Nexus Infrastructure plc ($NEXS)

Good morning, and welcome to the Nexus Infrastructure plc Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and could be submitted at any time via the Q&A tab situated on the right hand corner of your screen. So you can type-in your questions and press send. The company many not be in a position to answer every question they receive during the meeting itself. However, the company can review your questions later today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Charles Sweeney, CEO. Good morning, sir.

Good morning. And good morning, everybody. Thank you for attending the presentation of Nexus Infrastructure Interim Results. As usual, it will be myself and Dawn, which will be in the presentation. And the agenda is displayed there. We'll cover the Q&A at the end of the summary and close. But otherwise, the agenda is as per our normal presentation. So for those that don't know Nexus, a quick introduction, 2 operating businesses, Tamdown and Coleman. Tamdown has focus on the housebuilding sector. Its main activities are orientated around the start of projects, the first entity on site, carrying out civil engineering, site enabling earthworks, et cetera, et cetera. So the main infrastructure for major housing developments. It's mostly involved in long-term multiphase developments. So some of these carry on 5, certainly to 10 years in length. And those are the main customers that Tamdown has shown at the bottom. They're all the major national developers. Coleman is focused more on water and rail sectors, in particular, based out of Hastings and covering the southern counties, Kent, East through to Hampshire. As I say, it's mainly involved in water and rail sectors, and they are 5-year programs, which we'll talk about more during the course of this presentation. So our turnaround strategy we introduced to the business has 3 aspects to it, and we'll just comment on how we've been progressing in the first half reporting against and also looking back at the progress that we've made since we introduced this strategy. So on the left-hand side, as we mentioned, Tamdown's business is focused around large multiphase projects. So we made a specific decision to really make that the core of Tamdown's business going forward. And during this period of time, I think the order book at the end of FY '23 was down at GBP 46 million. We got GBP 46 million, GBP 52 million. And then in these half years, GBP 81 million, GBP 83 million, and I'm pleased to say that we've had continuing revenue and order book growth, taking the order book to GBP 88 million at the end of March. So good progress, in spite of very difficult markets during this period. Second aspects of our turnaround strategy was to look to diversify, to see if we could get ourselves involved in other sectors, to take out the cyclicality exposure, which we've done that with the entrance to water and rail sectors. And it's also the fact that the Coleman business offers us a higher gross margin and will help us bring greater profitability to the group overall. So pleased with the progress there, half year to half year, GBP 2.8 million to GBP 3.1 million, much more to be done. And Coleman we'll see that with AMP8 coming through the latter part of this year, and we'll talk about that later in the presentation. And then finally, the continued focus on financial delivery, tight control on costs, making sure that we're getting the very best performance out of productivity initiatives. And once again, we've had an improvement this time, 14.9% to 15.1%. So those are the 3 aspects of our strategy and the progress that we've made in the first half. So turning to Dawn for the details against that.

So overall, the group has seen a good improvement in its financial highlights over the half year to half year. Revenue has increased. Group revenue was up by 5.6%, and this was backed by housing sector revenue increasing by 4.5% and revenue from Coleman up by 15.6%. The housing sector revenue increase was pleasing despite a particularly wet winter. And then as we went into the latter part of the half, we saw a significant increase in turnover with revenue during March, almost double what it was during the January. Gross profit increased for the housing sector as well with the group gross profit margin up by 0.2%. The water sector continues to give us good margins higher than what we can get from the housing sector. The operating loss was reduced by GBP 300,000 half year to half year. The Tamdown operating loss was almost halved to GBP 173,000, and we're pleased that Coleman continues to add profit to the group. As Charles has already mentioned, Tamdown's order book has seen an increase both half year to half year and also across -- in the 6 months since the year-end in September. We saw a slight decline in our cash balance. This was always been expected as we see working capital draws as revenue ticks up. Our number of people on site in March increased by around 100 and with weekly payrolls, that starts to draw on our cash balance. We expect this to normalize as we go through the summer period. As already mentioned, we're pleased with the revenue increase. Operating loss continues to reduce. Margins are up and all our numbers are heading in the direction that we set out to achieve in our strategic objectives. Our balance sheet remains strong. Cash is GBP 8.5 million with a net assets at GBP 26.2 million. Cash will continue to see revenue increase and a draw for working capital, whether it's from the housing sector as it maintains the higher revenues we saw during March or supporting Coleman as it goes into AMP8. We keep the tight control on our receivables, making sure that our newer debt doesn't age, and we can keep on top of retentions, particularly focused on that as we look to increase our revenues. We're pleased to announce that we'll be paying an interim dividend of 1p per share, which would be paid to shareholders on the 19th of June, continuing our dividend policy from the previous 3 years.

