Avon Technologies Plc ($AVON)

Good morning, everybody, and thank you for all of you that have come in person. In the first half, we delivered strong growth in revenue, profit and margin and achieved our financial targets 18 months ahead of schedule. That progress reflects the benefits of transformation and our growth strategy coming through across the businesses. With transformation now coming to an end, we're increasingly able to focus on the next phase of driving sustainable growth. We have a supportive market, lots of opportunities for organic growth and a balance sheet that provides further options for acceleration. We see lots more potential in the group and are looking forward to the next chapter. I'll now hand over to Rich, and he'll take you through the numbers.

Thank you, Jos, and good morning, everyone. So, as Jos mentioned, we have had a strong start to the year with strategic and operational progress feeding through to strong financial performance. The headlines are closing order book down a bit as we work through some of the Team Wendy military backlog, revenue up 7%, operating profit up 39% and EPS up 45%, all compared to the same period last year on a constant currency basis. As most of you know, my preferred measure of performance is ROIC, and we have seen excellent progress here, up a further 450 basis points to 20.8%. This puts us comfortably ahead of our 2026 goal of ROIC above 17%. Cash conversion at the end of the first half was not particularly good at 38%, but $18 million of cash related to a late flurry of orders -- of product deliveries in March was received in early April, which would have resulted in conversion of around 100% -- Even without this, net debt to EBITDA at the end of the first half was 0.9x. So the balance sheet is in great shape. So a strong first half. We're growing fast, and we're generating excellent returns on capital. So starting with the profit and loss account. And, as usual, comparators will be on a constant currency basis. Order intake of $117.9 million was down on a very strong first half last year with book-to-bill below 1. I'll talk about drivers for this over the next couple of slides. But, in summary, I am not concerned, and there are already signs of improvement. The very robust $220 million order book gives us confidence in delivering further growth for the balance of this year and beyond. Revenue of $160.8 million is 6.8% up on last year with exceptional growth in Avon Protection more than compensating for a slow start in Team Wendy. This has dropped through nicely to adjusted operating profit of $24.4 million, giving a margin of 15.2%, over 300 basis points higher than last year and comfortably within our target range for the year. Finance costs reduced, reflecting the lower average net debt with an effective tax rate of 24% as previously guided, which gives an adjusted EPS figure of $0.564 per share, up over 45%. The dividend is up 6.6% to $0.081 per share, consistent with the increase at the full year results. Avon Protection's order intake dipped a bit in the first half compared to a very strong H1 '25. But as a reminder, last first half benefited from about $30 million of one-off or unicorn orders, including support for Ukraine. Stripping these out, we continue to see strong U.S. commercial and military momentum. And as today's announcement of our $14 million filter award from the U.S. Department of War demonstrates, this is continuing into the second half. The order book of $112 million is particularly healthy for this business, which has historically had a fairly short win to ship cycle, giving confidence in future growth. Revenue growth of 23% to $92.9 million reflects excellent underlying trading, notably in support of NSPA awards and continued execution of rebreather deliveries, further buoyed by the fulfillment of all outstanding Ukraine demand. The outlook for the year remains robust with modest sequential growth expected in the second half. Adjusted operating profit of $20.7 million, 44.8% higher than last year, gives a margin of over 22% for the half. This has been achieved through strong operational execution, strong operational gearing, a helpful product mix tailwind and the rate of top line expansion outstripping increased investment in future growth. I would, therefore, expect profit margin to normalize at a lower level over time as some of these factors unwind. Team Wendy has made strong progress in the last 6 months, although quite a bit of this is not yet visible in the numbers. Order intake declined in the half, driven by 2 key factors. Firstly, our U.S. Department of War order cover remains strong, so we wouldn't expect further orders on the 2 helmet programs to come through until later this calendar year. Secondly, commercial orders in the first half have been soft, driven in part by grant funding delays to law enforcement customers as a result of government shutdowns. There are now clear signs that this factor is easing, and our strong pipeline suggests a recovery in the second half. Revenue in the first half was held back by delays in Department of War shipments caused by a slower-than-expected production ramp with the commercial market weakness also being unhelpful. However, based on current output rates and strong indications of commercial demand recovery, I do expect to return to good growth in the second half and for the year as a whole. The improvements made over the last 18 months are, however, starting to feed through to profitability with 100 basis points of margin improvement despite the strong growth in ACH production, which remains dilutive to gross margin. These production rates will drive meaningful improvement to operating margin in the second half. So as usual, this bridge sets out the key moving parts in the reported adjusted operating profit from last H1 to this. The effect of volume growth, which is essentially H1 revenue growth at last year's gross margin was $6.2 million. We also benefited from a helpful product mix tailwind in Avon Protection with strong commercial mask sales offsetting lower Department of War and filter deliveries. And then going the other way, the dilutive effect on gross margin from increased ACH shipments was $1.7 million in the half. There will be a further modest impact in the second half as the full run rate, which we reached in the second quarter, laps lower deliveries in H2. The positive $2.4 million Team Wendy site optimization bar is the benefit of our transformation journey starting to come through with increased productivity and lower cost of doing business following the move from California to Cleveland. External impacts are called out separately, having represented a $1.5 million headwind. This comprises the effect of tariffs, the increased employers national insurance contributions and an increase in U.S. health care costs. These largely represent the annualization of numbers called out in the full year results in November. There remains some debate on whether we can -- whether we will be able to recoup some or all of those tariff costs. As ever, the other bar is a collection of things that sums to a small number this time around. Moving on to cash flow. Net debt increased by $3.1 million compared to the same period last year. $5.9 million of EBITDA growth was offset by a $21.1 million increase in working capital with inventory ticking up at a slower rate than sales growth, more prompt payments to suppliers and an increase in receivables relating to product shipments in March. As I said, the cash for these shipments has now been received. This gives us cash conversion of 38%, which is clearly below the full year guidance of 80% to 100%. However, if we adjust for the cash receipts in the first week of April relating to March deliveries, conversion would have been 100%. Cash costs of transformation activities in the first half halved to $3.2 million and the benefits of the transformation investments over the last couple of years are now starting to come through. Beyond cash flow from operations, pension contributions of $3.3 Million were in line with our communicated deficit recovery plan and the step down in lease costs reflect the exit from our Californian facility last year. As usual, guidance on these and a number of other items is provided in the appendix. So turning to the balance sheet and our financial position continues to strengthen. Average inventory turns held steady at 3x, which is a good achievement given the production delays and the effect of the government shutdown. We would expect to see some improvement in the second half. The reduction in lease liabilities reflects capital repayments and the accounting pension deficit benefited from the recent increases in bond yields. This deficit has now come down from almost $100 million in the last 5 years. Post period end, we made an additional GBP 3 million contribution to the pension scheme to lock in the benefit of these heightened yields, further derisking the balance sheet. The wider triennial pension review process is due to be finalized shortly with an updated schedule of expected cash contributions provided in the technical guidance. Average working capital turns saw further improvement year-on-year, but the pace of improvement was held back by the acceleration in production in Team Wendy in the first half. If we can hold production rates at their current levels, I would expect further improvement through the remainder of the year. And finally, on the balance sheet, I can confirm that our revolving credit facility has been extended by a further year to 2029. Overall, the balance sheet is in great shape, giving us optionality to explore future growth opportunities. The outlook for the year remains robust. Our strong order book and pipeline visibility into the second half and beyond give us confidence that we're on track to deliver high single-digit revenue growth for the year. At an operating margin level, while I wouldn't expect the 22% margin in Avon Protection to be sustained for the full year, the potential for improvement in Team Wendy during the second half as the benefits of transformation come through on higher output volumes is meaningful. I would, therefore, expect adjusted operating profit margin to be towards the upper end of our 14% to 16% range. Classification of investment in transformation as an exceptional cost will come to an end in FY '26, as previously guided. The investment in manufacturing ramp-up in Cleveland is now nearly complete, and the project to improve our IT capability is progressing well. Based on the run rate of spend to date, our total $7 million cost will remain in line with guidance, but with a higher weighting towards OpEx than originally expected, and I remain very confident in the payback that this investment will deliver. Finally, we remain confident in achieving cash conversion of above 80% for the full year. Given the changes we're seeing in the world around us, it's, kind of, helpful to step back and look at both the long-term growth opportunities in our markets alongside the near-term outlook that I've already covered. The global geopolitical environment has shifted materially over the last few years with active conflict at the highest level since World War II. That shift is driving higher defense investment, particularly as Europe moves into a rearmament cycle and as the U.S. adjusts its positioning within NATO. In the near term, demand has been reinforced by the conflicts in Ukraine and the Middle East, which have highlighted both the continued use of conventional warfare and the increased threat from chemical weapons. We're also seeing heightened focus on readiness and stock replenishment across our installed base. For Avon Protection specifically, this backdrop is translating into increased emphasis on CBRN capability. The U.K. Strategic Defense review last year explicitly identified CBRN risk as a priority area for future investment. And customers are also increasingly focused on better integration of CBRN and on upgrading mask fleets, shifting from survive to fight mindset to survive and fight. In Team Wendy, improved ballistic protection remains a key theme with increasing numbers of military and first responder personnel and increasing gun crime in the U.S. driving upgrade cycles. And on the right-hand side of the slide, you can see that the trends in all of our key market growth drivers are moving in the right direction. I'll now hand back to Jos to run through our progress on STAR.

