Q4 2025 Avon Technologies PLC Earnings Call
Good morning, everybody. Thank you very much for that I, just read the Cummins Allison and welcome to those on the phones.
I thought I'd start by thanking our employees.
The speed of change across Avon has been challenging at times, but people are a big part of it.
That is up to something exciting.
We are growing the company on a P. S has doubled since 2023.
We now have an exciting pipeline of new products, a solid balance sheet.
More strategic options we.
We could only do all this with such a great team.
We made excellent progress in 2025.
Revenue and profitability grew rapidly we've transformed every factory using our strength in system.
We reduced costs by closing all California in factory.
In 2025, we invested $14 million, an hour and day most of it expensed feeling a pipeline of innovative products and generating excitement amongst our customers.
The order book and pipeline all by a stronger than ever.
We have a scalable platform facing into growing markets and we're firmly on track to exceed our revenue targets and reach our margin target range in 2026.
I'll now hand over to rich and he'll talk you through the numbers.
Thank you Josh.
Good morning, everyone.
So as you can see then the headlines demonstrating another year of strong progress.
As usual all of the comparisons will be on a constant currency basis.
The order book at the end of 2025 has hit another record at $263 million, 16% higher than the prior year. This leaves us very well covered for FY 'twenty six across both helmets and respirators.
Revenue growth of 14% drop through to strong adjusted operating profit up 31% at $40 $3 million in my preferred area of focus return on invested capital came in at 18, 6%. After significant progress was made reducing the average level of working capital tied up in the business.
Cash conversion of 90% represents another good year, even after a late burst in Q4 resulted in a high receivables balance as we crossed into FY 'twenty six and the combination of all of these factors. So the balance sheet strengthened further with net debt leverage of below North 0.9 times, despite considerable investment into the business during the year.
Revenue growth.
Eric cash conversion and leverage are now all better than our medium term targets and operating margin is well on its way.
Moving onto the P&L order intake in the year was very healthy at $352 million, giving a book to bill of one point once it.
Orders were slightly lower year on year, reflecting very high call offs against the U S Department of war helmet programs in 'twenty, four and a slightly lower share of I hit towards in 'twenty five the phasing of these call offs will always be fairly lumpy in nature.
But the record closing order book of $263 million benefited from strong growth in Avon protection more than offsetting a modest decline in T. Wendy largely reflecting the increased department of all deliveries and the phasing of orders already mentioned.
Revenue growth of 13, 8% reflects a strong performance across the board with 16% growth in Avon protection and 12% growth in team Wendy.
<unk> profit of $43 million over 30% above prior year levels results in margin of 12, 8% an improvement of 130 basis points year on year on a helpful step on the road to achieving our medium term objective of 14% to 16%.
Walk through an operating profit bridge shortly to pick out the key moving parts.
Finance costs, which is 16% to $5.4 million driven by lower average net debt and the tax charge of $8 million represents an effective tax rate of 23%, which is roughly where we would expect it to say stay absent further changes to the tax regime.
This all adds up to adjusted basic EPS of <unk> 91.2 cents per share an increase of 35%. Despite the step up in tax from last year's 17%, which benefited from some one off adjusting items.
I, even protection has had a tremendous year order intake up 18% order book up 63% revenue up 16% and operating profit margin up 160 basis points at almost 20%.
This shows the ability of the business to lean into a strong demand environment and deliver profitable growth.
The growth in orders and backlog has been largely driven by strength in international markets offsetting a softer year in commercial Americas, following a particularly strong 2020 for Ukraine.
Ukraine related demand now accounts for just $13 million in the backlog for delivery in FY 'twenty six leased.
May not repeat but even after stripping. This out you can see that the order book is growing very well.
Revenue growth was driven by Australia and S. N 54 deliveries strong deep demand for CBR in boots, and gloves to NATO customers and some Ukraine support coupled with another good year for Rebreathe deliveries.
Excellent drop through margin was helped by operational gearing improving productivity and sales mix.
Given the strength of the order book I, even protection is exceptionally well positioned to deliver further profitable growth in FY 'twenty six.
Order intake and see him when he came in a little softer year on year, largely owing to lower receipts from the department of war following very strong intake in 'twenty for the <unk>.
