Nexus Infrastructure plc (NEXS) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Nexus Infrastructure plc Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Charles Sweeney, CEO. Good afternoon, sir.

Thanks, Lee, and good afternoon, everybody. Thanks very much indeed for attending this presentation of the Nexus full year results for FY '25. Myself and Dawn will be running through introduction to Nexus. We'll then look at strategy and progress. Dawn will pick up on key financials. I'll have a review of the market. We got some case studies, and we will take a look to the future, and then we'll wrap up with a summary and close. So for those people not familiar with Nexus, we've got 2 operating subsidiaries, Tamdown, many focused in the housebuilding sector and Coleman, mostly active in water and rail. I got a couple of things to say about them. So Tamdown celebrating 50 years this year in business. It's recognized for his experience and capabilities in large, complex multiphase developments in the housing sector. And you can see in the listing below that it's basically working for all the big players, national players in housing development Taylor, and Bellway and Vistry and so on. Turning to Coleman. So Coleman as I said before, main activities in the water sector. It's been in business for 25 years, has some activities in rail also, but the main thing we'll be talking about today will be its activities in water and the opportunities looking forward. So with regards to our strategy and progress. So 2 years ago, we set out a new path for Nexus, one which would basically stabilize the operations and give us a chance to get back to growth and profitability for the group overall. So I'm pleased to say that the approach we have taken has been bearing fruit. So these are our 3 strategic objectives. The first was to be able to grow with our customers. So it's about customer focus, paying great attention and listening to feedback and doing what we could to service those key customers. And that's basically borne fruit. And you can see FY '23, the amount of work won was just GBP 32 million. In FY '24, that grew to GBP 56 million. But even better is that in FY '25, we secured just about GBP 89 million of new business. And that at a time, as we'll touch on when we look at the market sectors, when the housebuilding sector has been pretty much in a very condition flat at best. So we've done very well with that. The second one was expanding our market. And in this instance, we wanted to look towards other sectors whereby these would be countercyclical that we would not have the problems of the ups and downs only in the housebuilding sector. And we also wanted to have sectors which were higher margin. So with that strategic objective, we acquired Coleman at the beginning of FY '25. I'm pleased to see that during the course of FY '25, the gross margin delivered 31%, very much higher than that, which is possible housebuilding sector. And then finally, on the matter of focusing on financial delivery by basically driving operational improvements and making sure that we maintain a tight control of costs. You can see that the Tamdown business, we've been able to nudge up on the gross margin, 13.5% to 14% year-on-year there. And then looking at the Nexus overhead costs, the central costs. And these are exceptions. It's excluding the costs associated with the Coleman acquisition in particular. And you can see the FY '23, GBP 2.4 million, down to GBP 1.9 million and then GBP 1.5 million in FY '25. So okay, that's just a snapshot. I mean we're really excited by the progress that we've achieved. We still got a long way to go, but I think there's many reasons for us to feel positive about the progress so far. Dawn is going to talk now in more detail on the financial figures.

So we were really pleased to see an improvement in the key financial indicators during the year. This was due to a mix of operational improvements in Tamdown, the acquisition of Coleman and the continued focus on reducing our overhead costs. Group revenue increased by 16% with Tamdown's revenues up 6% to GBP 60 million and Coleman adding 10% to the group revenue at GBP 6 million. Gross margins for the group improved by 2% during the year. This was partly through an uplift on Tamdown's gross margins by 0.5%, which improved from 13.5% to 14% and then Coleman's gross margins, which come in plus 30%, which helped to demonstrate the positive impact the diversification is having on the group's performance. We continue to focus on managing central costs and reduced these by GBP 390,000 in the year and over GBP 900,000 in the last 2 years despite the increase in the size of the group. Each of these factors contributed to the reduction of the loss in the year to GBP 1.1 million. And as expected, H2 performed at breakeven. Our exceptional items in 2025 related to the acquisition of Coleman and was split between adviser costs and accrual for the deferred consideration, which is based on earnings targets over the next 2 years. Nexus continues to have a strong balance sheet with net cash of GBP 10.9 million at the end of the year. This puts us in a strong position to manage the working capital requirements from both Tamdown to support its increasing order book and Coleman as AMP8 work releases. Tamdown's order book increased by 62% in the year to GBP 83.4 million and is actually up 81% over the last 2 years. And this has given us good visibility on future revenues over the coming year. An improvement in the debt position continues with Tamdown seeing the benefit of a commercial director and their overdue debt improving by 39%. Common to predetermined payment terms, minimizing the risk to payments not being received and all of that contributes towards our improving cash position despite having spent and having had an outflow of cash of nearly GBP 4 million for the acquisition. The Board will then recommending a final dividend of 2p per share to maintain the dividend level of the last 2 years. Charles, now sort of take a review of the markets.