Thank you very much, Rich. Our overall strategy continues, but we continuously refine the activity set that delivers it. The strength in the system delivers operational excellence and competitive advantage. In transformation, we're down to 2 final projects. One is focused on increasing output reliability in our Cleveland factory. I'll talk more about that in a moment. The other is building a much higher impact and lower cost IT function. IT is now able to support the pace of change that we want. And we're increasing the use of AI to amplify software development, support material science innovation and reduce repetitive activity. In advance, we're building our medium-term pipeline. And in revolutionize, we're investing in long-term research and capability building. We believe that our strengthened system creates enduring competitive advantage. Our competitors can try to catch up, but it will be hard for them because every day, we get better. We do not consider the benefits of our strengthened system to be linear. As leadership, culture and capability strengthen, improvements build on each other and the rate of progress accelerates. This chart shows how we see our businesses progress through the 4 phases of our strengthened system from building the base through improving to acceleration. We see Team Wendy now entering Phase 3 with a lot more to come. And we see Avon Protection now entering Phase 4. Our strengthened system is about people as well as process. As is often the case, we do things differently here in Avon. The content of these courses has been designed by our senior leadership team, not by external consultants or HR. We want to teach our people how to solve problems instead of solving problems for them. Our people development program support our broader business improvement strategy, helping us develop and execute action. Since we launched our operational targets exactly 3 years ago, group average labor productivity is up 44%, well ahead of our 35% target. H1 productivity could well have been even better, but was adversely impacted by the U.S. government shutdown and recruitment ahead of higher production rates. This is now improving in the second quarter. We've reduced scrap as a percentage of revenue by over 60%. Scrap rates crept up in both businesses in H1, but we're running our problem-solving methodologies to reduce them back down again. Average inventory turns are now at 3x, up 6% on H1 2023. Avon Protection is at 4 turns. We have more to do in Team Wendy, but a focus on higher production rates and reduced supply chain risk for now. Higher turns will certainly be one of our objectives for next year. Moving to transformation. We've built an entirely new factory in Cleveland over the last 2 years using our philosophy of product continuously flowing. This strategy is now starting to pay off. As these charts show, production rates have increased significantly since we last reported to the market. We're delivering both IHPS and ACH at or above the contractually agreed rates. Importantly, by demonstrating our operational capability on both our Department of War programs, we're well positioned to win further orders. Now that we've achieved our production rates, we're shifting our focus to production consistency. We're driving improvement across shop floor engagement, production and supply chain planning, machine reliability and quality. We have also made some leadership changes in Cleveland, which has resulted in better prioritization, more focus and increased speed. Just to give you a sense of what we're doing as part of our machine reliability work stream. The chart on the right shows how the reliability of our computer-controlled cutting machines has improved over the last 2 months. We believe this project alone could save us over $400,000 a year in reduced CO2 usage and less line downtime. We have consistently grown well ahead of our core markets since we launched our STAR strategy 3 years ago. We expect this momentum to continue for the following reasons. The external environment is supportive, and we've made good progress creating the sales team that can capitalize on it. Our strengthened system is improving execution, creating capacity and generating cash to reinvest in growth. We're investing more in innovation and building a strong differentiated pipeline of new products, coupled with world-class sales and marketing functions. And finally, our balance sheet gives us the ability to accelerate growth further through M&A if we can find suitable opportunities. Taken together, this explains why we're outperforming our markets today and why we are confident that this momentum will continue. I'll now hand over to Steve to take you through the Avon Protection strategy.