Log remains robust at around one time sales with the strengths in product portfolio driving an excellent pipeline of opportunities as we enter FY 'twenty six.
Revenue growth of 12% was driven by further growth in a C. H two deliveries as we move towards full rate production further aided by strong demand for dump helmets from a number of end customers, including the U S Air Force and Navy.
Operating profit margin nudged forward from four 6% a two 4.6% excuse me from three 9% in the prior year, which is a good improvement, but still some way off our medium term ambitions.
We're confident in further progress in 2026, as we demonstrate the sustainability of the production rate increases in Q4 and as the benefits of cost reduction following the airlines site closure start to work through.
As a reminder, a C H two shipments although driving top line growth will remain dilutive at the gross margin level.
We expect financial performance to accelerate through the year, as we improve quality and productivity, which will skew team when the operating margins towards the second half.
Now as we move on to the usual operating profit walk for the year, starting with the $38 million jumping off point for last year. After adjusting for FX. The first positive bar of $15 $4 million shows the effect of the 14% revenue growth seen in the year split roughly two thirds, one third in favor of Avon.
And.
Then you can see a further $7 6 million dollar benefit through the combination of operational gearing product mix and see all the activities that have improved efficiency and reduced scrap costs note that as previously guided there was a dilution effect of $2 million from growth in sales of the lower margin a C. H two helmet.
There was a $7 1 million dollar headwind from the step up in investment in future growth, which includes increased sales and marketing commissions training and the increased net R&D charge to the P&L.
There's a further $2 6 million dollar headwind for increased comp including share scheme costs.
As I pulled out the $1 million drag on earnings from tariff costs and increased national insurance in the U K and then finally, the other bar of two points $8 million inevitably covers a multitude of things, but the big ones are increased travel additional investment in I T and costs incurred in tidying up some of our back office processes.
Moving onto the cash flow statement, you can see that net debt ticked up by $6 $6 million in the year. The big driver was the $12 million outflow in working capital as production rates and team Wendy ramped up culminating in very strong product deliveries in Q4.
This resulted in a high receivables balance at the end of September all of which is now unwound.
The pension contribution of $6 million was as expected and as usual guidance on future contributions and other financial matters is provided in the appendix to the slides.
Purchase of shares to fund discretionary comp schemes increased by $4 million to $9 million during FY 'twenty five reflecting the increase in share price and the strengthening outlook.
This prevents future dilution.
It's worth pointing out the cash tax will remain lower than P&L tax for the next couple of years as we burn off historical tax losses.
The big items to highlight on the balance sheet include inventory remaining broadly flat. Despite the 14% growth in revenue, resulting in improved inventory turns and the high receivables balance at the end of the year impacting the other current assets line as already mentioned this is now normalized following strong cash receipts in the first quarter.
Despite the modest increase in net debt the leverage ratio continue to improve driven by the increased profitability of the business.
Overall average working capital turns which is a measure I like as it eliminates the impact of period end heroics improved by 15%.
The other item worth drawing your attention is the further increase in the pension deficit a decrease I beg your pardon in the pension deficit to $13.8 million down from $17 $2 million last year. This is due to a 6 million dollar contributions offset by modest asset underperformance.
I've included the capital allocation slide in the deck again, this time, reflecting a further reduction in the year end net debt to EBITDA ratio, which is now comfortably below our target level of one to two times as Jos will cover shortly we are expanding the revolutionaries points of our star strategy to incorporate acquisitions as one explicit haven't used a few.
Growth, which if executed thoughtfully will present opportunities to deliver compounding shareholder returns.
While we're still at the very early stages of developing this muscle we felt it worthwhile to call out.
And beyond that the Charles is essentially unchanged highlighting the prioritization of organic growth and the progressive nature of the dividend.
Moving onto transformation, it's worth highlighting that transformation costs came in a little higher than expected in FY 'twenty five reflecting a crescendo in effort in second half activity as we aggressively ramped up production rates in Cleveland.
As flagged when we launched the transformation project back in 2023 expenditure will fall significantly in FY 'twenty six with the expected outlay of approximately $6 million linked to two specific projects.
The first and already communicated is the completion of transition away from S. A pea and our Salem facility, which we expect to save us over $1 million per year.
This is progressing well and will be complete by the end of the first half.
