Full year results for the year ended 30 Sept 2019

10 December 2019

 

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

Full year results for the year ended 30 September 2019

 

Revenue growth across all Group businesses

 

Mike Morris, Chief Executive of Nexus, a leading provider of essential infrastructure services, utilities connections and electric vehicle infrastructure, comments:

"We believe that the structural demand for housing in the UK, the low interest rate environment and Government-supported incentives in the sector from all major political parties, all play well to Nexus' strengths as a trusted supplier. On the basis that trading conditions remain stable, the Group is well placed to maximise opportunities within its chosen markets and deliver future value for shareholders."

Financial Highlights - in line with revised expectations:

	2019	2018	Change
Revenue	£155.1m	£134.9m	+15%
Gross profit	£27.9m	£27.6m	+1%
Gross margin	18.0%	20.5%	-2.5%
Operating profit	£6.0m	£9.4m	-36%
Profit before tax	£5.7m	£9.2m	-38%
Basic earnings per share	11.0p	19.1p	-42%
Dividend per share	6.6p	6.6p	-
Net cash	£22.6m	£20.0m	+13.0%
Order Book	£338.9m	£289.7m	+17.0%

 

·      Revenue growth across all of the Group's businesses, reflecting continuing demand for the Group's services

·      Record order book, with growth of 17%

·      Dividend maintained at 6.6 pence per share

·      Strong balance sheet with net cash increasing by 13%

Trading Highlights - by segment: 

Tamdown

·      Revenue increased by 9.5% to £112.2m (2018: £102.5m)

·      Gross profit of £14.5m (2018: £17.2m)

·      Gross margin of 13.0% (2018: 16.8%)

·      Operating profit of £4.0m (2018: £8.0m)

·      Order book up 6.5% to £151.6m (2018: £142.4m)

·      10 new customers secured in the year

·      Operational review addressing delivery issues, stabilising gross margin

TriConnex

·      Revenue up 29.8% to £41.8m (2018: £32.2m)

·      Gross profit up 23.4% to £12.9m (2018: £10.4m)

·      Gross margin of 30.8% (2018: 32.4%)

·      Operating profit up 15.4% to £4.3m (2018: £3.7m)

·      Order book up 26.1% to £184.8m (2018: £146.5m)

·      27 new customers secured in the year

eSmart Networks

·      Revenue totaled £2.1m (2018: £0.3m) as customer base increased and diversified

·      Investment of £0.6m as business continues to scale up in parallel to the growing pace of the EV charging infrastructure market

·      Continuing period of investment, with profitability expected towards the end of 2020

Established growth strategy:

·      Well-defined strategy focused on four key drivers:

o  Increasing market share within current geographies

o  Expansion into new geographies

o  Diversification into new growth sectors

o  Leveraging customer relationships to enhance cross-selling within the Group

·      Inorganic growth plans focused on disciplined approach to bolt-on acquisitions

Notes

¹ Net cash is Cash and cash equivalents less Borrowings

 

Enquiries:

Nexus Infrastructure plc Michael Morris, Chief Executive Officer Alan Martin, Chief Financial Officer	Tel: 01376 320856
Numis Securities Limited (Nominated Adviser & Broker) Oliver Hardy (Nomad)                   Heraclis Economides      Ben Stoop	Tel: 0207 260 1200
Financial Public Relations Camarco Ginny Pulbrook Tom Huddart Oliver Head	Tel: 0203 757 4992

Notes to Editors:

 

Nexus is a leading provider of essential infrastructure services to the UK housebuilding and commercial sectors. The Group comprises: Tamdown, a provider of specialised civil engineering, infrastructure and concrete frame services; TriConnex which designs, installs and connects utility networks to properties on new residential and commercial developments; and eSmart Networks which focuses on electric vehicle charging and smart grid infrastructure.

 

Tamdown has a well-established market position having been in operation for over 40 years and currently counts amongst its customers the majority of the top ten largest UK housebuilders. TriConnex was established in 2011 to take advantage of deregulation in the utilities market with the goal of being recognised as the UK's leading independent provider of utility connections to new developments.  eSmart Networks was set up in 2017 to respond to the UK's need for charging infrastructure as the transition from internal combustion engine vehicles to electric vehicles gathers pace.

 

 

Chairman's Statement

 

I am pleased to report the results for the year ended 30 September 2019.

 

Overview of the year

The Nexus business model consists of Tamdown's well-established market position as a leading provider of essential infrastructure services to the UK's largest housebuilders, TriConnex's growing utilities connection business, and eSmart Networks, which is establishing itself as a market leader in the provision of electric vehicle charging infrastructure, battery storage and specialised network services.

