Well, welcome everybody to our preliminary results presentation for the year that ended in September 2023. In terms of format of the presentation, I will start with a quick overview of the results, a quick reminder about the business model and our key differentiators. Sean's gonna provide a commentary on the financials and our M&A ambitions and criteria. We'll then provide a quick overview of our five operating sectors, drilling in a little bit, talking about the collaborative growth that we're now seeing coming through. We summarize the strength of our ESG story and sustainability journey, and I will conclude to amplify the investment case and an outlook. We'll be sure to make time at the end of the session to take any questions that you have.
So turning to slide 2 of the deck, we are delighted to be presenting another record set of results. This is an outstanding performance for the group, given the very challenging macroeconomic backdrop and circumstances. They include double-digit organic revenue growth, really important, as well as good cash generation. This is testament to the effectiveness of the model and the execution of our strategic priorities. I'm personally delighted to see the added benefits of collaboration coming through, contributing to that organic growth during that year, and a little more about that as we talk to the sectors. The demand for our services is growing. We are expanding our geography, we're expanding our range of capabilities, and encouragingly, over the course of the year, we increased the headcount by 10%.
I was delighted to welcome the staff of Enisca to the group during the year, and then post-year end, of course, the staff of TIS, and there'll be more of that shortly. So hopefully, these sector reviews will provide a little bit more color on our operational achievements and our growth prospects. The order book remains strong, yet conservatively reported, and reflecting the confidence in our prospects and our really good momentum as we start a new financial year, we've increased the final dividend to GBP 0.12, representing a full year dividend of GBP 0.18. So turning to slide 3, as a holding company, we now have 11 independently branded subsidiaries, and we continue to describe our activities across these 5 sector blocks. The incredible growth journey we've had in our engineering services sector is partly driven by the fact that we're broadening our capabilities.
We really are now truly multidisciplinary in our service offering. We're taking market share. We remain responsive in terms of our routes to our markets, and we're seeing now the added benefit of leveraging group synergies and collaboration. I would point you to the QTS video that brings our operations to life more than I can articulate in words. Onto slide 4. Well, it's here that we amplify the differentiated nature of our high quality, low risk business model. We remain focused on markets that are underpinned by highly visible, repeatable, and committed funding. With record levels of investment needed in transforming U.K.'s infrastructure, our OpEx-funded maintenance and renewal services are increasingly in demand. These activities have much lower risk profile. They are smaller in size to enhancement schemes.
Clearly, execution timeframes are short, and these are really important characteristics as we manage our way through the inflationary challenges. Our direct resources provide a much more, responsive and efficient service. We are less dependent on a supply chain. We put our people to work into very complex and challenging, environments, but this presents very high barriers to new entrants to our markets. And our compounding earnings growth and cash generation are demonstrable proof of the resilience in our model, even under the ongoing economic challenges. We remain both responsive and innovative in driving efficiency in the activities that we perform on the networks. Sean?
Yeah. Good morning. Turning to slide 6 of the deck, where we set out our highlights. You know, I'm pleased to say that 2023 has been another record year, with all of our key metrics improving or remaining within our stated ranges. Our focus, as always, is on our EPS growth, and I'm pleased to report record EPS of 63.5p, which is up by 7% on the previous year. This is despite the increase in corporation tax to 25% for April 2023, so our blended tax rate in this year is 22%. Onto the income statement. You know, again, as Paul has touched on, 2023 has seen record revenue of GBP 961 million, which is up by 13.2% on the prior year.
We're very pleased that included within that figure is 10% of organic growth. Our operating profit is up to GBP 63.6 million, up 6.6% on the prior year, and our margin at 6.6% is in the middle of the range I've been guiding to for a number of years now, and is up on the half year position. As Paul already mentioned, we're going to pay a final dividend of 12p, which equates to a full year dividend of 18p, which is up from the 17p in the prior year.
Our net cash position has improved to GBP 35.7 million on a pre-IFRS 16 basis, and is GBP 18 million on an IFRS 16 basis, and that's an improvement from the previous year of GBP 20.2 million on a pre-IFRS 16 basis and GBP 5.7 million on an IFRS 16 basis. Work continues on the true-up calculations of both pension schemes, which is required before we can move to a full buyout. The expectation is that the Amco scheme will require a top-up of GBP 1.6 million, and the Lovell scheme a top-up of GBP 3 million. Both of these are likely to happen in FY 2024, and the buyout is likely to conclude in its entirety in FY 2025. We have continued to increase our provision against discontinued historic liabilities at Allenbuild.