Thanks, Jos. Good morning, all. So before I begin, I wanted to really highlight the picture that's on the screen here. So this was taken recently at what's called the Best Ranger Competition, an event that takes place annually at Fort Benning in Georgia. And the event really aims to test the physical, mental endurance of the U.S. Army's very best soldiers. One of the tests is combat breaching, and we were delighted that our MITR mask was used, demonstrating how it protects the war fighter from metal toxicity and other hazards. You can also see in the image how well the MITR system integrates with the U.S. Army's ACH helmet as supplied by my colleagues in Team Wendy. Feedback on MITR from the event has been overwhelmingly positive. So as you've heard, Avon Protection continued its growth journey, revenue up 23% order book up 19% and a record high pipeline ahead of us. Demand across NATO remains strong with the nations now purchasing our FM50 respirator under the NSPA framework increased to 16. As announced, we secured a $13 million filter order in the Middle East, and we're seeing increased pull from U.S. law enforcement ahead of their preparations for heightened operational demand later this year. We're very pleased to have won 100% of the latest DoW order for filters worth $14 million. This was secured post close of the half year period, and so is not reflected in our results. This is a particularly exciting program as it's the first time we've secured the full filter program on what is normally a dual-sourced award. Later this year, we'll launch a new digital voice projection unit, which improves speech clarity in demanding operating environments. Interest is strong globally and units are already in advanced stage trials with multiple military users around the world. The pipeline for our next-generation CS PAPR continues to build, and we expect independent European certification for our latest SCBA system soon, opening up a broader opportunity space in the European defense market. A key part of our growth strategy is expanding Avon Protection into adjacent markets. In non-CBRN, we were delighted to secure the multiyear Canadian Armed Forces contract for MITR and have now started to receive orders under this contract. This is the first Five Eyes nation to fully adopt the capability, and we expect other Five Eyes nations to do so very soon. The MITR half mask also achieved independent U.S. and European certification in H1, opening broader law enforcement and first responder markets where certification is required. MITR is the only half mask that is both independently NIOSH certified and purpose-built as a military system, reinforcing our market-leading position. In integrated CBRN, we expanded our suits range and we were successfully down selected to take part in competitive evaluation trials with the U.S. DoW. Several hundred of our suits have been ordered to support these trials, and we're delivering those now. This represents a significant potential opportunity for us in the next fiscal year, and we're strengthening our supply chain to support any future ramp-up. Across NATO, the contract ceiling for our NSPA boots and gloves contract has been increased by 50% to meet the European rearmament demand and our order book for this product range now runs well into FY '27. Underwater, France canceled its rebreather tender, and we expect to recompete in the coming year. We are, however, working on opportunities with the Australian Navy, the U.S. Navy, U.S. Marines and the U.K.'s Royal Navy. We're also extremely busy delivering our backlog for this product and building the support infrastructure that these users require. So this slide shows some of our major programs. M50 and M53A1 are expected to remain in U.S. service at scale for the foreseeable future. And we're working with the customer to simplify contracting by bringing the 2 programs together. In parallel, we are engaged on mid-life upgrades to the mask that materially reduce soldier burden and improve combat effectiveness. This creates a compelling upgrade path for the U.S. customer from an aging M50 installed base to more modern M53-like systems. Longer term, it positions us well for the next-generation respirator program and provides continuity and volume visibility through that transition. Alongside masks, we have several significant long-term opportunities in progress, including filters, next-generation suits and a new NATO systems program that provides an upgrade path for our large European base of FM50 users to more modern 53 and 54 masks. This is only part of the picture, but the mix of replenishment, fleet upgrades and new contract opportunities gives us strong near-term visibility and attractive growth. Overall, our competitive remains strong. Turning to our revolutionized projects, which are positioning us to grow in new and adjacent markets. We're moving beyond stand-alone products to become a true end-to-end CBRN ensemble provider, integrating across the whole system. The DoW mask upgrade is a compelling performance enhancement that improves combat effectiveness and it will create new export opportunities. Alongside that, our lightweight EXOSKIN reduces thermal burden, improves mobility and allows operators to stay effective for longer in highly demanding combat environments. This is exactly the user-driven innovation that our customers want. And for the past 2 years, the U.S. user community has voted our suit the #1 most wanted future CBRN capability during their experimentation events. Being selected as the single-source partner on the U.S. HMI program strengthens our ensemble integration capability and positions us at the center of the system. I'm delighted that today, our HMI solution has been awarded the CBRN Innovation Prototype Award from the U.S. DoW. And finally, our next-generation filter development work keeps pace with the changing threat landscape and ensures protection evolves whilst reducing soldiers physical load. Taken together, this development pipeline builds real depth across the ensemble in direct collaboration with the customers who use our kit today. It underpins sustainable growth, increases program value and cements our position as the leading full ensemble CBRN protection provider. Although not on the slide here, we're also moving ahead with our shallow water combat rebreather. This brings the market-leading and proprietary technology from our deep sea rebreathers while expanding our addressable market. You can see several of the innovations here today, and you are very welcome to try the kit on if you so feel the need. So in summary, our strategy is delivering demonstrable value. It's protecting and growing the core while expanding selectively into adjacent markets. We're defending and growing our installed base, extending aftermarket support and driving repeat revenue through upgrades, enhancements and accessories. Beyond the core, we're investing in new technology in growing adjacent markets, and we're capturing market share. MITR is addressing the growing awareness of respiratory impacts in modern combat and policing. We've secured early contract wins and customer-funded development, demonstrating there's a real need in this space. Customers increasingly recognize their CBRN protection is only as strong as the weakest part of the system, and that shift in thinking is opening attractive growth opportunities where we're very well placed to win. And our deep sea rebreathers remain the most capable system on the market today, well positioned for several upcoming programs. Through proven execution, deep customer relationships and a clear pipeline, we're well positioned to outperform the market and deliver sustainable medium-term growth. I'll now hand you back over to Jos.