 

The Group reported strong revenue growth for the year, with revenue growing 14.9% to a record £155.1m. As previously reported, revenue growth in Tamdown was limited to 9.5% by industry-driven delays and changes to customer build programmes, which affected resource planning, increased mobilisation costs and impacted efficiency on site.  In addition, customer pricing pressure, along with cost inflation, have resulted in increased pressure on revenues and margin, however, the Group has taken mitigating actions to ensure the business is more resilient. TriConnex revenue growth of 29.8% reflects an overall increase in the number of projects secured and the acceleration of certain projects in the period, whilst eSmart Networks continues to successfully scale-up and establish itself within the growing EV market.

 

The Board is encouraged by the level of growth in the Group's order book which has been driven by growth in each division: Tamdown's order book is up by 6.5% to £151.6m, TriConnex's by 26.1% to £184.8m and eSmart Networks up by £1.7m to £2.5m. The Group order book ended the year at £338.9m, a 17% year-on-year increase which provides Nexus with good visibility of earnings for the year ahead.

 

The industry-driven delays suffered by Tamdown adversely affected the Group's overall operating profit, which was partially mitigated by increased profits from TriConnex, resulting in the Group's operating profit decreasing by £3.4m to £6.0m (2018: £9.4m).  The Group's financial results also include the investment in the year of £0.6m in eSmart Networks.  We have continued to invest in eSmart Networks, as we have identified significant opportunities to provide electric vehicle charging infrastructure, battery storage and specialised network services. The UK's need for charging infrastructure is gathering pace with an accelerated transition from the internal combustion engine to electric vehicles.  eSmart Networks has made good progress in this new, rapidly evolving market and is now seen as a market leader within the electric vehicle infrastructure sector.

 

The profit for the year attributable to equity holders of the parent company decreased by 42.8% to £4.2m (2018: £7.3m) and the basic earnings per share decreased to 11.0p per share (2018: 19.1p per share).

 

The Group maintained strong cash discipline, which resulted in a continued high cash and cash equivalent balance of £27.4m (2018: £26.4m), resulting in net cash at year end of £22.6m¹ (2018: £20.0m).

 

¹Net cash is Cash and cash equivalents less Borrowings

 

Returns to shareholders

As a listed company, one of our primary objectives is to deliver value to shareholders. The Board remains confident in the strength of the Group and its position within its chosen markets.  The Board is maintaining its progressive dividend policy and having already paid an interim dividend in the year, which was in line with the prior year, of 2.2p per share (2018: 2.2p per share), the Board is proposing a final dividend of 4.4p per share (2018: 4.4p per share) for the year ended 30 September 2019.  If the dividend is approved at the Annual General Meeting ("AGM"), the dividend for the year will be in line with the prior year at 6.6p per share. The total dividend for the year of £2.5m (2018: £2.4m) has a dividend cover of 1.7 times the Group's profit after tax. The dividend will be paid on 25 March 2020 to shareholders on the register at close of business on 21 February 2020. The shares will go ex-dividend on 20 February 2020.

 

Looking forward, the Board anticipates the dividend cover to return over time to a cover of around 3.0 times which will enable shareholders to benefit as the Group delivers on its performance targets, whilst continuing to invest in the growth plans of the business.

 

 

 

Board and governance

During the year, Ffion Griffith joined the Board as a Non-Executive Director with effect from 1 November 2018. Ffion is a Fellow of the Chartered Institute of Personnel and Development and has 25 years' experience in senior roles across a range of sectors including technology, professional services and private equity.

 

The Board now consists of six members, including four Non‑Executive Directors and two Executive Directors. In line with The QCA Corporate Governance Code ("Code"), the Board has reviewed the independence of the Non-Executive Directors and considers all the Non-Executive Directors to be independent.

 

People

A primary driver of the Group's success is the team of highly skilled, driven and loyal employees across the businesses. Nexus places great importance on engaging with and developing its employees and providing a platform for personal growth and successful career development. On behalf of the Board, I would like to congratulate and thank them for their continued hard work and dedication.

 

Outlook

Looking ahead, whilst there is continued economic and political uncertainty, the fundamental market growth drivers for our business are positive.  Provided that trading conditions remain stable, the Group's continued focus on the customer, an increased concentration on efficiency, a strong order book and a healthy balance sheet support the Board's confidence in the prospects for the Group in the coming years.

