10 December 2021

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

Full year results for the year ended 30 September 2021

Strong balance sheet, profitable growth and exciting strategic options

Mike Morris, Chief Executive Officer of Nexus, a leading provider of sustainable infrastructure, comments:

"The Group has an important role to play in delivering sustainable infrastructure for the UK.

We have achieved a strong recovery from Covid-19, delivering profitable growth, reinstating the dividend whilst making excellent progress on strategy.

TriConnex has had a significant year on revenue and profit in 2021, passing £50m revenue for the first time. We believe 2022 will be a breakthrough year for TriConnex in residential energy transition.

eSmart Networks is at the cutting edge of EV charging for cars, fleets and buses and has delivered exceptional growth, profitability for the first time and a burgeoning order book.

Given the compelling growth fundamentals of its markets, eSmart Networks is presented with some exciting strategic opportunities. Both as a catalyst to growth and to crystallise shareholder value, it is the Board's intention to explore strategic options available to eSmart Networks.

Our civil engineering division, Tamdown, has seen improved performance in the year and whilst inflationary pressures persist, these are being managed through selective tendering and tightened operational controls.

With the Group's order book standing at £288m and gross cash at £29.5m we have a solid platform from which to deliver from in 2022 and beyond."

Financial Highlights:

1.     Adjusted operating profit is operating profit excluding the impact of exceptional items

2.     Net cash is calculated as cash and cash equivalents less borrowings and lease obligations

Operational Overview: 

Multi-Utilities

·      Revenue increased to £50.7m (2020: £39.1m)

·      Operating profit of £5.3m (2020: £3.4m)

·      TriConnex continued to innovate its service offering with residential EV charging and fibre broadband enhancements, as well as developing new solutions for the energy transition in heating

Energy Transition

·      Revenue increased to £9.0m (2020: £2.2m)

·      Operating profit of £0.2m (2020: loss £0.8m)

·      eSmart Networks is well established in EV charging infrastructure and is developing its services and customer base in industrial electrification and renewable energy infrastructure

Civil Engineering

·      Revenue declined to £78.0m (2020: £85.8m)

·      Adjusted operating loss of £0.6m (2020: loss £3.3m), after the impact of profit on disposal of Tamdown's former office an operating profit of £0.6m (2020: loss £3.9m)

·      Tamdown continues to rebuild margins following the impact of Covid-19 in 2020, through quality delivery on site and operational controls

Nexus strategy:

·      Strong market fundamentals, alongside our robust balance sheet, will enable Nexus to deliver growth over the long-term

·      eSmart Networks has compelling growth fundamentals and market opportunities, both as a catalyst to growth and to crystallise shareholder value, it is the Board's intention to explore strategic options available to eSmart Networks.

o  The range of options will include a separate listing on AIM or a minority investment in eSmart Networks by a third party, with Nexus retaining a majority shareholding in either option.

o  The outcome of the chosen option will be to allow eSmart Networks to optimise its growth potential and raise its profile with customers and investors, while unlocking value for Nexus shareholders.

o  A further announcement on which option is to be pursued and anticipated timings will be made in due course.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.

Enquiries:

Notes to Editors: 

Nexus is enabling the energy transition by delivering sustainable infrastructure. The Group's capabilities are:

Utilities - TriConnex, our multi-utilities business, designs, installs and connects energy, water, fibre networks and electric vehicle charging infrastructure on new residential developments. The business offers end‑to‑end solutions with the goal of being recognised as the UK's leading independent provider of utility connections to new developments.

Energy Transition - eSmart Networks, the energy transition specialists, provides EV charging, industrial electrification and renewable energy infrastructure. The business was created to respond to the UK's need for charging infrastructure as the transition to electric vehicles gathers pace and has since developed its services to provide solutions in industry and renewable energy infrastructure.

Civil Engineering - Tamdown, our civil engineering business, provides a range of civil engineering and infrastructure services to the UK housebuilding and housing associations. Services include earthworks, highways, substructures and basements, installing sustainable drainage systems, as well as high-rise construction. It has an established market-leading position having been in operation for over 40 years.

Chairman's statement

Overview of the year

Nexus delivers sustainable infrastructure services to a broad range of customers and has well-established customer relationships and active engagement with all its stakeholders. The Group consists of the following businesses: TriConnex, which designs, installs and connects multi-utility networks to properties on new residential developments; eSmart Networks, which focuses on electric vehicle charging infrastructure, energy transition solutions and renewable infrastructure; and Tamdown, a provider of civil engineering, infrastructure and high-rise construction services.