Thank you very much, Steve. Certainly, lots going on. Before I get into the core of this section, it's worth just touching on the photo on this slide. It shows the Artemis II astronauts and their rescuers wearing our bump helmets. That sort of PR is hard to buy. We see a very strong pipeline for Team Wendy. Demand for both IHPS and ACH remains strong with order cover well into 2027. We're also seeing ongoing demand for helmet pads and liner systems from the U.S. Army and Marine Corps. During the first half, orders from U.S. police and agencies were adversely impacted by delays to grant funding following U.S. government shutdowns. We expect grant funding to start flowing as the One Big Beautiful Bill Act starts to take effect. Recent media reports suggest the U.S. Department of Justice may release up to $3.5 billion in law enforcement grant funding. Internationally, momentum in EXFIL continues to build. We're expecting further orders from the Australian Defense Force, and we received an order for our new EXFIL Endurance helmet from a Middle Eastern customer. Overall, we're seeing growing interest across European and Middle Eastern militaries. We have recently launched a completely new helmet called the RECON. You can see one of the launch videos playing on this slide. We have brought a helmet with us here today, a RECON helmet. It's on the side over there. Again, you're welcome to try it on later to go with your CBRN suits. When designing this helmet, we listen carefully to our customers and design something that we think has a big addressable market. We see opportunities for this helmet with the U.S. Navy, Coast Guard, search and rescue and NATO militaries around the world. This helmet is designed to achieve a triple rating against combat, mountaineering and white water standards. We believe it's the first helmet to do that. This means that search and rescue officers, like the officer on the right-hand side of this slide, will no longer need to carry separate helmets for different missions. This helmet is also extremely comfortable containing our new pad system. We've also developed a new ballistic helmet called the EXFIL Endurance. The one we have here on the side is unpainted, so you can see the carbon fiber construction, which keeps it very light. It also has clear rails on this one, so you can see our unique no through hole attachment system. This increases ballistic protection by eliminating holes through the helmet. We've also introduced our latest cooling pad technology to support extended wear and change to a reverse dovetail rail design, which allows a broader range of accessories and a larger addressable market. The result is a helmet that offers greater protection, flexibility and better comfort. It is a good example of how we continue to evolve the commercial portfolio by responding directly to real operational requirements. This slide shows the depth, durability and momentum of our U.S. Department of War programs. Demand for IHPS is expected to continue strongly through 2028. Beyond that, the programs will move into sustainment. There is also the potential for additional sales of a third-generation IHPS, which we are actively working on with the DoW now. That development work alongside our delivery track record strengthens an already well-established Department of war relationship and potentially expands the program well into the next decade. We're expecting further ACH orders to take us through to spring 2028. And after that, we expect another 5-year IDIQ to be let, which will give us an opportunity to move our price in line with the market. Importantly, our contractual performance on quality, delivery and reliability positions us well for those near-term orders and for the follow-on ACH contract. Alongside the U.S. programs, the Australian EXFIL contract extension is progressing well, adding further visibility to the portfolio. Turning to Revolutionise. We're working with the Department of War on several exciting projects. They're assessing our RIFLETECH helmet and accessories as part of their ongoing research into the third-generation IHPS and have ordered 100 for evaluation. We're also developing solutions to increase threat protection and to integrate power, data, night vision and hearing protection into the helmet. We're increasingly confident in Team Wendy's ability to grow in the long term. For the Department of War, we win through excellent products, reliable delivery and competitive pricing. That allows us to push further into the Navy and other U.S. forces supported by continued investment in new technology upgrades. In the North American first responder market, we've grown market share. We strengthened the sales force. We're demonstrating how good our products are by allowing our customers to shoot them at our well-established Headstrong events, and we're expanding the portfolio. Internationally, we've made targeted sales investment, optimized dealer networks and are introducing products specifically tailored to meet European requirements. Team Wendy has the technology. It has the brand, the channels and the people to grow faster than the core market and to gain share. Now moving from Team Wendy for our vision for the group as a whole. Our long-term vision is to compound value by acquiring other companies and improving them. Our business improvement system is a powerful tool for improving any business. We have a recipe for success and are keen to take our learning and apply it to create further value for shareholders by buying and improving other businesses. If we buy another business, we will immediately start building a culture of experimentation and continuous improvement and move from batch to flow manufacturing. And in parallel, we will drive transformation where required. We know this approach works. We're looking for businesses that are in our area and which we believe we can improve pretty fast. But we're not in a hurry to buy something and note the high multiples for some assets at the moment. We will remain disciplined and are happy to keep our powder dry until the right opportunity arises. Turning to risks and opportunities. Supply chain risk is lower than 6 months ago, but parts of our supply chain are still adjusting to higher production rates. Many of our raw materials are oil derived. Raw materials and freight are likely to increase in costs, which we will seek to mitigate where we can through pricing. In opportunities, earlier-than-expected pipeline conversion in both businesses could exceed our current forecast. We're increasing capacity through continuous improvement and investing in some inventory to ensure we can respond if needed. There's also an opportunity for additional margin expansion as we sustain and improve execution in Cleveland and through operational gearing in Avon Protection. Early in my time in Avon, we set financial targets, and they felt ambitious at the time. Those targets are shown at the bottom of this slide and were originally set for 2027. In the last 12 months, we achieved the growth, margin, ROIC and leverage targets, all 18 months ahead of our original time scale. In conclusion, we've delivered ahead of plan with strong progress in growth, margin and returns. Our transformation is delivering. Our operational performance is improving and confidence in Cleveland continues to build. That gives us a stronger platform, greater capacity and more cash to invest in growth. With supportive markets, a strengthening product pipeline, a recipe for success and balance sheet flexibility, we are well positioned for the next phase of value creation. We look forward to providing you with midterm targets later this year. Those targets will reflect the increasing scale of our ambition. Thank you for your time this morning. We'll now open it up to questions. And I'll invite my colleagues to come and sit in the dragon's den at the front.