Thanks, Dawn. So yes, first off, for those that have sat in our presentation previously, you will be familiar with this. So it's a housebuilding sector, and we're looking at the government target, 370,000 homes a year for England. And you can see that the gap remains significant. In fact, the gap in 2025 worsened slightly. So that's not a good position to be in for the sector overall. However, the reasons for optimism behind this would be that the changes that we brought in with regards to prime regulations will be now finding their way through the system and should be having an impact. And then, okay, subject to what's been going on in the Middle East recently, we expect to see the reduction in mortgage interest rates with the Bank of England rate at the moment at 3.75%. Anticipation was that we would see that decrease further during the course of the year. And finally, I mean, the spring statement, I have that on the corner over here, spring statement, the chance has finished the spring statement. So -- but not expecting too much to come out of that. But I think there is significant political pressure building on the government, and they will want to see something that they can headline and the housebuilding sector is certainly something, which would be key for them in turning around their position and winning boats. So that's a possibility. If we look at the circumstances we find the sector, residential planning approvals, look at it just like disappearing off the chart, and that's through to the third quarter in 2025. However, seeing that there is a positive light on this, I could say, is that we could question, are we reaching a point, an inflection point. Looking where we were back in the days of 2012 and how the sector was able to build from there, we could question whether we are at that sort of position right now. And as I say, reasons for that would be the changes to planning regulations and the reduction in the mortgage interest rates. So we will see as we go forward, whether that is actually an inflection point. We've got a couple of other slides to show on this food for thought. This is NHBC warranties. So the number of registrations of new homes. So they're up 12% in the private sector, 11% overall in 2024. But that doesn't mean too much. You can see across the chart there, that could just be an anomaly and it doesn't really tell us a picture overall. So I'll step to the next slide. This one is information from the planning portal operated by TerraQuest. It's public information. And here, what we're looking at is the number of proposed units in planning applications. So these are not applications that have been approved. It's one step earlier. It's the number of actual units, which have been applied for planning applications and see how from 2022, this was definitely in decline. But the 2025, the number of applications is significantly up. It was 210,000 in 2024, it's 335,000, still short of the overall targets the government has got, but 335,000 in 2025. And if we don't everybody with too many slides, I present further here, you can see this on a quarterly basis. So testing eyesight here, you can see in the beginning of 2024, the quarterly number is very low. I see that it looks like 40-something thousand very low number. And then over those quarters, it's been picking up. And in particular, the last 2 quarters of 2025, we saw a significant increase there in the bright green histogram shown there. So do we think that this is necessarily the recovery of the housing sector? I don't know. I mean there's lots of different factors isn't there. However, looking at it from the other angle, if this was just a flat line, we would be certainly thinking doom and gloom. To see that there is such an increase in planning applications is certainly something which is of interest. So I'll leave that thought for now. Strategy in action. So we'll look just a couple of examples of what would be a typical good-sized projects for Tamdown. So this one is Vistry, [indiscernible] in Maidstone, GBP 17 million for the last 4 years. Project commenced in April '25. overall 270-ish units, 6.5 kilometers of roads, et cetera, et cetera. It is a civil engineering challenge because there are, in addition, large underground storage sites, 13 of them, which will be used to capture flood rainwater to prevent flooding. So significant project and the sort of project that [indiscernibe] good words there written by Brendan Evans, the regional MD of Vistry Group shown there. A second example, similar in size, GBP 16 million, this type of blow homes in, a little bit longer duration currently planned 5 years, project commenced in November '24, 69 residential units, et cetera, et cetera. And it also has the sustainable urban drainage system. In this case, it's mainly a large basin, which is partly shown in that picture, but it's underground storage tank. 7 areas of Section 278, that's where we're actually building roads and altering the existing highway roundabout or to get access to the site. So 2 good examples of the type of jobs