Really delighted to have you all here for the Genuit fiscal year 2023 results. Excited to have quite a few of our team here as well to really share the progress that our team has been making. W ithout further ado, the agenda is brief. I'll just give you a little bit of an overview as to where we are, and then Tim will take you through the financials and what's underlying the successful reporting, and I'll come back and give you a bit of an update on the strategy. This is something I think you'd all be interested in, making sure we continue to make progress there as well. So with that, let's get into it.
A s you recall, as we set out in our Capital Markets Day about well, it's been 18 months or so ago now, we redid our strategy to really make sure that we're clearly focused on sustainability at the very core of our business. We organized the business into three key growth platforms: climate management solutions, which is really all about essentially the energy transition in buildings, more air source heat pumps, more efficient heating, better ventilation, heat recovery in that ventilation, focusing on filtration and energy efficiency. That's really what that's about. It's fundamentally about lowering the carbon footprint of our built environment, and that's crucially important given that's about 40% of the carbon footprint of the U.K. and other countries. Great Brands: Nu-Heat, Adey, Domus, Nuaire, Surestop. Exciting business that we believe is one of our strong engines for growth for the future.
Water management, it's really about driving that climate adaptation, knowing that we're starting to see wetter winters, hotter and drier summers, more prone to flooding. That, together with urbanization, means that we've got to be focused on better stormwater management, better flood protection, better green urbanization, rainwater reuse, again, strong drivers for growth. O ur sustainable building solution business, again, this is sort of the core Polypipe as you would know it, but rejuvenated. We're introducing new products focused on taking share and making it easier for home builders that we partner with very closely to adapt to the modern regulations and reduce the labor that's on-site as well as the carbon content that's going into those products. T hree strong platforms well positioned for growth and profitability for the future. Highlights. My favorite slide. Look, it was clearly a challenging year in 2023. Markets were a bit unsettled.
Volumes were down in most of the end markets, but not all that we serve, as I'll talk about. We feel that we had a very resilient performance throughout this. Despite a revenue drop of 5.7%, with volume, as Tim will get into, around 12%, we believe that was quite resilient when you consider the overall market conditions that we serve. Impressively, I think our team did really good work on all the initiatives that we undertook. We actually increased our profitability from 15.8% to 16%. A lot of this was enabled by the strong progress we made on our business simplification program, which we announced and undertook about 15, 16 months ago. We've announced now GBP 15 million in annualized savings.
A good chunk of that is obviously reading through, and that's positioned us incredibly well without any reduction in volume, I might add, to be able to maintain and slightly increase our profitability despite the volume downturn. Clearly, looking forward when volumes return, that's a strong tailwind for us as a business. We've been deploying the Genuit Business System, embedding lean principles into everything that we do. We've got a good chunk of our workforce is now actually through that training, about 10% already. We've got early results from some of those sites, and that will continue to begin to improve our performance in the future. We've made significant advancements in 2023 on our path to net zero. We committed to net zero by 2050.
We were one of the first in our sector to have our SBTs formally approved, and we've continued to march down the path of making concrete milestones and making sure that our progress is on track there with crisp action plans that'll get us there. We further deleveraged our balance sheet down to about 1.1 turns. This is key. This gives us optionality as we go forward and look to fulfill our strategic agenda, both obviously investing in the business organically, but in identifying and cultivating a strong channel funnel of acquisitions going forward. Importantly, the discussion we had with the board is we believe that all of the actions we've taken, how we've repositioned the business, and the results we saw coming through really gave us the confidence to formally announce a progressive dividend policy and to recommend raising this year's dividend to GBP 12.4p.
A good year, a solid year, and let's dive into some of the details. I'd like to turn it over to Tim and take you through the numbers. It's all yours.
Great. Thank you, Joe. Good morning, everyone. Thank you for coming. I'm delighted to stand here today to report our 2023 results to you all. I n summary, first of all, as Joe mentioned, a really resilient performance in the face of a continuing challenging market last year. GBP 586.5 million of revenue, that's down just 5.7% in the face of an over 12% volume decline, which was really market-driven. D espite that, we've been able to increase our profitability, so operating margin up by 20 basis points to 16%. T his is with our focus on business simplification, with the closure of six sites in the year and that delivery of an additional GBP 7 million of annualized savings in addition to the GBP 8 million that we'd announced the previous year.