 

Geoff French

Non-Executive Chairman

 

9 December 2019

 

 

 

 

 

EXECUTIVE REVIEW

 

Overview

It is pleasing to report revenue growth across all of the Group's businesses for the full year. Following a challenging period of trading, which reflected industry-driven planning delays and changes to build programmes across a number of major projects, Tamdown's revenue has grown by 9.5% this year.  The strong revenue growth by TriConnex reflects the high level of projects secured during FY18 and FY19, which has increased the overall number of contracts now recognising revenue, along with a number of projects which have been accelerated by customers due to end customer demands.  The revenue for eSmart Networks has increased by more than seven times as it establishes itself in these new and growing markets.

 

The profitability of the Group this year has been significantly impacted by the challenges experienced by Tamdown.  A thorough review of Tamdown's delivery mechanisms has been undertaken, with changes implemented to resource management, procurement and refining our customer interaction, to ensure that profitability will improve in future periods.  TriConnex continues to expand both geographically and through diversifying its customer base.  As anticipated as this business matures, the margins have softened across the new customer base.  Investment in eSmart Networks has continued during the year with the division growing from 9 to 24 employees to develop and service the growing customer base, which includes ChargePoint Services, Engenie, Ionity, and Gridserve.

 

The continued growth of the Group's order book during the year is a testament to the focus on the customer and the value that is brought to projects by each of the divisions.

 

The Group's established divisions service the UK housing market, which is structurally undersupplied and supported by Government, meaning demand remains strong.  eSmart Networks has significant opportunities within a diverse and growing sector, which includes charging for cars, transport and delivery vehicles, with the volumes of sales for all of these vehicles currently growing at over 80% year on year, further supported by the Government's "Road to Zero" commitments.

 

Growth Strategy

The Group's mission is to be recognised as the leading provider of essential infrastructure services in the UK. The Group's strategic objectives are to deliver outstanding performance through a focus on innovation and customer service, which will lead to profitable growth; and to build on existing strong market positions both organically and through complementary earning enhancing acquisitions.

 

The Group's organic growth strategy is focused on four key drivers:

·      increasing market share within our current geographies,

·      expanding into new geographic markets,

·      diversification into new growth sectors and

·      leveraging customer relationships to enhance cross-selling within the Group.

 

In addition to organic growth, further growth will come from the successful sourcing, execution and integration of acquisitions.

 

The Group is taking a disciplined approach to acquisitions, seeking to enhance shareholder value with acquisitions that are linked, or closely associated, with TriConnex or eSmart Networks.

 

Financial performance

Revenue across all of the Group's divisions increased during the year, with the Group's full year revenue increasing by 14.9% to £155.1m (2018: £134.9m).  Tamdown's revenue increased by 9.5% to £112.2m (2018: £102.5m).  TriConnex recorded strong revenue growth of 29.8%, with revenue increasing by £9.6m to £41.8m (2018: £32.2m) and eSmart Networks' revenue increased £1.8m to £2.1m as it starts to build a customer base and becomes a leader in this new EV sector.

 

Gross profit for the year marginally increased to £27.9m (2018: £27.6m) with the overall gross margin at 18.0% (2018: 20.5%).  The delays and build programme changes experienced by Tamdown impacted efficiency, which along with customer pricing pressure and higher than expected cost inflation decreased the gross margin to 13.0% (2018: 16.8%).  The gross margin achieved by TriConnex in the year was 30.8% (2018: 32.4%) with the decrease due to successful expansion into new regions and a broadening of the customer base, which tend to record lower margins initially.  The margin for eSmart Networks continued to improve, with a gross margin for the year of 23.4% (2018: negative 14.5%) as efficiencies continue to be identified and implemented.

 

Administrative expenses for the Group increased in the year, with additional expenditure on people related costs and depreciation, to a total of £21.9m (2018: £18.2m). The Group's operating profit for the year, which includes the investment in eSmart Networks of £0.6m, totalled £6.0m (2018: £9.4m). The Group operating margin for the year was 3.9% (2018: 7.0%). The Group operating margin before the investment in eSmart Networks was 4.3% (2018: 7.5%).

 

Profit for the year attributable to equity holders of the parent company was £4.2m (2018: £7.3m).

 

Other financial information

Order book

Demand from customers for the Group's services has continued during the year and each division has significantly increased their order books: Tamdown's order book is up by 6.5% to £151.6m, TriConnex's by 26.1% to £184.8m and eSmart Networks has achieved £2.5m. The Group order book at 30 September 2019 is at a record level of £338.9m, with the year-on-year increase of a further 17.0%. We believe that this reflects Nexus Infrastructure's reputation for quality service and delivery.

 

Net finance costs

The net finance charge for the year totalled £0.28m (2018: £0.22m). Interest received on bank deposits totalled £0.06m (2018: £0.03m) and interest payable totalled £0.34m (2018: £0.25m).  Interest payable constitutes interest on bank borrowings of £0.20m (2018: £0.21m) and interest on lease liabilities, which have increased to £0.14m (2018: £0.04m), with £0.07m due to the implementation of IFRS 16: Leases.

