Nexus Infrastructure (LSE:NEXS) — Preliminary results for the year ended 30 September 2023

0:01 Good afternoon, and welcome to the NEXUS INFRASTRUCTURE PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and they can be submitted at any time using 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 is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO,

0:32 Charles Sweeney. Good afternoon to you. Thanks, Alex, and good afternoon to everybody. We're here this afternoon to provide a presentation of our full year ninety twenty twenty three results for NEXUS INFRASTRUCTURE. So we'll step through and begin with let's see if I can work your technology. So introduction for ourselves. So I'm Charles Sweeney. I'm the chief executive. I was appointed chief executive February last year. Prior to that, I was the chief operating officer for six years. I had the additional role as MD of Tamdown for the f y seventeen and f y eighteen. My background comes from several infrastructure sectors in energy and in renewables and in water, etcetera.

1:26 Hi. I'm Dawn Hillman. I'm NEXUS CFO. I have been NEXUS company secretary for six years and appointed CFO a year ago. Prior to that, I have been Turnbown's finance director from 2006 to 2018, and I've also worked with other construction companies within the group. My background is very much finance and governance, and I'm a chartered company secretary as well as a chartered accountant.

2:05 So just a quick run through the agenda that we have planned. So we're gonna do an overview of f y twenty three. We'll do an explanation of our strategy that we've developed. We've got a few words on TAM Down for those who are particularly not familiar with the with the business. We'll then dive into the numbers, the key financials. We've got a couple of case studies to show you so they get an understanding of the the large multiphase infrastructure projects which the business undertakes. I will share some thoughts on our look ahead, and then we've got concluding slide with the conclusions. So let's get to the first. So looking at f y twenty three, basically, we see a significant year of change.

2:55 Obviously, we completed the sale of the two subsidiaries, Triconnex and eSmart Networks, and we returned £60,500,000 to shareholders. These two businesses have grown significantly whilst under NEXUS, and we're very pleased to successfully have completed that sale, as I say, in February last year. Post the sale, new management team appointed. That's, in essence, us too. And during the second half of the year, which is, in essence, the focus for this discussion, while we transition to the new NEXUS, let's say, we this requires splitting of a number of the teams in the previous businesses and the separation out of the IT systems. Now that was relatively complicated, but we completed it without disruption to the businesses, which we're very pleased with that.

3:51 As part of the reorganization of NEXUS, we also took a look at both our internal costs and our external suppliers and advisers, and we made a number of changes there. At the half year point, we mentioned that we are our target was to reduce our costs to the 1,700,000 run rate. Pleased to say that by the time we reached the end of the full year, we'd achieved that. So our run rate was down to 1,700,000 costs. Also significant in this year of change was the decline of the housing sector, which was already in a a difficult place, let's say, the first half. But in the second half, there was a significant downturn in the housing sector in general, and Tam Down was affected by that quite quite seriously.

4:44 We'll go into that in some detail in the slides, but you probably have picked that up already in the text that we presented and mentioning to the specifics of the failure of ilky homes in particular, but we'll come to that in the later slides.

5:02 If I move to the matter of strategy, so three elements to our strategy. Off is the matter of growing with our customers. The Tandem business provides high quality services to maintain the loyalty of the customers, and we work on multiphase large complex developments, which, basically, if we perform well on each of these phases, we've got a very good opportunity to move on to the latter phases. So as the customers grow and as we see the return of the housing market in the year and eighteen months ahead, then we anticipate that we'll get the opportunity to grow with the customers and develop the business accordingly.

5:51 The second part of our strategy is related to options for diversification. So we are looking at sectors. Any sector which is related to critical infrastructure needs, that's that's very important for us. But as long as it is something which we see that is driven by it could be demographics. It could be climate change. It could be the just the growth of the population as a whole. Those things that we see as of long term benefit to the country and an area that NEXUS should be involved in. Essential infrastructure solutions is what we're targeting. The third matter in our strategy, it relates to maintaining the focus on financial delivery. This is the existing business.