A lso our real efficiency drive under the Genuit Business System, really managing that cost base and improving the throughput, productivity, and efficiency of the business. T hat efficiency drive doesn't just relate to our cost base, it also relates to things like cash. W hen we're thinking about working capital management, inventory management, that's having a big effect as well. A big increase in cash conversion in the year. We're reporting 87.7% cash conversion with a big reduction in inventory during the year. That means that with that strong cash conversion, we're reducing our net debt, as Joe mentioned, 1.1 turns now on leverage, which gives us that optionality. W e're able to therefore announce this impressive dividend of GBP 12.4p for the year. L et's dig into a bit more detail. Let's take revenue first of all.
If we look at the left-hand side of the chart here, you can see how our business builds up. About 40% or so of our business is sustainable business solutions, and then about 30% each comes from our climate management and water management segments. Cut slightly differently in the middle here, you can see that about 30% of our business is related to the new build sector. That's probably seen the biggest volume decline in the year. Y ou can see the diversification of our end markets here into RMI, U.K. commercial as well, fairly well balanced. A real success story for the year, while it's our smallest segment, international, we've seen about 10% growth there, and that now represents about 11.5% of our business. Profitability.
Here you can see the operating margin evolution that really comes from those cost savings that stem from the business simplification work that we've substantially completed in the year. Six sites, as I say, closed, and as Joe mentioned, no loss of capacity there at all. This is really about underpinning our current profitability, but really improving our operating leverage as we go forward as well. So that as volumes normalize, we'll see a real kicker on that profitability improvement. Let's look at the bridges. So this shows how our revenue and profit is built up across our business units. You can see actually the strength in the profitability here, really visual from what is a big reduction in sustainable business solutions. But when we think about profitability, nowhere near as big an impact due to the cost management that we've done. Breaking it down then into those segments.
Climate management, first of all. Here we've seen strong growth in Nuaire during the year. This is our ventilation business. We're beginning to see here structural drivers really come through, particularly in social housing, the need for better, cleaner air. That's really driving our Nuaire business. Strength still in our commercial sector as well for Nuaire. And that's really offset the softness we've seen in the boiler market, which affects our Adey business. And here we're seeing real pent-up demand for boiler replacements kind of builds during the year. We don't know when that will come back, but we know it will happen because the same number of boilers over time will break down and need replacing.
Here we've taken action to improve the profitability of the business through integrating other parts of the business, so Surestop integrated into Adey, and that combined with our Genuit Business System, Lean Projects, which has really improved the efficiency of that operation. If we take water management next, here about flat year-on-year, but an encouraging performance in the second half where we grew by 2% actually year-on-year. We've seen again structural drivers beginning to come through in real time. So here related to stormwater attenuation, we're all seeing around the world these more frequent, intense rainfall events that need that stormwater management. T hat's beginning to really show through, not just in the U.K., but internationally as well. So strong international growth within our water management segments. Again, focus on profitability.
I mprovement in our operating margin by 220 basis points for this segment with two site consolidations and no reduction in capacity. T hen our biggest business unit, sustainable building solutions. Here we saw the biggest revenue reduction year-on-year, 14%, really in line with the new house building market. But again, profitability improvement. So 90 basis points despite that reduction in volumes, with operational footprint consolidation again featuring with no reduction in capacity. I f we bring that all together in the P&L, you can see here the summary. Our volumes are about 15%-20% below normal levels, so operating gearing is going to benefit us as those improve.