The second New project is a continuation of the functional excellence work stream with a focus on the way we deploy it services across the group, we expect to invest up to $4 million of Opex, plus a little bit of Capex in the design and execution of a new target operating model for I T, which we believe will deliver significant returns.
In a very short time scale.
The investment will be completed in FY 'twenty six and the overall project will have a payback of less than 24 months.
This project reflects the end of transformation related costs taken below adjusted operating profit.
So I finally, moving onto our expectations for the full year. We expect further good growth in helmet deliveries as we finish the a C H to ramp up with additional growth coming from commercial and international markets. We also expect good growth in Avon protection underpinned by the robust order book in this business. These factors.
And bind equate to high single digit revenue growth at the group level.
We expect the financial benefits of the transformation program to drop through this year with a modest weighting to the second half even after the additional dilution from the growth of low margin ACTH sales. We are confident that we can deliver our operating margin within our 14% to 16% target range as.
As highlighted on the previous slide we expect transformation investments in FY 'twenty six to drop to around $6 million and return on invested capital will continue to progress nicely.
And finally, we expect cash conversion to remain above 80% with continued improvements in operating efficiency.
Partially offset by further investment in future growth and with that I'll now hand back to Jos to update you on the operational and strategic progress and focus for the coming year. Thank you very much rich.
We.
To focus on delivering all star strategy.
Refining it each year with new initiatives.
Strength in our system has become a powerful engine for continuous improvement and we still see lots of opportunity ahead.
Much of our transformation program is complete with two new projects running into 2026.
The transformation program will finish in 2026.
But the strength in system will continue.
Zona is forever as we say internally.
In advance, we're increasing investment into R&D sales marketing and people.
2026, we'll say our most ambitious new product development program, yes.
And revolutionize we've been very successful in securing customer funded development programs.
This year, we're expanding revolutionize to include acquisitions.
A long term vision is to compound shareholder value by complementing our organic growth with targeted acquisitions.
We have the team the capability and the business improvement system to extract value from acquired assets.
That said our immediate focus remains on organic growth.
While acquisitions are a part of our long term strategy, we're not in a rush, we will wait until we find the right opportunities at the right price.
As a reminder.
This is a scalable business improvement system.
The star strategy and objectives setting process keeps our people focused on action.
All Star Academy bills, the capability of our people and the strength in system enables us to continuously improve our processes, creating cash to invest into the front end of the business.
During the year we.
We trained every employee on our strength in system developed 20 proprietary courses and all Star Academy and took 30 of our senior employees to Japan, So intense continuous improvement training.
Another 20 people going next week.
We believe that improving our operating metrics ultimately drives growth and profit.
Versus 2023, when we originally set out our ambitions productivity has improved 28% scrap is reduced 62% and inventory turns have improved 46%.
But this is just the start there is more to come.
At the midyear.
He highlighted the operational risk into one day associated with production ramp up on the move from batch to flow manufacturing.
This turned out to be prescient, the speed of the ramp up was difficult yes.
These graphs show, we are making progress over the summer we tripled production on our department of war lines as we implemented flow manufacturing this demonstrates the potential of our new lines.
We now need to increase production rates a gain on the aci's lines by another 50% and we need to ensure we can deliver consistently every week.
We are not out of the woods yet.
We learnt a lot over the summer and have used this to improve our strength in system.
We learned that teams can go much faster than they think we ran 14 improvement projects over eight weeks.
Leadership from the front is critical we need to show people rather than just told them.
A line that flows can only run as fast as its slowest operation.
First as way to speed up a line is to deeply understand each process and tackle the biggest bottleneck one at a time lines cannot be improved by sitting in an office.
Change needs employee buy in we spent a lot of time, explaining what we expected of our operators and training them on the strength of the system.
From a strategic perspective.
Aim is to make the most advanced and best looking helmets with the lowest lead times and cost of production.
Avon Protection also made excellent progress as this slide illustrates.
And the electronics value stream.
Which includes Ribery this productivity increased 79% and scrap halve.
In boots, and gloves production increased 47%.
Improving return on capital and helping us deliver on high customer demand.
Both divisions have transformed every production line from batch to flow manufacturing.
We've moved almost every single piece of equipment across the entire group often more than once.