6:41 We need to continue to improve our productivity and the contract margins. We'll be tight in managing discretionary spend, and we'll certainly keep close watch on cash going forward.

6:57 As I mentioned, this is just a quick overview of of Tundown, the Tundown business. So this this slide provides you with that drone shot of of a development or housing development. In essence, the point to emphasize here is that Tundown is involved in the basic infrastructure across the whole site, everything from the initial enabling stages right the way through earthworks to the actual trenching that's provided for the utilities connections. And even once the site is all the other trades have been through the site, the very tail end would be involved in the cleanup and the landscaping and the tidying up of the whole site prior to the houses being sold.

7:44 So as we see the pickup in the housing market coming, Tamdem will benefit for being on the front end of the curve. We will see that through not just the existing multiphase developments we've got, but also in the pipeline of new opportunities that we see with greater transparency now as the months go forward. At this point, we're gonna turn to the numbers, so the key financials. So I'll hand to Dawn from this point on.

8:19 The revenue for the year was 88,000,000. This is a drop of 10%. However, that reflects the market conditions, particularly in the second half of our year. We had a loss of 8,400,000 as a group. This was severely impacted through, one off hit from ilky homes going into administration, which wasn't just, the impact of the debt that was due to us at the time, but there was turnover and profit that we were expecting in the latter part of the year that didn't come through. On top of this, we took some decisions to recognize some losses on some contracts and some debts that we thought was best to adjust now to set the business up for 2024 and the future.

9:15 This means that turnaround's underlying position would have created a profit of two and a half percent, which would have been a good return for the year and shows that Tandon is starting to come out of its restructuring and refocusing that it has been focusing on for the last couple of years. The order book has grown by 24% since the year end, increasing from the 46,000,000 to 57,000,000 by the end of January.

9:52 We're pleased that the balance sheet has maintained a strong position. This gives us a really good basis for moving forward. And net assets have remained at 33,000,000 despite the sale of the subsidiaries. And we've have a strong cash position, which will support our working capital going forward, but also enables us to not have debt facilities in place. So our cash of $4,614,600,000 gives us a strong position. We're also pleased that we're able to return further value to shareholders via a final dividend of another 2p per share, which will give us a full year dividend of 3 p per share on top of the £60,500,000 that we have already returned during this year.

10:50 Charles will now take us through further information on the operational side of the business. So I've mentioned the the large multiphase projects. I've got two examples just to to present to you to emphasize what I've been saying. So you can see that with these projects that in background picture that that there are a number of phases often to these developments. So in the case of this first example, it's t w Taylor Wenpey project at Chilton Woods in Sudbury, Suffolk. This was a full scope earthworks, roads, drainage systems, plot works, etcetera, right the way through the site.

11:36 In total, this development will have 1,150 homes. The first contract we picked up for this was the infrastructure, which was in October 21 and included a four kilometer spine road for the site. Phase one plots were awarded to us in, say, four months. Later was in January 22 of 200 units, 200 houses in that first phase. Thereafter, and outside of the reported period, so in our year end is at the end of September twenty three. So in October 23, we picked up phase two of this development, which was a further 250 units.

12:28 A third phase of 150 homes is coming soon, but we can see that in total, 700 units still in front of us is potential for us. We do have to perform. I mentioned that before. We have to perform well. And in in between each phases, we'll find ourselves in a competitive position tendering for it. We're performing well and the client recognizing not just the value of the work we've done and we can do, but also that we've we've got a site set up already. There's cost for the client there for them to consider. It means that we've got an advantage, and I'm pleased to say that for many of these developments, we're able to make full benefit from that by securing phase after phase. So what's the takeaway from these is is that it's not certain that we're gonna work on each of these phases, but we're in a very good place.