It's Henry Carver from Singer. Just one -- a little bit more detail around Cleveland, if possible. So if I understand it right, you've got production rates up, but there's still an issue with consistency. Just sort of any more kind of color around that? And does that affect just the ACH or also RECON and EXFIL as well? Although I suppose rates are not quite as high as some of the other...

So production reliability has been an issue in the last 3 months. We're hitting the rate, and we're hitting the customer contractual numbers. In fact, we overdelivered in March, I think we delivered well, I know how much we delivered, but maybe I won't share it, but we delivered more than the customer requires from us. So that puts us in a very good position with the customer. However, we do still see more machine unreliability than we would like. We've launched a big program on preventative maintenance. We've actually created our own version of the Toyota preventative maintenance program, and we've launched it now well into a month on that. I think that is going exceptionally well, and I think it will reduce the machine downtime and that will improve reliability. And then the other area really is around people where we have had some unreliability in people coming in, especially on Fridays. At the moment, we're actually overstaffing and that's got around the problem, but that does cost us a bit of money. So I think in time, we will whittle down the most reliable employees, and that will solve that problem. We will get on top of it. And then the last thing is because our production rates have increased so fast, so significantly, we are outstripping our supply chain's ability to deliver to us. And we are still a bit hand to mouth on some raw materials. And actually, some weeks, it is still slowing production a bit. I'm very confident we're going to get through that in the next month. We've recruited a new head of procurement. The forecasting into the supply chain is much better, and the suppliers are just getting used to the rates we're delivering at. So I think all in all, I feel we're making excellent progress. I'm super happy with the team we've got there. I think we need another month or 2 until it is really, really reliable every week. But even with the unreliable, we're smashing our targets. You did ask about commercial as well, though. Commercial is a totally different story. Commercial demand was not very strong in H1. So we had no problems making what was ordered. The interesting thing about commercial is we see a wave of demand coming in H2. So what we're trying to do there is get ready for that wave of demand to hit us. It's not always clear exactly when it's going to arrive, but it's either going to be sort of second half of the fourth quarter or it could possibly be next year, it could be very significant. We think we may end up doubling production in commercial, which is why we're investing in people and inventory in that area to kind of get ahead of the curve and make sure we can deliver when the orders drop. And we think what's going to happen is all this grant funding is going to wash through into the place and they're all going to suddenly order, and they may want it all delivered by the end of the financial year. So it's frustrating.