Okay. So a quick review of the markets and again, the usual case studies. This time around, we thought stay away from presenting the usual graphs on government information and housing starts and basically focusing a little bit more about what we see versus the Middle East conflict and how it's impacted in the housing sector and how it's impacted Tamdown's position. So 3 columns presented here. First, pre-Middle East conflict, then definitely, we saw early indications of an improving market. It was backed up by, again, for those that saw a presentation previously, planning applications, the number of units that were in planning applications had jumped significantly, not just marginally, jumped significantly, which was a leading indicator, a positive leading indicator. And the main developers were showing a degree of confidence. They weren't indicating that 2026 was going to shoot the lights out, but they were definitely seeing an improving position, backed up by mortgage rates, which were easing, and they could see sales rates, the number of sales per unit per week going up on a steady basis. So it was a positive situation to be at. And definitely, Tamdown has seen and did see in this period the highest number of tenders submitted since pre-COVID. It was -- I think, again, I spoke about this in previous presentations, the number of inquiries that were coming in was way up on what it had been and the number of submissions because we don't respond to every inquiry, but the number of submissions going up back to the customers, highest level since pre-COVID. So a very positive position to be at. With the Middle East conflict, well, across the market, we see a mixed view. Some of the main developers are saying it has had an impact already and they're making comments on that. Some have said it's not affected their results up until that date in April, let's say, but they're showing some concern or holding back their views on how things will turn out at least until July or August time. So with inside of Tamdown, broadly speaking, customer attitude hasn't changed, and we haven't seen a pullback with the exception of one customer who has actually asked us to slow down the implementation of work that we already have had awarded from them. So the key question is how long is it going to be before there is a resolution of conflict? And we're all second guessing on that almost on a weekly basis. But when they look at what Tamdown position is, as Dawn mentioned, we had a really real -- and I know we had bad weather in winter every year, so no surprise. But this past winter, it was particularly wet from December right the way through January and into February, it was atrocious. The rain that we had was atrocious. So the site activity was muted. We've got a very healthy order book, a really good position to be at. So when we saw the weather back off, we were able to really ramp up activity. And again, as Dawn said, site activities doubled from January through to March. So March takes us in with a drumbeat and an activity level, which is really, really good. It's really positive. That's carried on into April, and there's no reason why we don't see that carrying on through May and onwards. There is always the chance, possibility that the housing developers will back off further. But as things stand at the moment for Tamdown is site activity is very high. The order book is healthy. And I can say that the tender activity is also strong. So what we're having to do is not over rely on this, just say that as the situation is good, but let's plan for more difficult times. So already, we've taken action on costs. We've had discussions with supply chain, with suppliers to see where we can fix prices to make sure that we protect our margins going forward. And as we have mentioned, is we do have a flexible operating model. So we've got a core of direct employees. And on top of that, then we use more flexible resource and we were able to do that, as I said, we brought in an extra 100 people just for the pickup in March. So Tamdown's position is good. We're cognizant and aware of the potential impact of the Middle East. If it goes on beyond to the summer period, then I think the sector as a whole is going to have a difficult time. I've got to bet that it carries on in through to Christmas time, then the sector as a whole is going to have a difficult probably a turn down 10% in the sector overall. But as things stand at the moment, it's in a decent place, and we're quite happy with that. We talk about multiphase developments. I don't think we've shown Haverhill before, but anyway, the point to mention is we were previously involved in the Phase 3b. So making good progress with that, good reputation, good relationship with Persimmon. And in this instance, we were able to -- we still have to give -- put in the tender, put in our pricing for this, but we were awarded then the next phase is at Haverhill Phase 4a. So that was awarded in January this year. It's the usual infrastructure in this case, 300 meters of infrastructure. It's a relatively small site. You can see by the value and the number of units and so on, so 90 residential units. But we're having to make sure