We've seen higher interest and tax costs as you'd expect from changes in interest rates and tax policy, and that means that our earnings per share is down at about GBP 25p, but with the confidence in our balance sheet and the go-forward strategy just slightly increasing that dividend to GBP 12.4p. Let's talk briefly about our non-underlying items. H ere, lower year-over-year, about GBP 32 million before tax, GBP 24 million after tax. And here broadly we can split things into two categories. We've got our kind of standard amortization of intangible assets, a little bit of impairment of intangibles related to entity restructuring associated with that business simplification. A bout half of it really is non-cash impacting. And then the other half, given a few puts and takes, relates to our business simplification and those restructuring costs. But a strong return on investment here.
We've generated GBP 6.9 million of cash already from property sales associated with those site closures, and of course underpinning our annualized GBP 15 million cost savings going forward as well. If we look at cash flow, really strong operating cash generation during the year, GBP 82.5 million, with that cash conversion now up at 87.7%, really close to our medium-term target of over 90%. We've been investing in key strategic initiatives, whether they be related to the business simplification, product innovation, new product introduction, and sustainable solutions as well.
A bout GBP 34 million or so of capital expenditure during the year. A s I talked about, we've improved our working capital management. Our stock turns have improved by about 15% during the year, so really good performance there. Looking forward then, what does that mean for the future of the business? Well, we'll be continuing to invest regardless of market conditions.
We'll be spending capital expenditure at a similar level, about GBP 34 million-GBP 35 million we're expecting 2024. Our balance sheet strength gives us the optionality to really look into the M&A pipeline. We've got a healthy pipeline of things to look into there. We'll be continuing to deliver shareholder value through that progressive dividend policy. That's the summary of our results, and I'll invite Joe back onto the stage now to talk you through our strategic update.
Thank you, Tim. All right. Well, as you can see, it's been a busy year, but I think I’d be remiss if I didn't come back and anchor in on the strategy that we set forth about 18 months ago. One of the things that we did over the past year was, together with our extended leadership team, what we refer to as the Genuit leadership team, our top 70 or so leaders, we undertook a piece of work to be really clear on what is the purpose that anchors all of us at Genuit. That team actually worked together to create this, our new purpose statement, which is that together we create sustainable living. That's resonated extremely well, both with all the people in the business today, but I can tell you also with the talent we're looking to attract to the business going forward.
That purpose, that clarity is really important because we do have a lot of work to do ahead, and we've made great progress already. For those of you who have been following the story for 18 months, you'll remember that we actually had five key things we said we were going to go do. We're now focusing in on four. The one that's really not on this list anymore clearly is simplification. We said that we had some work to do to go and simplify the business, integrate past acquisitions, and have three really strong platforms for further growth. That's largely job done. We've got two projects left, as Tim referred to. They'll be finishing up in the first half. Our team is pivoting to be focused really on growth. Now, there are some underlying things for that.
O ur four things really are, one, growing in sustainability-driven markets where climate mitigation and adaptation create the need for our customers to solve problems, and we're there to help solve those problems. We're focused on organic, internally developed solutions and technology, as well as looking for good companies to invite into the Genuit family that can be part of that extended growth runway over time. Second is about embedding sustainability into everything we do. We've committed to being market leaders in our sector for the greening of the built environment. That means leading the way in recycling, leading the way in carbon reduction, continuing to have an incredibly clear and actionable and measurable path to net zero, and we've made good progress on all of those. I've spoken a bit about the Genuit Business System.
This is increasingly that glue which is holding together a lot of how we run Genuit today. It is that how. It's about lean manufacturing. It's about continuous improvement. It's about lean thinking in everything we do outside the shop floor. That will continue to unlock customer value, better service, employee engagement, and really enable us to continue to improve that business every single year. Last, and absolutely not least, underpinning all of this is a focus on people and culture. After all, the best team does win. W e're focused on creating that kind of environment that truly is a great place to work where we can get absolutely the best contributions from all 3,100+ of our Genuit team. So with those four things, I'm going to come back and talk about growth a little bit with each of the three segments after this.