Will that be similar machinery with the similar reliability issues being sort of suddenly having to kick in or...

It's mostly the same. We use CNC machines for DoW and we use a laser for commercial, but that's probably in the weeds yet. But the CNC machines have been a pain for us, now fixed.

It's Andy from Jefferies. I guess 2.5 questions. The CBRN suit opportunities are probably for Steve or Jos. Can you just give us an update on that in terms of from a competition perspective, from a timing perspective, from a reach perspective, has anything changed? Or is this just getting stuff through the DoW from your side? Or is there more to it than maybe you talk?

Yes, I can talk to that for sure. So the program is still competitive. It's less competitive than it was. So we've been through a few hurdles, and we've seen that sort of start to whittle down. It's moving faster than we originally predicted. And that's driven by the existing suit not really delivering the capability that the users need. So there is a near-term push to get the program to run at pace. Timing-wise, there's a little bit of opacity around quite when it will reach the end, but we'll certainly be nearing that over the next 12 months, I would have thought. So we should have a lot more to share at that point. But yes, the program is running at pace and the suits we have, as we've talked about before, do have a differentiated edge to them compared to what's on the market. So we feel good about it, but it is a competitive program.

And the Voice Projection Unit, that you talked about the $100 million,excuse my ignorance, is that a unique product in the market? Or are you guys catching up with other people who are maybe different?

No. So we really have a Voice Projection Unit, which is out there. We sell a lot of those. This is a modernized version, more digitized version. It gives better speech clarity. One of the big differences between the current systems and the new one. At the moment, if you're a M50 user, you have to have a 50 Series VPU. If you're a M53 or FM54 user, you have to have a M53 or FM54 VPU. The new digital VPU that we're launching will -- it basically automatically detect. So when you put it onto a mask, it will decide I know I'm on a M50, or I'm on a M53, I'm on FM54, and then it will digitally tune itself such that it amplifies the speech in an optimal way. So that's the big upgrade opportunity for the customer. I think also One of the things that holds customers back, and we talked a little bit about moving particularly U.S. and European customers from the M50 platform to M53 and FM54. Once you're on to a M50 with a 50 Series VPU, if you want to upgrade to a M53, you've got to buy both again. Actually, what this now starts to give you is the ability to have a common Voice Projection Unit and then start to upgrade your mass fleet alongside that without having to repurchase VPUs. So the differentiation for the customer is pretty big. Our systems also are certified. So they're what's called intrinsically safe. So that gives you a degree of independent certification and validation that you're going to be able to have speech clarity. A lot of VPUs in the market are quite crackly. They don't necessarily give the users guarantee of what they're going to get in terms of speech amplification.

And then last one for Jos, which is a bit of, I guess, a big picture question. If we think about revolutionize and you can talk about M&A if you want, -- if you take a step back and think 3 years ago what you thought the outlook for Avon is in terms of what you want to do with the business, let's say, 2030 and beyond in terms of building manufacturing plants across the globe, whatever it may be, where do you sit now compared to maybe a couple of years back as to what you think Avon in 3 to 5 years looks like? Because it feels to me like you could do M&A here and there, you could go manufacturing sites globally. But I don't know whether that's actually the optimal plan for you guys. So just any thoughts there on what that looks like and what's maybe changed over the last few years?

I think we'll probably talk more about that at the end of the year. At the moment, we've still got quite a lot to do with our existing businesses. There is more to go in those businesses. That said, though, I think we are ambitious for the group. And as we get our heads out of running factories, which I have done quite a lot of this year, we will focus increasingly on whether we can really accelerate growth inorganically as well. But so far, we're actually not spending a lot of time thinking about it. So I'm going to duck your question for now.

Rob Byde, from Zeus Capital. In Avon Protection, you talked about a normalizing of margins. Can you talk a bit more about the drivers? Is it price or cost? And should we expect those margins to dip below 20%? Is that what you're in the round saying?

I'll take that. I think -- well, the drivers, I tried to set them out, but the first half certainly benefited from a little bit of a mix tailwind mix comes and goes. So can I categorically say that's going to unwind next time around? No. That's a little bit dependent on what orders come in and when they come in. But the mix tailwind that we saw was around sort of particularly commercial sales outstripping military and filter sales. And we already know that filter orders are now strong. So that's a bit of a leading indicator. But the other driver for outperformance was top line growth of 20-odd percent. That's always going to drop through quite quickly unless you can reinvest at an accelerated rate. And whilst we grew investment in capital, we grew investment in R&D and we grew investment in new products, we didn't grow them as fast as revenue grew. So that sort of disproportionate growth is going to drop through in the short term. I would expect that to unwind. In fact, I quite like it to unwind because I want growth investment to continue to increase. Is it going to dip back below 20%? I'm not going to give explicit guidance for the second half. We've long said that protection trades in the sort of high teens to 20% margin range. I still think that that's reasonably appropriate over the medium term. Is it going to drop all the way back in the second half? Probably not.