That provision now stands at GBP 7.5 million, which is up from GBP 5.3 million in the prior year. There have been no significant developments on any of the claims. However, what we are trying to do is continue to build a fighting fund. So this provision really is set against legal and professional fees to help us defend against these cases. And as the complexity of these claims is growing and the cost of defending them is getting better, we're having to increase the provision accordingly. Onto our ROCE and ROIC slide. You know, I really think that this slide continues to demonstrate our capital light operating model.
The business continues to consistently deliver a high return on capital, with our ROCE average of 27% and our ROIC average of 30% over the last five years. The growing disparity between the two metrics is down to the growing cash balance on the balance sheet, which impacts the calculation. Onto our cash flow on slide 10. The purpose of this slide is to bridge our opening net cash position on the first of October, 2022, to our closing net cash position at the 30th of December, 2023. The first bar is our EBITDA, which is the profit we made during the year, and we then have a small working capital outflow, which is down to timing differences. Next is our net CapEx, which is our CapEx, less sale of fixed assets.
This is a figure you won't see anywhere on the cash flow, but it's the best way to represent what our true underlying CapEx figure is. Next, we have our dividend, which is this year's interim dividend of 6p and last year's final of 11.33p. And a growing cash tax outflow, which represents both our increased profitability and the fact that, as I've already mentioned, our blended tax rate has increased to 22% this year. The acquisition bar you see there is the acquisition of Enisca last November. The headline figure was GBP 16.5 million, but this figure represents the net figure of actual cash paid after the working capital and net debt adjustments.
TIS, which Paul mentioned, happened after the year, the year-end, and you'll see that reflected in the cash flow at half year. The discontinued activities is a cash outflow relating to our legacy portfolio. So this, again, to be clear, this is not taking any claims in, in the course of the last 12 months. This is all around legal and professional fees. And all of this brings us back to our year-end net cash position of GBP 35.7 million. We are slightly below our average free cash flow percentages this year, largely as, as a result of a small working capital outflow. Just for reference, had we been working capital neutral this year, our free cash flow would have been at 78%.
Our free cash flow is also impacted this year by our increased tax bill and our ongoing investments in plants and machinery. Looking ahead to next year, obviously, the taxes continue to go up as we move to a 25% rate for ourselves. And the budget for next year has a higher level of CapEx than we've seen in previous years, too. Just to note on this chart, that FY 2020 and FY 2021 were impacted by the deferral of VAT payments during COVID, and then the subsequent repayments of that VAT in 2021. However, you know, with an average of over 70% free cash flow conversion, and over 71, and 71% in the year, and we believe this still points to business that is highly cash generative.
On slide 12, you know, I believe that this slide really represents our, you know, really nicely represents our long track record of value creation. As you can see, we have delivered an EPS CAGR of 17% over the last 12 years. We've also delivered a steady, steep stream of acquisitions along the way, which has helped to deliver the consistently high returns we can see here, and is nicely illustrated on the following slide. The final thing to say on this slide is that we've been able to deliver this growth and all of these acquisitions while maintaining net debt to EBITDA below 1x throughout this period. On slide 13, this slide is to show us where the growth has come from since the transformational acquisition of Amco in 2011.
As you can see, it's fairly evenly split between organic and acquisitive growth. You know, I believe that this slide really nicely demonstrates our model, whereby we reinvest the cash we generate into earnings-enhancing acquisitions, which grow our capability and geography. We then develop these acquisitions to help them grow, both in their own right and with our other brands, which in turn generates more cash, and the cycle repeats itself. Finally, from me in the financial section, is our M&A slide. I think it's fair to say that we continue to actively pursue M&A opportunities, both in our existing sector and on our new target markets. Across all of our markets, we see significant growth opportunities, and to that end, we are focused on ensuring that we have the breadth of capability and the capacity to seize those opportunities as they arise.
We have a good track record of acquiring those additional capabilities and capacity, as outlined on the bottom right of this page, where we've set out some recent examples. So these being the acquisitions of REL, Enisca, and TIS over the last couple of years, which have either enhanced our capability or given us additional capacity in the markets in which we already operate. We're also pleased to announce we have a new Group M&A director starting in January, who we hope will help accelerate our M&A program. This individual has a background in corporate finance, having worked as a senior member of the Deloitte corporate finance team and more recently in private equity.