 

Tax

The tax charge for the year was £1.5m (2018: £1.9m), representing an effective tax rate of 26.4% (2018: 20.8%). The tax charge for the period included an exceptional adjustment in respect of prior periods. The exceptional item has been recorded as the tax charge relating to 2016 and previous years as the tax charge in these years has been found to be understated. The understatement is not material in any year to which it relates or in total but has been considered exceptional due to its nature.  Going forward we expect our tax rate to be broadly in line with the prevailing corporation tax rate.

 

Earnings per share

Basic earnings per share reduced to 11.0p, compared to 19.1p in 2018, with the decrease due to the decreased profitability of Tamdown, the margin impact from the growth of TriConnex and the continued investment in eSmart Networks. The impact of the exceptional tax adjustment was to reduce the earnings per share by 1.0p. The diluted earnings per share were 10.6p (2018: 18.9p).

 

Dividends

As noted in the Chairman's statement, the Board has recommended a final dividend of 4.4p per share (2018: 4.4p per share), giving a total dividend for the year in line with the prior year of 6.6p per share (2018: 6.6p per share). The total dividend results in the dividend cover of 1.7 times, which is ahead of the Group's guidance on dividend cover of 3.0 times. It is anticipated that the dividend cover will revert to the guided level over time as profitability improves. The total cost of the dividend payments, including the interim dividend, will be £2.5m.

 

Statement of financial position

The Group continues to maintain a strong balance sheet with shareholders' funds increasing during the year to 30 September 2019, by £1.5m to £23.3m (2018: £21.8m), the movement included the payment of dividends totalling £2.5m, which was mitigated by the trading performance of the Group companies.  The Group has invested £3.9m in new plant and motor vehicles during the year, recorded as right of use assets, including 60 excavators to refresh and expand the plant fleet to more efficient and reliable machinery.

 

Non-current assets increased over the year by £4.9m to £14.2m (2018: £9.3m), with the increase principally due to the inclusion of £4.8m of right of use assets, which were included for the first time this financial year following the adoption of IFRS 16: Leases from 1 October 2018.  The right of use assets include the new lease additions of plant and motor vehicles totalling £3.9m. Current assets increased by £8.5m to £80.7m (2018: £72.2m) with inventories increasing by £0.3m, trade and other receivables increasing by £5.9m, contract assets by £1.3m and cash balances increasing by £1.0m to £27.4m (2018: £26.4m).

 

Total liabilities increased by £12.m to £71.6m (2018: £59.6m), with trade and other payables increasing by £5.9m, contract liabilities increasing by £3.9m, lease liabilities increasing by £4.0m due to the implementation of IFRS 16: Leases and borrowings decreasing by £1.7m with the repayment of the term loan.

 

Cash flow

The Group generated £1.0m (2018: utilised £0.7m) of cash in the year, resulting in a cash and cash equivalent balance at 30 September 2019 of £27.4m (2018: £26.4m).

 

Operating cash flows before working capital movements, generated £8.7m (2018: £10.6m). Working capital decreased during the year by £1.5m (2018: investment £4.1m), with an increase in payables only partly mitigated by the increase in debtors, resulting in cash generated from operating activities of £10.2m (2018: £6.5m). Tax and interest payments amounted to £2.0m (2018: £1.8m). Cash utilised in investing activities totalled £1.3m (2018: £0.2m), with £2.1m used to acquire fixed assets. Net cash outflows from financing activities totalled £5.9m (2018: £5.1m), including £2.5m (2018: £2.4m) on dividend payments.

 

Treasury risk management

The Group's cash balances are centrally pooled and invested, ensuring the best available returns are achieved consistent with retaining liquidity for the Group's operations. The Group deposits funds only with financial institutions which have a minimum credit rating of A. As the Group operates wholly within the UK, there is no requirement for currency risk management.

 

Summary and Outlook

We have continued to grow Group revenues and the order book growth provides good visibility for the future.  The mitigating actions we have undertaken within Tamdown should ensure that the business is more resilient. Confidence in maximising future opportunities is further enhanced by the high year end net cash balance, achieved through tightly controlling working capital, and the availability of the new revolving credit facility, along with the record order book. 

 

We believe that the structural demand for housing in the UK, the low interest rate environment and Government-supported incentives in the sector from all major political parties, all play well to Nexus' strengths as a trusted supplier. On the basis that trading conditions remain stable, the Group is well placed to maximise opportunities within its chosen markets and deliver future value for shareholders.

