Avon Technologies Plc (AVON) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Avon Technologies Plc investor presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Jos Sclater, CEO. Good afternoon, sir.

Hi, there, and hello to everyone on the call. I'm here today with Rich Cashin, our CFO; and also Steve Elwell, who runs the -- President of our Avon Protection business, which is over half of the group. We're very happy to talk to retail investors. We have a very long history of engaging with retail investors being a 140-year-old company. So we do regard all of our investors as important. Those of you that didn't join into the call this morning, we're going to go through the same slides, but we'll do it in a slightly faster fashion. We will leave lots of time for questions. Despite the disclaimer at the beginning, actually, we generally answer every question we get. So do feel free to ask us questions. So just some highlights. If I take the half we've just had compared to the same half in the prior year, we've made excellent progress across all of our financial metrics. Revenue is up, as Rich will describe in a second. Profit is up. Cash flow is up. Return on capital is up significantly. And perhaps most excitingly, because it supports future growth, our order book is also up. Rich will give you the details in a second. We are creating a company with a winning mindset and a culture where all of our factories and all of our processes are improving all of the time. We used to give some examples of improvement activities actually with our results, but we now have so many that every factory is improving every month. So we can't really do that anymore. But we have put some examples in the appendix to our results for those that are interested. We are very focused on delivering on our promises to our customers and, in particular, ramping up production in our Cleveland plant on helmets, which is important because we've moved production from our California factory. And we're also very focused actually on delivering to our customers in our respiratory division because we have considerable demand for our products there. And a lot of our lines are running flat out at the moment with the ship patterns that we've got. The order book does give us confidence into the future. And perhaps as importantly for us, the size of the order book enables us to level load our factories. And when you level load factories, that also generates efficiency and helps drive margin progression. And all of those aspects together give us very good confidence that we will hit our margin targets next year of 14% to 16%. Interestingly, those were our margin targets for 2027 that we've made more progress than we expected or at least faster progress than we expected. So we brought them forward to 2026. So with that, I'll hand over to Rich, and he'll take you through the detail on the numbers.