The Group performed well in the first half of the year compared to the Covid-19 impacted second half of the previous financial year. Revenues in all businesses continued to grow in the second half of the financial year, during the Group's traditionally busy trading period. The Group reported revenue for the year of £137.0m (2020: £125.7m). TriConnex continues to thrive and recorded record revenue of £50.7m (2020: £39.1m), with activity levels ahead of pre-Covid-19 levels throughout the year. The Board is delighted by the strong traction that eSmart Networks gained during the year with revenue increasing by 310% year-on-year to £9.0m (2020: £2.2m). eSmart Networks is establishing an impressive customer base in the electric vehicle charging, industrial electrification and renewables infrastructure sectors and we are excited about the opportunities ahead in this area. Tamdown saw revenue decrease in the year to £78.0m (2020: £85.8m) following low levels of contract awards in the Covid-19 impacted 2020 and a strong H1 comparator in 2020.

The Group recorded a significantly improved operating result for the year with operating profit of £4.2m (2020: loss £2.5m). This was due to TriConnex achieving a record profit following the increase in revenues, eSmart Networks recording an operating profit for the full year following the significant increase in its revenues, and an improved trading result for Tamdown. The Group's operating profit before exceptional items for the year was £2.9m (2020: loss £1.9m). The exceptional item in the year was a profit of £1.3m relating to the disposal of Tamdown's former office whilst exceptional items in 2020, being costs of £0.6m, related to restructuring costs. The profit for the year attributable to equity holders of the parent company equated to £3.0m (2020: loss £2.4m). The basic earnings per share was 6.6p per share (2020: loss 5.9p per share).

The Group's order book remains strong at £287.8m (2020: £282.0m). TriConnex's resilient performance has been in line with expectations and the business ends the year with the order book at £189.0m (2020: £185.4m). This strong performance by TriConnex has been driven by the up-front, mission-critical nature of securing utility network connections on development sites. The eSmart Networks business has gone from strength to strength with the order book increasing substantially during the year, with an increase of £9.7m to £13.5m, an increase of 255% over the year (2020: £3.8m). The increased order book has been driven by the growing demand for electric vehicle charging, industrial electrification and renewable energy infrastructure. Our activities within eSmart Networks lie at the heart of the UK's transition towards Net Zero. Tamdown has been successful in winning contracts in 2021 but, due to the inflationary environment, is being disciplined on project selection and, as a result, the order book has reduced to £85.3m (2020: £92.8m).

The Group's balance sheet remains strong, with a continued high cash and cash equivalents balance of £29.5m (2020: £32.1m), resulting in a net cash balance (after bank borrowings and lease obligations) of £15.5m (2020: £19.2m).

Returns to shareholders

As a listed company, one of our primary objectives is to deliver value to shareholders. The disruption caused by the pandemic created economic uncertainty and impacted the Group's trading environment. As a result, the Board did not pay dividends in respect of the financial year ended 30 September 2020, prioritising the long-term interests of the Group through the maintenance of our strong balance sheet.

In light of the more stable trading environment, the improvement in trading by all the Group's businesses and our confidence in the future, the Board recommenced the payment of dividends and declared an interim dividend of 0.6p per share (2020: 0.0p per share).

The Board is confident of the strength of the Group and its position within its chosen markets. Having already paid an interim dividend of 0.6p per share, the Board is proposing a final dividend of 1.4p per share (2020: 0.0p per share) for the year ended 30 September 2021. If the dividend is approved at the Annual General Meeting ("AGM"), dividends for the year will total £0.9m (2020: £0.0m) having a dividend cover of 3.3 times the Group's profit after tax. The dividend will be paid on 25 February 2022 to shareholders on the register at close of business on 28 January 2022. The shares will go ex-dividend on 27 January 2022.

Looking forward, the Board anticipates the dividend cover to return over time to 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

There have been no changes to the Board during the year. The Board consists of six members, including four Non-Executive Directors and two Executive Directors. In line with the QCA Corporate Governance Code (the "QCA Code"), the Board has reviewed the independence of the Non-Executive Directors and considers all the Non-Executive Directors to be independent.

It was announced in August that I would be stepping down from the Board on 31 December 2021, being the end of my second term as Director and Non-Executive Chairman. During my tenure the Group has continued to evolve, including the listing on AIM in 2017, the creation and growth of eSmart Networks, and successfully navigating the difficult trading conditions created by both Brexit and the global pandemic. I am very pleased that Richard Kilner, who joined the Board in 2016, has agreed to succeed me as Non-Executive Chairman from 1 January 2022. He brings extensive knowledge of the Group, which will be invaluable in the years ahead.

Richard Kilner will also chair the Nomination Committee, with effect from 1 January 2022, and will continue to serve on the Company's Audit and Remuneration Committees. Richard's role as Senior Non-Executive Director and Chair of the Remuneration Committee will be taken up by Ffion Griffith, with effect from 1 January 2022. Ffion joined the Board of Nexus as an independent Non-Executive Director in 2018.