that takes on. And even better so is when -- as we said, these are a phase of a project where there may be several phases and the overall maybe 10 years in length. So it's great opportunity when we get the early phases of such a development. With regards to the water sector, so the story we know is it's all driven by nondiscretionary spend. These are projects, which are driven, unfortunately by climate change. So to ease the problems of flooding that we've been experiencing. So how do we deal with that? And then also the matter of droughts, how do we maintain? It's hard to imagine droughts right now, the winter that we just had. But the subject of drought is high on the. So it's not down to wins. We have to do this expenditure. So the AMP8 program has approved is GBP 104 billion versus the previous 5 years, GBP 61 billion. The one thing I will say about this, and again, we can talk about this in a little bit more detail, is that the AMP programs as projected, it started from 1st of April last year. They've been slow to get off the ground. It's pleasing to see that it's now coming through, but it has been slower to come off the ground, not just in the water companies that we deal with, but across the country. I will say that, but it has been slow to start -- slower to start. Magnitude of the projects still the same, but the timing for when they're getting underway has been slower to start. So our acquisition, Coleman that we mentioned previously, is a great business, great team, led by Barry Coleman, and there are some words given there about his excitement of joining the group so that we can able to help the business flourish further and develop and grow. So a couple of things that we've done during the course of the year. The integration has gone very well, as I say, a great team. But we ran a program building sustainable growth. And this is basically to look at every aspect of what the business will face as a result of what is going to be quite a significant growth in revenue. So we looked at -- well, obviously, the obvious things are the recruitment process, making sure the right number of project managers in place, commercial people and so on and so forth and site personnel. But in addition, through to the whole matters of how we'll be communicating what systems should we use and of course, finally, working capital requirements and making sure we've got the cash for the working -- to support the working capital. So it's gone very well, looking forward to second half of the year when we'll see that really pick up. So just here was a snapshot of -- from Southern Water's information that we present. This is why it's again, it's exciting to be involved in this. It's a 25-year horizon they're talking about. Difficult to read off the slide, I guess. But along the top is AMP8, which runs through to 2030. But then the falling AMP through to 2035, 2040 and so on and so forth through to 2050, all part of the plan. And I'm going to use again. It's just not discretionary spend. So this has to be done. We're going to be able to deal with the droughts and deal with the floods and deal with preventing the pollution of the rivers and the beaches and so on and so forth. All of this has to be spent. From a water bill payer, it's not exciting for any of us. But from a construction contractor point of view, it's a very good sector to be involved in. So an example of project here for Coleman. So this GBP 2 million, just over GBP 2 million wells. There's reference to the new pumps and pipe work, very congested areas, difficult working conditions, but there is the final settlement tank 24, 25 meters in diameter and the client absolutely thrilled with the work that was done. So -- and it's highly valued experience and rare. There are not that many contractors that have this capability. So I think the immediate customers that we have and those that we will have in the future will certainly value the experience and capabilities that Coleman has. So as a summary, so we set out the strategy we say a couple of years ago to stabilize operations and then have this new path for Nexus going forward. So we will be introducing growth and getting the group back to profitability. So here we are 2 years down the track from that. And the revenue is up year-on-year, 16% gross margin 15.6% from 13.5%. We've reduced the central costs excluding exceptionals to 21%. The order book is up 62%. I mean that's terrific to see. The operating loss is on the right path to be reduced down further by 42%. And we're saying that the outlook is really promising for the long term for housebuilding sector. And in water, AMP8 has a doubling of expenditure for the next 5 years alone, and it's a 25-year horizon. So based on this, with the position that we're in with a strong order book, I think we've got the foundations in place for this current year, FY '26. It will be seasonally H2 weighted, but we've got a promising future ahead of us with what we have in place. So that, we come to end of the presentation, and we'll hand back for questions and answers.