Thanks, Jos. And just before we move on to the numbers, it's probably worth having a look at what's happened in what is a very dynamic global environment, both from a conflict and a trading perspective. Lots of stuff has been happening, as we all know. So government efficiency measures in the U.S. have targeted several areas, including the military. We are closely watching what's happening, but we haven't yet seen anything that we think will lead customers -- our customers changing their buying patterns. One thing we have seen is that there is an increase in investment going into strengthening the U.S. borders, which does have the potential to yield opportunities, particularly for our respiratory business given our strong competitive position there. And then there are tariffs, which I know everyone is keen to understand the effect of. We're not immune to the tariffs that have been announced so far. We have estimated that the direct impact on our business is at a gross level around $800,000. We do believe that we can largely offset that through pricing. Indirectly, could there be potentially some knock-on through the supply chain? Yes, I suppose so, but we -- it's very hard for us to calculate that. And frankly, I don't think it will be that significant. On a comparative basis, however, many of our products are compliant with the Berry Amendment, which requires certain product categories sold to the DoD to be 100% domestically sourced in North America. So comparatively, I think we're in a reasonably robust position. Elsewhere, investment in defense spend in NATO ex U.S. is increasing, particularly towards the Eastern side of Europe. This has created some opportunities for us recently and we believe will likely continue to do so in the foreseeable future. It is cemented by the widely publicized use by Russia of chloropicrin and other nasties, highlighting the importance of strong respiratory protection, and we do have a market-leading technical solution. So we have seen some growth there. And we do believe the defense investment in Europe will actually outlive the Ukraine conflict. So I think there's plenty of opportunity to go out there. More broadly, unrest does continue elsewhere in the world, including the Middle East and Asia. And our ability to manufacture in the U.K. insulates us from the potential negative effect of tariff reciprocity from non-U.S. nations. So on to the numbers as promised. I mean the headlines are pretty strong. Strategic and operational performance has led to order book up 24%, revenue up 17%, operating profit up 48%, and that drops through nicely to EPS up 76%. As many of you may not know, because I don't get the opportunity to talk to you guys very often, but my preferred measure of performance is actually ROIC. And here, we've seen excellent progress, up 660 basis points to 16.3%. We do have some medium-term targets out there, which suggest that ROIC should be over 17% on a sustainable basis by the end of 2026. Clearly, we are well on track to get to that metric now. As expected, cash conversion was a little bit reduced in the first half because we were building some buffer inventory ahead of the factory consolidation from California into Cleveland. We also have had a particularly high receivables balance given the sort of increase in revenue accelerating through the first half. These effects will unwind as we go through the second half. So cash conversion will be meaningfully higher in the second half. But even after these headwinds in H1, net debt to EBITDA reduced by 0.7 of a turn in the first half, leaving leverage below 1x. So a really good start. We are growing fast. We're generating good returns. But there is, however, still much to achieve if we want to hit our medium-term aspirations. Just quickly on the divisions -- I beg your pardon. Moving on to the P&L first before we move to the divisions. Order intake of $170.5 million gives book-to-bill comfortably above 1. $247 million record order book gives us confidence in delivering further growth for the balance of this year and beyond. Revenue of $148.7 million is up nearly 17% on last year with strong growth in both businesses, and we'll look at that in a second. This has dropped through nicely to adjusted operating profit of $17.5 million, giving margin of nearly 12%, stronger than we had anticipated at this stage. Finance costs came down, reflecting the lower average net debt. And an effective tax rate as guided at 22% gives an adjusted EPS figure of $0.388 per share for the first half, which is up over 76%. The dividend is up 5.6% to $0.076 per share, consistent with the increase of the full year results. So on the divisions, Avon Protection has benefited from a very healthy order intake in the first half. Order received totaling close to $100 million, which is a very strong half for this business. Around 1/3 of this is from one-off demand or what we call unicorns with the balance being recurring revenue as defined by our Capital Markets Day last year. But as a reminder, today's unicorns do feed into tomorrow's recurring revenue as we continue to grow the installed base. The order book of $94 million is particularly healthy for this business, which does have a fairly short win and ship cycle typically, which does support further growth into the second half and beyond. Revenue growth of over 12% to $75.5 million reflects the previously announced Australian respirator order and growth in rebreather deliveries, offset by slightly lower demand in Commercial Americas following a couple of very strong years. Adjusted OP at $14.3 million dropped through to a 28.8% increase year-on-year. That gives us margin of nearly 19% for the half with operational gearing and pricing and a helpful product mix tailwind all contributing to that growth. And then for the remainder of the year, we expect second half Avon Protection revenue to be a little higher than the second half last year as we continue to work through that Ukraine and NATO backlog. Team Wendy has also seen some further progress this year. Order intake did decline in the first half compared to last year, but that was lapping a particularly tough comparator. Last year, we received orders of more than $50 million from the U.S. DoD alone. Nevertheless, the backlog did continue to grow, up 7% to over $150 million with future DoD orders of over $130 million already in the book. As expected, revenue was up strongly, over 20%, as the ramp-up of one of our new helmet programs effectively started to kick in with commercial helmets and pads also growing nicely. Higher direct costs reflecting learning curve and ramp-up inefficiencies offset lower scrap year-on-year with operating leverage and lower SG&A driving improvement in operating margin. The focus for the remainder of the year will be on improving our Cleveland and Salem ramp-up plans so that we can sustain the higher output volumes expected in the coming year. So for the second half, we do expect modest growth versus last year, but we don't expect the reduced costs from having exited the Irvine facility to have a big effect on the full year '25 performance, although we are very comfortable with our guidance of 14% to 16% operating profit margin for next year at a group level, which clearly implies meaningful improvement in Team Wendy. And then finally from me, just the guidance for the full year is essentially unchanged from the trading update that we put out in March, although it represents a very healthy uplift from our original outlook back in November. Revenue growth year-to-date combined with that strength of order book that I mentioned in both businesses gives us confidence in achieving revenue growth of above 10% for the full year. And the steps we've taken on improving the business in the first half should continue into H2, delivering adjusted operating profit margin for the full year of over 12%. Investment in transformation remains broadly unchanged but with slightly less CapEx required. And notwithstanding the relatively lower cash conversion in the first half, we maintain our view that conversion for the full year will be at or above 80% as our investment in working capital to support the facility move starts to unwind in the second half. I'll hand back now to Jos to talk about the strategic progress.