13:26 This is the example number two. This time for Dandara at Toulins Park Braintree, which is just to the north just to the north of Braintree. Again, earthworks, the initial setup of the site and so on and so forth. Phase one, in this case, included the infrastructure and a 170 units in in Mongol, and that was in May 22. We then carried out some further some office development, some infrastructure work. And then then it was around this time last year that we picked up the next phase of a 160 units. So, again, there's a further 180 to come in a in a in a upcoming phase. And also, as is the case with all of the developers, that if we're performing well, not just on these particular developments, there will be other work. So in the case of Dandara, they have a separate project coming up again in the area, Little Dun Mall, first phase of that 160 units, and that's in the near term as well.

14:29 So I hope that gives an understanding of the Tandem business and the type of work that it undertakes. So couple of slides on our thoughts on looking ahead. So the fundamentals, I'm sure many on the call are actually already quite familiar with residential house building sector, but I'll just broadly mention the fundamental drivers behind the sector. So the government discussed four, five years back about a target that they would see necessary to meet the requirements of of the country as a whole. But just talking about England, a target of 300,000 houses needed each year.

15:19 Now pre COVID, we were on the curve to be able to get towards that 300,000. I think from a low point, perhaps in the region of about a 150,000, which was back in 2013, we'd risen we'd gone up the curve, we'd managed to get to two hundred and fifty thousand pre COVID. But, of course, the the impact of COVID and the decline in the housing sector has really given that quite a hit. So so we're I I don't know because we don't know yet the full figures from the office National Statistics. We'll find that out in due course what happened last year. But I would anticipate somewhere in the read between a 150, a 160,000 houses may have been completed last year. That's well off the 300,000 target.

16:11 And so there's a fundamental driver that's there behind this sector. The sector will come back. It's only a case of time, and we have to judge when that will be. So we're very confident that the the opportunity is there in the market. We've seen some things recently. You probably again have seen them, the trading updates from TW and Persimmon commenting on the increased number of inquiries that they're getting. And we've also seen some positive comments being made by S and P Global UK Construction Purchasing Managers Index, again, talking about the sector as a whole and the increase of of the upturn, I should say, in the residential house building sector. So I think Tandem is well placed in this market for a positive result in the year ahead.

17:09 With regards to the operational matters on the right hand side, we can say that the first quarter were were basically trading in line with expectations. So so we're quite pleased with the operational performance of the business in this financial year so far. We've noticed that cost inflation has been reducing. I mean, we'll keep a close eye on that because it does need a close we need to be vigilant, I should say, on that matter. But, yes, cost inflation definitely been increasing. Well, I mentioned before about maintaining a tight control on on discretionary spend, and we'll continue to do that.

17:54 The takeaway from this particular point would be that the business, the hard decisions to be taken in the last financial year to resize the business and to have a go at cutting the costs. So I think the business is very well placed for when the market picks up again. If I turn to this slide, with regards to financial, as Dawn mentioned, the balance sheet remains strong, and that's it's in a robust position and gives us a number of opportunities going forward. We've certainly taken the actions to improve margins for the future. And the order book, which hits a low point at the back end of last year, has improved and is up at the end of January, as we've mentioned in our announcement.

18:48 So we're on the right trajectory with order book on the increase. Strategically, TandemDown, very well placed to flourish when the market returns. In parallel, we're looking at options for diversification in other sectors, and we've got a good track record in growing subsidiaries, as we've noted at the beginning of the presentation. So we just got a concluding slide before we open up the questions. So conclusion, basically, a year of change for the group. The sale of the two subsidiaries, returning 60,500,000 to the shareholders. FY 'twenty three for residential house building sector, very challenging. And as a result, we've had to make a number of changes to downsize and get the business in great shape, which it is now ready for the return of the house building sector.

19:50 The order book has improved, and we are looking at diversification as opportunities for further growth outside of the house building market. So at that point, we are ready for the questions. So thank you very much for your attention for the presentation. Alex, back to you. That's great. Thank you, Charles and Dawn. Thank you very much indeed for your presentation. I will now bring your cameras back up. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A can be accessed via investor dashboard.