[Operator Instructions] I would like to remind you that recording of this presentation along with a copy of the slides and published Q&A can be accessed via investor dashboard. We have received a number of questions today. And if I may just start off with the first question here, which reads as follows. Can you improve the liquidity of Nexus stock other than the routine compulsory announcements, could you issue contract news via RNS?

Two parts to that question. I guess on the right, the liquidity of the stock. Then there are options from a corporate point of view, I guess, which would be issuing of new shares, but that's not part of the plan at the moment. So with the shareholder base that we have, what we have started is a process of trying to get the word out there more spread the word of what Nexus is up to. So we had an event Monday, which was in October, which we presented at. And it's our intention to continue to attract new shareholders, which would improve liquidity with a particular event that we're planning for the summer amongst other things. I don't know, Dawn, is there any other thoughts you might have on that?

No, I think it's very market-driven, the liquidity on our shares, and we have to reach out and continue as much engagement as we possibly can to reach new shareholders.

The second part was a matter of presenting information. I think we've had that before, and I'm conscious of that is something that we need to follow up on. We take advice, of course, from Alma is our adviser on the whole matters with regards to Investor Relations. So yes, we'll take a look into that to see whether we could engage more and provide information at times of, let's say, when we awarded significant contracts. So that's a takeaway.

That's great. The next question we have here reads, when do you expect to report profit?

Our current research out there shows us a breakeven in FY '26. And then we expect profitability to be on a continual improvement line over the next few years.

Have you pitched for any local authority contracts?

No, not as yet. It's not part of our strategy at the moment. So we -- as we said, we are looking to diversify the business, but local -- I think you said local authority work is not something that we have a strategy at the moment.

Why has the number of Nexus site workers reduced?

It's the way it's presented because in actual fact, the number of site workers has increased and will be significantly increasing during the course of H2. It's the number of directly employed personnel. So we took a view not this last year, but the year before about the way that Tamdown would go to deliver its work. So we have a higher percentage now of self-employed subcontractors and agency personnel compared to the number of people that we have as direct employees. So if you actually went -- and you can't tell the difference when you're on the site, you would just see that the percentage is a smaller percentage now are directly employed. So we actually have more people on site now than we'll have in the second half.

That's great. Are you contemplating further acquisitions?

Well, at the moment, we're certainly ambitious. The second, as we said, the strategic objectives, which I'm partly repeating is, is this idea of diversifying and reducing cyclicality and in particular, wanting to get to these higher margin sectors. So at the moment, we are driven by that. We'll see and we'll view shareholder feedback. The Board will consider opportunities, and we'll take into account how we're doing with the current strategy. So that's all I could say at this point on that.

Just turning to the next question. How do you attract new institutional investors?

So I think we're partly touching back on an earlier question. So I think what we have to do is to continue to present the long-term attraction of the sectors that we're involved in, which is where institutional investors are often into long-term returns. So if we present the sector information and we present the performance that we're achieving with the businesses that we have and our strategy, I think then we should get a good level of interest from institutional investors.

In addition to, who do Coleman work with?

So there are -- both in Southern Water, there are other Tier 1 contractors, which Coleman is able to work for. And in addition, just in this last 8-month period, there have been a number of other water companies. I mean you don't have to go too far out of the geography. You would see Southeast Water and also Water, which can set some alarm bells ringing, but they've equally got a huge amount of expenditure. So they are within the geographic patch that Coleman has at the moment, which runs along the South Coast and many exciting opportunities. So we will just on the water side of things, we will ensure that we stick close to the customers that we've served over the recent years, and we'll build upon that looking to other water companies via their main Tier 1 contractors. And you'll see that in our results in the coming years as to how we've achieved that.

Within those early phase awards, are they generally structured with clear pathways to subsequent phases? Or are they more stand-alone in nature?