 

Mike Morris                                          Alan Martin

Chief Executive Officer                       Chief Financial Officer

 

9 December 2019

 

 

OPERATIONAL REVIEW

 

Tamdown

 

Financial and operating performance

Revenue for Tamdown increased by 9.5% to £112.2m (2018: £102.5m). The increase follows on from an increase in the number of contracts won in the latter part of the previous financial year, which resulted in a strong order book balance at the commencement of the year.  The work winning continued into the current year, with contract awards from both repeat customers as well as contract awards from 10 new customers during the year.  As previously reported, Tamdown has seen delays and changes to customer build programmes that has postponed activity on the affected sites which has delayed the associated revenue. The delays and changes to build programmes affected Tamdown's resource planning, increased mobilisation costs and so impacted efficiency.  In addition, customer pricing pressure and higher than expected cost inflation have resulted in reduced revenue and additional costs.  Accordingly, Tamdown's gross profit for the year was £14.5m (2018: £17.2m), which equated to a gross margin of 13.0% (2018: 16.8%). Mitigating actions have been taken to ensure that the gross margin has been stabilised.

 

Administrative expenses totalled £10.5m (2018: £9.2m), with cost increases in line with revenue growth and depreciation increasing by £0.7m due to fleet expansion.  During the year Tamdown invested £3.9m in 60 excavators, 10 dump trucks and various motor vehicles in order to refresh and expand the fleet and drive further operational efficiencies.

 

Operating profit totalled £4.0m (2018: £8.0m) and achieved an operating margin of 3.6% (2018: 7.8%). The margin deterioration is due to revenue growth being limited, project costs increasing and an increase in administrative expenses.

 

The Tamdown order book continued to grow over the year, with the order book at 30 September 2019 up 6.5% year-on-year to £151.6m (2018: £142.4m). This growth was due to a number of factors, including current customers placing both new follow-on phases and new projects with Tamdown as it continues to deliver quality service, along with winning work from new customers and an increase in the average contract size won. The size and the quality of the order book provides confidence for our future growth plans.

 

Our markets

Tamdown customers are UK housebuilders and affordable housing developers, including housing associations. As such, the UK housebuilding market is key to Tamdown. There is currently general uncertainty posed by the UK's forthcoming exit from the EU. However, the fundamental market growth drivers for our business are positive since the 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. The National Housing Federation has identified the need for up to 340,000 new homes in England per year up to 2031, which is ahead of the Government estimate of 300,000 new homes target to tackle the housing shortage. There is the expectation that the housing deficit will remain over the long term. The prevalence of this deficit has attracted a significant amount of Government stimulus to the sector.

 

Tamdown operates in the South East of England and London, where the undersupply of housing appears to be more acute compared to the rest of the UK. The London market has cooled during 2019, with fewer projects commencing. Accordingly, Tamdown is focusing on the projects which are becoming available, being residential schemes in the surrounding areas in the South East. Tamdown works with the majority of the quoted housebuilders, who account for approximately 50% of total private new build volumes. This dominance is expected to continue as these customers work through their land bank and develop larger schemes.

 

Tamdown also works with a number of housing associations that deliver mixed tenure developments and are focused on the affordable homes segment of the housing market who offer variety and strength to its customer base.

 

In June 2018 the Ministry of Housing, Communities and Local Government issued their Single Departmental Plan which set out its objectives and how they would be achieved.  The first objective was to "Deliver the Homes the Country Needs", which was to be achieved by fulfilling matters such as progressing the Housing white paper reforms to reduce the obstacles to housebuilding and help local authorities, developers and small to medium-sized housebuilders meet housing needs.

 

The October 2018 Budget confirmed the extension of Help to Buy until 2023, with a number of changes to price eligibility levels. The changes are not expected to have an adverse impact on the usage of the scheme and the extension provides certainty to housebuilders.

 

Despite the current political uncertainty, there is general acceptance that there is a deficit in housing supply and so with Tamdown's established market position as one of the leading providers of infrastructure and engineering services to major UK housebuilders, we are well placed to benefit from the Government's current and future stimulus.

 

Growth strategy

Tamdown's ambitions are to grow profits in a sustainable manner through the successful delivery of its strategic goals including:

 

Margin enhancement:

Tamdown has a strong reputation for delivering quality projects for customers, however, the delays and changes to build programmes that Tamdown experienced during this financial year highlighted the need to review and enhance the effective delivery of projects. 

 

There will be an ongoing focus on how Tamdown plans and procures the resources required on projects, the mobilisation process and the interaction with customers before and during projects, to ensure that projects are delivered safely, on time, to a high quality and profitably.

 

Multi-phase projects:

A significant element of Tamdown's work is from larger, multi-phase projects, which provide a good level of visibility of future revenues.

