Nexus Infrastructure (LSE:NEXS) — Half Year Results

0:00 Good morning, and welcome to the NEXUS INFRASTRUCTURE PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Charles Sweeney, CEO. Good morning, sir. Good morning. Good morning, everybody, and thank you for attending the presentation of NEXUS INFRASTRUCTURE interim results. As usual, it'll be myself and Dawn, which will be in the presentation, and the agenda is displayed there. We'll we'll cover the q and a at the end of the summary and close, but otherwise, the agenda is as per our normal presentation.

0:58 So for those that don't know NEXUS, a quick introduction. Two operating businesses, Tandem and Coleman. Tandem has the focus on the house building sector. Its main activities are orientated around the start of projects, the first entity on-site, carrying out civil engineering, site enabling earthworks, etcetera, etcetera. So the main infrastructure for major housing developments is mostly involved in long term multiphase developments. So some of these carry on five, certainly, to ten years in length. And those are the main customers that Tamron has shown at the bottom. They're all the major national developers.

1:47 Coleman is focused more on water and rail sectors in particular, based out of Hastings and covering the the southern counties, Kent, East Sussex through to Hampshire. As I say, it's mainly involved in water and rail sectors, and they are five year programs, which we'll talk about more during the course of this presentation. So our strategy, turnaround strategy we introduced for the business has three aspects to it. And we'll just comment on how we've been progressing in the last in the half, first half reporting against. And also looking back at the progress that we've made since we introduced this strategy.

2:36 So on the left hand side, as we mentioned, TandemDown's business is focused around large multi phase projects. So we made a specific decision to really make that the core of Tandem's business going forward. And during this period of time, I think the the the order book at the end of FY twenty three was down at 46. We're 46, 52, And then in these half years, '81, 83, and I'm pleased to say that we've had continuing revenue and order book growth, taking the order book to 88,000,000 at the end of March. So good progress in spite of very difficult markets during this period. Second aspect of our turnaround strategy was to look to diversify to see if we could get ourselves involved in other sectors to take out the cyclicality exposure, which we've done that with with the entrance to water and rail sectors. And it's also the fact that the common business offers us higher gross margin and will help us bring greater profitability to the group overall.

3:48 So pleased with the progress there, half year to half year, 2.8 to 3.1. Much more to be done. And common, we'll see that with Ampate coming through the latter part of this year, and we'll talk about that later in the presentation. And then finally, the continued focus on financial delivery, so tight control on costs, making sure that we're getting the very best performance out of productivity initiatives. And once again, we've we've had an improvement this time 14.9 to 15.1. So those are the three aspects of our strategy and the progress that we've made in the the first half. So Tom to Dawn for the details against that. So overall, the group's seen a good improvement in its financial highlights over the half year to half year.

4:42 Revenue has increased. Group revenue was up by 5.6%, and this was backed by housing sector revenue increasing by four and a half percent, and revenue from Coleman up by 15.6%. The housing sector revenue increase was pleasing despite a particularly wet winter. And then as we went into the latter part of the half, we saw a significant increase in turnover with revenue during March almost double what it was during January. Gross profit increased for the housing sector as well with the group gross profit margin up by naught point 2%.

5:29 The water sector continues to give us good margins higher than what we can get from the housing sector. The operating loss was reduced by 300 k half year to half year. The term down operating loss was almost halved to 173 k, and we're pleased that Coleman continues to add profit to the group. As Charles has already mentioned, order book has seen an increase both half year to half year and also across since in the six months since the year end in September. We saw a slight decline in our cash balance. This was always been expected as we see working capital draws as revenue ticks up. A number of people on-site in March increased by around a 100.

6:28 And with weekly payrolls, that starts to draw on our cash balance. We expect this to normalize as we go through the summer period. As already mentioned, we're pleased with the revenue increase. Operating loss continues to reduce. Margins are up, past. A a with a net net assets at 26.2. Cash will see the revenue continue to see revenue increase and a draw for working capital, whether it's from the housing sector as it maintains the higher revenues we saw during March or supporting Coleman as it goes into Ampay.

7:24 We keep the tight control on our receivables, making sure that our newer debt doesn't age, and we can keep on top of retentions, particularly focused on that as we look to add look to increase our revenues. We're pleased to announce that we'll be paying an interim dividend of 1p per share, which would be paid to shareholders on the June 19, continuing our dividend policy from the previous three years. Okay. So a quick review of the markets and, again, the usual case studies. This time around, we thought stay away from presenting the usual graphs on government information and housing starts and basically focusing a little bit more about what we see versus the Middle East conflict and how it's impacted in this in the housing sector, how it's impacted Tundeown's position. So so three columns presented here. First, pre Middle East Conflict, then definitely we saw early indications of an improving market.