You can see the scale of the change in this time that is video of our UK sites over the past year.
One of the reasons that we're happy to share our strength in the system as it is not about knowing what to do.
It's about actually doing it real progress comes from making tangible change every week, that's what delivers sustainable benefits.
Moving onto transformation.
As you can say most of our initiatives are nearly complete.
We expect to see benefits this year and beyond.
Just to pick out a few points.
And footprint optimization, we closed a factory in California, and built a new one in Cleveland.
And operational excellence, we've transformed all four of our factories.
And functional excellence, we reduce cost and improve quality in the finance function and we have a plan to make it more efficient.
In commercial optimization, Stacy stun, our new VP of sales has developed a strategy to improve our sales capability and we have more bid activity than ever before.
We will also hold more marketing events, where we arrange for our customers to shoots are helmets. So they can see how good they offer themselves.
2026 marks an important milestone.
The transformation phase we started in 2023 will end in 2026 as planned.
During this phase we fixed a lot and have done much to improve the business.
There's more to do this year.
But we are starting to get our heads up and look to the future as we move from the fixed phase to growth.
Our markets are supportive defense spending is up C Bureau, and threats, so growing and user numbers are increasing.
We are investing more in innovation and are building a strong pipeline of new products.
And we're not just reacting to demand with shaping it.
We have a repeatable and scalable business improvement system that creates the platform for future growth supported by strong balance sheets and the potential for acquisitions.
And Avon protection.
The order book is the order book of $117 million is up 63%.
As you can see.
Both revenue and the order books are well diversified across customers and product lines.
This year, we reached a milestone of $100 million of total orders under our NATO framework contracts to 16 countries for restaurants as boots and gloves.
Each country, we win creates recurring revenue for the future.
Beyond the order book, a pipeline of opportunities is bigger than ever.
We have large potential filter orders from the U S Department of war and from the Middle East.
MISO lightweight half-mast can power Gogo as we launch this year.
We have opportunities for mitek sells with this special forces a four out of five of the five is this is important because regular forces tends to follow the lead of the special forces.
In <unk>, we won orders with Canada, and two European navies and have paved for two additional new navies. In addition.
We're actively engaged with the U S Navy U S SOCAR and the U S Marines on rebate opportunities and expect to receive invitations to tender this year.
And on social we have opportunities for a lightweight chemically resistant suits in the middle East with NATO and the United States.
Overall, our pipeline of opportunities is up considerably and we are going for some big pieces of business.
We will not win everything, but where the weighted pipeline up more than 80%, we should continue to drive.
We mentioned at our Interims that we are working with the U S. Marines to develop Mitra further on a program called E N V D.
Since then we've been awarded another development program by the Department of war as part of that push to combat irregular warfare.
The aim of this program is to develop a scalable tactical assault respirator, which they call star I suppose I should be flattered that they've chosen to copy our acronym.
Store builds on the MISO platform and adds functionality and equipment.
Exciting thing about star is that it has a very wide range of interested user groups, including the U S. Special forces the Air Force L. A P J and the FBI.
These programs will enhance the capability of mitre and develop it into a complete system that will create an entirely new market for us.
In addition, we've achieved we've achieved C and niosh approval of the Mitre half mass, but particulate filter, which opens the U S federal market for us.
Interest in our AG, so skin suit increase during the second half.
We're optimistic that our lightweight low burden the suit is what they use is one.
Two different versions of our exoskeleton suits have been chosen by the U S Department of war for trials, which could lead to the sale of 700 suits.
There is potential for a larger program beyond that that competition will no doubt be FES.
We've also won a key order with the Turkish M O D for a full ensemble system, including suits boots gloves mass and says purpose systems.
This shows that our strategy is to sell full on snowmobile packages meets the needs of our customers.
So far we're working with technology partners in this area.
There is potential for selective technology acquisitions to help us accelerate.
We continue to launch new products to drive growth.
This year, we'll launch the next generation C. S. Papa this is being trialed at several end user events and they loved the white house enable them to escape from sudden high threat situations by seamlessly switching to supply that.
We've also developed a new voice protection unit for a 50 series of mass, which we plan to start delivering in the first half.
The new Union offers users improved functionality and less complexity.
Looking further out.