And what we're hoping is that him coming on board can give us a bit more bandwidth to go out and pursue more acquisition opportunities and pick up the momentum of the deals that we're doing. Paul?
Thanks, Sean. We're now gonna take a little bit of a closer look at each of our five segments. I'm gonna start with rail on slide 16. Rail represents 40%-45% of total group revenues. Operating margins, typically 10%. And we currently engage via over 100 different framework arrangements. It was another record year for our rail activities, operationally strong, but importantly, building foundations through some framework success, building foundations for further growth. We're fast approaching a new five-year control period, Cycle CP7, which commences in April 2024 with GBP 44 billion of investment. More importantly, a clear mandate to prioritize expenditure against operations, asset care, renewal, and maintenance across the entire national rail network, those things that we are involved in.
Added to which, clearly there's the enormous challenge of decarbonizing the rail network by 2040, and it's these drivers that are presenting long-term, tremendous growth opportunity for you and our rail brands. I would also pick out in this segment the collaboration across our 3 rail brands, which are already presenting a compelling case to our clients for further framework success. In recent weeks, we've been presented with numerous challenges across the network. Over 30 call-outs in that middle band across Scotland, responding to track flooding events. Major recent events at Braybrooke on the Midland Main Line, embankment stabilization, mobilizing people and equipment in a matter of hours to stabilize a very severe event there. And in the Northeast, Plasketts, I'd pick that out as a particularly challenging parapet failure, again, blocking the East Coast Main Line.
Again, our ability to deploy our direct resources quickly and innovate in terms of deploying rock drilling equipment in the case of these jobs, really important. In summary, our rail sector's in really good shape with significant growth opportunities as we move into a new control period and beyond. I'm gonna move to infrastructure on slide 17. These represent about 20% of total group revenues, operating margins fairly stable at around 6%, over 50 frameworks across this segment. Record trading across our highways and wireless telecoms during the year and good progress that we're making in aviation.
In highways, we're approaching the final year of RIS 2, and we're very much looking forward to the growth opportunities in the next control period cycle, RIS 3, where National Highways with the Department of Transport have stated a clear prioritization of funding for operating, renewing, and maintaining their strategic road network assets, exactly where we operate. In aviation, increasing passenger numbers and recent years of underinvestment are creating long-term opportunity for the services that we provide. We've organically grown this capability, and it's growing quite nicely. Wireless telecom, strong momentum continues. I reported good momentum at our interim results, and this has continued. We've successfully broadened our client base, now working for all of the network operators. But importantly, and encouragingly, new opportunities are now emerging in small cell densification, a really important aspect.
Private 5G is upon us, and the creation of edge data centers, all essential to support the AI boom. Moving to energy on slide 18. These represent about 10% of total group revenues. Operating margins, again, typically 6%. Currently, over 20 frameworks in this segment. The scale of the UK nuclear legacy will present long-term, reliable opportunities for our very specialist services in this sector. To complement our 75 years of decommissioning experience at Sellafield, during this year, and very importantly, after a long campaign, we've been appointed to a 20-year program and project partnership framework worth GBP 7 billion overall. We're establishing really solid foundations to support further long-term growth. Importantly, we've expanded our manufacturing capability, Sean alluded to this, through the recent acquisition of TIS at a particularly important time where demand for this service is increasing.
Also encouragingly, we're further expanding our customer base in the civil nuclear program, a strategic priority. During the year, appointed to Magnox, now named Nuclear Restoration Services, really important campaign of work against their 11 sites in the years ahead. And now working with Capenhurst on a relatively small campaign at work, but something that could grow over time. In our organically grown electric vehicle charging infrastructure market, we finally started to see a positive momentum shift, but we remain very selective about our best route to market. We're currently focused on some very specific charge point operators, including people like PoGo, and also large fleet operators. Just finished a fairly major campaign of work up in Volvo, in Aberdeenshire, a big depot there.