Thank you, Rich. I'm actually going to split this bit up with Steve Elwell. Just a reminder of our strategy. The strategy is to strengthen the business through continuous improvement, which I will talk about in a minute. We have a number of transformation projects which drive the margin improvement or contribute to the margin improvement that we're seeing, including a step change from this year to next as we finish the move out of our California factory and consolidate manufacturing into Cleveland. And then advance and revolutionize is all about new product development and investing more into sales, marketing and business development to drive future growth. We have developed what we call our Strengthen System. For those of you that are familiar with continuous improvement or the Toyota production system, this is very closely based on that, although we have made it our own system and tailored it to our own needs. We also present it a bit differently. I'm not going to go through all of this now. It would take too much of this call up, although it is a passion of mine. So if any of you are particularly interested, do let us know. And we have actually written a book on the Strengthen System. It is available to anyone who wants an e-book. It's not secret. So just let Gabby know if you want the e-book. The reason we don't mind making it public is because the magic in continuous improvement is not around knowing how the system works. Anybody can read books on the Toyota production system or indeed our own Strengthen System. The magic happens in aligning all 1,000, in our case, of our employees to improve the businesses every day. And that requires a cultural change, and it requires excellent leadership from people like Steve and Rich and our divisional presidents in really leading the organization forward so that they keep experimenting and improving the business every day. And that is what we are now seeing. Our factories literally changed every single time I look at it. In fact, our Melksham factory, every time I walk into it, it's changed. So it's very hard for other companies to keep up with that level of change, and we think it gives us an enduring competitive advantage. This is the vision for our strengthened system. On the left-hand side, you will see a traditional batch manufacturing company. That's actually how most companies manufacture, including this one 2 years ago. The way that works is each process makes product and is scheduled probably from some sort of central scheduling system. It makes a lot of work in progress, which probably has to go back to the warehouse and then later will come back out. Again, it runs through another process and so on. Typically, there will be large amounts of work in progress between processes, and there will also be very long lead times. Our vision is that all of our production lines make to the beat of the customer, which means that we deliver just in time to the customer, commercial suppliers deliver just in time to us. We have quality built into every stage of our processes. So we never have rejects at the end of the line, improves quality and reduces rework rates. And we want our product to flow from the moment the raw material comes in the warehouse to the moment the finished product goes to the customer. That reduces lead times, improves efficiency, reduces working capital and ultimately generates wealth for our employees and for our shareholders. We measure progress on our continuous improvement journey using operating metrics. We're very transparent in these, perhaps unusually transparent. We set out targets 18 months ago when we started this journey. You can see the targets on the bottom row of the slide in the sort of yellow boxes with the arrows. We're making good progress towards hitting our targets. Productivity has improved 26% over the last 18 months. Scrap has halved -- scrap rates have halved and inventory turns were up 33%. We have seen a bit of a flattening out or a slowing of improvement over the last 6 months. The reason for that is that we have really focused on ramping up production in our Cleveland facility, and that has involved recruiting some people ahead of production ramp-up. It's also meant that we have spent some time with training the large number of people that we're recruiting every single week at the moment. And we also have to build some inventory in order to provide buffer stock to support the factory move. I do expect these factories to start improving again as we run through the next 6 months and beyond. We have focused very hard on scrap rates in Avon Protection, Steve's business, amongst other things. But this is just an example of what can be