Just to answer a question you didn't ask. We may not have emphasized enough just how astonishingly successful Steve and his team have been on filters. So we won $13 million from a Middle Eastern customer from a competitor. So it's a new customer. Hopefully, it will repeat. And for the first time ever, we're the sole source supplier to the DoW on the latest filters order. That's another $14 million. So for the first time in our time here, our filter lines, both filter lines and Cadillac are running absolutely full out, and we've had to add people. So historically, gross margin has been a bit lower on filters than the rest of the business, but we are going to see good operational gearing in filters running through the second half. So it will be interesting to see what happens on the mix. It will be dilutive, but maybe not as dilutive as it used to be.

Dilutive at the gross margin level, not at the OP level.

Just a quick sort of technical follow-up. On scrap, where does that cost go to? Does it go to R&D or specifically D?

No, it's all in gross margin.

Yes. And the scrap is irritating for us because we work so hard and so successfully on it. But one of our suppliers stopped providing the chemical that we make the visors from. We had to switch supplier. The new chemical has proved to be tricky. It's a learning curve. So scrap rates have actually gone up after we spent several years successfully getting it down. It's annoying, but we will get it down again.

Andrew Humphrey at Peel Hunt. I've got a couple on commercial, which are slightly woolly, so apologies for that. And then on protection. On commercial, I wanted to ask a couple of things. Firstly, around the contracting environment. Clearly, the protection performance in commercial was strong, and there's a lot of demand coming through there. Team Wendy less so and you've highlighted kind of DHS funding as being the bottleneck there. Is it the contracting environment that's driving those variable performances between the 2 parts of the business?

It's different funding lines. So you are correct that Avon's commercial sales in the U.S. to police forces is actually up about $5 million. It was up because it's using emergency funding lines, people like ICE buying mask, whereas the helmet, it's dependent on grant funding and the grant funding has been snarled up since the end of 2025. So we expect -- well, we do expect to see a wave of funding arriving. We're actually starting to see it a little bit now. The big question for us is how quickly does it flow. We are doing something quite interesting. We are going to help the police forces and the agencies write their grants because there's going to be quite a short window to get the applications in. So we're basically grant writing for police forces.

And I think that's sort of part answering my second question around that, which is not asking for any predictions, but there are midterms later this year, you'll be used to kind of dealing with the divided government if the polls manifest as they're currently kind of looking. Is there other stuff you can do to sort of derisk the business? I mean DHS is obviously the part of it that you call out that has become kind of quite heavily politicized are there steps you can take within the business on contracting to derisk that?

I don't know. I think we're sort of subject to macro trends there. I'm not sure there's much we can do. So for diversify out of U.S. police. But actually, U.S. police and agency market is a very attractive market for us, notwithstanding some of the craziness around how the grants flow because it is an enormous market. It's interesting on Team Wendy, we've increased market share from 14% to 20% in the last year. So when the grants start flowing, we actually have a bigger share of the market than we used to. Steve is 90% or North of 90% North of -- but there are opportunities to upsell filters, the latest generation of mask VPUs, SCBA. So I think we like the U.S. commercial market, notwithstanding the fact that it does have a little bit of sort of year-to-year or in-year cyclicality.

I think it's probably worth pointing out that we're not chasing after massive market growth that we're contingent on funding for here. The 2 things that we are looking at are, number one, the regular replacement cycle. So helmets get replaced every 5 years or so. So we're just looking for the replenishment cycle and then there's a little bit of market share growth that Jos was talking about. So those are the 2 drivers. The actual contracting and availability of funds is a timing issue. The demand hasn't changed.

I'll answer that if I may as well. I mean the other side we've done is we've kept that sales team together. So they dual sell effectively, that team. And of course, with the moat that we have on the respirator side of the business, it does allow us to leverage that across to help support sales of helmets as well. And of course, you'd expect Team Wendy helmet and Avon Protection masks to work well together. They do. They work better than any other combination in the marketplace. So we do try and leverage that market share we have on protection.

That's great. And then maybe kind of following up on the protection side. Clearly seen some very strong growth there. Part of that's been Ukraine related as you called out. The question I want to ask is a broader one around kind of increased throughput you've had through that business over the last couple of years now, the performance improvements that you've made in it. clearly, there's an element of demand that is sort of related to those unicorn orders that you called out. You have increased capacity in that business now. So I wonder, is there a sort of virtuous circle there with the customer where there's a pull and you can fulfill an order. And I wonder sort of where you are or where you think you are in that cycle?

So for sure, I'd say we've seen demand spike initially through Ukraine. I think Ukraine, I guess, forced the European market to learn a bit of a lesson. So you've carried across perhaps now what was a CBRN threat that was perhaps people are a little bit complacent around. We've seen that spike in Ukraine. So I think we've got a double sort of growth drivers at the moment in European markets. You've got increased defense spending, but also an increased awareness around CBRN. So those 2 things coupled together, as we touched in the U.S., you touched on protection position, whether that be the NATO contract, we have boots and gloves and our masks, whether that's the U.K. MoD contract. We have very strong barriers to entry against the competition there. So we are seeing that increased demand. So I think there is sustainment beyond Ukraine. And our lead times, I would still like our lead times to be shorter than what they are. So you're right, we have increased capacity, but I think demand continues to increase for the business. So we do feel very well positioned in that market.