 

These projects are typically large housing developments which are completed in stages. Once Tamdown has won an initial phase it is typically retained for the remainder of the scheme, the phases of which can extend over many years. With Tamdown's extensive customer base and long-standing reputation for great customer service with the leading housebuilders and housing associations, the Company is well placed to be awarded multi‑phase projects.

 

Market penetration:

Tamdown has strong relationships with many regional businesses of blue-chip customers.  Within the geographies where Tamdown operates a number of existing customers have regional businesses to which Tamdown does not currently provide services.  Accordingly, there is an opportunity to increase market share by winning projects with these regional businesses.  This is likely to be achieved through the provision of excellent customer service to current customers, which will lead to recommendations to other regions.  Tamdown has been successful during the year in deepening its market penetration by gaining 10 new customers, 7 of which were regional businesses of current customers.

 

Customer diversification:

The majority of Tamdown's customers are large residential housebuilders. Tamdown is developing relationships with customers that address the affordable housing market, such as housing associations that undertake developments themselves and main contractors that build on behalf of housing associations.

 

The skills that Tamdown employs are transferable from the residential sector to other sectors and services. The infrastructure activities that Tamdown undertakes for the residential sector such as earthwork optimisation, highway works, remediation and drainage solutions, are all services that can also be extended to non-residential customers.

 

 

 

Geographic expansion:

Tamdown has strong relationships with blue-chip customers in the South East of England and London. Tamdown intends to continue to use these relationships to drive customer penetration within the regions in which Tamdown currently operates. This strategy has resulted in 7 new regional customers during the year. The division also looks to expand geographically via recommendations and referrals from existing customers who also operate in neighbouring regions, whilst also developing relationships with new customers.

 

Outlook

Tamdown has an established market position, providing quality services to UK housebuilders and is developing key relationships with the Build to Rent and affordable housing sector developers. The backdrop of Government stimulus to counter the housing supply deficit along with our strong order book, provides us with confidence that our existing and new customers will continue to demand our services and our business is well positioned to grow.

 

TriConnex

 

Financial and operating performance

Revenue for TriConnex increased by 29.8% to £41.8m (2018: £32.2m). The high level of growth was achieved following an increased volume and value of projects being secured during FY18 and FY19, which has increased the overall number of contracts now generating revenue, along with a number of projects which have been accelerated by customers due to end customer demands.  TriConnex is engaged at the very early stage of developments with its customers, and often secures contracts prior to land acquisition. The increase in the order book illustrates that customers continue to be active. However, primarily due to the level of pre-commencement conditions set by the local authorities slowing the preparation of sites prior to construction commencing, the time between accepting orders and being able to take revenue from a project is still lengthy.

 

TriConnex is a high gross margin business, principally due to the more technical, office based, added value nature of the services it provides, resulting in a higher proportion of overhead costs. The gross margin decreased during the year to 30.8% (2018: 32.4%) as TriConnex has expanded both geographically and by diversifying its customer base, with margin levels with new customers being lower than with established customers. 

 

As TriConnex provides a full concept to connection service with a significant amount of desktop planning, research and technical design. The majority of TriConnex's staff are office based. During the year TriConnex has achieved revenue growth of 29.8%, which, in order to maintain TriConnex's reputation for high level of service has required additional resources.  Accordingly, headcount and resources have been added during the year in an efficient manner. Although overheads were increased to £8.6m (2018: £6.7m) this was less than the revenue growth achieved during the period.

 

Operating profit increased by 15.4% to £4.3m (2018: £3.7m) with an operating margin of 10.3% (2018: 11.6%).

 

The order book grew by 26.1% over the year to £184.8m (2018: £146.5m) The growth is due to a number of factors including: continued repeat business from customers that have benefited from TriConnex's focus on customer service; new small and mid-sized housebuilder customers; an increased number of customers operating in the affordable sector; and growth within both the South West and Midlands regions.

 

Our markets

The utility connections market consists of three regulated utilities: electricity, gas and water, and one unregulated utility, fibre. Following the opening of the connections market to competition, TriConnex entered the market in 2011 to offer electricity and gas connections, expanding to offer water connections in 2014, fibre connections in 2016 and domestic electric vehicle charging in 2019. Today approximately 60% of gas and approximately 30% of electricity connections in the UK are undertaken by independent connection providers and expectations are that these levels will continue to grow.

 

TriConnex continues to differentiate itself in the market through its provision of a full multi-utility connection offer, coupled with a deep focus on outstanding customer service. Historically, utility connections have been a challenge for many developers, however TriConnex's core aim is to apply its customer understanding to provide an enhanced experience and deliver connections on time, every time. With the stated Government aim of delivering 300,000 homes a year by the mid 2020s, TriConnex can play a major role in supporting developers achieve this target.

