Nexus Infrastructure (LSE:NEXS) — Full Year Results

0:00 Good afternoon, and welcome to the NEXUS INFRASTRUCTURE PLC full year results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time. Just placed in the Q and A tab situated in 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 in the meeting itself. However, the company can review the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Charles Sweeney, CEO. Good afternoon to you,

0:31 sir. Good afternoon, and good afternoon, everybody. So talking today will be myself. I'm Dawn, CFO. We've got an agenda to run through. Now we're gonna do introduction to NEXUS, then we'll have some comments on our strategy and the progress that we've made. Dom will then go through the key financials, and I'll provide a brief overview of two of the sectors that were involved in, house building sector and water. Before we wrap up, we'll have a brief summary.

1:10 So for those that are not familiar with NEXUS INFRASTRUCTURE, in essence, we're a civil engineering construction business. Tandem Down is the operating sub subsidiary focused on the house building sector. And post year end, we completed the purchase of Coleman Construction Utilities. Again, for those who are not familiar with our business, just a few words on Tandem. More than forty eight years now in business, a long track record. Provides basic infrastructure for large multiphase developments. So you can see on the on the image there that's involved in roads, the the basic drainage, the house house foundations, and so on and so forth. So it's at the front end of any of the large developments housing developers that we wanted to undertake. And as you can see in the bottom right hand corner, we're involved with just about all of the the main housing develop national housing developers.

2:13 A few words on Coleman. So Coleman, as we say, post year end, we completed the acquisition of Coleman. It's busy across a range of sectors, but mainly water and rail. And we'll say a bit more about the diversification strategy just shortly now.

2:33 So as we painted out our strategy, we painted out some sixteen months back now. So three elements to our strategy, growing with our customers, and pleased to see that our order book has grown in line with that. Dawn will be talking about figures later. But in essence, the order book's grown by 1212%. Expanding the market, that's the diversification. I made reference to that with the acquisition of Coleman. Very pleased with that. Very excited about our future in water in particular. And also the third element was the focus on financial delivery. So keeping things tight, that's represented by the improvement we've had in the gross margin, which has improved to 13.7%.

3:25 And Dawn will be talking about that just shortly now. So I'll hand over to Dawn so she can run through some of those points. We are pleased to report that our financial year '24 delivered an improved overall financial performance. Revenue was down in the year of 56,700,000, but that was as expected by the board. It does reflect the market conditions of the house building sector over the last few months, where the pace of recovery has been slower than anticipated. Customer confidence was affected, by uncertainty created through the general election and slower than anticipated reduction in interest rates, which continues to affect affordability.

4:12 Gross profit increased to 7,700,000, taking the margin up to 13.7. The improvement in this area demonstrates the operational discipline and management costs within Tenpin that is now coming through in in the financial position that they see themselves in. The operating loss before exceptionals was 2,200,000. Both the gross profit improvement and the reduction in NEXUS overheads, which was nearly 500,000 in the year, contributed to this position. Cash was 12,800,000 at the year end. This will support our growth ambitions from both the working capital perspective as new contracts are secured and future strategic plans.

4:59 The board is recommending a final dividend of 2 p per share. This will take the full year dividend to 3 p per share, which is consistent with prior year and can and gives us the ability to continue to return value to our shareholders. The order book has increased by 12% up to 51,600,000, which we're pleased with because it given the challenging house building market that we continue to face. The improved financial performance can be seen in both the p and l and the balance sheet.

5:46 The operating loss reduced from 8,400,000 to 2,200,000. That's part of the improvement in the gross margins from the actions taken by management on costs. And the net finance expense remained the same year on year as we invested in machines and kept investment in the business and growing the business going forward. Our balance sheet remains robust with net assets of 30,000,000. Trade receivables includes retentions of circa 7,000,000, which tends to distort the figures slightly. Longer to this is long term debt and bills over the life cycle of the contract.

6:35 A trade receivables normalized position is forty five days against contract terms of around thirty five. This forty five to thirty five day comparison is partly due to retentions, which can take slightly longer to settle than contract work. We will Turn Down's recruited a commercial director who's focused on improving the debtor position from both short term and long term, and we're working on reducing the retention balance to include reducing cap introducing caps and collecting retentions quicker. A cash position will support the working capital requirements as the housing market improves and the order book increases.