8:40 It was it was backed up by, again, for those that saw a presentation previously, planning applications, the number of units that were in planning applications had jumped significantly, not just marginally, jumped significantly, which was a leading indicator, positive leading indicator. And the main developers were were showing a degree of confidence. They weren't indicating that 2026 was gonna shoot the lights out, but they were definitely seeing an improving position backed up by mortgage rates, which were easing, and they could see sales rates the number of sales per unit per per hour per week going up on a steady basis. So so it was a positive situation to be at. And definitely, Tamdown has seen and did see in this period the highest number of tenders submitted since pre COVID, it was and I think, again, I I spoke about this in in previous presentations. The number of inquiries that were coming in was way up on what it had been and the number of submissions because we don't we don't respond to every inquiry, but but the number of submissions going up back to the customers, highest level since pre COVID. So very positive position to be at.

9:55 With the Middle East conflict, well, across the market, we see a mixed view. Some some of the main developers are saying, oh, it's it has had an impact already, and they're making comments on that. Some have said it's not affected their results up until that date in April, let's say, but they're showing some concern or or or holding back their views on how things will turn out at least until July or August time. So with inside of Tandem, broadly speaking, customer attitude hasn't changed, and we haven't seen a a pullback with the exception of one customer who has actually asked us to to slow down the implementation of work that we already have had awarded from them. So the key question is how long is it gonna be before there is a resolution of conflict? And we're all second guessing on that almost on a on a weekly basis. But when they look at what Tundown's position is, as Dawn mentioned, we had a really real I know it we have bad weather in winter every year, so no surprise. But this past winter, it was particularly wet. From December right the way through January and into February, it was atrocious. The rain that we had was atrocious. So our site activity was muted.

11:16 We've got a very healthy order book, a really good position to be at. So when we saw the weather back off, we were able to really ramp up activity. And again, as Dawn said, the site activities doubled from January through to March. So March takes us in with a a drumbeat and an activity level, which is really, really good. It's really positive. That's carried on into April, And there's no reason why we don't see that carrying on through May and onwards. There is always the chance possibility that the housing developers will back off further. But as things stand at the moment for Tamdown is site activity is very high. The order book is healthy, and I can say that the tender activity is also strong.

12:03 So what we're having to do is not over rely on this to say that as the situation is good, let's plan for more difficult times. So already, we've we've taken action on costs. We've had discussions with supply chain, with suppliers to see where we can fix prices to make sure that we protect our our margins going forward. And as Will mentioned is we do have a flexible operating model. So we've got a a core of direct employees. On top of that, then we use more flexible resource that we've and we were able to do that. As I said, we brought in an extra 100 people just for the March the pickup in March. So Tamdal's position is good, but we're cognizant and aware of the potential impacts of The Middle East. If it goes on beyond the summer period, then I think the sector as a whole is gonna have a difficult time. God forbid that it carries on in through to to Christmas time, then the sector as a whole is gonna have a difficult, probably a turn down 10% in the sector overall. But as things start at the moment, it's in a decent place, and we're quite happy with that.

13:15 We talk about multiphase developments. Don't think we've shown Haverhill before, but anyway, the point to mention is we were previously involved in such the phase three b. So making good progress with that, good reputation, good relationship with persimmon. And in this instance, we were able to we still had to give put in the tender, put in our pricing for this, but we were awarded then the next phase is at Haverhill Phase 4 A. So that was awarded in January this year. It's the usual infrastructure in this case, 300 meters of infrastructure. It's a relatively small site. You can see by the value and the number of units and so on, so 90 residential units. But we're having to make sure that we don't we minimize the disruption to those people who moved into the earlier phase, and we make sure that everything is done to to keep everybody safe. So but, anyway, there's an example of a of a one phase leading on to the next phase.

14:20 And then for this one, this time last year, we presented this project, Bellway Ribbon Hall. So this is a much bigger job, 17,000,000 duration, five years. So it was awarded in January last year round with 225 residential units. Previous one was 90 that I showed you. So progress so far has been mainly on infrastructure side of things. So you can see of the two kilometers of of infrastructure roads and so on, that's to be done then approximately 1.6 kilometers have been completed. Main parts of the main earthworks, etcetera, are done. And in terms of the actual plots, out of the two twenty five to date, we've completed 78 of those plots to all the sites.