We're also unlocking opportunities via our existing client base, and a great example of that is where Clarke Telecom, working with AmcoGiffen, are now supporting Network Rail install charging points in some of their car park assets. Our fourth engineering sector on slide 19, environmental. 20% of group revenues are derived through these activities. Operating margins, again, consistently 6%. Currently, over 60 framework agreements. In water, by far our largest strand, we're experiencing really strong momentum as we approach the final year of 7. Operationally, very busy, not unlike rail, but equally making excellent progress with new frameworks. Really importantly, new success in a new geography for Renew. This was announced recently, appointed after a long-running procurement campaign to the South West Water region. So we're going into a new control period cycle with a broader geography.
We're now engaged by 10 of the UK's 12 waste and water regions, a strategic priority. Following the acquisition of Enisca, we moved towards a new control period with a wider, more compelling collaborative service offering. And we think that will leverage further growth. The process of determination for the water companies for this next five-year cycle is ongoing. The draft budgets, as confirmed by Ofwat, indicate plans that include almost double the budgets that were allocated for the previous, the current AMP cycle, AMP7. And clearly, therefore, an incredible growth opportunity for Renew and our now four water brands.
In other environmental activities, long-term opportunities prevail in the climate resilience space, working for people like DEFRA and the Environment Agency, albeit a very precisely targeted campaign, as well as our conservation and restoration activities. All mean that we have a very healthy long-term prospect in the environmental segment. Moving to specialist building on slide 20, this sector remains non-core. It contributed 2% of the group operating profits last year. Our strategy here is to remain highly selective and disciplined in terms of our route to market. But in line with our strategic priority, we've improved the balance of the order book and the pipeline across the three sub-sectors of Landmark, High Quality Res, and importantly, Science.
In Enisca, we're now picking up frameworks in that sector, which provides a much more reliable work bank moving forward. Moving to slide 21. This is a new slide, and this hopefully helps us amplify some examples of where we are actively collaborating across the group. This has significantly contributed to this organic growth during the year. All brands are now collaborating, and we are collaborating across our five sectors. This is presenting an incredibly compelling case to our clients, where we can leverage that range of capabilities that we now have. Picking out some examples on that sheet, I would point to the ARQ initiative, now appointed to a major E&P framework in Wales & Western. We would not have had access to that framework had we not had the complementary capabilities of those three rail businesses.
In AGC collaboration to becoming one of the UK's largest highways maintenance provider across the roads network. Enisca joining the group, actively supporting all of our other water brands, providing a wider range of capabilities as we approach AMP8. And in the bottom right there, Clarke, getting access to Network Rail, working with AmcoGiffen in partnership, getting access to a client with a demand for their specialist services in the field. Our RISE leadership program has made a huge difference in developing and improving collaborative relationships across the leadership teams across the group. And we are very much looking forward to leveraging further opportunities from collaboration as we move forward.
Moving on to slide 23. On the following two slides, we set out our ESG plan, which we call our Renew Resilience Plan. We had previously set out four key commitments, which are to take climate action, to operate responsibly, to build social value, and to empower our people. Now turning to slide 24, we set out specific targets in relation to each of these commitments, and these are set out below. I don't intend to read them out, however, I'm happy to take any questions. And finally, on ESG, we continue to be the recipient of the London Stock Exchange Green Economy Mark, and that means that we derive more than 50% of our revenue from green activities.
So on slide 25, you see that we summarize the strength of the investment case. Hopefully, we're amplifying why our model is very different to others operating across our sectors. We have a much lower risk profile, given the nature of the services we provide and this direct delivery capability. Our record trading is evidence of the inherent resilience in our model. We've consistently executed to strategy, which has delivered this reliable long-term growth that's shown amplified in the financial section. Our markets have high barriers to new entrants, a defensive quality, but they're underpinned despite economic circumstance by resilient growth dynamics because of the things that we are focused on. And finally, we remain ambitious to grow the business both organically and acquisitively using the strength of the balance sheet, albeit with a very disciplined approach to risk.
Then to provide an outlook on slide 26. Despite the economic ongoing challenges, we continue to see compelling long-term demand in our markets, where the government and opposition parties have all reiterated a commitment to investment in long-term infrastructure improvement. Our large clients of rail, water, and highways have all made clear declarations about an increased prioritization for renewing, maintaining, and operating their networks, the things that we do. I think the other ingredient here is that our activities are underpinned by regulatory obligation. We choose to work in regulated markets. And we also, of course, see opportunities that are driven by the green infrastructure agenda, our roadmap to Net Zero 2050.
