Interim Results

18 May 2023

Nexus Infrastructure plc ("Nexus" or the "Group")

Interim results for the six months ended 31 March 2023

Nexus, a market-leading provider of civil engineering infrastructure services to the UK housebuilding sector through its operational business, Tamdown, today announces its unaudited interim results for the six months ended 31 March 2023.

Charles Sweeney, Chief Executive of Nexus, commented:

"I am delighted with the Group's performance during H1 including the sale of two subsidiaries. Tamdown continues to see improvements in its operational and commercial performance, supported by initiatives ranging from health and safety to cost control.

The business has delivered an increase in revenues and operating margins, the order book has been resilient in spite of challenging market conditions and the balance sheet is healthy.

Our successes would not be possible without the outstanding work of our teams who go above and beyond for our customers, and I would like to thank our colleagues on behalf of the Board."

Group highlights:

·    Sale of TriConnex and eSmart Networks in the period generated £77.7m in proceeds, with £60.5m distributed to shareholders via a tender offer

·    Strong balance sheet with cash and cash equivalents of £15.9m

·    Interim dividend of 1.0 pence per share (H1 2022: 1.0 pence per share)

Tamdown Financial highlights:

·    Revenue increase to £50.8m (H1 2022: £46.7m)

·    Operating profit increase to £1.3m (H1 2022: £1.1m)

·    Operating margin improvement to 2.6% from 2.4%

·    Order book remains strong at £85.3m (H1 2022: £88.4m)

Outlook

·    In recent weeks, we have noted early indications of improvements in market conditions. A number of housebuilders have commented on an increase in enquiries and sales conversions.

Whilst this is encouraging, it is likely to take some months to be fully reflected within Tamdown.

·    The UK continues to suffer from a chronic undersupply of good quality, affordable and sustainable housing and Tamdown is well-positioned to respond as the market recovers.

·    Despite ongoing cost inflation across the industry, the Group is committed to taking the necessary mitigating actions to protect and improve margins going forward, including; contract selection, flexibility in our plant and labour cost base, and discipline in pricing of works.

Enquiries:

Notes to Editors:

Nexus is a market-leading provider of civil engineering infrastructure services to the UK housebuilding sector through its operational business, Tamdown.

Tamdown provides a range of civil engineering and infrastructure services to the UK housebuilding sectors, with operations focused on the South-East of England and London. It has an established market-leading position having been in operation for over 45 years.

Business and Financial Review

Following the sale of TriConnex and eSmart Networks, Tamdown is now the main trading business of Nexus. Tamdown has successfully grown its revenues in the period and profits have improved due to increased revenues and successful delivery on-site, with the operating margin improving to 2.6% from 2.4%. Tamdown has secured work during the period maintaining a good order book of £85.3m despite a difficult economic backdrop.

The Group's balance sheet remains strong with net assets of £42.1m as at 31 March 2023 (2022: £32.7m). Included within the net assets balance is cash and cash equivalents of £15.9m (31 March 2022: £1.3m). The Group has no borrowings.

Tamdown

Tamdown provides a range of civil engineering and infrastructure services to the UK housebuilding sectors, with operations focused on the South-East of England and London. Tamdown has an established market-leading position, with a reputation for providing quality services to a broad range of the top UK housebuilders.

The fundamental market growth drivers for Tamdown are positive since the UK's housing market has been in a long-term position of structural undersupply as the number of new houses built has failed to keep pace with the rate of household formation. This structural undersupply provides us with confidence that our housebuilding customers will continue to demand our quality services.

Revenue for Tamdown in the period grew year-on-year by 8.8% to a total of £50.8m (H1 2022: £46.7m). The strong growth is attributed to an acceleration of activity on the existing order book.

Tamdown's gross margin for the period was 10.9% (H1 2022: 11.0%).  This is an increase from the full FY22 gross margin position of 10.1%. The gross margin will continue to show improvement as older contracts complete. Tamdown gross profit for the period totalled £5.5m (H1 2022: £5.2m) and Tamdown operating profit for the period totalled £1.3m (H1 2022: £1.1m).

Tamdown has continued to be active and competitive in the market, winning work from its extensive customer base, leveraging our continued strong relationships and reputation for quality delivery. Given the weaker housing market backdrop in the period, housebuilders have reduced volumes and have been slow to place new orders. Reflecting this and the acceleration of delivery on site, the order book has decreased since the year-end to £85.3m (H1 2021: £88.4m).

The operating environment continues to be characterised by input cost inflation, primarily in materials, energy, and labour. The business is committed to taking the necessary actions to protect and improve its margins, including utilising the flexibility in our plant and labour cost base. The backdrop of Government policy to counter the housing supply deficit, alongside order book wins, provides us with confidence that existing and new customers will continue to demand our services, with improvements to profitability over the medium term.