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 throughout the year.

Stakeholder engagement

The Board recognises the importance of stakeholder engagement to the long-term success and sustainability of our business. The Group is committed to developing effective dialogue and relationships with all stakeholder groups and the Board continually develops our business using learnings from these interactions.

Sustainability

At the heart of our purpose, Building Bright Futures, is a commitment to sustainability. I'm proud of what Nexus and its people achieved this year, we maintained our focus on health and safety and continued our work on developing and engaging our workforce, especially through the 'My Bright Future' performance development approach, which was expanded this year.

To aid our approach to reducing energy consumption across our sites and offices, improvement initiatives included working with key suppliers to reduce fuel wastage, reduce transport distances and monitor driver performance, and energy-saving initiatives in the design and construction of our new office achieving a BREEAM 'Very Good' rating.

We have started our journey to develop a strategic, Group-wide approach to sustainability. This is important to the Board because it supports our overall growth strategy and enables the energy transition by delivering sustainable infrastructure.

Strategic review

Given the compelling growth fundamentals of its markets, eSmart Networks is presented with some exciting strategic opportunities. Both as a catalyst to growth and to crystallise shareholder value, it is the Board's intention to explore strategic options available to eSmart Networks. The range of options will include a separate listing on AIM or a minority investment in eSmart Networks by a third party, with Nexus retaining a majority shareholding in either option. A further announcement on which option is to be pursued and anticipated timings will be made in due course.

Outlook

Looking ahead, the business is underpinned by strong growth drivers and is well placed to benefit from the demand for housing, infrastructure and transition of the UK energy system. Whilst some economic, political and global health uncertainty remains, the Group's market positions, strong order book and healthy balance sheet support the Board's confidence in the Group's prospects and expectation that profits will grow.

The UK, and the rest of the world, is currently undergoing an energy transition, underpinned by legally binding carbon reduction targets. Nexus Infrastructure operates at the heart of that and has an important role in delivering sustainable infrastructure in the UK. Our skills and expertise across the Group see us operate at both the supply and demand ends of the energy grid. The business has a track record and clear strategy in this growing area with high barriers to entry. The transition to Net-Zero will create a significant increase in demand for electricity, in particular renewable electricity, from consumers and businesses and Nexus is uniquely positioned to help facilitate this transition and capitalise on significant growth opportunities it will create.

Geoff French

Non-Executive Chairman

Executive Review

We are pleased to confirm that the Group's revenue has increased by 8.9% to £137.0m compared to the Covid-19-impacted results of the prior year (2020: £125.7m). The Group performed well in the first half of the year with revenues increasing significantly against the revenue recorded in the second half of the previous financial year, with revenue growth continuing into the second half of the year. TriConnex has been a major element of the revenue growth, performing well throughout the year and achieving a record revenue of £50.7m and growth of 29.8% (2020: £39.1m). eSmart Networks has also had a strong year with revenue increasing by 310.2% to £9.0m (2020: £2.2m), with revenue growth being recorded in all of the sectors the business is addressing. Tamdown recorded a revenue of £78.0m (2020: £85.8m), with the decrease reflecting a strong first half comparator in 2020 and then low levels of contract awards by customers in a Covid-19-impacted 2020, which limited the number of live contracts in 2021.

The profitability of the Group is significantly improved, though the improvement was tempered by lower levels of activity in Tamdown following limited contract awards by customers in the prior year and the significant inflationary price pressures in the cost base during the latter part of the current year. The trading and profitability of TriConnex has been strong throughout the year, with demand for multi-utility connection services remaining high, the business continuing to deliver good margins and providing more services to more customers including an enhanced fibre offering and residential EV charging. eSmart Networks made excellent progress in the year, with significant growth in revenue from the widening customer base, whilst maintaining good gross margins and improving efficiency to achieve an operating profit for the year. Tamdown made progress with margins in the first half of the year with the positive impact of new contracts. However, the significant inflationary pricing pressure of the cost base during Q4 of the year adversely impacted profits, resulting in an adjusted operating loss for the year. Tamdown's profit for the year was enhanced with the sale of its former office, which has been treated as an exceptional item.

The Group's order book remains strong and has increased by 2.1% year-on-year to £287.8m (2020: £282.0m), providing good visibility of future earnings. TriConnex has continued to thrive and increased its order book, even with a record level of revenue achieved in the year. The order book for TriConnex at the year end totalled £189.0m (2020: £185.4m), with the strong performance continuing to be driven by the up-front, mission-critical nature of securing utility network connections on development sites. The order book for eSmart Networks has increased substantially during the year, driven by the growing demand for electric vehicle charging, industrial energy transition solutions and renewable energy infrastructure. The order book for eSmart Networks increased by 255% during the year to end the year at £13.5m (2020: £3.8m), with a growing and impressive customer base in all of the sectors the business is addressing. Tamdown continued to win contracts throughout the year with its established customer base, but due to the recent inflationary environment it is being disciplined on project selection. As a result, the order book has reduced to £85.3m (2020: £92.8m).