L et me just highlight a few things. You can get a sense for how busy the year has been. O n sustainability, we actually were able to reduce our absolute carbon by 33% last year. Obviously, a factor of that was volume because absolute carbon is driven a bit by volume. That's about half of that. The other half is genuine improvements in the way we run the business and is quite sustainable. We know that we've got more work to do on this front, and so we continue to actually invest in those projects that will help us get to our 62% recycling target we set out there. Some of those are longer lead time projects, so we expect strong progress this year on that. And importantly, I want to just emphasize that when it comes to sustainability, it's about more than just the environment.
It's also about our social agenda as well. One of the commitments we made several years ago was to actually become full members, gold members of the 5% Club. Over the last couple of years, we've been putting those plans in place, and actually at the end of last year, we actually finished at about 8% of all of our team members in earn and learn programs, which means that we should be well set up to achieve gold status during this year. On the Genuit Business System, Tim alluded to this. We started two lighthouse projects earlier in the year last year, one at Adey. We just had a good review of that. They've made incredible progress, reduced floor space by 50%, productive floor space which enabled them to integrate their Surestop acquisition. They've had 30%-40% productivity improvements.
They've seen great benefits to the bottom line and good improvements in customer deliveries. Our Doncaster site, Polypipe Building Products, was the second to start on that journey. They've seen a significant increase in customer service levels and a decrease in past dues, as well as focusing on doing things like reducing the time it takes to change over machines so they can be much more flexible in responding to demand, something that'll be very important when demand starts to come back in that sector. Our third lighthouse project in Horncastle launched late last year and is building steam as we take. You know that I've talked about three sites. We have quite a few more. This is early days in a long continuing path toward making sure that we embed the Genuit Business System in everything that we do.
I'm proud to say that over 10% of our team this past year participated in either Kaizens or Lean training events. That's very good for the first year. That's over 300 Genuit team members. Clearly, that needs to grow, and that's a leading indicator of the kind of success because all of them will find further improvements and further ways to delight our customers. Just a couple of more things on people and culture. W e focus a lot on that Genuit leadership team, the same team that put together our purpose, that's driving our strategy, that's actually embedding and leading the cultural change that we're putting in place here. It makes sense to invest in them, and we started our own Genuit leadership program.
It's a leadership training academy, if you will, and all of our top 70+ leaders will be going through that over the next 12-18 months. Diversity and inclusion is incredibly important. I personally believe, and I think many of you know me, that this is actually one of the hallmarks of an incredibly strong business, and the team representation is really important. We just found out a few weeks ago that we were recognized as one of the top companies in the FTSE 250 in terms of female leadership at the board, executive, and one down level, about 50%. And further down, our top 70+ leaders are now 29% female. That's a strong increase from two years ago.
I t is important and is part of why we also were one of the founding strategic partners of the Construction Inclusion Coalition because this does matter, and it's about getting the best talent into this business and our industry in general. Turning to growth, just a couple of highlights by platform. In climate management, we did see, as Tim said, strong sales growth in residential, not because there were more houses being built, but because more technology is needed to meet the new ventilation requirements or to mitigate existing problems. So positive ventilation is clearly playing a bigger role in mitigating mold and damp, particularly in social housing, but in older homes in general, it's a relatively easy retrofit. We had very good success with our MVHR with cooling.
T his is incremental cooling, which is in high demand, and we saw very good results last year as people are becoming more aware that they don't need air conditioning, but they do need incremental cooling for those hot days that we're starting to see more and more of, even in Leeds. So we also, as I said, have been focused on other new product introductions. So the Nu-Deck product that we introduced at Nu-Heat is actually intended to make a retrofit of underfloor heating much easier. And when you consider that beyond the new housing market, where we'll talk about in a minute, growth is important, we've got 20 million + houses in the U.K. where air source heat pumps and underfloor heating will be part of that fabric for some part of them in the future. So we're excited about that.
If I turn then to water management, this is, again, focused really on blue-green urbanization, where our Permavoid brand is having good success in the UK with rainwater collection, that rainwater control, and then allowing buildings to controllably discharge excess stormwater into the stormwater management system and not have overflow events. That's really important because those overflow events can cause stormwater to impinge on the wastewater systems and then, in turn, of course, cause wastewater to impinge into our streams, rivers, and lakes, something that actually has been increasing in occurrence and I think, as all of you know, is a big part of the water agenda going forward for the next few years. We see strong tailwinds here in the U.K. for water management, but at about 25% of sales, it is our most international business today.
