Nexus Infrastructure (LSE:NEXS) — Interim Results

0:02 Good afternoon, and welcome to the NEXUS INFRASTRUCTURE PLC Interim Results Investor Presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company can review all the questions submitted today and publish a written response as well as appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand over to CEO, Charles Sweeney. Good afternoon to you, sir.

0:32 Good afternoon. Thank you. Good afternoon. Thank you to everybody for your interest in NEXUS INFRASTRUCTURE for attending this investor meet company event. We intend to run through our presentation, which has got the interim results for the first half of our financial year FY '24. Speaking today will be my myself as CEO and Dawn Hillman, CFO. Dawn will mention later that our camera is off for for IT technical reasons, but she'll talk about that when she is speaking. So just to look at the agenda, quick view of what we're going to cover, just do a company overview, highlights of the first half of the financial year.

1:19 Then got a few words on the contract wins that we've had. Dawn will present the key financials. We'll then have a quick update on strategy, and we'll wrap up the presentation with a conclusion, and then we'll have some q and a. So to begin with, for those that are not familiar with NEXUS, is that we got a track record in the delivery of essential infrastructure solutions. Last year, we sold two subsidiaries that we had nurtured and grown. And as a result of the sale, we returned just over £60,000,000 to to shareholders. Currently, our trading entity is Tandem. Tandem provides civil engineering as the basic infrastructure for large complex housing schemes.

2:10 It's got a strong brand, has been in operation for more than forty five years. It's got a reputation for the developments which are often very complex and they go through multiphase development over seven to ten years in many instances. So that's the overview of the company. Turning to the highlights for the half year first half. Well, as, again, those people are familiar with us, we we had to resize. We had to take action. We resized Tandem last year because of the, basically, the downturn in the house building sector that we experienced through much of last financial year, but certainly in the second half of the last financial year. So as a result of that, we have a smaller tandem business at the moment.

3:00 And what we can say is that in the first half, it's broadly performed in line with expectations, which is positive. As I mentioned I think I mentioned that we picked up new contracts, eight eight new contracts, eight new project awards. I'll turn to that in a little bit more detail shortly. As a result of those contract awards, the order book has increased over the course of the six months. It was 40 it's down 46,000,000 at the end of the last financial year. We built it up to 57 by the time we got to the end of January, and it's pleasing to see that the order book is at 72 as of the end of the half year. Also, on the matter of operational discipline, which is one of the three pillars of our strategy, so os operational discipline, management costs.

3:55 Also, the introduction of some innovation and new processes that have been brought in. And as a result of that, the gross margin has improved quite significantly in the first half at 13 and a half percent from 11.3% in the first half of last year. I think that also very pleasing to see. Market is still tough. We are seeing signs of of an upturn, but it's it's still early days. And so I think we've used the term cautious optimism in the way we see things. We've certainly a lot more activity in the market and more inquiries. And as we just talked about, we've seen more work coming in, so it's pleasing. But I think it's still, as I say, it's still early days.

4:44 So strategy is broadly is on plan. And we'll talk about the strategy as part of this presentation in a few slides later in this deck. Finally, I should say, is the board has declared an interim dividend of 1 p per share, and that'll be paid on the June 28. And again, Dawn may touch on that in a little bit more detail later on. So with regards to contract awards, so there's eight new contract awards. They're either next phases of the multiphase developments that we are often talking about. However, it is important for us to say that even when it is a multiphase development at each phase, we do have to competitively bid those.

5:30 But as long as we're performing well and we're meeting the client's expectations, then we surely have to be in a in a strong position, but we do competitively bid, though. So selection of these have have fit into that category. It's also the case that some of these awards are the initial enabling start phases of new multiphase developments, which again is gives us a good

5:57 feeling for the future looking into next year and beyond. So some some initial fresh project starts in there as well. I'd have to say in amongst the group, there is one which is is a single standoff complete, quite a large site, but it will just be one one phase in amongst that group in there. That's a good spread of names. You see the the the top names that you might expect for us to be working with. So once again, good good to report that. So on key financials, I'll turn to Dawn. She'll cover those. Apologies that my camera is off. I have a few Internet connection issues and don't want to compromise the audio.