During the year the Group's new head office facility, Nexus Park, was completed and we commenced occupation over the summer once the pandemic restrictions began to ease. Nexus Park enables the Group's businesses to come together in the same facility for the first time and will support both our cultural and strategic objectives in the years to come.

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 at both the supply and demand ends of the energy grid, particularly within the electric vehicle charging sector, which includes charging for cars, public transport and delivery vehicles, along with industrial electrification and renewable energy infrastructure, all of which are supported by the Government's Ten Point Plan for a Green Industrial Revolution.

Growth strategy

The Group's mission is to be recognised as the leading provider of sustainable infrastructure services in the UK. The Group's priorities are to:  

·    expand and further optimise service offering, to achieve growth;

·    benefit from and expand in fast-growing market segments, to continue growth; and

·    focus shareholder value in energy transition services, to achieve scale and earnings accretion.

Strategic process

Financial performance

Revenue for the Group increased by 8.9% to £137.0m (2020: £125.7m). TriConnex's revenue increased by 29.8% to £50.7m (2020: £39.1m) and eSmart Networks' revenue increased by 310.2% to £9.0m. The eSmart Networks revenue was lower than initially anticipated due to the activity on a small number of contracts not fulfilling all of the criteria required to enable value to be recorded as revenue in the 2021 financial year. The deferred activity will be recorded as revenue in H1 of the 2022 financial year.  Tamdown's revenue decreased by 9.1% to £78.0m (2020: £85.8m).

Gross profit for the year increased to £24.2m (2020: £16.7m) with the overall gross margin improving to 17.7% (2020: 13.3%). TriConnex maintained a high gross margin, reverting to margin levels achieved prior to the pandemic of 30.8% (2020: 30.5%). eSmart Networks' gross margin was, as expected, 28.0% (2020: 27.6%) with identified efficiencies being maintained. The gross margin for Tamdown improved in the first half of the year but has been impacted in the second half of the year by the significant inflationary price pressures in the cost base, which have not been able to be recovered from customers. Overall, the gross margin improved against the prior year to 7.7% (2020: 4.9%).

Administrative expenses for the Group, including exceptional items, increased in the year by £0.9m to a total of £20.2m (2020: £19.2m). The exceptional item for the current year is the profit on sale of Tamdown's former office, which generated a profit of £1.3m. The exceptional items in the prior year related to redundancy costs.

The Group's operating profit for the year before exceptional items was £2.9m (2020: loss £1.9m). The Group's operating profit for the year totalled £4.2m (2020: loss £2.5m). The profit for the year attributable to equity holders of the parent company was £3.0m (2020: loss £2.4m).

Other financial information

Order book

The Group's order book increased during the year by 2.1% to £287.8m (2020: £282.0m). TriConnex has further enhanced its order book, with a year-end balance of £189.0m (2020: £185.4m), with a high level of work secured, more than replacing value utilised during the year. eSmart Networks significantly increased the order book during the year, with the year-end balance increasing to £13.5m (2020: £3.8m) an increase of 255%. Tamdown's order book decreased to £85.3m (2020: £92.8m), with a disciplined approach being taken on project selection due to the current inflationary environment.

Net finance costs

The net finance charge for the year totalled £0.4m (2020: £0.3m). Interest received on bank deposits was negligible, £0.0m (2020: £0.03m) due to low interest rates and interest payable totalled £0.4m (2020: £0.4m). Interest payable constitutes interest on bank borrowings of £0.3m (2020: £0.3m) and interest on lease liabilities of £0.1m (2020: £0.1m).

Tax

The Group recorded a tax charge for the year of £0.8m (2020: credit £0.5m), representing an effective tax rate of 20.9% (2020: 16.9%). The current year's tax charge includes adjustment for the gain on the disposal of Tamdown Way, the impact of capital allowances and the impact of the change in substantively enacted tax rate on the Group's deferred tax balances. 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 equated to 6.6p, compared to a loss per share of 5.9p in 2020. The diluted earnings per share was 6.4p (2020: loss 5.9p).

Dividends

As noted in the Chairman's statement, the Board has recommended a final dividend of 1.4p per share (2020: 0.0p per share), giving a total dividend for the year of 2.0p per share (2020: 0.0p per share). The total dividend results in the dividend cover of 3.3 times and it is anticipated that the dividend cover will revert to 3.0 times over time as profitability improves. The total cost of the dividend payments, including the interim dividend, will be £0.9m.