achieved. These are 3 very important production lines to us. Interestingly, 2 of them are 20 years old. One of them is 5 years old. All of these lines had high scrap rates historically. By shining a light on that, by building capability in our people, by encouraging them to experiment and teaching them continuous improvement methodologies, we have reduced the scrap rate on the filters line by about $260,000 a year. And you can see similar numbers on face blanks and visor casting. And that's actually only 3 of our lines. All of our lines are improving all of the time. We did have an interesting anecdote earlier, actually, because we pointed out that although tariffs will cost us maybe probably a bit less than $800,000 through -- mostly because we made some components in the U.K. and shipped to the U.S. We've already offset over half of that just by reducing the scrap rates on these 3 production lines. So we're not particularly worried about tariffs. It's definitely a manageable number for us. The Strengthen System is 1 of 4 parts of our overall business system. This is the methodology that we use to improve businesses. We think it's very repeatable. We think it will work for really any business, although I suppose we're most interested in manufacturing businesses. We start with strategy. The way we do strategy is we teach our businesses a strategic process on the way of strategic thinking. That enables them to build their own strategies. That contrasts to most companies, as I understand them, which often get expensive consultants in to tell them what their strategy is. We don't do that. The reason we don't do that is because we feel our way of enabling our own people to develop the strategies leads to far better execution and far better delivery of the strategy. We feel that most companies fall down because they don't actually do their strategy. We feel we're different in that respect. Of course, we do need people that are capable of delivering the strategy. That's why we've built our own STAR Academy. We spent a lot of time as a leadership team developing the courses in the STAR Academy. And the STAR Academy teaches people, for example, how to improve our production lines and how to improve processes outside the shop floor as well as other areas like how to think strategically, how to manage people and so on. And then we ensure that all 1,000 of people across the whole organization are aligned to our strategy through a process we call objectives and key results, which cascades objectives. It is also a form of continuous improvement because we set objectives for every quarter, and we have a look at what we've actually achieved during the quarter, and we learn from things that have gone well and equally or perhaps more importantly from the things that have gone badly. And then the last bit is our Strengthen System, which I've already mentioned. But that Strengthen System is important to the overall business system because it frees up both people and money to invest into new technology, sales, marketing and business development. That helps us to grow even faster, and that in turn helps us to level load the factories. And we end up with a virtuous circle, which you're starting to see come through in the numbers that Rich described. And then I think the last slide for me, but I might be surprised. We have a transformation program. The horizontal lines here show the projects within that transformation program. The green -- newly green-shaded limbs to each star show progress from 6 months ago. We are making very good progress on footprint optimization. We have now moved all production out of our California factory. And we'll be -- the lease will actually end in June, and then we will kind of shake off the cost of an expensive Californian facility. In operational excellence, all of our factories have very ambitious transformation programs and are making good progress towards flowing all of their lines, reducing lead times to inventory and improving quality and delivery. In functional excellence, Rich has made great progress improving the efficiency of his function and getting us the monthly numbers in 2 days instead of 7. We're also seeing very good progress in HR. And perhaps most meaningfully, from a financial perspective, we are taking out a legacy ERP system, which is extremely expensive for us to maintain. So that will save us about $1 million per year. And we bring all that together through our program management approach. And on top of all that, we have driven good improvements to our gross margins through pricing, where we have seeing historic contracts that haven't been priced correctly. Excellent. I was right. It's now over to Steve.