6:44 So the revenue for the first half of the year was $25,800,000 and in line with what the Board expected to achieve. We're pleased to see that the gross profit margin at 13.5% has increased following the cost management measures and operating improvements, which we undertook in 2023. Business is now rightsized for the current market conditions. Operating improvements have been implemented, which include focusing on where technology can assist and ensuring that processes that have had duplications in them have been removed. Administrative expenses have also reduced due to the cost cuts and the review of external service providers we undertook in NEXUS last year.

7:34 Our cash balance sheet remains in a positive position with cash in excess of GBP 9,000,000. The movement in our cash balance since the half year 2023 includes the impact of Ilkie Homes going into administration. In the first six months of 2024, there was working capital outflow of GBP 4,700,000 in the period. This was due to new project awards and the initial costs involved in setting up on-site. The cash impact of the actions we took to streamline the business in the latter part of 2023. The typical h one movements that we expect to see in trade creditors and trade receivables in h one and the type of market conditions that have seen clients reacting accordingly when looking at their own cash position.

8:29 We invested in our own plant machinery as part of the operational improvements, but we were able to do this by using the funds that we raised through selling our own machines that we previously owned. Lead payments on hired machines also reduced in line with the reduction of machines on our site as part of our cost management program.

8:55 In summary, the board is pleased to see that the financial position of the business is as expected. The gross margin has increased to 13.5%. The order book has increased to 72,000,000, and we've got a cash balance which remains over £9,000,000. And we remain committed to paying an ordinary dividend, which we have declared of 1p per share, which will be paid at the end of June. Charles will now speak about the strategy. Thanks, Dawn. So as mentioned earlier, three pillars to to the strategy. So first one, customer focus and growing with our customers as they as they grow.

9:44 So as we continue to provide high quality services and a focus on on health and safety, This means that we're valued by our customers, and we can, as a result, build longer term relationships and particularly against those multiphase developments that I mentioned earlier. So that is a is a number one

10:06 part of the strategy. The first part of our strategy is to stay very close to our customers, provide them a good service. And as a result, our customer loyalty sees us well placed in in developing in being on the developments of these multiphase investments, which many of which last over several years. Second thing is with regards our corporate experience and the track record that we've had in developing subsidiaries and their activities in in other sectors. So I mentioned before, we sold two subsidiaries last year. So we've got every opportunity to use that corporate knowledge and experience to consider other sectors. So

10:53 we're well down the track of at least doing research, and we made some thoughts and inquiries of of how we might go about that. So I'd I'd I'll hold fire in actually the detail of where we've got to on that other than to say that any sector that we might consider in diversified to would be a sector which is part of UK national infrastructure. So it'll be critical needs the country's got and is facing as a result of, let's say, environmental damage. We've all heard about well, quite recently, we've about water problems on water with down in the Southwest. That flood prevention, it can be that. It can be energy. It can be transport.

11:39 But we're certainly sticking with the plan of it being something relating to critical national in infrastructure. I think they have in the in these various sectors, for what I've noted, they have programs which meant, like, in water, the AMP programs, they're five and ten year frameworks. So it's such has an attraction from a point of view of the expenditure is is quite well laid out. The intended expenditure is quite well laid out, and there's a great deal of transparency of that. So that's what we're looking at and we're considering. It would always be in areas of activity that we have knowledge in and have capabilities in as in basic civil engineering activities. So we're well down the track and look at that looking at that.

12:25 Finally, the point is to mention that we must continue at all points to cons to concentrate on financial delivery. So the operating discipline and the management of costs. But, also, as as Dawn mentioned, we're also looking at innovation and the application of technology to reduce base basically bureaucracy and inefficiencies that come with handling data in different formats when it could all be within one system. So I'm quite encouraged by the progress that we've made in this part of the strategy so far.

13:06 So turn turning to conclusion. Then as I said before, it still is a a challenging market, although we have seen some improvements. We're hopeful that the progress that they've made so far will continue. I'm actually thinking that the real pickup in the house building sector may not be until 2025, but between now and then, we will continue to see an improvement in in market activity. And so we're kind of measured in our view of how things are in the market overall. The operational discipline that I mentioned is really coming through, and we're actually seeing the benefits of that and improvement in the gross margins.