Statement of financial position

The Group continues to maintain a strong balance sheet with shareholders' funds increasing during the year to 30 September 2021 by £3.3m to £32.1m (2020: £28.8m), the movement representing the trading performance of the Group companies less the payment of dividends totalling £0.3m.

The Group's new head office building was completed during the year with investment, inclusive of the fixtures and fittings, of £7.1m. Occupation commenced over the summer following the easing of pandemic restrictions and we believe bringing the majority of our office-based staff together in one location will enhance the business culture and support growth in the years to come.

Non-current assets increased over the year by £5.9m to £24.4m (2020: £18.5m), with the increase due to the investment in buildings and the associated fixtures and fittings, mitigated by depreciation and disposals. Current assets increased by £7.1m to £91.4m (2020: £84.3m) with inventories increasing by £1.3m, trade and other receivables increasing by £0.5m, contract assets by £8.4m and cash balances decreasing by £2.6m to £29.5m (2020: £32.1m).

Total liabilities increased by £9.6m to £83.6m (2020: £74.0m), with trade and other payables increasing by £1.6m, contract liabilities increasing by £6.9m, lease liabilities decreasing by £0.9m and borrowings increasing by a net £2.1m to fund the construction of the new head office building.

Cash flow

The Group utilised £2.6m (2020: generated £4.7m) of cash in the year, resulting in a cash and cash equivalents balance at 30 September 2021 of £29.5m (2020: £32.1m).

Operating cash flows before working capital movements generated £5.1m (2020: utilised £0.4m). Working capital increased during the year by £1.7m (2020: decrease of £0.5m), with increases in debtors, contract assets and inventories partly mitigated by increases in payables and contract liabilities, resulting in cash generated from operating activities of £3.4m (2020: £0.1m). Tax and interest payments amounted to £0.7m (2020: £0.5m). Cash utilised in investing activities totalled £5.8m (2020: £6.0m), with £7.7m used to acquire fixed assets and £1.9m received from the proceeds of asset disposals, including £1.6m for the sale of Tamdown's former office. Net cash inflows from financing activities totalled £0.4m (2020: £11.1m), including £3.5m from the drawdown of bank facilities relating to the development of fixed assets, repayment of bank loans of £1.5m, £1.4m on lease repayments and £0.3m (2020: £1.7m) on dividend payments.

The Group continues to have a good relationship with its sole banker, Allied Irish Bank ("AIB"). The current facilities provided by AIB include a term loan of £12.0m (£1.9m drawn), a development loan of £10.0m (£9.8m drawn), an undrawn revolving credit facility of £5.0m, and an associated accordion of £5.0m. The Group is fully compliant with its banking covenants.

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 short-term credit rating of A. As the Group operates wholly within the UK, there is no requirement for currency risk management.

Summary and outlook

This has been an important year for Nexus. We have achieved a strong recovery from Covid-19, delivering profitable growth and reinstating the dividend whilst making excellent progress on strategy.

TriConnex has had an important year on revenue and profit, passing £50m for the first time; 2022 will be a breakthrough year for TriConnex in residential energy transition.

eSmart Networks is at the cutting edge of EV charging for cars, fleets and buses and has delivered strong growth, profitability and a burgeoning order book. Given the compelling growth fundamentals of its markets, eSmart Networks is presented with some exciting strategic opportunities. Both as a catalyst to growth and to crystallise shareholder value, it is the Board's intention to explore strategic options available to eSmart Networks.

Tamdown has seen improved performance in the year and whilst inflationary pressures persist, these are being managed through selective tendering and tightened operational controls.

Looking forward, the Group is well placed to benefit from the demand for housing, infrastructure and transition of the UK's energy and is emerging as a serious player in the high growth energy transition sector. Whilst some economic and political uncertainty remains, the Group's market positions, strong order book and healthy balance sheet give the Group a solid platform to deliver and support the Board's confidence in the Group's growth prospects for 2022 and beyond.

Operational Review

MULTI-UTILITIES

TriConnex, our Multi-Utilities business, designs, installs and connects electricity, water, gas, fibre networks and electric vehicle charging infrastructure on new residential developments. Working with major housing developers, the business offers end‑to‑end solutions with the goal of being recognised as the UK's leading independent provider of utility connections to new residential developments.

Financial and operating performance

Revenue for TriConnex increased by 29.8% to £50.7m (2020: £39.1m). Despite the backdrop of Covid-19, activity levels continued to be high throughout the financial year. Strong growth in the core South- East region was supported by growth from the Midlands region, with revenues boosted on a per plot basis as customers added water and fibre connections to their energy connections.

TriConnex is engaged at the very early stage of developments with its customers, and often secures contracts prior to land acquisition. The maintenance of the order book at high levels illustrates that customers continue to be active and are planning for the long-term.

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 high gross margin has been maintained during the year, with the margin increasing to pre-pandemic levels of 30.9% (2020: 30.5%).