Our strategy is to continue to look out for organic growth opportunity, getting more market share through the broader capability base, but equally searching out those acquisitive targets that complement what we do. I'm delighted, as hopefully has come through in the deck, to report that, collaboration coming through, adding to, the opportunity and unlocking further growth into the future. We can report really positive momentum. We started our financial year really good to be reporting, continued momentum into this financial year. We're making really good progress with our key strategic objectives, and this includes growing our talent pool. You know, I mentioned the 10% increase in the company cohort, but we now currently have 340 people in our various training, apprenticeships, training, improvement, graduate, and postgraduate development, programs.
We are very much looking forward with confidence to updating you on our progress when we next report to market. Thank you. That concludes the presentation. We're gonna open the meeting up for questions. James?
Thanks, guys, morning. Two questions from me, please. Firstly, on the employee base, what sort of level of churn did you see over the course of FY 2023, and how does that compare to previous years? Can you also give us a sort of an indication of where you expect Labour inflation to trend over the course of FY 2024? Then, secondly, on the water business, as you mentioned, there appears as though AMP8 could see a sort of doubling of aggregate spend potential. What's the sort of timeframe for getting a more definitive determination on the size of the prize for AMP8?
And I guess the second part of the question is, how much capacity do you have within your water business to meet the likely substantial increase in demand that that would imply? And if not, what sort of investments do you need to make in that business?
Good questions, James. Starting with employee churn, so we increased the headcount by 10% over the year. If you recall, for years, I talked about a 10% staff turnover rate. Post-COVID, we went to 20%. It's come back, it's stabilized. 14.75%, to be precise, over the course of the year. I map these things because it's, you know, these are reasonably important metrics. You know, possibly I'm coming to terms with the fact that 15% is the new 10%. You know, staff churn is healthy to have. You need turnover in the staff cohort. At 15%, it's stable. I think that's the most important point, but I think clearly by increasing the headcount by 10%, we're attracting more people at a faster rate than they're leaving the business.
You will always get natural churn for sure. In terms of the cost of living pressure, we are less exposed than most to this particular issue, but we take it very seriously. Last year, cost of living increases were on average around 5%. We do it in two stages in the year. I split the review process, and I'm seeing a similar pattern for this year. We're a little bit off going into a consultation around that issue just yet. I think you read a number of things. We'll listen to the staff feedback from the surveys that we do with our people. We seem to be in a pretty stable place at the moment, is the way I would describe it.
We're expecting a similar kind of pressure, I would think, from cost of living increases as we move through into next year. I think on AMP8, James, we've got a little bit of time to run yet. So as I understand it, all of the water companies had an obligation to apply to present their budgets. It goes through a complex determination process. We're expecting possibly by the turn of the calendar year, but certainly by the start of the fiscal year in April, to get some clarity on where everybody is with their plans through their determination. Some businesses, in terms of water companies, are a little bit further advanced than others in this process, but I fully expect by the time we're reporting our interims, that determination should be well advanced, I would have thought, at that point.
Clearly, then we'll be overlaying that with a map of where we see the growth opportunity in specific water areas. We talked very clearly about significant growth in Southern, in Thames, and the new water region in the southwest are currently, you know, the new news for Renew and its brands. In terms of capacity, that's a really good question. We've managed to. I think part of the answer to that is our focus on training the skills for the future. So part of that 340 cohort is involved in apprenticeships, bringing those trades through. And there is a you know, significant emphasis in our water skills in the apprenticeship program. That's the first thing to say.
But equally, I suspect we will need to possibly acquire some capacity, too, and we're pretty active in that area. As Sean alluded to, our criteria around our M&A, it's a combination of things that complement what we do. It's adjacent opportunities. Sean talked about transmission and distribution being a new market, but actually that challenge is equally to possibly acquire some capacity in existing markets. Gangs, qualified gangs, to work in water, to have the qualification and skills to be able to satisfy the obligations of working in a live water environment. They're hard to come by. You can grow them, but possibly we'll need to acquire some of that capacity moving forward.
Taking a couple of questions. First of all, in terms of new frameworks, whether it's across rail or water, are you finding the customer wanting to put more names onto the framework in order to ensure that they have the capacity to deliver their, their workloads, so potentially a smaller element of the pie going to, Renew? And then secondly, specifically in the water sector.
And you obviously indicated the sort of 6% margin. Is there scope to move that on, whether that's through changing mix or increased density of operation because of the volume of work coming through?