7:29 As we win more work, we tend to see that we need more cash to support the early days on-site. Alongside that, we've been able to complete the acquisition of Coleman from our cash balance. Coleman has the cash balance itself, which means that the net impact to NEXUS after acquisition and transact transaction costs was around 3,000,000. I'm now gonna hand back to Charles who will talk about more on our markets. So thanks, Dawn. Just a couple of points to emphasize the house building sector. Again, for those people who are involved already in the sector, this won't come as any news.

8:17 But in essence, I'll just make reference to a couple of things. First, we've always made the comment about the importance of the house building sector to the nation. For many, many years, we've been way behind the targets needed in order to provide new high quality housing at an affordable rate to to to the nation. So the numbers of completions have have never got anywhere near the target of 300,000, but the government, the new government, labor government, is doing some pretty interesting things on the planning side in order to try to alleviate that difficulty or that roadblock. So the target I set out now is 370,000.

9:06 And as you could see on that chart, or you may may be able to see on that chart, In recent years, we peaked out at around 240,000, something like that. So, I mean, who knows if we will get to the 370,000? Let's hope that is the case. It's supposed to be 1,500,000 homes in the life of of the parliament. That's a big target. But the positive thing about it is two things. One, there is that political push. We could be talking about a sector that was really not in in favor, so it definitely has got the political push behind it. And the general economics appear to be easing. Again, we're all second guessing as to how this year is gonna turn out, But we should see, all being well, we should see some further rate reductions which will help mortgage rates going forward. So at some point, and we think it is in the course of this year, we will see a pickup in house building and then a surge thereafter in order to meet the targets that the government has set out and to meet the requirements of of the house building sector.

10:20 So very, very confident on that. The second thing I just wanted to talk about was our move into the water sector. I mean, I could also mention rail because Coleman is involved in rail too. But the water sector in particular, again, for those people who are familiar with it, you will know that Ofwat and its final determination from the price review was completed

10:46 in December. And the spend for the next five years is planned to be 104,000,000,000. I mean, that is a huge increase against what the expenditure was in the previous price review. If I turn now to the numbers that I've seen off what published, is that the p r 19, as in as in the last price review, the numbers were 61,500,000,000, whereas in this p r 24, as I've just stated, it's 104,000,000,000. And with regards new capital investment, it's a quadrupling of the expenditure previous outlined in p r 19.

11:30 I mean, where does that where does that come from? Unfortunately, it comes from us all in terms of water bills. So there'd be increases in in the water bills to pay for that. But the fact of the matter is due to climate change and due to population growth and so on and so forth and aging infrastructure, we have to deal with we have to spend money in order to deal with the pollution of the rivers, the leakage of the pipes, and and strange enough even in the in the summertime of the avoidance of drought. So the AMP eight is the the program, asset management plan programs, which each of the water companies had to present to Ofwat to show what they would be needing to spend their money on. And the attraction, besides the fact that it's a 104,000,000,000, it's a huge number, the attraction from a contracting construction contracting point of view is the transparency of the workload in that five year period in front of us. So there's transparency and visibility of what work is required, when it will be required, and of what nature.

12:38 So with that framework type approach for the execution of the work, it means that Coleman will be able to approach the the workload in a very clear and planned out manner. So that's as we wrapping up now is just turning to the point, you know, what would be the takeaways. I mean, we list out there the various factors which should be the interest that you would have in in NEXUS. But there's two things I would just like to mention as takeaways out of that listing. One is, as I say, there is TandemDown's future and the growth of TandemDown will come with the housing sector, the recovery in the housing sector.

13:25 It's a chronic undersupply of housing, and we're absolutely confident that sector is gonna come back. And when it comes back, it's gonna come back with some gusto. The second thing, as I mentioned, is our diversification, and we're diversifying into sectors which have long term expenditure with a great deal of transparency and visibility.

13:48 So with that, that would be the point at which we would close the the presentation, and I'll hand back so that we can go to questions and answers. Perfect. Charles Dorn, thank you very much for your presentation. Ladies and gentlemen, please do continue to meet your questions, and you can do that just by using the q and a tab that's situated on the top right hand corner of your screen. We have received a number of questions, and I want to start the q and a session off with this one here.

14:15 What's the atmosphere in the house building sector? What's your client saying about the state of the house building sector?

14:24 I think there's a they're pleased, I'd say, in general. Pleased to see the moves that have have come into play. The revised was published last month on this further policy changes planned in order to ease the planning side of things. Again, those people are involved in looking at the sector. They'll see that completion rates are up for most of the developers from last year. Mind you that last year was was pretty dire. So but it's good to see that they're at the top end of their range. And in terms of comments on, you know, is there an interest out there? Again, you'll see the statistics. What what they're saying is in line with that is that that they are seeing a lot more inquiries.