Thanks, Jos. Delighted to be here. So this slide really represents the sort of strategic progress that Avon Protection is making. I think most of you will know, Avon Protection at the top left-hand side of this chart, we've got a pretty strong background in core market in the chemical, biological, respiratory protection. Good competitive moat there, some long-term sole-source supply contracts with the right customer base and a really strong commanding market share around the world. Our strategy is really aimed at a jumping off that and building on that position into 3 new markets, what we call here non-CBRN or non-chem-bio, respiratory, integrated chem-bio protection and also our underwater respiratory protection markets. Increasingly as well, with the large installed base we have for our products, the aftermarket support shown at the bottom here is really, really important, not just to us, but it's also really important to our customers and their end users. So we expect a long-term repeatable sales model, around 10 years off of each product line, where you've got consumables, things like filters. You've got training. You've got decontamination of equipment. All need to be conducted and offer us growth in the marketplace. So in that core market of CBRN respiratory protection, we continue to see some really strong demand for our core products. Our order book is up 69% year-on-year. Large chunks of that are related to Ukraine. But even without Ukraine, the order book would still be up around 20% year-on-year. We continue to see positive progress in Ukraine as well. Russia continues to use chemical weapons. And the Ukrainians are pretty clear that the only masks that really work operationally on the ground are Avon's. And so we do expect further demand from Ukraine in the second half of the year. In our NATO contract, NATO mask agreement, we've signed up 3 new countries in the first half of this year. So that brings us to 13 nations. We now supply under that contract. And those nations are over and above the Ukraine contracts that are funded by NATO countries. We were very pleased to sign a long-term contract with Thales in the first half to supply around $10 million worth of parts over a 6-year contract, and we expect some further orders to flow from that. The U.K. contract with GSR remains on track. And as we'll go into it in a little while, the demand for our underwater rebreathers continues to be very strong. The program to equip the Australian military is progressing really well, and we delivered around $6 million in the first half of this year. And we're also hoping that Australia will now add our filters to that contract alongside the FM54 masks that they've already taken. What the order book from the first half doesn't include is expected mask and filter orders from the U.S. DoD. We expect to receive these U.S. orders in the second half of the year. We are working very closely with the U.S. DoD on an extension to a sole-source contract there for the M50 product line. And in the meantime, some good spares and accessories orders from that customer continues at pace. Moving into the non-CBRN respiratory protection market. We made some exceptional progress in the first half, where we launched our MITR tactical half mask, which you can see at the top right-hand side of this chart. So if you're not aware, MITR is a modular system. It fills a capability gap, as the top left of this chart seeks to show, for anybody who's operating in a lower protective environment, so teams like SWAT teams, for example, where the existing high-end protective equipment can be cumbersome at times, an impact on their mission effectiveness. We've seen some really good early market success. We've won some initial supply contracts with special forces users across the Five Eyes community, and we're now in advanced trials with U.S. and European SWAT teams. I think most notably, what we're able to announce is we've secured a new program of record from the U.S. DoD. And that program, we call -- or they call rather Enhanced Bio-Defense Respirator or ENBD. So the goal of the ENBD program is to develop an innovative personal protective respirator that's based on the MITR architecture you can see here, and we'll do that in collaboration with the DoD. It's designed to improve the user's comfort. It's designed to reduce the physiological burden when they're operating in those lower threat environments. We're in the very early stages of that program, but we expect to move over the coming years to a production-ready system and one that can be fielded across the U.S. military. So we're pretty excited about that program and pretty excited about the commercial potential for MITR. In our integrated CBRN, we launched our EXOSKIN suits, boots and gloves range. We previously, you're probably aware, we secured the NATO contract for CBRN boots and gloves. We're now up to 8 NATO countries signed up to that contract where we're supplying, and we've got some nice, advanced discussions with a number of other NATO nations that we expect to secure over the next 12 months into that program. We won the U.S. DoD program for what they call the HMI or the Hood-Mask Interface program. That's actually 3 new programs of record with the DoD, and that win really puts Avon right at the heart of future chem-bio integration protection. Our EXOSKIN suit range, really popular with our customers. We're in very close collaboration with NATO and Five Eyes countries. And we're starting now to see requirements and specifications to move in our favor. So actually, we see our medium-term pipeline in that space starting to build quite nicely. And finally, for me, a military underwater rebreather market is expanding with our deep sea rebreathers. So in the first half, we did secure 2 new European NATO Navy wins. And they build on previous wins from Germany and New Zealand. Also very early in the second half, so it doesn't appear in our first half results, but we did also sign a contract and enter a partnership with the Royal Canadian Navy to supply their rebreather needs as well. So our production lines are ramping up and increasing output to meet that rising demand. We continue to see a very strong pipeline for this product area. There's many more upcoming tenders with NATO and Five Eyes nations alongside growing number of opportunities for international export. So I think as Jos and Rich really presented, we're now showing some really good operational discipline with a much stronger order book. We're executing on our growth strategy, and we're building a pipeline and really accelerating some momentum. I think it's back to you, Jos.