In terms of procurement, attitudes that we're seeing in the new frameworks, Andrew, no, they're very similar. I think, a larger point is actually we would, did wonder whether the criteria for evaluation of your supply partner for the next 5 to 10 years would move towards a greater emphasis on cost. We're not seeing that. It's about compliance. It's about your technical ability to demonstrate compliant service and of the network. The lotting changes, so within a framework, some clients, and I'm talking across the portfolio of clients, some have gone to granular lots for very specific tasks, some then bolt disciplines up. And it's a really mixed picture. I don't think it's changing dramatically, is the thing I would say.
But I think, one thing about the Renew model, we can be big, but we can be small, and that is the beauty of the model. We are super agile in presenting the best case, being the best athlete for the way that the lots are presented through the frameworking, procurement process. Their agility is super important, and a really important differentiator for Renew. But, when I reflect on what is alive in the business at the moment, Andrew, I would say no, we're not seeing any new names that we're competing with. You know, there was, some people have asked us about whether some of the bigger organizations who were slightly displaced coming into the renewables and maintenance space, we are not seeing that.
I think that's very difficult if you don't have a direct delivery model. But so no, the lotting names is it more granular in terms of participation? I think the only example I would use for that, Andrew, but it happened in the previous control period in RIS 2, where National Highways went for an SDF model, and they have a much wider supply chain, but we're in the middle of that now. Whether that reverses in RIS 3, only time will tell. It's a little bit early to work out what their thinking is around the RIS 3 strategy. In terms of water margin, the opportunity for margin accretion is really about our opportunity and innovation. It's a bit more innovative.
So for years, we've talked about, we have some specific areas in drain management, for example, where we have StoneMaster. You know, it's a little bit more capital-intensive to be innovative in that space. That is the opportunity to drive some margin accretion. But overall, Andrew, I would say that the cost of reliable, repeatable margin performance for us comes at the cost of being able to grow that margin. You know, it's very transparent, push our majority of our costs through. Our task sizes in a campaign and framework is tiny. Execution timeframe is short. And as a consequence of that, you know, we're putting our costs into the delivery of tasks. We get our cost covered, we get our fee. We need to remain competitive.
I think it's wrong of me to ignore in a presentation like this about the pressure that is on the public purse. You know, all of the frameworks are coming with, you know, requiring us to be more innovative, more value add, and that is the opportunity. The way we can do that is to be more efficient, more smarter in the way we deploy our people. But, you know, our mission is not here to create super margins out of our activities, Andrew. That would be wrong of me, to be misleading me to suggest that would be the case.
Two questions from me, please. You mentioned the high-level CapEx next year. Can you just expand on that a bit more? Is that can come back to what we just talked about, the water piece, product of you're growing faster, you're innovating more to chase that margin, or is some of that down to specific projects over the next few years, just to kind of structure?
Yeah, sure. So I don't think there's anything specific happening. I think there's a little bit of, we're anticipating having to invest a bit ahead of the new AMP cycle starting. The ongoing innovation in the highways and in rail, a bit of timing around van fleet renewals and so on. So nothing fundamentally changing. It's more, you know, the business is growing, so the CapEx is gonna move up alongside that. And then a bit of those things I've just talked about, but no fundamental shifts.
And my second question was just, collaboration across the group entities. It looks like that's really starting to come together, perhaps accelerated a bit more this year. It was about the examples and presentation.
Yeah.
How are you managing that across the group? Is that all the individual business leaders to identify, or is that you by yourself at this DLC level? I guess ultimately, how do you ensure you're not missing anything, from an opportunity?
Yeah, we look at it from a number of angles, really. So, I think I mentioned the RISE program. Just to be clear what that is, that is the Renew Inspiring Successful Executives. It's a leadership program we've had running for some time. I have two layers of it. One is the executive layer, and one is those that are pushing through with potential are called in the next layer down of RISE. So that has step changed the strength of the relationship we have across the leadership teams, is the first point I would make. We then have sector leads at the center of Renew. We have forums. We have a water forum, we have a rail forum, there's a highway forum, we have a forum in energy.
