Record revenues were not enough to stop shares in engineering services group Nexus Infrastructure (NEXS:AIM) falling 6% to 160p, after it reported a shrinking margin and a 38% drop in profit.

In its full year results to 30 September, revenue increased 15% to £155.1m though pre-tax profit fell 38% to £5.7m, mainly due to profits halving at its civil engineering arm Tamdown, which counts the bulk of the UK’s biggest housebuilders as customers.

That led earnings per share to fall 42% to 11p, slightly below the 11.4p called for by analysts.

‘WE FOUND PROJECTS WERE GETTING STOPPED’

Nexus chief executive Mike Morris told Shares, ‘At the turn of the year we were finding that a lot of projects were getting either delayed and/or stopped, so we took a hit on labour costs and had some issues with resource planning.

‘We’ve put a reset programme in place to address these issues, as we’ve already flagged to the market, and that reflects the drop in profit.’

But Morris emphasised that the company’s services are in high demand, as demonstrated by the revenue growth and a record order book of £338.9m, a 17% year-on-year increase which he said gives the firm ‘good visibility for the year ahead.’

Nexus also maintained its divided at 6.6p per share.

OTHER DIVISIONS DOING WELL

Aside from the issues at Tamdown, the firm’s TriConnex division - which installs utility networks - performed well with revenue up 29.8% to £41.8m and operating profit up 15.4% to £4.3m.

Nexus also has a small but growing division called eSmart Networks, which provides charging infrastructure for electric vehicles.

READ MORE ABOUT NEXUS INFRASTRUCTURE HERE

Revenue totalled £2.1m at eSmart Networks as its customer base increased and diversified, up from £300,000 the year before, with Nexus investing £600,000 over the period as it continues to scale up the business.

The firm continues to invest in eSmart, with profitability expected towards the end of 2020.

NOT RELIANT ON HOUSEBUILDERS

But the company’s core business remains in the housing sector, and the firm points to the structural demand for housing in the UK as a big growth opportunity.

That has led some to believe its fortunes are tied into that of the big housebuilders, but Morris rejects that notion.

He said, ‘The skills at Tamdown and TriConnex are very transferable. While they’re not pursuing them at the moment, they’ve done schools, hospitals, airport hangars, all sorts.

‘We’ve chosen residential as we see a structural undersupply of housing in the UK. But if the market gets a bit subdued, we can go into non-residential [projects]. Particularly with TriConnex, there’s a whole myriad of things we do.’

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Issue Date: 10 Dec 2019