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. Overheads for the year increased to £10.4m (2020: £8.5m), driven by an increase in headcount to service the increased levels of activity and the impact of the Coronavirus Job Retention Scheme grant of £0.4m reducing the prior year costs.

Operating profit increased by 55.9% to a record profit level of £5.3m (2020: £3.4m) with an operating margin returning to pre-pandemic levels of 10.5% (2020: 8.7%).

TriConnex's order book has been resilient with a growth of £3.6m over the year to £189.0m (2020: £185.4m). This good performance has been driven by the up-front, mission-critical nature of securing utility network connections on development sites, with developers also continuing to expand the number of services they contract for.

Our multi-utilities market

The utility connections market consists of three regulated utilities: electricity, water and gas; and the unregulated utility markets of fibre and electric vehicle charging infrastructure. 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.

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. To address this, TriConnex's core aim has been to apply its customer understanding to provide an enhanced experience and deliver connections on time, every time. The most recent Government briefing paper, 'Tackling the under-supply of housing in England', from January 2021 identifies that estimates of up to 345,000 new homes a year are needed in England. TriConnex can play a major role in supporting developers achieve this target.

TriConnex's core customer base consists of a mix of large, small and mid-sized residential developers, who are offered a full multi-utility service. Building on its established position in the electricity and gas connections sector, market and regulatory changes have supported the newer service offerings. In fibre, the shift towards gigabit-ready fibre broadband has led to TriConnex expanding its offer with the addition of Virgin Media's 1GB ready fibre network, offered alongside SKY's ultra-fast broadband and many other full fibre providers. In water, Ofwat has introduced greater competition into a market that is inherently monopolistic, through NAVs (new appointment and variations) - limited companies who provide water services that would previously have been supplied by the incumbent. TriConnex is able to offer a NAV option to developers and include this as part of the overall multi-utility service. These changes should support greater levels of access for independent connection companies in the fibre and water connections markets, in which TriConnex is well placed to benefit. In electric vehicle charging, forthcoming new building regulations will mandate the requirement for access to electric vehicle charging for new residential properties. To help developers address this, TriConnex has partnered with EO Charging to provide charging solutions.

Looking forward, reducing carbon emissions from the heating of homes is one of the many issues being debated as part of the roadmap to Net Zero by 2050. The approach has been set out in the Future Homes Standard which proposes a ban on the use of fossil fuel heating systems in new homes by 2025 alongside other measures to improve energy efficiency. These changes will alter the utility requirements for new housing projects with gas ultimately eliminated as a core utility whilst at the same time creating the potential for an increased electrical load requirement. TriConnex is working in partnership with its customers to determine how these changes may 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 key differentiator being the quality of service provided to its customers. 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. Within these regions TriConnex has good relationships with many regional businesses of existing blue-chip customers, however there are also more regional businesses in these areas to whom TriConnex does not currently provide services. These businesses present a continued growth opportunity.

Customer diversification:

Whilst already boasting a broad customer base of residential developer customers, further opportunity remains for TriConnex to expand its customer portfolio in all segments, be they large-scale blue-chip housebuilders, mid-size developers, or smaller SME builders that demonstrate they have capacity for growth over time.

Service innovation:

When TriConnex began in 2011, the business offered the design, installation and connection of gas and electricity networks. The company continually considers how to improve its service to customers, and this has resulted in the subsequent introduction of water networks, fibre networks and residential EV charging infrastructure, based on customer requirements. More recent service developments include enhancing the number and quality of fibre network providers housebuilders can connect to, including the recent addition of Virgin Media to our offering as an ISP, expanding the ways that housing developments can access electric vehicle charging units, and development of the water NAV proposition.

Outlook

TriConnex has built and maintained a strong reputation for 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 it is well positioned to deliver further growth.

ENERGY TRANSITION

eSmart Networks, our Energy Transition business, provides public electric vehicle charging, industrial electrification and renewable energy connections. The business was created to respond to the UK's need for charging infrastructure as the transition from internal combustion engines to electric vehicles gathers pace, and has since broadened its services to provide grid connection solutions and renewable energy infrastructure.

The highly technical skills and specialised electrical accreditations allow eSmart Networks to offer customers a complete package of services which spans grid constraint solutions, grid connections and the onsite specialised civil and electrical installations. Of particular value to customers is eSmart Networks' capacity to control the grid connection process - effectively removing the monopoly Distribution Network Operator ("DNO") from the process, greatly reducing project timescales.

