer to that is no. We do have sort of a pipeline that we were tracking. We've started to expand that. Our focus in the first half of this year has really been showing the value of the Helmets & Armor acquisition with the one that we've got, rather than sort of looking too quickly externally. I think obviously it's still an evolving situation, but I think the general sentiment is that, yes, there will be some opportunities. Companies will be under pressure to reduce their debts. And we, therefore, think there may be some opportunities. So I think valuations have probably become a bit more attractive, but we wouldn't necessarily buy it just based on that. It would have to meet our criteria. We'd be buying it on that basis. And price would be a sort of lesser driver for that in the short term. The next question comes from Sanjay Jha at Panmure. So it said, "What's the delay on the Rest of World payments, which we've gone through? And are there any other Rest of World customers withholding payments?" And at the moment, we've got no Rest of World customers withholding payment. The only thing I would say is this customer's a bit more unique, that it was a complete lockdown, and that all of the employees have been sent home and they're working remotely. The majority of our other customers have been working remotely still and had been continuing paying. So that would be the sort of only difference, I would say, in that question. And then the last question on there, "Could you give a plan -- could you give a breakdown of planned CapEx and Protection split between old and Ceradyne and dairy in FY '20 and '21?" We don't sort of separate that on the call. We do sort of put it in there. We do break it down in the accounts of sort of some of the key areas of expenditure that we spend in, but we don't actually have a separation for you. There's a question at this moment of time. And that brings us to the end of our questions. So I'd like to thank everyone for listening this morning. I'd like to thank you for your questions, and I wish you all well, and I hope to see you all again soon. Thank you.