The Middle East has been sort of the leading area for growth, but we've also been growing in the U.S. as well, and we do believe that that continued international expansion for the same stormwater and blue-green technology that we lead in today will continue to grow that share and drive growth longer term for this business. We continue to add new products, including new markets, including the fiber rollout both in the U.S. and the U.K. with fully recycled product called Subterra CT, which allows for easy inspection chambers and ducting. Again, circular economy is very strong in this business because about 80% of all of the material used in WMS is recycled today. We'll keep focusing on growing that as well.
In terms of sustainable building solutions, if I back up, you'll remember that when we set our strategic growth initiatives, we said that we expect climate management to grow in high single digits. We thought water management would be mid-single digits, and we actually had perhaps the least aggressive target for SBS at sort of low single digits. We see more opportunity going forward. One of them is that our sustainable building solution business partners very closely with the new house builders, and there is a lot of activity. We're working with four new house builders already, including Barratt, around actually installing underfloor heating in new build sites now in production ahead of the actual Future Homes Standard next year. They all need confidence that this solution will work, and we're seeing a significant uptake. We're confident this will be a good growth driver for SBS going forward.
They also launched PolyPlumb Enhanced after a significant investment, a multi-million pound investment. This is a new product line that actually allows for a much more sort of controlled approach to doing the plumbing. It's actually something that we designed together with the plumbers, gives you confidence in right first time, lower labor costs, and less return site visits to fix issues. Very well received. We're seeing sales ramp up well there. So I think if anything, over longer term, we're more confident in the share and opportunity growth that we'll see from SBS going forward. Oh, there we go.
I f I think about the investment case, fundamentally, we aim to outperform the market growing through the cycle by at least 2%-4% above market, really by doing that by focusing on parts of the market where sustainability, innovation is actually going to grow our product share significantly above that of the underlying market. That's why, for example, we talked about a 5x revenue growth opportunity in any individual house when you consider the Future Homes Standard regulations versus what we would do historically. These are powerful drivers and leave us well positioned, especially when you consider the return to normal volumes. Continuing to differentiate on our sustainability, we've got 66% committed reduction in carbon.
We are very confident in our path to net zero, and we believe that the strong action plans we have in place and are making progress, again, mean we'll continue to lead the way in concrete examples of progress there. In terms of share, today we've got about 20% share in a GBP 3 billion U.K. market. Still plenty of room to grow. In addition, that market is actually going to expand as solutions of higher value are needed. So that underpins growth. Beyond that, as we increase our exposure to international markets, there too, that's another avenue for growth. We committed to our 20% operating margin target to exceed that. Good progress this year in a down environment gives us that confidence that we're on the right track there.
As we continue to look to add acquisitions to our business, we're quite mindful of our 15%+ return on capital target, and we'll look very closely to make sure that anything that we do is a clear win for the business, both strategically and for our shareholders. F inally and importantly, you saw very strong progress this year to get the business back up to its 90%-ish kind of cash conversion range where we expect to be, strong cash generation allowing us to deliver, allowing us to invest in the business, and leaving us well positioned to do further acquisitions. In terms of outlook, clearly, we've entered 2024, and the outlook for the 2024 market remains a bit unsettled. However, we've started in line with our expectations. I would submit that our diverse end market exposures offer us opportunities even in a challenging market.
C learly, while new house building is lagging, other things like the strength in ventilation are already showing through. We know water management is a good area of growth for us. We've got the pent-up boiler demand. There are a lot of different factors here, and while we're counting on essentially a mix of these helping us, we are a bit just expecting more or less a flat-ish market this year. We think we're in an incredibly strong position to navigate these near-term market uncertainties, particularly with the restructuring we've done, with the simplification, and with our focus on the Genuit Business System. That eventual market normalization that Tim referred to should drop through quite strongly, and we think will underpin results for us once that starts to unlock. And finally, we've got a lot of confidence in our medium-term sustainability-driven growth drivers.