13:56 I think with the balance sheet and the growing order book and the activities that we've carried out so far to improve productivity, we've got some strong foundations and are positioned very well for the future as a result. Now I think we're over to Q and A. Perfect. Charles Dorn, 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 which is situated in the top right corner of your screen. We have received a number of questions throughout today's presentation. And what I wanted to do is start off with the first one here which reads as follows. Given the strong balance sheet and the continuous decline in share price, have you considered buying back shares of the company in the open market?

14:43 Well, I would say, first of all, boards, you know, we regularly consider our best use of resources, you know, in the interest of the company and and for the shareholders. I think we've shown working capital demands for Tandem down, particularly as it returns for growth returns to growth. So I think we just to summarize the points, we're always thinking what's the best use of cash. But with regards to the point, how that might affect share price, yeah, I think the share price responded quite well yesterday, which which is a positive recognition of of what we're doing. And I think we would expect that from a shareholder point of view, the share price should improve further as we continue to grow grow the business.

15:35 Perfect. And maybe just following on from that, is NEXUS expanding its client base geographically within England? That's not the current intention. Our our footprint is the Southeast. It stretches quite a long way from well, it comes from the South Coast all the way up Cambridge, Peterborough at the moment. We're not intending in the near future to expand beyond the Southeast. Perfect. Thank you very much, Charles. Turning to the next question. Does NEXUS pitch for local authority infrastructure projects? No. Well, that's I mean, that's that's a good point and perhaps something for us to take away and to consider, but that's not currently in our plan.

16:27 We don't we don't. So but I'll take that away. We've considered it in the past. I'm chosen not to, but, you know, we could take a look at that again, but we don't currently. Thank you very much. Why did you terminate your credit facility with the bank? I think given the cash balance that we have in the business. We don't actually consider that something that's necessary. These things come with a significant cost attached, and we don't think paying for a credit facility that we don't use is an appropriate use of cash at the moment. Perfect. And maybe to follow on from that, net cash has fallen by £5,000,000 in the six months to March. Where is it where did it go?

17:17 As we mentioned in the presentation, there was the cash impact of the cost cuts in 2023 and the cash requirements of the new site starting, plus there's the typical working capital movements that we tend to see in the first half of the year anyway. Perfect. Thanks very much, Dawn. Will the company communicate more often with the market via RNS to attract more retail shareholders? Well, I'd certainly be happy to have more communications with shareholders. But I think the useful thing would be if it's the case that you can provide feedback on this IMC event, Yeah. Include everybody, in fact, whoever if you who's listening. If you can spare the time is to provide some feedback, and we'll we'll take that away.

18:11 It's hard to increase our communications. Perfect. Thanks very much, Charles. The recently released April PMI signaled a setback for house building activity with PMI at forty seven point six. This seems at odds with the quite impressive order book growth NEXUS is experiencing. How should we think about this? Is this TAM down increasing market share, is it UK regional differences, or is an activity timing issue or something else? Well, I think the market well, it's it's always a hard one to call. I mean, it I think we need to we we need to use a variety of different sources to come to conclusions. You know? Because if you look at the the main developers, you could see different views being expressed about their sales rates sales rates per outlook per week.

19:02 I mean, history was quite bullish. Was it yesterday or day four yesterday about their expected completions this year? They think they're gonna be 10% up. I think you can also look at mortgage application rates, which have ticked up as well, and and everybody is second guessing as to what the Bank of England will do with the base rates and when that will when that will happen, whether it'll be June or September time. So I think it's just it's just important. You just have to take a spread of information, and PMI is one of them and one of the very important things to look at. But I don't think it is the sole guide for how the market is performing. Perfect. Thank you very much, Charles. Next question here. Can you explain why there's been such a growth in the order book?