We're working on unusual at all if the re breeder and expect to bid for funding to help us accelerate this program.
We're also looking to exploit our new multi line filter bed technology, which provides a far broader spectrum of protection than existing carbon filters.
Tim when these order book of $146 million largely consists of next generation I have a C H and ask Phil for the Australian Defense Force.
We saw good growth in the U S police and first responder market, which was up 15%.
We had another year of very strong demand for combat, how the pads and liners system.
Our support for Nava for.
Extra bump helmets, there's also been a key driver of growth.
With over 25000 helmets shipped to the U S Navy in 2025.
These helmets offer enhance impacts I'm work with hearing protection addressing longstanding gaps in legacy systems.
The pipeline and team Monday is also promising.
The epic helmet range has taken a leading military technology into commercial helmets.
This has helped us win market share.
Internationally, we are working with two militaries on new opportunities that look hopeful.
We launched rifled sac in the first half and have seen encouraging early demand.
It delivers elite ballistic protection on all day comfort and a lightweight mission ready design. The new pad system is so comfortable that during testing one user forgot to tell you the helmets off at the end of that shift.
Furthermore, I'm told that the first rule of being in the military is to look cool and rifle tax certainly delivers on that.
We've now shipped rifle tagged to an international military made our first e-commerce cells and sold units two U S. Police forces. This demonstrates that there is demand for a very high on helmets in the market.
In 2026, we'll launch our most ambitious development program, yet with two new ballistic helmets built around our latest technology and Uno through whole attachment system.
These will upgrade our range with higher protection level wise.
We also plan to launch a new generation of bump helmets, offering leading protection and multi certification to cover a broader range of user requirements.
Together these launches will increase our range into new markets and further differentiate team Wednesday from its competitors.
We'll share more of the mid year.
Meanwhile, demand for integrated high protection continues to grow in 2025, we secured a new department of war funded program to develop a helmet that can withstand an even higher ballistic threat with integrated eye and hearing protection and night vision compatibility. This is.
Important because it positions us well for the next generation of Department of War helmets.
As you can see from this slide.
We have achieved most of our goals that were originally set for 2027 and the exceptional margin, but our aim is to achieve our target this year.
With regards to risk.
We still need to increase production rates on a C. H Gen two.
We know how to do this but there is a lot to do recruiting give people at the speed we need remains challenging.
There is a risk of increased competition on the Nextgen <unk> program, the new supply potentially entering the market. This would tell you the number of suppliers from two to three.
Demand continuing to look strong.
The government shut down currently prevents the delivery of helmets to the D. O W that does not slow production, we expect to see a temporary impacts on working capital in the first half.
No long term impact.
Looking at opportunities we are bidding for several major U S and international programs, which are not currently in our forecast as timing is uncertain.
There may be upside here, but it's too early to tell for now.
The strength in the system does have the potential to deliver higher margins than guided but we remain of the view that it's rare for everything to go right.
To wrap up.
Nearly two years ago, we set out to transform to transform the group through our business improvement system. The original transformation projects are largely complete.
We've launched world, leading products and technologies and partnered on a record number of development programs further strengthening our competitive moat.
Our markets remain highly attractive.
With rising defense spending and a record all backed by a robust pipeline of new opportunities.
We have a scalable business improvement system, which is a powerful tool for improving businesses and generating shareholder value and.
In summary, we see opportunities ahead, and believe that we have the people and the processes to realize those opportunities.
Thank you very much for listening and thanks for the guys in the room now.
Now it's time for questions.
Andy.
Good morning, It's Andrew Douglas from Jefferies I've got a few questions, maybe just two spots into melisa.
On the hips can you explain why there's new competition into the market you got two people who are doing a good job is dear to where you want your third one.
If the fed does.
Those come to the market is you don't want to take them, a while to get fully up to speed fast.
Sought approval ramp up approval et cetera et cetera.
Very good question, we ask the same thing.
The answer is the Gen sex was.
Slow guessing fast in fact, I think it files that first time round and as a result, the department of war reached out to another company awesome, whether they had been interested for.
Applying for fast somewhat erudite any gentex then didn't pulse file.
The other policy was something way down the road.
Working how to build the home itself. So they are now in fast we don't yet know, whether they're going to pass or not it is a difficult.