15:14 For the water sector, so in this, we'd say there's less impact, direct impact on on the AMP a program. Clearly, there's gonna be some impact inflation cost wise. But in terms of the work that has to get done, the AMP a program was kicked off in April last year, and over a five year period, it indicated what the spend would be. What we say is at the end of one year, in fact, there's not been that much activity. Some water companies are different from others, but by and large across the sector, there's just been a delay in getting the work underway. And in the case of customers that Colin works directly with is this really hasn't been much activity at all in this first year. So we did some looking back at announcements and budgets and so on and so forth. And our interpretation is that the first year spend was to be a possible engineering companies would have been expected to be about seven and a half percent of the total spend that a civil engineering company might expect over that five year period.

16:27 And very little of that seven and a half has actually happened. So in discussions with our with our the tier one contractors and and with the main water companies, we're understanding that there has been delays, unfortunately, in the design phase. So the work just hasn't been available to come out to us. However, but in long discussions with them, we've got great visibility of when the jobs are coming and how they will be awarded. So looking at Coleman's position, what we've been doing, Coleman's been busy and active on other smaller projects in the in in the interim. I've got one example case study to show. And now actually have some activity on AMP page. So it's just on the early phases, trial holes, and site enabling works.

17:17 And we can see when this work is going to move in through to the main contract activities, which is gonna be the latter part of of this year. So we've been proactive in developing a program called building sustainable growth in which we're preparing the business for what is gonna be a significant ramp up. We've had those discussions with the supply chain as well just to make sure that everybody is in is in the place to be able to to deliver against what will be a big pickup coming. And once again, to mention that also in the case of colon, we operate in this flexible operating model to enable us to to flex as needed. An example we've got, a small job for bridges is is less than half a million. It was just five months in length.

18:08 And, yeah, you can basically see what it is, preconcrete cast concrete, retaining wall, some concrete slabs, and etcetera as listed there. But that's the type of smaller jobs that we've been doing. We've had with bridges, I think there's about eight jobs that we did. We have been doing with them. As an example of what we're doing with with Colin in the interim until the unpipe work really kicks off. So summary. So as as we know, we're making progress in line with the strategy and getting back on on growth and the expansion out in the market and improving the the gross margins, keeping tight control of cash, and we recognize that there's much more to do.

18:59 So this isn't you know, we're nowhere near at the end point. We're just that plan which we set out. We're in line with the plan in spite of the difficult markets that we've had. So looking at the specifics of h y twenty six, so we've continued on the growth trajectory. Revenue is up. Gross margins have increased. The order book is strong. It's gone up further. It's gone up 9%. We've reduced the operating loss. I just wanna emphasize, we're not satisfied with this. We're not, you know, saying fantastic. What we're saying is that we're on we're on track and progressing well. So the outlook, the increased site activity is significant. So the reason I use the term drumbeat, there's a real drumbeat going on the sites at the moment, and that momentum has carried on into h two. We've got a strong order book, gives us the visibility for the second half of the year.

19:55 However, it is the case the Middle East conflict is key as it is for the sector as a whole. And we're mindful of that and keeping a close eye on what impact that might have. And AMP8 is definitely gonna drive increased workload for Coleman. And when we see that ramping up back end of the year, we'll see really Coleman come into the fall and contributing further to group results. So that's us for the main presentation, and I think it's back to you, Lily, for the q and a. That's great. Thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard.

20:46 As you can see, we have received a number of questions throughout today's presentation. And if I may just start off with the first question here, which reads as follows. When will the company report a profit? So, hopefully, I've just in the present the presentation on the the tail end of that, in particular, the the outlook. I've mentioned that. So market expectations are there. There are research notes out there, which we're basically saying we've got all the momentum on-site at the moment. We've made progress on the gross margins, and that's all fed through and looking good for the second half. We see no reason to back away from that which is in the market. So, you know, in line with market expectations.

21:37 So, hopefully, the presentation has given further color on why we would say that. Perfect. Thank you. Why did two directors step down? There was feedback from shareholders, which we spent quite a amount of time listening to and considering. And Richard and Fiona took the view that they would step down, so they they did that at the end of the AGM. So, yeah, we want I think we made reference to it before, but we'll say it again. It's we'd certainly thank both Richard and for all the support and guidance that we've had from them over the years and and wish them well in the future. That's great. Just turning to the next question. You have previously promised to look at increasing RNS news flow to stimulate what is an illiquid market for NEXUS shares.