20:38 Charles Dawn, as you can see as you know, we have received a number of pre submitted questions, and I wanted to start off the Q and A session with these. The first one reads as follows: You mentioned TAM down position to return to growth and higher margins. What more specifically are the opportunities you see for TAM down growth in the future?

20:58 Well, when I I saw that question, as you say, I I wanted to just highlight or comment of certainly looking back about where the house building sector has been and to further emphasize the potential for where it can go. So first of all, if I looked at the the numbers for the houses housing starts, let's say. This is ONS data, which is presented quarterly. So housing starts in the quarters July, September. If look I look back over the last years through 2014 through to September 2023, typically, you would expect housing starts to be in the region of about 50,000.

21:50 50,000 houses in The UK started in that quarter each year. That's about the average that I see across those years. In the quarter July to September, it was just 28,600. There was a significant significant drop in the number of house starts in that quarter last year. If nothing else, if the market just simply returns to where it was before, the rising tide of the of the market just brings the opportunity for Tundown. Tundown, just even just on maintaining its current market share, has significant opportunity for growth just as the rising tide. Of course, we want to do more than that. We want to take more market share than we've had in the past. But just on that basis, there's a great opportunity.

22:40 The second thing I'd say on this is the pressure that had been on margins. So

22:49 volume is one thing, but more important is the profitability. So if we look at the margin subject, there is definitely pressure coming from above. Again, those on the call who are familiar with the the sector, they would have seen a number of the major house housing developers saying that they were expecting the supply chain to provide a discount on existing business, existing contracts, expecting discounts of 10% and so on and so forth.

23:17 Of course, there was pushback on those matters, but we could understand why those our customers would be asking for that because they're trying trying to to do do the very best in turn for the actual owners of the houses of the future. So but there was pressure from above, and there was pressure from below because there was a lot of inflation in the cost base. So the second point I'm making here, first being volume, second one being margin, I think there's very good opportunity for the growth in the margin as we go forward with those pressures top and bottom decreasing, which we've seen in the recent months. So the last thing in this is we we've talked in general about diversification.

24:04 So housing sector is is one thing. Diversification is another. That's a bit of a little bit of a longer term play, but that's the third thing that I think would be worth us mentioning in answering this particular question. Perfect. Thank you, Charles. Turning on to the second question here. As far as the growth opportunity as far as other growth opportunities, can you provide more detail on your acquisition strategy? Okay. With acquisition strategy, I've mentioned that what we're interested in is anything which is critical infrastructure. So it may not be that we'll do it by acquisition. That's that's one thing. So it's it's an option, and we'll certainly that that's, as always, one of one of the considerations about the advantages of of organic growth against acquisition.

24:57 Acquisition is part of a potential strategy of a strategy. Critical infrastructure is what I mentioned. So things like

25:05 I see river flooding because of climate change. It's it's becoming more and more a sad, Kate, particularly in the summer in the summer, yeah, summer months, a number of properties get deluged from flooding. So that's a possibility. Civil it's civil engineering. It's civil infrastructure. It's something that's not gonna go away. It it there's an opportunity for us there. There

25:33 could be it could be the water sector. You notice the whole matter of water supply, droughts. The summers are hotter and drier. There's opportunities. I mean, the AMP programs, again, number of people on the call will know know about the AMP programs, lay out with some degree of of transparency the intended expenditure for five year periods in a block. So I've got past experience in this area. I know the the the attraction for for having to be involved in something which is fundamental needs of the country, but it's also something that has a transparency that you can see what the planned programs are. And once you have your company accredited and you manage to win a place on the framework, then that brings a certain assurance as to what your future revenues and profits might be.

26:29 So I just put up we're not pointing in a particular direction. It's just at this stage. It's more down to it. It'll be adjacent. It'll be civil engineering construction, and it will be critical infrastructure. Perfect. The next question is, working with clients such as Taylor Wimpey, what additional insight have you had from the larger house builders on growth prospects in the sector?