19:56 Well, I if we've not covered that already, but I think the the fact that we were so close to our customers, particularly on these multiphase developments. So if just saying, if we're a multiphase development, we know that this is intended to be eight eight phases, and we are on phase number three. We're very close to what the activity we can feel from the customer their desire or otherwise to push on with phase three and whether phase four is likely to be coming up. So I think we'd said previously that we were quite confident that we would be able to predict them from our micro world, if you like. We could predict in our case what what the impacts were gonna be on the business and how things might turn around, and that's why we were so confident in the actions that we took at the tail end of of last year.

20:55 But we've stayed close to them, performed well. And as a result, the order book has picked up quite quickly. Now the second thing, perhaps we didn't say in the presentation so much, but we have previously commented on, is that when the market starts to pick up, then it is the case that Tandem is on the leading edge of that. It's the first entity that's on-site. It's providing the initial site enabling activities and is also the basic infrastructure, which will allow once we've got the roads in place and the main foundation and the other trades can appear. So so perhaps for some of the other trades, they may not yet be experiencing the upturn in an improvement in their order book, but perhaps they will do in due course.

21:47 But, certainly, I think a combination of the two being first on-site and being close to our customers on the multi phase developments have resulted in us having a promising first half and growing the order book. Perfect. Thank you very much, Charles. Turning to the next question here. Why has the gross profit margin increased? I think Don's probably covered that, but it is it is a case that we've we've to add to what the comment on the process improvements and and bringing in some some technology to help us with that. It's also been a point that, you know, normally, the margin is affected by the the initial tender margin, what we've been able to secure work at, so the price that we're charging to to our customers.

22:38 That, for sure, was under a lot of pressure last year. We held our nerve. It did mean that, you know, we were not prepared to chase down to the to the bottom if that was if it was work of that nature. We just stepped away from it. So we've maintained a the value, let's say, with our with our customers. So so that's one side of it. The other side of it would be the cost inflation, which would be impacting our margin from below, if you like. And that cost inflation, which was quite high at the earlier part of last financial year, started to tail off, has moderated now. So it's it's much more in control. So I think the combination of of those three has meant that we've been able to to grow the gross margin.

23:31 Perfect, Charles. Maybe time for just one more question. Can you say a little bit more about the potential for diversification? Again, yeah, this question probably partly answered. But, yeah, I think when I talk about I think I like the water sector. That's a particular interest. It just seems to be the whole time. There's the in this in the news, in the press, whether it be the matter of the supply of water, which is what we talked about down in the Southwest at the moment, or the river pollution, which is constantly being discussed and talked about. The expenditure that's required, sadly, is is quite significant, sadly, from a consumer point of view.

24:20 Is quite significant, and it is gonna be over many decades. So we're just looking at it, and we're interested. And I think we can definitely see that the skill sets that we have, we could apply very successfully in those in those sectors. And as I've said, there there's a lot of attraction by the fact that it's UK national infrastructure driven rather than it being necessarily something more driven by interest, like, let's say, like, of of private house building, which is perhaps is more prone to phases. So interest in that point of view, the transparency is there and that the frameworks are all laid out. It's quite clear what the expenditure is gonna be, and the contracting terms are quite attractive too.

25:11 So, anyway, we've got experience. We could make use of it, but we'll see. We're doing the necessary investigation research at the moment to consider our options. Perfect. Charles, Dawn, thank you very much for answering those questions. Of course, the company can review all the questions submitted today, and we can publish written responses to those on the investor meet company platform. But just before redirecting investors to provide you with their feedback, is particularly important to the company, Charles, can I just ask you for a few closing comments? Yes. I just, like, reiterate what we said before is just thanking everybody for for your attendance and your interest in NEXUS INFRASTRUCTURE. I hope we've given a fair presentation of our first half results and answered the questions as they've come up.

25:57 But, yeah, we look forward to getting feedback because if there's an interest in in more dialogue with us, we'd be very happy to do that. Perfect, Charles. Dawn, thank you once again for updating investors today. Could I please ask investors not to close this session? I should now be automatically redirected to provide your feedback, and the management team can better understand your views and expectations. This may take a few moments to complete, but some should be greatly valued by the company. On behalf of the management team of NEXUS INFRASTRUCTURE PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.