Thank you very much, Steve. So Team Wendy, very good order book at the moment. I do see there's a question on the order book in Team Wendy around order intake's actually declined. Order intake did decline a bit but only really because the first half of last year was exceptionally strong as the DoD programs came online. It's actually the order book that matters though, and that is actually up about $10 million in Team Wendy, driven by next-generation IHPS and ACH but also really good demand across our bump helmets with the U.S. Navy and pads and commercial helmets. We have also, just in the last 6 months, launched our new RIFLETECH helmet. This is probably the most advanced helmet in the world. It can stop typical rounds from a rifle such as an AK-47, or for those of you more familiar with the U.K., the SA80. It is about 2.5 pounds lighter than the previous helmet that provided that type of ballistic protection. It is a reassuringly expensive helmet, but it does provide unrivaled protection against ballistic threats. We have a good pipeline developing on that, both from militaries and also from SWAT teams and police forces. So we start -- we should start manufacturing that commercially in the next 6 months. We're also working hard to develop new pad systems and to carry out R&D on how we can protect people's brains even better from the impact of the bullet striking helmet. This slide just shows the last 12 months compared to the full year 2024. The middle line is perhaps the important one. You can see that the margin is progressing nicely. ROIC is actually nearly in our target range of 17% to 20%. Cash conversion the last 12 months has continued to be very strong. And leverage, I mean, we're in a rock-solid financial position with leverage of below 1. We are unusually transparent about risks and opportunities. We keep hoping we're going to set a trend amongst listed companies. But for the moment, I think we're still an outlier. I'd say our biggest risk at the moment is the ramp-up in Cleveland, where we need to triple production over the next 3.5 months or so. That is a big challenge, not least finding the amount of workers that we need or at least good workers. Tariffs haven't really impacted us so far. I don't think we're particularly worried about them, but if there were reciprocal tariffs put in place by, for example, Europe, that would be inconvenient for us. That said, we do manufacture masks in the U.S. and in the U.K., and we can move production fairly easily. We also make filters actually on both sides of the Atlantic. Helmets, we currently only make in the U.S. But we do have room for helmets in the U.K. and could move them if necessary. But we're not going to do anything like that until we're a bit clearer on where the tariffs are going. On the opportunities, tariffs are actually an opportunity for us because we can manufacture on both sides of the Atlantic and do, whereas some of our competitors are trying to access the U.S. market from Europe. And we do have good opportunities around exporting our helmets from the U.S. into the non-U.S. markets. That's not really something we have tried to do before because we've had so much demand from the U.S. DoD. But as we successfully ramp up production, we will have more capacity to try and access international markets that should drive further growth. So in summary, our businesses are improving very fast. We're doing what we said we would do 2 years ago. It's good that our investors can start to see that come through in the numbers. So hopefully, that gives people confidence that we will do what we say we'll do. Our transformation program is on track. In fact, the closure of our California factory is actually 3 months early. Our markets are growing well. It's always nice to be swimming with the current. And our business system is delivering improved margins and higher-quality products to our customers, which in turn supports growth. So with that, I was going to say I'll hand over to questions, but they're actually online. So I think we'll have to read the questions out and we'll...