My cynical challenge that all of that and even if they do get five it's one thing to get fads and all the things to work out how to make it as we have discovered ourselves is quite tricky.
But I think there is a possibility that well gas supply in the market annoying they nothing to do with us because we thought about that.
First time round.
Okay.
Rich.
The M&A side.
Where do you where are we in terms of the pipeline. It sounds to me like we're now thinking about it do we have a pipeline of I don't know how many companies you need in the pipeline, but do we have one and you're trying to what's your way through to figure out what's the best or do you know what you want to buy it's a question of when it comes up in the right place I think it's early days we are.
Focused this year very much on organic growth and getting the margin into our range.
Wanted to deliver on our promises before focusing on all those things I think this is the AR will start to get our heads up and look a bit more external and go and visit more companies, but with him and I you have to kiss a lot of frogs to find the princess.
And it's going to take us a while to build off the pipeline of opportunities I think the only potential exception to that is.
We I think we've got a good set of partnerships with suits, but there are.
There are some options that acquisition might help us accelerate better than partnerships.
They'd probably be very small.
And then just if you could answer rich on the receivables how much was and is that just a question of you delivering lots in the fourth quarter and get paid in the first quarter or is there something else that is exactly that so the overhang 'twenty five 'twenty, six or $7 million to $8 million or only by one customer and now all paid by that customer and then on one of the slides you talked about 10 million pounds.
Benefits in 2006 from trunks for them, especially fishing is that all in 'twenty six or was that an annualized number that we should think about six points of it. It is an annualized number but most of it will come from insurance risks.
Voyage, which page from Deutsche Cnemis three.
Three from me as well please.
Given what you've said on Q4, it sounds like that was not somewhat better, but not a scrum, but quite a surge towards the end of the period could you just talk through a bit more happen. Please. Thank you on the grandmother, who just I don't know if you are set up for that.
Yeah, I mean, the summer was pretty intense.
It was actually in Cleveland two months.
Solidly on the factory floor for the entirety of months I actually spent in the first three weeks in the paint booth.
Trying to get that to work in which we did eventually do we have an automated paint line, but it was not painting in an automated way to stop it.
After that we just started the bottleneck in our lines in knocking down problems.
One at a time.
I think it was very in science. It was very tiring for people are a lot of 12 hour days I'd say it was also very rewarding, though because every way we can see the production rates coming often more helmets getting approved by the Doj So but yeah. It was a hub for us for sure.
Thank you and not for the finances.
And obviously, he's giving me the opportunity to thank all the team and claims I mean, it was ready all work is not I mean, they've probably done I think they did love having the C. C O that for two months, but probably in the first week, they say Oh, my God, but we we ended up creating a really strong team and they work really really hard so I'm very grateful to them.
Thank you even alluded to second half weighting.
For the year ahead could you just give us a little bit more flavor.
Yeah.
So we can come back to that but the drivers for the Whiting are twofold.
So firstly.
Demonstrating our ability to hit rate.
The important thing for Q4, 25, which we did.
In the first half of 2016 things need to happen. So firstly, we need to demonstrate to ourselves that right. We have hit is sustainable.
And then secondly, as Josh mentioned in his slides, we could've English increased again by another 50% on one of the helmet types. So there were still a lot to do.
And we will see a price.
At the level. It is helpful for rental Horatio gearing perspective, so that any waste molecule and a little bit.
Yeah.
And it's right in the first month in great, but I think we will I think it will take us the hall. So maybe instead of 48 50 246 54.
Thank you and my last one's a little bit selfish and taking my Christmas stocking missed.
You've moved all of your facilities to flow manufacturing.
And in your own words, you've moved too much every bit of equipment in the third well you brought your book about just.
Yes.
All right.
We are going to I think we're going to do a second edition of the strengths and system was just to put in some of the learning so I.
I think we should continuously improve as we learn ourselves one reason.
I've actually got a longer deck of what we saw over the summer in Cleveland that wave started training our people and suddenly on you just got one slide from it in the stock.
Bob I actually do have a new mission.
I don't think we're very good odds are helping our people transition from being a technical specialist leading teams. So I want to write a training program around that.
It's a helps them.
Kind of make that important career move from technical specialist.