 

TriConnex's core customer base consists of a mix of large and mid-sized residential developers, who are offered a full multi-utility service. Building on its strong position in the gas and electricity connections market, recent regulatory changes have supported both its fibre and water proposition. In fibre, the recent increase in tier 1 Internet Service Providers providing services across independent fibre networks provides developer customers with a more extensive, viable choice in network. In water, Ofwat have mandated that all water companies publish their charging regime as well as shortening the application process for independent water adopters. In addition, a new asset adoption code is under development by Ofwat to simplify the water adoption process.  All these changes should support greater levels of competition in the fibre and water connections markets, in which TriConnex is well placed to benefit.

 

The UK Government has passed legislation in June 2019 requiring the UK to bring all greenhouse gas emissions to net zero by 2050.  On the basis that new homes built now and in the next 5 to 10 years will exist in 2050, these homes should be future proofed with low carbon heating and world-leading levels of energy efficiency.  The approach has been set out in the Future Homes Standard which proposes a ban on fossil fuel heating systems in new homes by 2025 and includes views on how building regulations can reduce the carbon footprint of new homes.  These changes would significantly change the utility requirements for new housing projects, with gas potentially eliminated as a core utility, but with enhanced electricity requirements. TriConnex is working with its customers on how these changes will impact current and proposed projects and identifying the right solutions to support this.

 

Growth strategy

TriConnex's growth ambitions are to build the business in a significant and sustainable manner, with the focus of the business continuing to be customer service. The growth drivers include:

 

Market penetration:

TriConnex has expanded from its original base in the South East into the South West and most recently into the Midlands, with a Leicester office opening in late 2018.   Within these regions TriConnex has strong relationships with many regional businesses of existing blue-chip customers, however there are also regional businesses in these areas to whom TriConnex does not currently provide services.  These businesses present a continued growth opportunity for TriConnex

 

Customer diversification:

TriConnex's customer base is currently residential housebuilders. The focus had previously been the larger residential housebuilders, and TriConnex is now developing relationships with small and mid-sized private development residential housebuilders as well as providers of affordable housing. The business has also recently started to engage the main contractor segment of the market as a means of accessing larger private rented and affordable schemes.

 

Service innovation:

TriConnex began in 2011 offering the design, installation and connection of gas and electricity networks. The installation of water networks was introduced in 2014 and fibre in 2016. Service enhancements currently being introduced include extending the number of fibre network providers housebuilders can connect to and the incorporation of electric vehicle charging units within housing developments.

 

Outlook

The proportion of regulated utility connections to be made by independents providers is expected to continue to increase. TriConnex has already built a strong reputation of providing a high level of customer service alongside cost effective, efficient connections. The fundamental market growth drivers for our business are positive, which, with our continuing strong order book, means that our business is well positioned to deliver further growth.

 

 

 

eSmart Networks

 

Financial and operating performance

In it's first full year of trading, eSmart Networks has completed a variety of installations, including single charging units at destination sites such as supermarkets and petrol station forecourts, ultra-high-powered 'charging stations' and complex multi-point fleet charging with integrated battery storage.  Revenue for the year totalled £2.1m (2018: £0.3m), as the business continues to scale up in parallel to the growing pace of the EV charging infrastructure sector. 

 

As the business has continued to grow through the year, project efficiencies are being achieved with gross margins for the year being recorded at 23.4% (2018: negative 14.5%), with gross profits totalling £0.5m (2018: loss £0.04m)

 

Our investment in the sector has been measured with a tight control on expenditure, with administrative expenses growing by £0.3m to £1.1m (2018: £0.8m), with the headcount increasing to 24 by the year end (2018: headcount 9), although eSmart Networks utilises skilled resources from across the group in addition to the direct head count.  The operating loss for the year was £0.6m (2018: loss £0.7m).

 

The order book at 30 September 2019 has increased £1.7m year-on-year to £2.5m (2018: £0.8m).

 

Our markets

The UK, through the 2008 Climate Change Act, has a long-term, legally binding commitment to tackling climate change. In June 2019 the UK became the first major economy to write into law a commitment to bring all greenhouse gas emissions to net zero by 2050, compared to the previous target of at least 80% reduction from 1990 levels. Transport generates approximately a quarter of all the UK's greenhouse gas emissions, therefore, to achieve the legally binding reduction target for the UK, emissions generated from transport need to be extensively reduced.

 

In July 2018, the UK Government published the Road to Zero Strategy. This places electric vehicles at the heart of the transition to a lower emission transportation system as well as recognising the need for large-scale infrastructure investment to support this transition. In September 2019 the Government announced details of the initial of £70m (from a total £400m fund) to install 3,000 rapid charge points by 2024.