Financial and operating performance

eSmart Networks has continued to develop its offering to the EV charging infrastructure sector, whilst also developing its services to the industrial electrification and the renewable energy infrastructure sectors. During the year it has completed a variety of EV charging installations, including single charging units at destination sites such as pubs, supermarkets and petrol station forecourts, high power chargers at electric forecourts and charging hubs, 'last mile' delivery van depots and conversion of bus depots to facilitate electric buses. Industrial electrification projects have included designing and installing the significant load requirements at a Mega Shed. Renewable energy infrastructure projects have included detailed grid capacity analysis for international investor funds.

Revenue for the year grew significantly by 310% to £9.0m (2020: £2.2m), as the business continues to scale up in parallel to the growing pace of the EV charging infrastructure sector, along with entering the industrial electrification and renewable energy infrastructure sectors. Revenue was lower than initially anticipated due to the activity on a small number of contracts not fulfilling all of the criteria required to enable value to be recorded as revenue in the current year. The deferred activity will be recorded as revenue in H1 of the current financial year.

The gross margin was in line with expectations at 28.0% (2020: 27.6%), with gross profits totalling £2.5m (2020: £0.6m). Administrative expenses have grown with the scaling up of headcount to service the increased levels of activity, to £2.4m (2020: £1.4m), with the headcount increasing to 60 by the year end (2020: headcount 31). The scaling up of activity and the strict cost control resulted in eSmart Networks achieving an operating profit for the year of £0.2m (2020: loss £0.8m).

The growing demand for electric charging, industrial electrification and renewable energy infrastructure has driven a substantial increase in the order book, with an increase of £9.7m to £13.5m (2020: £3.8m), an increase of 255% over the year.

Our energy transition markets

The UK has a legal commitment to tackle climate change and, in 2019, it became the first major economy to write into law the commitment to bring all greenhouse gas emissions to Net Zero by 2050. 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 November 2020, the Government published The Ten Point Plan for a Green Industrial Revolution. The plan includes the acceleration of the shift to zero emission vehicles, which will end the sale of new petrol and diesel cars and vans from 2030. Support for this plan includes the investment of £1.3bn to accelerate the roll out of charging infrastructure on motorways and major roads, along with more on-street charge points. Recent studies suggest that the UK will require more than 25 million electric vehicle charging points by 2050 in order for the UK to achieve the Net Zero emission target, with 2.6 million in public places and the balance as private charging points for houses with off‑street parking at an overall estimated installation cost of £50bn.

In December 2020, the Committee on Climate Change published its recommendation on the UK's sixth carbon budget, which will set the UK's carbon emission reduction pathway between 2033 and 2037, in order to meet the legally binding Net Zero target by 2050. This report recommended a 78% reduction in UK territorial emissions between 1990 and 2035, in effect bringing forward the UK's previous 80% target by 15 years. This recommendation was enshrined in law under the Carbon Budget Order in April 2021. The report forecasts the UK will need a network of 10,000 - 20,000 interurban 'rapid charge' points by 2040. The report also forecasts that electricity generation will need to double from today's levels by 2050, with solar generation required to grow by 654%.

Currently electricity supplies 20% of all of Great Britain's energy requirements, by 2050 this will rise by 78%. Electrification of transportation, industrial demand and residential demand are key elements to Net Zero.

eSmart Networks was created by Nexus to support the UK's transition to a lower-carbon transportation system and has diversified into the provision of industrial electrification and renewable energy infrastructure. eSmart Networks applies the electrical expertise from within TriConnex, along with the civil engineering experience of Tamdown, to be perfectly placed to design and install the electric vehicle charging and energy infrastructure required in the UK.

Growth strategy

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

Market penetration:

eSmart Networks addresses three end markets, which have similar technical requirements. All three markets have massive opportunities over the medium-term:

·      Electric vehicle charging: It is estimated that the number of charging points in the UK will need to grow from the current 40,000 charge points to in excess of 2,700,000 charge points by 2030. The value of the addressable market for cars, buses and fleet vehicles is considered to total £8.3bn. eSmart Networks will continue to work with electric forecourt operators, charging hub and on-route operators, bus and fleet operators and destination owners.

·      Industrial electrification: The vast majority of energy requirements will switch over to electricity away from carbon intensive energy sources by 2050. In addition, electricity intensive industrial buildings such as automated warehouses and low carbon food production/processing are coming online. eSmart Networks will continue to expand its capabilities as an Independent Connections Provider, work with customers to support their connection needs for industrial properties with large energy needs.

·      Renewable energy infrastructure: The growth of the capacity of both solar and onshore wind generation is estimated to grow by in excess of 100% by 2030, which creates addressable markets of approximately £1.0bn. eSmart Networks will continue to work with renewable energy investors and developers to identify viable projects and utilises its Independent Connections Provider capabilities to design and install renewable energy infrastructure.

Geographic expansion:

From the outset, our eSmart Networks was set up to be a national business. It has successfully designed, installed and commissioned projects in each of the nations of Great Britain. The business now has employees located throughout the UK and we have recently opened an office in Belfast to support our design and technical departments. The business is well placed to take advantage of the significant investment in energy transition throughout the UK that is being made by private funds, car manufacturers, developers and Government.