The majority of the work that Tamdown seeks and does get involved in is multiphase developments. And there's no guarantee. If it ends up there's going to be 8 phases, there's no guarantee that just because you get in the first phase, you're going to subsequently get positions on the second, third and so on. However, for sure, it's the case that deliver according to plan, provide a quality service and a service which the customer can feel assured about does give an edge and it only makes sense that, that customer is likely to give an opportunity to Tamdown to continue onwards. So yes, ideally, if we -- and there are some around what we see they are -- the value overall is GBP 30 million, GBP 40 million just in the primary, let's say, 3 phases, and we can see that in front of us. But the overall development perhaps goes to like 10,000 units. Those are around, and it's great to be involved in those at the early stages because you've got a 10-year horizon in front of you, as you say.

Just moving to the next question. Over the past 5 years, how have face-to-face conversion rates and scope expansion on multiphase projects trended?

Sorry.

Over the past 5 years, how have face-to-face conversion rates and scope expansion on multiphase projects trended?

I think I'd say it's probably in line what I said before is that there hasn't been a particular trend. And what I can say is that the win rate for Tamdown has been consistent at around 30%, a little bit better than that, 35%. And the work tends to be multiphase development. So maybe you can put the 2 together. But I don't think there's been a trend in one direction or another. So perhaps doesn't fully answer the point. I can add in some other things would be Tamdown for those not familiar, Tamdown is definitely the first on site. So when the housing sector is picking up, then the Tamdown is the first to experience that being the first trade on site, if you like. Second thing I would say is that to the end of January, we were looking at the Tamdown the volume of invitation to bid invitation to tender levels are significantly up on the previous 4 years. So that's a good indicator. I think it's GBP 250 million, I think. And the number of tenders that we've actually submitted because we don't respond to every invitation to tender. So that was at GBP 150 million. So GBP 150 million of good quality tendering has gone on just to the end of January. And that again is up on what we've experienced in the past 4 years. Again, who knows how things are going to turn out, you never quite know. But these are all sort of positive leading indicators that I can refer to.

Are you seeing any changes in client behavior around project timing or scope?

So we do have examples, both ends of the scale. It's not going to be helpful to ask the question. We have examples of both ends of the scale. Maybe the first side, which is the most interesting, of course, would be more typical when the market is buoyant. And that is we've been through the cycle of the invitation to tender, the negotiations and so and then we get the award and then it gets started on site as soon as you possibly can, which can be within a week or a couple of weeks. And that would be more typical of say, a buoyant market. So we do have some of that going on. But there's also been a few examples of where we are given the award and a couple of examples where those -- the activity level has actually been quite slow. And the client has actually gone through the execution phase in a more pedestrian way than we might have liked. And there's one particular example where the award was made at the early part of this financial year, yet the project didn't actually get underway until January. So -- and that was, again, while the client is satisfied with the pricing, satisfied the town to go ahead with it, award was given, but the start on site was held back while they considered how the market was going.

One customer accounts for the vast majority of Coleman's revenue. Are these multiple projects provided to a single customer or one large project?

Again, if I heard that correct, the Coleman projects are multiple projects, the vast majority of those, not all, but the large majority of those have been through the entity. It's a joint venture between Costain and MWH. So that's CMDP+, but not in its entirety, work done for others as well. And in addition for Coleman, currently about -- is it 20% of the revenues is rail. But as I say, in the last 8 months, the inquiry levels and the work activities is now spread, so doing far more work other than CMDP+. But I'll reemphasize this point. building sustainable growth is built around the concept that we will keep the core activities and focus on CMDP+ out from that. So because we do want to retain our close relationship that's been successful over the last 5 to 10 years with CMDP.

Just moving on to the next question. Do you expect Coleman to represent a larger proportion of group revenue over time?

That's a good one. I'd like to see definitely in the near term Coleman will double in size. And what we're very conscious of, and I don't mind saying this long in the tooth, being in the construction business a long time, I'm very experienced. So what we won't do is we're not going to overstretch because that is just a nightmare. 3 or 4 years down the track, you've got problem projects, quality has slipped and so on and so forth. So we won't be doing that. But we will see in the near term, we will see a doubling of Coleman size. And even within Coleman, that diversification will come into play as well. So Coleman on its own with that trajectory in the sort of time frame of like 2 to 3 years is definitely not going to overtake Tamdown and Tamdown is going to be growing itself. So after that, a little bit of a waffle, straight answer to the question that was asked would be no, not in the short term.