Neither of need or a bigger teams we have had.
A number of people are saying, we probably could have helped them more than we have done. So that's my next mission.
Did you give your opinion.
I think something to keep you busy in the afternoon.
Thank you.
Okay.
Alright. Thanks.
Thanks morning, Toby Thorington from equity development.
Questions for rich I think so.
So.
Good improvement in gross margin.
In the period scrap looked like a decent size scrapped production like a decent sized contributor.
To that if I read the chart correctly scrap rates not much more than 1%.
Now.
It's a much more to come from that and what's the gross margin outlook generally.
Yes.
Two questions are cheating a finished yet.
On scrap yeah, there's plenty more to go.
Interestingly I remember standing up here two years ago.
Hunting out that we were scrapping a million dollars a month in one of our factories.
That million dollars is now gone out a quarter of a million dollars, which is obviously, great, but that's still a quarter of a million dollars a month that we're scrapping in that one factory.
And we got four factories, so theres still plenty to go out on scrap.
Gross margin improvements.
We do expect that they will continue to come through we've got the.
The annualized effect of closing and evolving that we expect will come through.
In 2026, and a lot of that will come through in gross margin.
You know the cost of doing business on an operating level in California is somewhat different.
So that will come through in gross margin going the other way of course, as we increase ACTH deliveries by another 50%.
That will be dilutive to gross margin, but no I expect to see good solid progression in 'twenty six okay.
Relatedly, but further down the P&L.
SG&A.
Increased more than revenue in the period sort of consistently so.
First half second half just what's behind that and.
And the outlook again for that please yeah that was the that was the $7 $3 million down I picked out and the and the operating profit walk.
And I picked out because it is healthy SG&A.
That's kind of investment in future growth, So you've got R&D and don't forget we capitalize it literally expense almost all of our R&D costs now.
So every dollar we spend isn't effective headwind in the year.
But it's also sales and marketing just called out the when you have a point to you to hit the sales team.
You know the the.
The activity of taking helmets out to customers and shooting them.
Having customers to shoot them that doesn't come for nothing.
Box is an incredibly high quality investment in our product it allows customers to pick it up play with it see what it's capable of and that by it so I'm good.
Good quality investment in SG&A actually run rate SG&A, which is all the stuff that we've always done came down year on year, Despite a 14% revenue growth.
Yeah.
It's a good piece of analysis that.
We have a view that many companies.
No.
Thoughtful enough about reallocating resource.
And what we've done is we've taken a lot out of what you might call. The back office and operations and then we've invested into the front end of the business sales and marketing bids with.
We stepped out beds, because we got a lot more beds. So we've got to recruit some people to support that.
On R&D and that was always our intention three three years ago.
Invest more into that area.
Okay and final one.
Just from cash.
Sure with the transformation costs and cash out were aligned in.
FY 'twenty five but.
Is that will not be the case in FY 'twenty six 6 million.
Cash-out, Yeah. So 25, no it wasn't aligned because three millions of the transformation was accelerated depreciation which is obviously noncash we've.
We've now done with accelerated depreciation so basically all of $26 6 million will be cash.
Thank you very much.
Yeah.
Hi, Andrew Humphrey with Peel Hunt just.
Just a couple.
Just building on that on that question about investing in future growth really the the year ahead guidance includes fairly meaningful step up in self funded R&D and capex.
And that kind of seems to match up with the pretty kind of a full list of bids and opportunities that you've outlined in the statement.
Yeah.
Maybe can you tie those two things together.
Does that kind of step up in the money you're investing in the business kind of tie ups conversion is.
50, 70, 590% of those opportunities how should we be thinking about how that kind of gets totaled next year.
No.
No I think if you go for that.
Alright.
Talking about the jump from 25 to 26, it's actually quite hard because it's contingent on a lot of things happening that we don't yet and they will happen.
Easier if you look at 24 to 25.
The sort of things that we were investing heavily in in 2024 included.
Finalizing development of the heart of mask.
I'm sort of getting beyond 50% through the development of the Gogo that go with the mitral system and essentially starting and finishing development of rifle tank.
And all of those things it starts to contribute to revenue in 'twenty five.
So if you think about that linkage that's quite important the other thing I would think about the pace.
I even protection is in.
The international business and has been for 20 years.