Looking further ahead, we think we're well positioned for growth. If I could summarize, I'd leave you with just really three things. First is we've made really good progress setting ourselves up well to capitalize on those medium-term growth targets. Our simplification program is nearing completion, and the Genuit Business System is just beginning to pick up steam as we engage more people. And finally, that sustainability growth drivers really leave us well positioned for long-term growth. So that's the presentation we had. Clearly, we'd be open to take questions. Tim, if I could invite you up as well. W e do got a couple of microphones, so I would ask you please to use the microphones, tell us who you are, and give us a half a chance if you're going to ask a bunch of questions.
If it's four parts, I'll probably come back to on future ones. So thank you.
Thanks. Jonny Coubrough from Deutsche Numis.
Mic's not working yet.
Is that on?
Yep.
Jonny Coubrough from Deutsche Numis. Morning, Joe, Tim. Could I ask firstly on the M&A pipeline? Are you seeing better opportunities now given the market weakness? Secondly, on procurement, could I ask for an update on procurement processes and whether you've changed those and implications there for management of changes in raw material costs? And then thirdly, on international, you mentioned ability to grow here. Could I ask where do you see potential to grow, and which markets would you be focused on there?
Okay. I'll take the first and the last, and you can do procurement. Good.
Thank you.
I n terms of your first question was around M&A, and then really kind of could link to the last. I'll probably answer those two together. So on M&A, we've been cultivating a strong funnel of projects. So what we've done is after we outlined our strategy for the three different business units, we then looked at each business unit to determine strategically what are the solution infill opportunities for that. So as an example, in the strategy update, we talked about being able to complete the new build housing solution and the retrofit housing solution with other technologies that could expand our presence, our share of wallet in that market. So things like controls, other types of heat emitters, expanding our presence in underfloor heating, expanding our presence in ventilation. So those are some of the areas as an example.
T hen we've used that to actually flesh out a very complete list of companies that we think would be fantastic fits for the Genuit Group, would help us accelerate organic growth. We're proactively contacting and cultivating so that we now have a much more actionable, much more complete funnel of opportunities, which then allows us to be selective to find the right deals that are good returns for our shareholders at the right point in time. T hat's how we're expanding that M&A funnel. Those could certainly be UK-based targets. They could be more global targets, but every one of them would need to be a really good fit for us. And wherever possible, we'd like to take the experience we've had over the last two years of learning how to integrate past acquisitions to make sure that those will be well integrated in the future.
Just going on to the international piece while we're there, and then I'll turn over to Tim to talk about purchasing. As a result, I mean, today, we're about 11.5% and growing internationally. The three areas of growth for us have been the Middle East, Europe, Central Europe, and Northern Europe, and to a lesser extent so far, but with great potential, North America. We see all of those markets as very attractive organic growth targets for us. The Middle East because it often follows U.K. standards, and there's a tremendous amount of construction activity. Northern Europe because a lot of the solutions that we develop are very similar to the solutions there. And as you've seen some of our peers successfully expand in that territory, it's an area we're confident that we can play in and bring technologies back into the U.K.
North America has a lot of the same challenges. While they might be slightly ahead in some areas around water management, they're behind in other areas like climate management. Those are three likely markets you might see us play either organically as we already are or inorganically in the future.
Okay. On procurement?
We've evolved our approach here really in line with our strategic shift. From a group which was very federated to one where we're driving synergies across the group. That means we've centralized some aspects of our buying power, particularly around things like polymers or energy to make sure we're leveraging the scale and scope of the group to buy at much better rates.
Okay.
Robert Chantry from Berenberg. Thanks for the presentation. Three questions from me. Firstly, given, I guess, the muted volume outlook near-term and the kind of really good progress so far and margin improvement, can you help us think about margin progress where possible in kind of 2024 in the short term, the moving parts around that? Secondly, you highlighted market share at 20% versus a GBP 3 billion addressable market. Are there any recent data points on how that's progressed in recent years and how you kind of see that market share trending, I guess, in the coming years? And then thirdly, on pricing position versus the market, do you still consider yourself to be a leader in that? How relevant were things like surcharges, etc., in the full year 2023 delivery and how you set up for this year on the pricing relative to market? Thanks.