26:55 I guess that question is asking for stuff which is not published because everybody can you can go and see what I've just mentioned before about the trading updates from those ones. So anecdotally, then what we can say is, without naming particular customers, is that what we do have with them at any one time, we will have at least a visibility of the pipeline, which might be twelve months out. So we will we will know we've talked before about multiphase development. We will know what the planned timing is for the next the next phase of a of a development. What we have seen during the last during the second half of the last financial year was that it wasn't these that these projects were being canceled or that we were losing them. It was more a case that these were being pushed out, being pushed to the right, as we would say, on the program.

27:58 So what I can say from this anecdotal point of view is that this visibility of the twelve month pipeline, it's now pointing to the fact that these projects are coming back back in line with what our expectations. So it's too early to say that the market is is is fully back. Well, it's not fully back, is it? But what we can say is initial indications from these major house builders are that their sales rates are up, their inquiry levels are up, and they're now pointing to the developments of the jobs that we had on our horizon of actually saying, yeah, we're gonna be moving that forward. Whereas in six months back, these were all getting pushed to the right.

28:47 Hopefully, that's helpful. Thank you for that. Another question here asks, many competitors will not have the balance sheet of NEXUS. And during this difficult period, some have gone out of business. Set against this, there is less work available to tender. What is the overall effect of this on the competitive landscape? And could you please comment on the impact, positive or negative, on margins? Yes. Okay. So I mean it's I made the point before, I think, in the question one of the earlier questions, which was relating to how margin impacted was from above and from below. So hopefully, that's answered that aspect of the question. But with regards to strength of the balance sheet, I think there are instances where some developers maybe have been tempted in their in tendering the work that they've, I don't know, gone gone very aggressive in their expectations of what would be possible or what they're what they're going to award the worker. So pleased to say it's not it's generally not our customer base, but but I've seen it, this this happen.

30:02 And so it seems in the short term that that's a good idea to drive the tender margins down. But, unfortunately, what can often happen, and particularly if the work is awarded to smaller companies, is that for both sides, for both parties, at some point in the future, that ends up as a real difficulty for both parties. It ends up that from the client point of view, the customer is is is finding that the the delivery of the work is slower, that the the entity that they've got involved is is is having difficulties, so it's not able to to execute the work as originally planned. And for the for the contractor side of it is, yeah, it's very painful, and and it can actually lead to to failure at some point. I hope that isn't the case. I mean, we're we want a buoyant, unsuccessful house building sector. But I think for the from a a robust balance sheet point of view, that aspect of the question, that's something that does set us apart.

31:13 It does mean that when there are troubled waters, such as the subject of ilkie, that we're able to, if we have to, we're able to ride that out and and find our way through the difficulties and to be able to deliver our services to our well loyal customers for the years ahead. So I think having a robust balance sheet is is something which is needed, and it also gives us opportunities and will give us opportunities in the future. Perfect. Thank you. Turning on to the next one here. When the two other NEXUS divisions were sold in early twenty twenty three, the Allied Irish Bank 5 to £10,000,000 revolving credit line disappeared.

32:01 Is it still intended to replace this? And what and what will this mean for the element of cash that was retained to as a bridge for time down until this happened? The facility that was in place with the Allied Irish was never used, and it incurs a significant cost. So we don't feel that it is a good use of cash to actually pay for something that you're not using. And given that current cash balance, we can use that to support the working capital requirements of turndown over the coming months. So it is not our intention at this time to actually renew that facility. Thank you, Dawn. And moving on to some live questions now. Can you provide more insights into the new contracts that have increased the order book to £57,200,000?

32:57 How confident is the company in its ability to maintain or increase this momentum in contract awards? Well, one of the Taylor Wimpey case study presented before was one of the the jobs that came in in the period October through Christmas. So that's £13,000,000 job, if I remember correctly. So how confident are we on the ability to maintain that? Well, there's an upturn in the market is what I've said. There's no there's no certainty in life.