Getting groups of people together to think more strategically about route to market, listening to client as well. In a lot of circumstances, we're getting some ideas from our client about joining our capabilities together, too. So that is a really healthy thing. We have to work on it all of the time. I think, you know, the beauty of the Renew model is we can be agile in terms of bringing people together. You have to deal with fee on fee is the important thing, 'cause ultimately if you just add profit to profit, that becomes non-commercially attractive, and you have to remove duplication. So where you do collaborate, you get two groups working together, you remove any potential for doubling effort to make it as commercially attractive as you possibly can.
So a good example would be, for example, you are independently capable in terms of your shared resources to deliver a task. When you collaborate, you've got to remove a layer of that, so you only have one shared resource in that proposition. And that is something we work on all the time. So, I think we're coming in from a number of angles, and I think we're only scratching the surface of it, James. I think we're a little bit ahead of where we thought we would be at this point. And I think the opportunities for growth, whether it's in highways, rail, water, energy, telecoms, are all pointing to further collaborative opportunities for Renew.
Looks like we're gonna have a general election in the next 12 months. What, if anything, would you expect a Labor administration to change in terms of their approach to infrastructure, maintenance, renewal, et cetera, versus one's current business situation?
Well, we all see the public notices, James, and what we're encouraged by is a consistent commitment and a recognition of the condition of U.K. critical assets. I think it's politically important that the performance of these assets, whoever is in charge of government, is improved upon year upon year. And I think I've, you know, I've done this job long enough to work out, from a fiscal stimulus point of view, in job creation, it is far easier turning that on and doing the kind of things that we do, than committing to big capital projects that tend to be politically sensitive. And so that would be a general point. And I think, you know, I see this as devolved power now.
So whilst we're talking about central government, actually the conversations we're having in roots and regions are, I think, you know, they, the focus on operational performance, maintenance, and renewal has never been clearer to me. So it's not just government saying this, it's not just regional power. It's in our customer teams, too, recognizing where their focus needs to be for the next 5- 10 years. So we've not sat sweating on prospect of governmental change. I think it's encouraging to hear everybody be, you know, a consistent message about the need to improve U.K. infrastructure generally.
Question on M&A. Any sort of insight to what might be happening to sort of valuation multiples? And I think probably secondly, obviously, one of the successes has been your ability to buy businesses effectively, sort of off market, and yeah, sort of thoughts and pipeline around that.
Yeah, sure. Not seeing a huge change in multiples. I know we sort of anecdotally hear about other sectors where multiples are coming back because of the wider economic environment. That's not happening in our space. It's a highly competitive space. There's a lot of private equity interest in our markets, and I think it's because they see the same things that we do, which is the long-term opportunity, you know, the focus on government spending on infrastructure, particularly maintenance, renewals, and that's attracting a lot of new entrants into that market. So, you know, that competitive pressure is driving up those prices. So as you say, one of the things we like to try to do is to source and acquire, M&A targets off market, because you don't have that competitive pressure when you're bidding for it.
Add to that, and one of the reasons we've hired a new M&A director, which I touched on, is to actively go out and source those opportunities for us. I think we see. You know, looking ahead, I think what we'd like to evolve into is a position whereby we're doing, you know, two or three smaller bolt-ons every year, but continuing to look at the large acquisitions in the same way we always have done. So, you know, to be absolutely clear, there's no change in our desire to do the bigger deals, but we want to do more smaller deals, too. And we've talked about it throughout this presentation.
That's really linked to continuing to broaden our capabilities so the things that we can do, what different ways that we can address the markets. And we also believe that the clients like us being more multidisciplinary, being able to offer a wider range of services. But also, you know, we're, we're absolutely convinced that there's such a huge opportunity ahead of us. There's so much spend going into the markets in which we operate, that if we can scale up our capacity, you know, we can significantly grow the business. And so part of it is just finding those opportunities, those smaller businesses that help us scale up that capacity.
Had a question in from Tom Frame as well, and he asked: "What was the year-on-year margin decline due to mix? And then do you expect the adjusted operating margin to remain about, around 6.6%?
Yeah, I mean, yeah, it's down from 6.9% to 6.6% this year. I think, you know, I was very clear last year when it was at 6.9% to say it was slightly anomalous. It was, you know, we've always guided around 6.5%, but said it'll move between 6%-7% year, you know, depending on the year and the mix of work. So last year was, so I'd rather talk about last year's unusual mix rather than this year. This year is back to normal at 6.6%. It's exactly where I'd expect it to stay. Looking forward, I'd expect it to be very close to 6.6% over the coming years.