Okay.
[crosstalk] .
Profitability, you think, share and pricing? On the profitability point of view, I think we are seeing some challenges in the market. As Joe pointed out in our outlook, we should get some puts and takes with some of our businesses, still seeing those structural growth drivers coming through. There may be some mixed shifts. There could be a little bit of volume reduction. Probably from an inflation perspective, that's normalized from a cost input point of view at more kind of normal levels, and therefore our price increases will be the same. We're not expecting a big change in profitability year-over-year.
If the market stays in line with 2023, then we should see a similar performance in 2024 with that increase in operational gearing that we've been able to achieve through our simplification, which means that then as the market's normalized, when that happens, then we'll see that kicker in profitability come through.
I n terms of share, Robert, I'd say that in broad strokes, that 20% has been somewhat consistent in recent years. What I would say is that going forward, we do expect that to change for a few different reasons, part of which is in that GBP 3 billion, you've got some faster-growing subsegments. I mean, a great case in point would be MVHR and underfloor heating, which today in the new build market are very small factors, and in the RMI market, perhaps almost even less, right? Going forward, post-Future Homes Standard 2025, we expect the penetration of both those to far outstrip the overall house building and construction market.
T herefore, the parts that we're in, those technologies we're serving will actually grow relative to the market. That should increase our share. But I should be clear, we're also focused on gaining share in our traditional products as well.
I nvesting a lot in our core SBS product line, that's why we invented and delivered PolyPlumb Enhanced. That enhanced product line is a far better offering than we've had in the past, and we do expect it will attract customers from other brands as well. So look for us to continue to aim to gain share in the U.K. market. And then on pricing, I would say historically, the strength of our brands, the strength of our commercial relationships with our customers, both in the merchanting channel and upstream with house builders, with contractors, with M&A contractors, and with designers, has enabled us to shift more and more toward project-based and sort of commercial project tender work. That allows better pricing and more flexible pricing. And the strength of our product innovation is really important.
The more product vitality we have, the more innovative the products are, the stronger that pricing can be. So longer term, we want to continue to enhance our price position. Short term, what I'd say is, look, our commercial presence allows us to have constructive discussions. M uch as it was difficult getting price up, we want to make sure that we're quite thoughtful as to how we keep that price in the short term as well too. Hope that answers your questions. Okay. Next? Could Aynsley appear? Oh, hold on, Aynsley. You're next.
Thanks. Morning, Toby Thorrington from Equity.
Toby, I'm having a hard time hearing you. I don't know if we've got a little issue with the mic, so if you could just project a bit.
I'll try again. Yep. Toby Thorrington from Equity Development. A couple of cash questions for Tim, please. First of all, could you give us some comfort or confidence or insight into whether the inventory position at the year-end is a sustainable number or slightly flattering at year-end and the outlook for that in the first instance, please?
Yeah. So it is sustainable. We saw some inventory builds over the past few years with the supply chain disruptions that we've seen around the globe. With that really having now abated, our focus has been more on efficiency to get that inventory back down into a sustainable position. So yeah, we've locked in that value.
Like you just said, actually, this is one of the key things you get out of the focus on leaning the Genuit Business System is focusing on inventory productivity, on higher turns in our inventory. So we'll keep looking to improve long term.
Secondly, in outlook terms, a few puts and takes on sort of non-trading items, really, asset disposal sales. There's a bit of deferred consideration, which is dropped into current liability. I think there's a cash tax credit on the balance sheet as well. Sort of non-trading cash items, can you give us a view on the net for that for FY 2024, please?
Yeah. Obviously, exceptional items are difficult to predict being exceptional in nature. We'll expect the same intangible amortization. But overall, we're expecting a lower number. T hat's because we executed the bulk of our business simplification in FY 2023. So we're expecting less exceptionals this year.