 

Recent studies suggest that the UK will require more than 22.2m electric vehicle charging points by 2050 in order for the UK to achieve the net zero emission target, with 2.6m in public places with the balance as private charging point for houses with off street parking at an overall estimated installation cost of £50bn.

 

eSmart Networks has been created by Nexus to support the UK's transition to a lower-carbon transportation system. A new and valuable market is rapidly emerging, and by applying the electrical expertise within TriConnex, coupled with the civil engineering capability in Tamdown, eSmart Networks is perfectly placed to design and install the electric vehicle charging infrastructure required in the UK. Whilst only operating for a relatively short period, eSmart Networks has already created a leading reputation for delivering infrastructure solutions across a number of key market segments.

 

Growth strategy

eSmart Networks' growth ambitions are to build the business in a significant and sustainable manner. The growth drivers include:

 

Product and Service expansion:

To date eSmart Networks has designed and installed charging units at destination sites, such as supermarkets and pubs, en-route charging points at or near petrol forecourts and complex multi-point fleet charging solutions with integrated battery storage.  Utilising this experience, the business will expand the service offering to businesses with fleets of vehicles, workplace charging and continue to expand the diversity of destination sites.

 

In conjunction with the design and installation of electric vehicle charge points, the business is building its capabilities as an Independent Connections Provider for the Industrial and Commercial sector with a particular focus on renewable energy sources and energy storage.

 

Geographic expansion:

eSmart Networks was set up in 2017 to be a national business and during 2019 eSmart Networks has successfully designed and installed charging units, from single charge points to ultra-high-powered charging stations, in each of the nations of Great Britain.  The business is well placed to take advantage of the significant investment in charging infrastructure throughout the United Kingdom that is being made by private funds, car manufacturers and Government.

 

Outlook

There is a substantial need to deliver the charging infrastructure to underpin the UK's transition to an electrified fleet. 2018/2019 has seen both large Government stimulus (such as the £400m 'Charging Infrastructure Fund') as well a private capital deployed without government subsidy to roll out large scale infrastructure projects. eSmart Networks has been selected by customers such as IONITY (a private partnership between BWW, Ford, Daimler and VW Group) who are rolling out pan national high-powered charging solutions, requiring extensive electrical and civil engineering infrastructure.

 

The Board believes that the macro-environmental factors (legal net zero target, large government finance commitment, growing awareness of carbon emissions and reducing ownership cost of EVs) will drive significant transformation to an electrified transport system. In parallel to this, a significant reduction in the use of natural gas will be required, requiring large and complex investments in the national electricity networks. eSmart Networks is perfectly positioned to provide the critical grid connection and installation services for the EV transition and support the wider electrification of the transport networks.

 

 

 

Consolidated statement of comprehensive income

For the year ended 30 September 2019

 

	Note	2019	2018
		£'000	£'000
Revenue		155,103	134,938
Cost of sales		(127,178)	(107,296)
Gross profit		27,925	27,642
Administrative expenses		(21,940)	(18,210)
Operating profit		5,985	9,432
Finance income	5	59	29
Finance expense	5	(339)	(249)
Profit before tax		5,705	9,212
Taxation	6	(1,530)	(1,918)
Profit and total comprehensive income for the year attributable to equity holders of the parent		4,175	7,294
Earnings per share (p per share)
Basic	8	10.95	19.14
Diluted	8	10.63	18.85
Consolidated statement of financial position As at 30 September 2019     2019 2018   £'000 £'000       Non-current assets     Property, plant and equipment 6,992 6,853 Right of use assets 4,845 - Goodwill 2,361 2,361 Other investments 43 47 Deferred tax asset - 7 Total non-current assets 14,241 9,268       Current assets     Inventories 378 29 Trade and other receivables 40,922 35,002 Contract assets 11,986 10,712 Cash and cash equivalents 27,366 26,414 Total current assets 80,652 72,157 Total assets 94,893 81,425       Current liabilities     Borrowings 2,000 2,000 Trade and other payables 39,392 33,524 Contract liabilities 22,572 18,643 Lease liabilities 1,461 430 Corporation tax 164 461 Total current liabilities 65,589 55,058       Non-current liabilities     Borrowings 2,745 4,400 Lease liabilities 3,136 156 Deferred tax liabilities 152 - Total non-current liabilities 6,033 4,556 Total liabilities 71,622 59,614       Net assets 23,271 21,811       Equity attributable to equity holders of the Company     Share capital 762 762 Retained earnings 22,509 21,049       Total equity 23,271 21,811