Dividend and Dividend timetable

Considering these results and our confidence in the expected results for the financial year, the Board is declaring an interim dividend of 1.0 pence per share, maintaining the prior year position (H2 2022: 1.0 pence per share), representing a dividend cover of 3x. The Group's dividend policy remains unchanged and the Board expects Tamdown to continue delivering profits in H2.

The interim dividend will be paid on 30 June 2023 to shareholders on the register at close of business on 2 June 2023. The shares will go ex-dividend on 1 June 2023.

Financial Overview

The interim report has been prepared on the basis of the accounting policies as set out in the Report and Accounts for the year ended 30 September 2022.

Income statement

During the first half of our financial year, Nexus successfully completed the sale of two of our subsidiaries for £77.7m, returning £60.5m to shareholders. We are now focused on executing our strategy and the development of Tamdown.

Group revenue increased 9% to £51.0m (H1 2022: £46.7m), with revenue growth from Tamdown increasing due to high levels of activity on site. Group gross profit was £5.7m (H1 2022: £5.2m), with an overall gross margin of 11.3% (H1 2022: 11.0%).

Nexus Group costs are on track to achieve the targeted £1.7m run rate in Q4 of this financial year. Exceptional costs relating to the disposal of TriConnex and eSmart Networks were £2.3m and we are implementing the transitional services agreement with full separation expected within the year.

The Group's operating profit totalled £72.4m reflecting the profit from the sale of the former subsidiaries. Net finance costs totalled £0.02m (H1 2022: £0.2m) resulting in profit before tax of £72.3m.

The tax charge for the period was £0.4m (H1 2022 charge: £0.2m) reflecting an effective tax rate of 21.5% (H1 2022: 23.8%).

Balance Sheet and Cash Flow

The Group's balance sheet remains strong with net assets standing at £42.1m as at 31 March 2023 compared to £32.6m at 31 March 2022. Included within the net assets balance is cash and cash equivalents of £15.9m with the Group in a zero borrowings position.

In line with prior years, cash was utilised in the first half of the year, with operating activities utilising £10.0m (H1 2022: £4.0m). Investing activities consumed £0.5m including investment in operational plant (H1 2022: £0.4m), financing activities included the sale of the former subsidiaries for £77.7m, and the distribution of capital to shareholders of £60.5m, and loan and lease liability repayments of £0.6m. Cash balances of £13.1m were transferred from the Group upon completion of the sale of subsidiaries.

A selection of banks have been approached to provide the Group's banking arrangement with interest from several of the major high street banks.  The transition to a new bank is expected to complete before the end of the financial year.

Risks and Uncertainties

The Group is subject to a number of risks and uncertainties as part of its activities. The Board regularly reviews and considers these and seeks to ensure that appropriate processes are in place to identify, monitor and control these risks. The Directors consider that the principal risks and uncertainties facing the Group include a potential market downturn and inflation.

Strategic review

In December 2021, we announced that we would explore strategic options to crystalise shareholder value in eSmart Networks. This process concluded on 3^rd February 2023, with the sale of TriConnex Ltd and eSmart Networks Ltd to FWCP Spark (UK) Holdco Limited for a consideration of £77.7m.  This was followed by a tender offer which delivered a £60.5m return to shareholders.

Summary and Outlook

During the first half of the financial year the Group's performance reflected positive underlying trading in Tamdown despite difficult market conditions. Looking ahead, although input cost inflation remains across the industry and housebuilding volumes across the market are expected to be significantly lower, the Group is committed to taking the necessary mitigating actions to protect and improve margins.

Nexus continues to be well-positioned to support established and new customers. Tamdown is on track to enhance profitability over the medium term.

The order book has been resilient and is combined with a strong balance sheet which will support the Group in the second half of the year. In spite of recent difficult market conditions, Tamdown has continued to win work at fair prices, a positive reflection of Tamdown's value to its customer base.

Charles Sweeney

Chief Executive Officer

 
Nexus received £77.7m for the sale of TriConnex and eSmart Networks.  The gain is calculated after the deduction of the £3m investment in eSmart Networks and the exceptional administrative costs of £2.3m.

5. Taxation

Taxation is recognised based on management's estimate of the weighted average effective annual tax rate expected for the full financial year. The estimated effective annual tax rate applied to the pre-tax income for the six months ended 31 March 2023 is 21.5%.

8. Related party transactions

Following the sale of TriConnex Ltd and eSmart Networks Ltd, these companies are no longer considered to be related parties in connection with Nexus Infrastructure PLC.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated in full on consolidation.