Okay. But just to clarify, you're expecting some deferred cash consideration to go out and some asset disposal cash to come in?
Yep, broadly. Yeah. I mean, we've got GBP 6.9 million of asset disposal in the year. We've still got properties for sale following our site closure.
Okay. Thank you.
Thanks, Toby. Let's go to Aynsley here. We've got a mic coming, even though you're probably close enough.
Thanks very much. Aynsley Lammin from Investec. I think I've just got two, please. You've mentioned M&A quite a bit today, and obviously, de-leveraging quite quickly. I mean, just interested to hear what you'd be comfortable getting the leverage up to. And I guess in that context, if you look over the medium term for your strategy, where would you want international to get to as a percentage of group revenue? And then secondly, just SBS, obviously, margin's up 90 basis points in a very weak volume environment. As we look forward again with your kind of strategic targets, is there much upside in that division's margin, or will that be more kind of taking share? Does the mix impact that a bit? Just interested how that margin evolves as volumes recover. Thanks.
O n leverage, you want to talk about leverage, and then I'll talk a little bit about M&A and GBS?
Yeah. Our leverage, when we talk to shareholders, people are pretty comfortable in the current environment, us going up to 1.5x generally. I think in a more normal market where we're returning to growth, potentially up to 2x, the kind of thing that we're looking at will be contributing towards our medium-term targets. So a return on capital employed of over 15% and an ability to get to over 20% operating margin. So you would expect those to feature in anything that we do.
Obviously, depending on timing, that gives you GBP 50 million-GBP 100 million type list, which is an ample list of targets from our point of view. We see plenty of things of that size in the space that we could go do over the next couple of years. So we're comfortable there. Let's see. So come back to SBS then. In terms of SBS, what we've said, actually, we set this out the Capital Markets Day at the beginning. We said the goal for that business is that it is and should be around a 20% business. We're more focused on growing that business because it's already at our group margin target. T hat's why I focused on share and product innovation and new product introductions there as well.
Another area that we didn't really talk about was the commercial focus of that business with what was bought by building services, things like the Advantage product line, Terrain stack systems, some of these other products, which although the commercial market activity is yet to pick up to 2019 levels, we're well positioned to focus on growth in that market as well. So you'd be right to think of that more as share gain and top-line growth and keeping that bottom-line margin in about the same neighborhood as it is. Did we get your questions there? Okay. Other questions? Mike? Sam?
Thanks. Morning, Sam Cullen from Peel Hunt. Just got one clarification, really. On, I think, slide I'm not sure what slide it is, but on the SBS slide talking about selling underfloor heating into the house builders. Why would that not be in CMS and via Nu-Heat? What's the difference? Are you just supplying the pipes? Are you not supplying the manifolds, etc.?
Yeah. Great question. So the answer really is because Nu-Heat is focused very much on selling complete solutions that they actually do all the design work in the MCS certification for. T hat tends to be for customers who are a bit smaller in scale and can't do that work internally. Clearly, when we're partnering with new house builders, nationals or regional new house builders, they've got more capability and recurring designs. Their focus very much is on how can they get the most productive installation, the easiest turnkey solution, and really focused on that sort of productivity, right? Because of our relationships with the house builders in SBS and the fact that we do have an underfloor heating line and Polypipe, that's been the better channel there, focused really on optimizing that issue and not the more complete solution. For us, it's really different horses for different courses, right?
Both of them quite successful, and we do see pickup strongly in both areas. Others? Anyone else? Do we have any questions online?
I think that's everything for now.
Okay. Great. Well, look, thank you all for coming on this wet and rainy day. Like I said, it is a good advertisement for better stormwater management, certainly in London and in boroughs beyond. And hopefully, you have no train interruptions as has happened in some of our past flooding events. With that, we're really delighted to have you here and look forward to seeing you again in six months to share further strategic progress and update on our results. With that, Tim, thank you. And thanks to everybody at Genuit who made this possible. Frankly, my job is the easiest part after the team's done an incredible piece of work here. Thank you all, and we'll be around if you have further questions.
Thank you.