15:10 The number of sales per per outlet per week are up across the board. So it's a recovery, but they're not quite sure as to the strength of the recovery and what will be happening over the next couple of months. As we all know, decisions in families, it comes down to feelings. You know? Is there a confidence in the family household? Is now the time to buy that new car? Is now the time to make that house move? It doesn't take much for the trigger to be pulled and for for us to be well into the recovery of the housing sector. But I'd say just without babbling on too much further is encouraged, but waiting to see what will happen in the next couple of months as to how that upturn will go.

16:04 That's great. Thanks very much, Charles. Moving on to the next question. What's the potential for a profit rebound due to better assetcrew utilization should the house building market rebound over the next twelve months? Your peer, Vanell, has given detailed detailed insights into the their utilization levels and profit rebound potentials that make the attractiveness of their low valuation clearer to potential shareholders. Maybe their rigs are easier to communicate, but comparing gross profit margins slash gross profit per employee as a proxy for utilization levels, do you see the potential to return to pre COVID levels? I think from an external reporting point of view, gross margin is a good measure for the business.

16:46 You can see how ours has improved over the last couple of years, and we're seeing a return to higher margins. So it's a good judge from an external position and shows how we're working to improve delivery, better use of our resources as we move forward, and gross margin continues to improve. That's great. Thank you very much, Dawn. The next question, what is your expectation by when NEXUS INFRASTRUCTURE report a positive net income? What's your expectations of gross profit margin should the home building activities rebound?

17:24 As we've just discussed, the turnaround business has seen improving gross margin. And when market conditions return to normal, we would expect to see gross margins of around 15%. Revenue should return to pre COVID level levels. We've seen turn down operating around the 100,000,000 mark previously on revenues. Overheads rent in turn down are likely to be around the 10% mark. Moving to the next question. With lower revenue, can you give more color on your trade receivables? As I mentioned during the presentation, our trade receivables gets distorted by retention number.

18:13 This is long term debt that accumulates across the length of the contracts, which can take three to four years to deliver. And it takes time to get this released once the contract is completed. So they can be holding retentions on us from four, five, six years before we get the full final release on it. And at the end of September twenty four, our retention balance was 7,000,000. I'm pleased we've seen an improvement in that actually as well over the last eighteen months as we focused on collecting the older term debt. Thank you, Dawn. The next question is really around share buybacks and reads as follows. With the cash on your balance sheet, have you considered a share buyback to return value to shareholders? And what's your strategy around this?

19:07 We certainly did and would continue to to consider that amongst all the options in front of us. However, when we looked at this, this would be some twelve, fourteen months back on our strategy overall. We thought the best thing as a board, we thought the best thing for the business and for the shareholders would be for us to follow the strategy as we've outlined here, and that didn't include a share buyback. Thank you. And staying on a similar theme, up until 2021, the noncash working capital has been negative. Do you foresee a return to a negative noncash working capital, is this a permanent change due to the sale of the two divisions?

19:53 It's very unlikely that we will have returned to noncash working capital. That's great. The next question, congratulations on the acquisition. Can you give it Can you give us some more color on the expected performance? As you mentioned, you expect it to be earnings enhancing. So it's a really good business, the Coleman business. So at the moment, the gross margins, I suppose, I could talk about are in the mid 20% gross margins. In the r and s, at the back of the r and s, we've indicated how there's an earn out, and the earn out gives some reference to the range of possibilities in terms of EBITDA, if that's helpful.

20:49 You very much. Sticking with a similar theme, can you give any more detail on your future m and a ambitions? So we certainly would consider future m and a. It's not the only way in which to achieve the growth and the diversification that we're after. So it's it's under continuous review. I wouldn't say any more than that, so we wouldn't discount it. Anything we would do would be on a considered, obviously, a considered basis. So I think that at first, we want to make sure that we do right by Coleman, provide Coleman with all the support that we can to help them grow.

21:36 But, yes, we would would certainly consider another acquisition should that be appropriate. So That's great. Thank you, Charles. The next question here, can you comment on the one off positive impact? Does this settle the claim against the supplier? Yes. It settles the the claim against the supplier in full, but we are not able to share any details on the claim itself. That's great. The next question, the first move in terms of diversification is Coleman and Water. You hint at possible further acquisitions. What sectors are most attractive to you? And would you consider doubling down on Water and making a complementary acquisition in the sector? Sort of touched a bit on that already.