22:33 Have you made any progress? Well, there's a lot of news that in this since we talked about that, I think, what, three three months back. We had a lot of activity, of course, around the full year results. We then had the AGM with a lot of news flow then during the course of of March. And then in April, we would have had the trading update. And then May, of course, here we are. We're doing these presentations of the interim results. So looking forward into the months through the rest of the year, then we'll we'll consider appropriate updates and news flow in line with what we're committed to do. So hopefully, that is okay.

23:20 Thank you. Just a question here around m and a. Are you considering further m and a activity? What we're doing, certainly doing is pushing on with strategy as presented on the diversification subject. Right now, we're focusing on tantam down growth and Coleman growth, but we'll review that situation in the future as appropriate. Perfect. Have you received any takeover approaches? Well, if if we had or I'm not saying if we have or haven't, but we would report on that in line with the rules and regulations and the requirements of codes. So we wouldn't one way or the other, I can't say yes or no. I would we would just report according to the rules regulations and code requirements.

24:15 Thank you. Are your significant shareholders happy? Very supportive. So in line with what what we say of the strategy. So what we'll do is continue to listen. It's part of the reason why we're doing this is is present what our strategy is and the progress against the strategy. And, of course, we'll have an individual discussions with shareholder groups, but, yeah, they're supportive. Going in the right direction. Perfect. Just turning to the next question. How well protected are you against inflation on work already contracted but not delivered? Are there review or pass through clauses? There's increased costs if you're talking about turn down, then there are increased cost clauses, which so we commit to a fixed price, and it's a period done for for a year. And then after that, when we reflect back on that year, we can actually claim for the increased costs that we experienced due to inflation. So what we do do in terms of protecting ourselves against this, though, is the the pretender stage, we go to our supply chain and suppliers.

25:29 And if we think appropriate, then we seek fixed price periods from them. So we try to mitigate on that basis pretender. Perfect. And the last question we've got here reads, Tamdan has always been affected on recovering increases in inflation from house builders. Is that the case in 2026? I think I think probably we covered that just in the last in the last answer. This is a slight difference in that. We don't we don't well, like I say, we we do do it in a fixed price. So just to, yeah, it's a pretender. We see where we can mitigate this by seeking price prices from our suppliers and subcontractors.

26:15 And then post tender, it is a fixed price, so there's no no going away from that. But after we finish the first year, clauses in the contract allow us to to look back. And, of course, we have a whole portfolio of contracts going on. So some contracts clearly kicked off in January, some kick off in March, some kick off in so on and so forth. So during the course of the year, your exposure to whatever is going up and down is is related to when those contracts were first awarded, how long ago they were awarded. Perfect. We have I don't know whether I stumbled over that or not, but hopefully, I got the message over. Perfect. We have just had another question come through. How confident are you that AMPA activity will accelerate in 2026?

27:02 Well, for those that have been in the water sector, water industry for some time, they'll know how AMP6, AMP7, etcetera, have previously performed. AMP8 was supposed to be different. Lots of discussion across the sector about the about the pre preparation work would mean that the the dip between the finishing of AMP7 and the pick up AMP8 would be far less, and it wouldn't take so long. From my observation, it seems to be very much the same as it was previously. So what is the case is the commitment in terms of what the water companies have to deliver is the same. So if there was a start and it was anticipated to be done of over five years, it's the same commitment, but now it's in four years.

27:51 So the concern being discussed by the sector broadly is the degree of the ramp up on the overheating, which would have been significant anyway. But because there's a doubling of investment in the water sector, it's gonna stretch the sector even further. So that would be the main thing rather than how confident are we that it's gonna pick up. It's more a case of how confident are we that we will do the right thing and grow and stretch the business, but not always stretch it. And that's our focus that that we will hence why I made reference to the building sustainable growth program to get prepared upfront and know what we will need to do to ensure we can drive the business in the right direction without having upsets down the track.

28:38 So That's great. Thank you for answering those questions you care from investors. And, of course, the company will be able to review review all questions submitted today, we'll publish those responses on the InvestoMe company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Charles, could I please just ask you for a few closing comments? Yes. Well, I'll just thank everybody again for for attention. Thanks thanks for coming to listen to us. Hopefully, you could see the journey that we're on and the progress that we've been making. I think we've got two really vibrant businesses and every opportunity for them to to grow on. So we're quite happy with the progress we've made to date, but not satisfied. I think it's the way to to put it. We've we've got so much more to do.

29:24 I'm really quite excited about the opportunities that lay ahead. So once again, thanks to everybody for listening. That's great. Thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This may take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all. Yeah.