that we don't -- we minimize the disruption to those people who moved into the earlier phase, and we make sure that everything is done to keep everybody safe. So -- but anyway, there's an example of one phase leading on to the next phase. And then for this one, at this time last year, we presented this project, Bellway Rivenhall. So this is a much bigger job, GBP 17 million, duration 5 years. So it was awarded in January last year around with 225 residential units. The previous one was 90 that I showed you. So progress so far has been mainly on the infrastructure side of things. So you can see of the 2 kilometers of infrastructure roads and so on, that's been done then, approximately 1.6 kilometers have been completed. Main parts of -- the main earthworks, et cetera, are done. And in terms of the actual plots, out of the 225 to date, we've completed 78 of those plots to all sites. For the water sector, so in this, we would say there's less direct impact on the AMP8 program. Clearly, there's going to be some impact inflation cost-wise. But in terms of the work that has to get done, the AMP8 program was kicked off in April last year. And over a 5-year period, it indicated what the spend would be. What we say is at the end of 1 year, in fact, there's not been that much activity. Some water companies are different from others. But by and large, across the sector, there's just been a delay in getting the work underway. And in the case of customers that Coleman works directly with is there really hasn't been much activity at all in this first year. So we did some looking back at announcements and budgets and so on and so forth. And our interpretation is that the first year spend was to be -- for civil engineering companies would have been expected to be about 7.5% of the total spend that a civil engineering company might expect over that 5-year period. And very little of that 7.5 has actually happened. So in discussions with our Tier 1 contractors and with the main water companies, we're understanding that there has been delays. Unfortunately, it's in the design phase. So the work just hasn't been available to come out to us. However, been in long discussions with them. We've got great visibility of when the jobs are coming and how they will be awarded. So looking at Coleman's position, what we've been doing, Coleman has been busy and active on other smaller projects in the interim. I've got one example case to show. And now actually have some activity in AMP8. So it's just on the early phases, trial holes and site enabling works. And we can see when this work is going to move in through to the main contract activities, which is going to be the latter part of this year. So we've been proactive in developing a program called Building Sustainable Growth in which we're preparing the business for what is going to be a significant ramp-up. We've had those discussions with the supply chain as well to make sure that everybody is in the place to be able to deliver against what will be a big pickup coming. And once again, to mention that also in the case of Coleman, we operate in this flexible operating model to enable us to flex as needed. An example, we've got small job for Bridges, is less than GBP 0.5 million. It was just 5 months in length. And yes, you basically see what it is, pre-concrete, cast-concrete, retaining wall, some concrete slabs and et cetera, is listed there. But that's a type of smaller jobs that we've been doing. With Bridges, I think there's about 8 jobs that we did, we have been doing with them, as an example of what we're doing with Coleman in the interim until the AMP8 work really kicks off. So summary, so as we know, we're making progress in line with the strategy in getting back on growth and the expansion out in the market and improving the gross margins, keeping tight control of cash. And we recognize that there's much more to do. So this is -- we're nowhere near like the endpoint. We're just that plan, which is set out, we're in line with the plan in spite of the difficult markets that we've had. So looking at the specifics of HY '26. So we've continued on the growth trajectory. Revenue is up. Gross margins have increased. The order book is strong. It's gone up further. It's gone up 9% and we've reduced the operating loss. I just want to emphasize, we're not satisfied with this. We're not saying fantastic. What we're saying is that we're on track and progressing well. So the outlook, the increased site activity is significant. So the reason I use the term drumbeat. There's a real drumbeat going on the site at the moment, and that momentum has carried on into H2. We've got a strong order book, gives us the visibility for the second half of the year. However, it is the case that the Middle East conflict is key as it is for the sector as a whole, and we're mindful of that and keeping a close eye on what impact that might have. And AMP8 is definitely going to drive increased workload for Coleman. And we see that ramping up back end of the year. We'll see really Coleman coming to the fore and contributing further to our group results. So that's for the main presentation. And I think it's back to you, Lilly, for the Q&A.