Outlook

The UK is currently undergoing an energy transition, underpinned by legally binding carbon reduction targets. eSmart Networks operates at the heart of that. Our skills and expertise see us operate at both the supply and demand ends of the energy grid. The business has a growth trajectory and clear strategy in this growing area with high barriers to entry. The transition to net zero will create a significant increase in demand for electricity from consumers and businesses and eSmart Networks is helping facilitate this transition and capitalise on significant growth opportunities.

CIVIL ENGINEERING

Tamdown, our Civil Engineering business, provides a range of civil engineering and infrastructure services to the UK housebuilding sector. These services include earthworks, building highways, substructures and basements, installing sustainable drainage systems and high-rise construction. It has an established market-leading position having been in operation for over 40 years.

Financial and operating performance

Tamdown performed well in the first half of the year, with revenues increasing significantly against the revenue recorded in the second half of the previous financial year. Revenue growth continued in the second half of the financial year, during Tamdown's traditionally busy trading period. Overall revenue decreased in the year to £78.0m (2020: £85.8m) following low levels of contract awards in the Covid-19impacted 2020 and a strong H1 comparator in 2020.

The gross margin for the first half of the year had improved from the prior year loss to 10.1%, with profitability not returning to pre-pandemic levels due to ongoing contracts being impacted principally due to Covid-19. Significant inflationary price pressures in the cost base have materialised during Q4 of the year, further impacting contract profitability. Overall, the gross margin improved against the prior year to 7.7% (2020: 4.9%). However, whilst inflationary pressures exist, these are being managed through selective tendering and tightened operational controls.

Tamdown has maintained a very tight control of cost throughout the year, with administrative expenses before exceptional items reducing by £0.9m to £6.7m (2020: £7.5m).

Following the completion of the Group's head office building, Nexus Park, during the year and the subsequent occupation in the early summer, Tamdown's former office became surplus to requirements. The property was sold in September for proceeds of £1.6m, which resulted in a profit on disposal of £1.3m. The profit on disposal has been treated as an exceptional item.

The operating loss, prior to the exceptional item, was £0.6m (2020: loss £3.3m). The operating profit for the year was £0.6m (2020: loss £3.9m).

Tamdown has been successful in winning contracts throughout 2021 from its extensive customer base, leveraging our continued strong relationships. The inflationary environment in the second half of the year has led to a cautious and disciplined approach to project selection and, as a result, the order book has reduced to £85.3m (2020: £92.8m).

Our civil engineering markets

Tamdown customers are UK housebuilders and affordable housing developers, including housing associations. As such, the UK housebuilding market is key to Tamdown. 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 most recent Government briefing paper in January 2021 'Tackling the under-supply of housing in England', references the National Housing Federation estimate of up to 340,000 new homes per year needed in England up to 2031, which is ahead of the Government's 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 is more acute compared to the rest of the UK. The general uncertainty posed by the Covid-19 pandemic in 2020 caused customers to take a cautious approach to starting new sites and awarding contracts throughout that year. 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 alongside 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.

Tamdown is working in partnership with its customers, delivering fundamental and essential elements of the modular building revolution. This, and other Modern Methods of Construction, are enabling the construction industry to build better, greener and faster while meeting new targets and legislation.

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 civil engineering services to major UK housebuilders, we are well placed to benefit from the Government's current and future stimulus.

Growth strategy

Tamdown's ambition is to return to yielding profits in a sustainable manner through the successful delivery of its strategic goals, including:

Margin enhancement:

The limited number of project awards in the past year has resulted in a competitive market for Tamdown to secure projects, which is increased by the inflationary price pressures within the cost base. Tamdown's ongoing focus is on how the team plans and procures the resources required on projects, the mobilisation process and the interaction with customers before and during delivery, to ensure that projects are delivered safely, on time, to a high quality and profitably. The selection of projects will be important to ensuring that margin improvement is achieved and maintained.

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, 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 additional regional businesses to which Tamdown does not currently provide services. Accordingly, there is an opportunity to increase market share by winning projects with these additional 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 ten new customers, seven of which were regional businesses of existing customers. These businesses present an ongoing growth opportunity.

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 the housebuilders that build on behalf of housing associations via a partnership model.

Outlook

Tamdown has an established market position, a reputation for providing quality services to UK housebuilders, and is developing key relationships with those that focus on the Build to Rent and affordable housing sectors. The backdrop of Government stimulus to counter the housing supply deficit provides us with confidence that our existing and new customers will continue to demand our services, and our business is well positioned to return to profit and generate cash.

Consolidated statement of comprehensive income

For the year ended 30 September 2021