22:22 But so as I mentioned, Coleman is involved also in rail. So rail has got a similar expenditure. It's not as large as water, but has got a similar attraction in that it's five year programs. So in the case of rail, it's the c p seven was from March 24, the first five years. Some of the work which has been awarded stretches, in fact, beyond the five years. It's it's actually into the ten year into the next period as well. So quite attracted by helping Coleman to to further develop in that area too. Water, though, as a starting point, for the reasons I've spoken about already, is hugely attractive to us.

23:12 And in due course, we could consider other sectors such as power, road. But at the moment, water is is our priority with with rail. The house builders have all sounded tentatively optimistic on planning, although initial decisions can take time to trickle down to detailed consents. Can you give a rough idea about how long it takes to get from full planning permission to NEXUS starting on-site? Sometimes it's the case that planning the final step of planning is ongoing prior to us submitting our tenders, and it can be in the few weeks prior to us being awarded the work that final permission is given.

24:05 I mean, of course, from a client point of view and also from our point of view, it would prefer it to be the case that the planning is already is already completed. And that does happen, but as I say, sometimes it's it's in the final stages as we're submitting our tender. Just as in a round, I would say that when the market is really busy, then it can be the case that Tamdown receives an inquiry. It responds to the inquiry, and it can be starting on-site within a period of even six weeks to two months when the market is really busy. In more recent times, for a variety of different reasons, but planning being one of them, being a significant one, that can stretch to four to six months.

24:59 So as things stand at the moment, the words I was asked a question earlier. The word around is that the intent is there, and they're already seeing some early changes in the turnaround of planning because it's more a case of this is having to get completed sooner rather than it being a matter up for debate. So good good early signs from the planning side. Thanks very much, Charles. Another question here. Seeing the gross margin improvement is great, what sort of things have been implemented in the business to improve it? So we have been focused on technological improvements, which has included things like biometric sign in for our SI staff or telematics in the vehicles.

25:57 One of the things that we have seen go down very well with our staff is the enhancing of the IT skills for our site managers, and we'll be making further use of that going forward. We've also seen improvements in resource planning and forecasting through continuing talking to our clients about their requirements for the next three to four weeks and out longer as as far as they can look with us to help improve the resources we have sitting on our sites. That's great. Charles, Dawn, thank you very much for answering those questions you can from investors. Of course, the company can review all the questions submitted today, and we will publish those responses on the investor meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to you both, Charles, could I just ask you for a few key takeaways and closing comments?

26:51 Okay. Thank you. As one thing I do want to say on the housing side, remiss in not mentioning it earlier. Just a few figures. Bear with me. I did look at the ONS statistics on housing starts and housing completions over the last few years. The information is presented quarterly. If I look at the the year 2018, 2019, and these figures I'm looking at are the periods which are July, September is the first quarter through to the fourth quarter being April to June. So if I look at twenty eighteen nineteen, the number of houses in total by quarter was 200,000 for the year. It's actually 201,000, and the number of completions was 208,000 approximately.

27:45 If I take that forward into the year 2223, the number of houses started was 220,000. The number completed, 203,000. So they're sort of imbalanced by these numbers. I was quite surprised to see in these numbers, but perhaps it confirms of what the matters we were talking about before, is the year twenty three to twenty four, then there were only 114,000, one one four thousand, houses started according to these figures. Yet the number of completions in that period was a 193,000. Basically, what this appears to be indicating to me is that the main developers have been working through their existing sites, been able to push on with completion of houses rather than starting on to new ones. So that pent up demand is going to be there if they're going to carry on with this this level of 200,000.

28:46 Never mind the 370,000 that we talked about. Even to get to the 200,000, the number of starts in the previous year, to emphasize this, was only a 114,000 houses. There's gonna need to be a huge increase in the number of houses started to new developments. And as I mentioned before, and here's to conclude the point, is that from a house building sector point of view, as a takeaway, is that TandemDown is at the leading edge, is is the first on-site. It'll be the entity that's most needed in order to start the sites off when they when that recovery happens. And then the second thing is the matter, as I said, about the diversification, particularly into the water sector. Water sector overall, 104,000,000,000 five year plan.

29:35 And if you look into it, you'll see that all the water companies have had to present their AMP five year AMP programs as part of a twenty five year strategy. I mean, it's a great sector to get involved in. So I'm really pleased to have made that first step with the acquisition of Coleman, and we're gonna help them to grow into the future. So thank you very much. Those are my last points to make. Hopefully, that was okay. Charles, Dawn, thank you very much for updating investors today. Could I please ask investors not to close the session? I should now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. This This will only 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.