That's great. Thank you very today for presentation. Ladies and gentleman, please do continue to submit your question just via the Q&A tab situation on the top right corner of your screen. Just while the company take a few moments to review those question submitted today, I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via investor dashboard. As you can see, we have received a number of questions throughout today's presentation. And if I may just start off with the first question here, which reads as follows. When will the company report profit?

So hopefully, just in the presentation on the tail end of that, in particular the outlook, I've mentioned that. So market expectations are there. There are research notes out there, which we're basically saying we've got all the momentum on site at the moment. We've made progress on the gross margins, and that's all fed through and looking good for the second half. And we see no reason to back away from that, which is in the market, so in line with market expectations. So hopefully, the presentation has given further color on why we would say that.

Perfect. Why did 2 directors step down?

There was feedback from shareholders, which we spent quite an amount of time listening to and considering. And Richard and Ffion took the view that they would step down. So they did that at the end of the AGM. So yes, we -- I think we made reference to it before, but I'll say it again is we certainly thank both Richard and Ffion for all the support and guidance that we've had from them over the years and wish them well in the future.

That's great. Just turning to the next question. You have previously promised to look at increasing RNS news flow to stimulate what is an illiquid market for Nexus shares. Have you made any progress?

Well, there's a lot of news that in this -- since we talked about that, I think, what, 3 months back. We had a lot of activity, of course, around the full year results. We then had the AGM, a lot of news flow then during the course of March. And then in April, we would have had the trading update and then May, of course, here we are we're doing these presentations of the interim results. So looking forward into the months through the rest of the year, then we'll consider appropriate updates and news flow in line with what we committed to do. So hopefully, that is okay.

Thank you. Just a question here around M&A. Are you considering further M&A activity?

What we're doing and certainly doing is pushing on with the strategy as presented on the diversification subject. Right now, we're focusing on Tamdown growth and Coleman growth, but we'll review that situation in the future as appropriate.

Perfect. Have you received any takeover approaches?

Well, if we had or I'm not saying if we have or haven't, but we would report on that in line with the rules and regulations and the requirements of codes. So we wouldn't -- one way or the other, I can't say yes or no. We would just report according to the rules, regulations and code requirements.

Thank you. Are your significant shareholders happy?

Very supportive. So in line with what we say of the strategy. So what we'll do is continue to listen. That's part of the reason why we're doing this is present what our strategy is and the progress against the strategy. And of course, we'll have individual discussions with shareholder groups. But yes, we're supportive. So going in the right direction.

Perfect. Just turning to the next question. How well protected are you against inflation on work already contracted but not delivered? Are there review or pass-through clauses?

There's increased costs, if you're talking about Tamdown, then there increased cost clauses, which -- so we commit to a fixed price and it's a period done for a year. And then after that, when we reflect back on that year, we can actually claim for the increased costs that we experienced due to inflation. So what we do, do in terms of protecting ourselves against this, though is the pre-tender stage, we go to our supply chain and suppliers. And if we think appropriate, then we seek fixed price periods from them. So we try to mitigate on that basis pretender.

Perfect. And the last question we've got here reads, Tamdown has always been affected on recovering increases in inflation from housebuilders. Is that the case in 2026?

I think probably just covered that just in the last answer, there's a slight difference in that. We don't -- well, like I say, we are doing a fixed price. So just pre-tender, we see where we can mitigate this by seeking prices from our suppliers and subcontractors. And then post-tender, it is a fixed price. So there's no going away from that. But after we finish the first year, clauses in the contract allow us to look back. And of course, we have a whole portfolio of contracts going on. So some contracts clearly kicked off in January, some kick off in March, some kick off and so on and so forth. So during the course of the year, your exposure to whatever is going up and down is related to when those contracts were first awarded, how long ago they were awarded. I don't know whether I stumbled on that [indiscernible].

We have just had another question come through. How confident are you that AMP8 activity will accelerate in 2026?

Well, for those that have been in the water sector, water industry for some time, they'll know how AMP6, AMP7, et cetera, have previously performed. AMP8 was supposed to be different. Lots of discussion across the sector about the pre-preparation work would mean that the dip in between the finishing of AMP7 and the pick of AMP8 would be far less and it wouldn't take so long. From my observation, it seems to be very much the same as it was previously. So what is the case is the commitment in terms of what the water companies have to deliver is the same. So if there was a start and it was anticipated to be done over 5 years, it's the same commitment, but now it's in 4 years. So the concern being discussed by the sector broadly is the degree of the ramp-up and the overheating, which would have been significant anyway. But because there's a doubling of investment in the water sector, it's going to stretch the sector even further. So that would be the main thing rather than how confident are we that it's going to pick up, it's more a case of how confident are we that we will do the right thing and grow and stretch the business, but not overstretch it. And that's our focus that we will -- that hence, why I made reference to the Building Sustainable Growth program to get prepared upfront and know what we will need to do to ensure we can drive the business in the right direction without having upsets down the track.

That's great. Thank you for answering those questions you have from investors. And of course, the company will be able to 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?

Yes. Well, I'll just thank everybody again for attention. Thanks for coming to listen to us. Hopefully, you can see the journey that we're on and the progress that we've been making. I think we've got 2 really vibrant businesses and every opportunity for them to grow on. So we're quite happy with the progress we made to date, but not satisfied, I think, is the way to put it. We've got so much more to do and really quite excited about the opportunities that lay ahead. So once again, thanks to everybody for listening.

That's great. Thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This may take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.