So very significant sales outside of the U K and U S.
Jim Wendy's not in that same situation yes.
90, something percent of everything the team on T cells is inside the Continental U S with the balance really being the Australian Defense Force.
If team Wendy is to grow in the way, we think it is capable of growing it needs to push its boundary.
Into the rest of the world.
Which requires investment and so we've talked about investing in sales we've talked about investing in marketing a large part of that push has been building a sales team that's capable of addressing international opportunities.
And that is a team that is qualified to talk to international customers in all languages they understand.
U S Department of all customers have a very specific language U S. Police forces have a very specific language that doesn't always translate into international customers.
Yeah.
Thanks.
One of them.
This is answering your question, but there's always say about the there was a period, where you have to develop a new product which takes time.
Probably Quaker on helmets and lights that much it took us about 18 months.
Then there was a period, where we have to seed the market build the marketing materials. They have to assess it that probably all takes you a year, we're starting to see rifle textiles, we're starting to see lots of interest in lighter.
She has this year that the sales should step up.
All knows that.
The new helmets, we launched I think they'll probably benefits us maybe the back end of this year, but probably the real sales are going to come next year plenty of 27.
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Maybe two to three years ago, we probably carried on refining them that probably the best we would say that the best chemical resistant suits in the world.
Highlights other than anyone else's.
More breathable, but it's taken us a long time to get the market to buy into the fact that they are an improvement over what's out there in London and the now suddenly we're saying customers are super interested in them, but the sales of the moment of very small ones. So it's kind of a website.
For Us and then the new bid the bid team we've got again with bidding for a lot more of that it's going to take us a while to set a new international sales team at home as we're bidding some old arrow as well, but it's going to take a little while to come through so this could be a year, where we start saying all the bidding activity from the 20th say 25.
<unk> coming through in 2026.
You also asked about Capex I don't think we need a lot of Capex. This year and the guys. We have a phrase inside and they've used wisdom before money.
The area, where we're absolutely stocked at the moment in addition to AUM as boots and gloves.
Got a very long order backlog, we bought four secondhand presses from another company. This shrinking in the U K where.
We're refurbishing those psychosis 15 ground each or something.
That 250 Grand New so we've got basically no depreciation on them, so that should let us be very competitive.
Okay. Thanks.
Maybe one more on the U S government shutdown that you called out as a risk factor and particularly around the working capital impact.
Clearly with through a phase of that now and one would hope so kind of in the next few months things will normalize but have you sort of put that down as a risk.
We'd sort of half an eye on what may happen again in January or is that just that it kind of all takes time to work through the system before the lightest movement and.
In the shutdown of everything.
I would say as she all program office was very helpful. We.
Have a plan with them that we could actually carry on shipping ICA synkaryon being paid for it even in government shutdown. So it was only I hubs, while we were making but not shipping.
Could we got another shutdown in January perhaps but we would expect that still to apply so it on ebay I has the fact that the other thing that was quite interesting about the shutdown as.
All program offices did not shut down because they are essential.
And perhaps more interestingly for us the suits program with the U S. D. O day, they were furloughed, but then they came back and they issued the contracts and then they went back on furlough. So.
I guess, what I'm, saying is it is so important to the U S. Government. So they actually took people offer allowed to issue the contracts.
Great. Thank you.
Going back to the Rebreathe or in the U S and we had Italians couple years back and it is big numbers. We've now got three customers now it might be one Christmas with three ways that I know.
Three different dose okay. So is the opportunity that as as we previously thought and does that include the shallow water thing theres unknown unknowns.
That's still refining their requirements.
Some of them seem to want everything something that those deepwater and shallow water.
I think we're going to end up developing a shallow water varian.
But now the numbers are the same for the Navy and Marines and special forces are on top of the original numbers, but they are smaller.
But he is certainly looking at seven or 800 units, but we may not win.
Well, we're working with them closely and I've had a number of meetings with him. It says so as the team.
Sure our competitors are doing the same.
But it's still going to claw some of your competitors still seems to be the same number of competitors.
Would we still have lots of the bed.
That could happen at some point.
Unfortunately, this world and we have competitors.
Thank you.
Okay.
Okay.
Thank you thank you for coming.
Very good.
Okay.
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