It's Afonso from Barclays. I have a few last questions from you, please. First one is a quick one on cash flow. If you could talk about the bridge from the 38% conversion you've done in the first half to the 80% plus you're guiding for the full year. I know there are some timing effects from some prepayments, but can you talk about that one by one...

Yes, yes, let's go one by one because I'll forget them. So the -- I mean, the conversion, the 38% conversion, frankly, was largely self-inflicted in the first half. We were aiming for a nice steady increase in production rates through the first half. Actually, that growth period got compressed to the last couple of months. And so February and March were very, very busy months for us. And a large amount of product was delivered in March, which was ultimately paid for in April. That's an $18 million swing in cash, which is enough to move the 38% to 100%, depending on how you -- when you draw the line as to when to measure it. Also in the first half, we saw inventory build on an average basis. We do look at average inventory turns rather than period end because it's more meaningful. And that's unsurprising given the increase in production rates I've just described. So when you get to a steady state, as we now believe we are at, you're no longer building inventory. quite the opposite, you can start to unwind it. And so you've got a couple of drivers there for the second half, which will provide a fairly straightforward bridge.

The second one is on M&A. Apologies for coming back to this, but I appreciate you're not in a rush at the moment given the multiples we have in the industry. But is that going to be bolt-ons? Is it going to be supply chain vertical integration? Is it going to be Europe, U.S.? How do you think about that in terms of timings and then in terms of -- secondly, in terms of the contribution that it's going to have for long-term growth?

We're actually interested in both. So we're interested in bolt-ons that can accelerate the strategy. Suits might be an example or rebreathers or some of the power and data around the helmets. There are bolt-ons that would be interesting for us. Let's call that strategy acceleration acquisitions. But I think we are more ambitious than that. We believe we can improve any industrial business. I'm not saying we would buy any industrial business, but we believe our skill set could improve any industrial business, and we would be interested in buying and improving other businesses that have enough scale that it makes a difference for shareholders.

And last one is on the supply chain. I have one slide on that in your deck. It's normal as you achieve these high production rates. So can you specify what are the key bottlenecks you're currently seeing? And what are you currently doing to mitigate those risks in the short term?

Well, we've actually had -- we've had shortages of quite a number of things actually. Maybe it gives you some color to go through them, the plastic skins for the helmets, the retentions for the helmets, the rails for the helmets, glue, paint, all sorts of things. it's sort of hard to get across in the slides how much the production rates on particularly ACH have increased over the last 6 months. It would be fair to say they've doubled. I think last month, we made. Can you remember how many helmets...

9,800.

That's just one line. I mean, overall, it was like 17,000 helmets or something in a month. It's the highest production rate Team Wendy has ever achieved. And as that rate increases, it's basically surprised the supply chain, even though we gave them forecast, I don't think they really believed it. And then we're running right up to the wire on some of those materials. I mean sometimes they're coming in the day we need them, which is more just in time than we would actually like. As I mentioned earlier, though, I think we would be a bit depressed about this if it weren't for the fact that a month ago, we replaced the Head of Procurement and the new Head of Procurement is absolutely killing it. A month is too short for him to fix all the issues, but he's definitely making a big difference, and I think we'll get on top of it in the next month or 2. And forecasting internally is getting better, forecasting into the supply chain is getting better. Our ordering consistency is getting better. And the lines are getting more consistent, which helps the supply chain as well. But it is fair to say running out of stuff has been a frustration over the next -- over the last 3 months. So we have a question from Richard Paige at Deutsche Numis. May I ask on your first U.S. 100% filter contract win, great news. Was this due to customer contracting change or performance or a change of competitors? Do you want to take that?

Yes, happy to. I thought that would happen. So why did we get 100% of the filters? I think we've worked closely with the customer on this, and we've really shown them a way as to how they can do that. So it also was supported by what we just touched on. We've managed to ramp up manufacturing rates. We've managed to make sure deliveries are on time. We've got a very, very strong track record of delivering to the DoW. So all of those things combined basically meant the customer was happy to award us 100% of the contract.

And next question is also from Richard Paige from Deutsche Numis, which is what is your H2 visibility and the likely pipeline timing for the full year?

So visibility in the order backlog for H2 is very strong, unusually strong, actually this year. So we always have a little bit of win and deliver as we go through the year, particularly in Steve's business. It's a much shorter win and ship cycle, but the coverage for the full year is stronger than it normally is. When that feeds through to revenue, I'm not going to sort of get staked out in the sun on giving Q3 and Q4 guidance now, but we're pretty confident that FY '26 will be a good outturn.

I think one anecdote that's interesting is that Team Wendy commercial sales pipeline is up 90% over the last 6 months. Now when exactly they drop is always the question, and you can get disappointed by timing. But overall, when we look at the pipeline, it is up significantly.

And the final question is from Rob Manning at TrinityBridge. -- is any guidance on forecast leverage? Is there an update on your capital allocation policy, returns less acquisition opportunities and how you think about these trade-offs strategically?

So on leverage, the expectation is it will come down. And I think consensus has a net debt, excluding leases of around $31 million, $32 million. I think that's not a ridiculous assumption, but we don't give explicit guidance. What was the other one? Capital allocation, yes. So there's no updates to the capital allocation policy currently. The slide is in the back of the deck. So it's still there, but we will give you an update on capital allocation later in the year.

Very good. Thank you very much for coming, everybody.