[Operator Instructions] Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via investor dashboard. As you can see, we received a number of questions throughout today's presentation. And if I could just hand back to you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

So Rich, I think the first one is for you. To what extent is the U.S. -- sorry, is the business exposed to the U.K. and U.S. military?

Yes, that's fine. We do actually publish this exposure once a year. So it will be in the full year in the numbers when we put that out in November. But at the last time we published it, the U.S. DoD accounted for about 45% of group revenue. We don't really break out the U.K. in isolation. I'll tell you why in a moment. But European military in total is around 13% of the group revenue. The reason we don't break out the U.K. is it's not actually that significant for us right now. So we are the supplier of the U.K. General Service Respirator. But the U.K. in the context of global customers isn't actually that massive. We're always looking at opportunities to grow it, clearly, but it does mean that the exposure isn't that significant. The exposure within the 2 divisions is a bit different. And that's really a comment on the maturity of the 2 divisions. So if we look at Avon Protection, the respiratory business, that's a very mature business. The business cycle goes something along the lines of designing a product, working with the U.S. DoD as your key customer. And then over time, as you complete the rollout into that key customer of your product, you seek to commercialize it and to internationalize it. And therefore, within Avon Protection, actually, the DoD was only 27% of revenue last year. Team Wendy is at a much earlier stage of that maturity cycle, and therefore, a lot of the deliveries last year and again this year will be DoD focused, but the commercialization and the internationalization piece is yet to follow. Having said that, they do have a very strong position in Commercial Americas. And actually, I'm pleased to say that, that position is growing quite nicely with market share gains. So I hope that helps.

Thank you, Rich. You mentioned plans to grow commercial sales internationally and North America. What are the key growth drivers? And how do they compare in terms of margin. This person clearly was not missed because they've asked 2 questions in one. I think -- I mean maybe I'll tackle that -- well, I'll tackle the helmet bit, and Steve can talk about the NSPA contract driving growth internationally. In helmets, we drive growth internationally through our advanced technology and the quality of our helmets and actually increasingly our ability or our capacity to manufacture helmets for delivery into other markets. We are also now though, for the first time, investing into a sales team in Europe for helmets. We just recently recruited 3 people to support sales side. So that should help us access those markets as well. In terms of the margin on helmets, margin in commercial helmets is good. As you might expect, the DoD does get a bit of a volume discount. So Steve, do you want to talk about accessing NATO through NSPA?

Yes. Well, I'll talk about some of the market drivers because I think they're kind of similar. So product quality is clearly a big thing on respiratory protection. Very, very open. Customers don't really want to buy our product, but they definitely want to use it. When they do need to use it, it needs to work first time. So having the best products on the market is a major, major driver for us. And we know we have that, that current portfolio in terms of future portfolio and the sort of business model Rich talked about in terms of having good footprint, good, advanced technology partnered with the DoD and then bringing that internationally. I just talked about a number of new DoD programs of record. And of course, I touched on MITR, which is the commercial launch of a new product. And again, we'll see that product grow internationally quite nicely. I think the other drivers for growth, particularly in the chem-bio protection market, being conscious there is a threat. And Ukraine has played a big part in reminding Europe that threat is real. It has been a real problem for the Ukrainians. It doesn't matter how much advanced technology you have when a can of CS gas can pretty much destroy that technological advantage. So having the ability to protect yourself, really, really important. And that conflict has reminded Europe of the need for chem-bio protection, which I think perhaps maybe 5-plus years ago was perhaps starting to dwindle. And then against that context, growing European defense investment will clearly help us to capitalize on that. We have the right contracts in place internationally. So Rich touched on the U.K. and Jos just mentioned the NATO contract. We've taken our FM-50, which is a derivative of our U.S. mask. That's what's sold into the NSPA contract. That's the 13 countries I mentioned. And that is just 13 countries that's on that NATO contract. We do also sell to NATO countries outside of that contract if they don't want to use the NSPA mechanism. So what was the part of this -- margin drivers. The margin is, what do I want to say, healthy on all of those contracts. I haven't got much more to say. I don't think -- that's good.

Next question is, how does management view the current share price compared to intrinsic value? It's another double question coming. And are there plans for further share repurchases? I'll let Rich answer the second one. But on the first one, I don't think it's really for us to comment on intrinsic value. I'd say the analyst notice I saw this morning seemed to be around GBP 18. Quite a number of them anyway. We're very focused and actually incentivized to increase earnings per share and improve return on capital. That's really what we're interested in. I think your view on intrinsic value probably depends a bit on how likely you think we are to achieve that. And on LTI -- well, on share repurchases?