33:43 We do have this twelve month horizon visibility. We're in conversation with a number of of of the customers on their intended moving forward with those phases and new project. I'd say is that our our tender win rate so we're successful one out of two to one out of three of the tenders that we put in. If I remember correctly, the year to date number is one out of 2.4. So so we're only involved in tendering work that we really think has got that we've got a viable opportunity and that the the customer is one of the customers that we'd want to work with, you know, customers that treat us correctly. It's possibly the right way of putting it.

34:41 So I can't say that the trajectory that we have between the end of the financial year and the end of January will continue. I hope it does. But that would be for something for us to talk about perhaps when we get to the half year. We'll reflect on how things have gone. Thank you, Charles. The next question I can see here asks, is your hit rate of success in winning subsequent phases of work on multiphase projects? I was about to say all. I just said what that was. But the the win rates on the multiphase is much higher. I don't I don't have the particular statistic on that. The statistic I gave you before was is just in our our tendering estimating department overall, a large percentage of which does relate to the multiphase multiphases.

35:34 But there are a number of other fresh greenfield opportunities within that. So I don't have the direct answer to that, but it's better than the average, which is currently year to date one in 2.4. So better than one in 2.4 is all I can say. Perfect. Another question we've got here is what activities might be of interest to you for acquisitions, and what size of war chest do you realistically have? What size of war chest? So so depending on what we intend to do, whether that there's a number of different ways to approach diversification. But if it was straight out acquisition, even with that subject, there's a number of ways to approach the funding of the acquisition.

36:26 We've got a very strong balance sheet. We've got opportunities within that to make use of it, but we've also got other thoughts and possibilities of how we might fund such an acquisition. But that is for a later stage. Perfect. Turning to the next question. What are the cash flow characteristics of the business? So we have a fairly steady month end position, but we have working capital requirements within the month of between 5 and £6,000,000. Perfect. And perhaps the last question here. Given the balance sheet strength of NEXUS versus competitors, do you see any opportunities for strategic acquisitions?

37:13 I think that's largely been covered already in the in the previous questions. But, yeah, I just want to just reemphasize some of the points we've raised before, which is having a a robust balance sheet and the actions that we've taken previously places us in a very good position with regards to the existing business and the things we can do with that business in residential house building. As the residential house building sector picks back up again, we've got the wherewithal and everything that's needed to be able to really take off as the sector comes back. And the fact that Tandem is at the leading edge and is first on-site and is therefore gonna experience the upturn right at the front of when the upturn is is is coming through the housing sector.

38:08 So the robust balance sheet is important for that in itself in allowing the applying applying for the growth going forward for the working capital requirement demands that will come with growth. The second thing, though, of course, we've said and why we're excited about the business is, you know, we've got the skill set. We've been there before. We know how to develop subsidiaries and grow them rapidly. So we're looking at other sectors and other possibilities, the balance sheet is gonna help us with that too. So I hope we've conveyed those those two particular points on this on this session correctly. Perfect. Charles, Dawn, those are all the questions from today's Q and A session, and thank you very much for addressing those. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Me company platform.

38:59 But before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Charles, could I please ask you for a few closing comments? Yes. Well, I hope that we've presented the business well. I want to thank everybody that has joined joined the session. I really did want to emphasize these matters that we've we've had a really, really interesting year. We've had this return of 60,500,000 to shareholders having sold two subsidiaries. We've gone through a period of transition. We've, unfortunately, for the subsidiary, Tandem Down, had a very difficult housing sector, but we've taken the necessary actions. We've done that in the in the year f y '23. The business is really well placed now. We've got that balance sheet, and we've got the the skill and where wherewithal and the knowledge to be able to grow not just within the housing sector, but potentially in other sectors. And I hope that we've conveyed that correctly in the course of this webinar. So once again, thank you to everybody that's been in the session.

40:04 Perfect. Charles, Dawn, thank you once again for updating investors today. Could I please ask investors not to close this session as 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.