Specifically for Tamdown, how many bidders are you seeing on average per contract today versus pre-pandemic levels?

I don't think it's any different.

Perfect. What type of central overhead are you aiming to achieve? Can it go further down from where we are today?

I think it's probably as low as we can get it, but it is not something we ever take our eye off. We are conscious that a lot of money has to go into the regulatory space and make sure that we're compliant in all cases or it gets more expensive every year. So it's something we continuously keep an eye on. And if we can get it lower, we certainly will do.

Perfect. With your view on contracts in the water sector by Coleman, do you think there might be possibilities for the Tamdown earthworks team with respect to the new reservoir schemes being talked about at the moment for the first time in about 30 years?

Certainly, we have plans in place for seeing what we can do for the businesses, improving the integration of -- I've said integration. I don't actually joining the business together, but there are some aspects, so where we can benefit from such as procurement or access to career development, we can swap people around and so on and so forth, sharing of resources. But as things stand at the moment, operating in the water sector requires a certain level of experience and background and capability and as they call it, tickets for people that work in the water sector. So for sure, if we saw that there was a need from a group point of view or a size of business point of view to approach some of this larger work, the reservoirs that's been referred to there, then we could do that. But as things stand, I really do see that both Coleman and Tamdown for the periods ahead, we pick up in the second half of this financial year and then beyond, are going to find themselves quite busy as they are. So we're certainly looking at the reservoirs and see other opportunities. Mainly it's large earthworks development activity, but something that we'll keep our eye on.

Perfect. And just one final question to wrap up on. Why would this be a good time to invest in Nexus?

Well, I'd say, well, first of all, it would be for somebody looking across opportunities of which sectors to be involved in. If you have a belief in the housing situation in the U.K. and that we're at a low point now in terms of delivery and sector activity and that the sector overall has got a significant increase ahead of it as an opportunity. And equally, on the water side, the water sector for the things I've said that the water sector is equally has got a low point and is now about to embark upon the huge investments. That would be a starting point. So it would be -- you have to have an interest in the sectors and an understanding of the sectors and where they are in the cycles will be a starting point. Second thing probably would be -- should be that you take a look at how we're doing. What we've done with Tamdown, the Tamdown guys, the Tamdown leadership, what they've been doing to turn the business around and to achieve what they have done in terms of the growth and that significant order book growth of 60-odd percent and equally looking at the -- what we've done in terms of bolstering and assisting. So from a sector #1 and individual businesses would be #2 reasons why you would consider investments in Nexus. The third thing would be, do you believe in what we're saying? Do you think that the sector -- the strategy that we presented as Nexus overall has got merit. If we're doing the right thing, and I absolutely believe we are, we're on a path and we see huge opportunities and the way Nexus is approaching this in a measured way with a strong robust order book, giving us many opportunities and flexibility for options going forward, but also ensuring we're here for the long term, then those will be reasons why someone might consider investing. It's not for me to advise whether you should or shouldn't. But hopefully, sectors, the companies themselves and Nexus strategy and overall view for the future, if they're ticking the boxes for you, then I think it's the right thing to do.

That's great. Thank you for answering all those questions you can from investors. And of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to the company, Charles, could I please just ask you for a few closing comments?

Well, I thank everybody for attending this presentation. Hopefully, we've given you an overview of where we've got to the progress that we've made. I've got a couple of points again written here. The order book is up 62%. Central costs are down 21%. Gross margin 15.6% from 13.5% a 16% increase in revenue. And we've achieved this in what has been a flat market, difficult market in the housebuilding sector. H2, in particular, is going to see the businesses opportunities flowing. So yes, I'll just say thank you very much for attending and for your interest. Thanks very much.

Charles, Dawn, thank you for updating investors today. Can I please ask investors not to close the 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 will take a few moments to complete, and I'm sure will 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.