Yes. Always a good question. I mean the starting point is that we don't have an inefficient balance sheet. So I don't think we're forced to do anything too quick around that. But our priority right now is delivering organic growth. And there are things that we can invest in to accelerate the delivery of that growth, including high-quality R&D programs. And Steve mentioned that we've recently been pretty successful with the U.S. DoD on a number of funded development programs. But they're only partly funded. We put money into those as well. And by the way, we are more than happy to do so because, of course, working with a customer such as the DoD significantly derisks the range of possible outcomes from our perspective. We would dearly love to invest yet more in new innovative products to bring to market. That will help secure organic growth well into the future. And frankly, growing growth at today's level of margins and even more so at next year's levels of margins, assuming we hit our 14% to 16% guidance, will deliver very, very healthy returns to shareholders. Beyond that, we have been investing quite a lot in our Strengthen System that Jos was talking about. We do think that, that system is delivering -- well, we don't even think we know it's delivering significant benefits within the Avon Technologies portfolio now. We do think it is equally applicable to businesses that are not currently within the Avon Technologies portfolio. So that is an area of capital deployment we would consider over the medium term. So right here right now, we've got a lot of ideas on how to invest money. If we find that we're throwing off excess cash beyond which we have ideas to put the investment of, we will certainly look to return cash to shareholders one way or another.

Thank you, Rich. Our next question is how shifts in the Department of Defense procurement priorities affecting your order book and product development? Steve can talk about respiratory. So I'll talk about helmets. We're not really seeing much or has any shift in U.S. procurement activities insofar as they affect us. We have seen quite a lot of DOGE, but it doesn't seem to be making any difference to the order flow that we're getting or our programs. But do you want to add a bit more color, Steve, on...

I was going to be a little bit facetious, actually, in answer to that question. My answer will be actually really positively. Really we just signed -- I talked about the ENBD contract with the DoD, and we signed that after DOGE has worked with our customer base in DoD. So we've sort of had the efficiency treatment, and every program we care about has survived and started to come to fruition. We have some other programs in the pipeline that we can't really talk about publicly right now. But it survived the sort of scrubbing rush, if you like. I think the other one is probably not necessarily related directly to DoD but in terms of broader U.S. turmoil and priorities. We did see the initial announcement that the NIOSH, the independent respiratory certification body in the U.S., was going to be disbanded. We were worried about that. And then for those of you who track that kind of thing, that decision was overturned last week, 2 weeks ago. And so NIOSH remains in place. That's a key discriminator for us. It creates barriers to entry for our competition. We're the only qualified respiratory protection product, NIOSH protection product in the U.S. commercial market. That's one of the reasons why we have such a high market share. So that being back in place again keeps those barriers in place to us. So yes, my facetious answer to that question is the procurement priorities on the Avon Protection side have actually largely been a positive for the business now that we're on the back end of that.

Thank you, Steve. Our next question is, why have U.K. and international revenues in Team Wendy declined? I mean that's largely because we have a large customer outside North America that orders regularly that the contract ended, and there's been a bit of a gap between that and the new contract. We have now got the new contract. So I don't expect that to be a long-term solution. We did also have another country that had some one-off orders last year because they particularly needed helmets. So we haven't had those repeat this year, although interesting, I think they may come back with some different helmets in the second half of this year. Question is gone. There was another limb to that question, wasn't that?

I'm not sure. The world -- I'm getting to the bottom of the note, too.

We'll move on to the next one. You touched on resource. How difficult is it finding the right people to join the business? It's not too difficult to find people who want to join the business. It's harder to find people that want to work on the factory floor. And some of them do a month and then decide that it's not really for them. So we do get quite high attrition in the first month or 2. Where people can get through that, we actually have very low attrition. It's about 1% a month, which is very good for a manufacturing business. So the second in this question was, do we need higher prices -- sorry, higher wages? No. We don't think that our wages are too low because of the very low attrition once people get through the first month or 2. Our bigger problem is actually people who have never worked in a factory come into a factory and think this isn't really for me and then they leave. And I don't think wage increase is going to make any difference there either. People like that type of work or they don't, and perhaps they need to try before they work that out.

Jos, Rich, thank you for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This may take a few moments to complete, and I'm sure it'll be great made by the company. On behalf of the management team of Avon Technologies Plc, we'd like to thank you for attending today's presentation, and good afternoon to you all.