In a small bowl mix 1 teaspoon of the sugar, yeast and 1/4 cup of the milk together, cover and keep aside for 10 minutes till the yeast is activated and turns frothy. If the yeast does not froth up, discard it and start again with a new package of yeast.
Sift the flour and salt into a large bowl. Make a well in the centre and add the beaten egg, melted butter, water and rest of the milk and caster sugar. Add the yeast mixture and mix everything well to form a soft, pliable dough.
Turn out the dough on a clean working surface lightly dusted with flour and knead the dough for about 10 minutes. Form into a ball and place it in a lightly greased bowl. Cover with cling wrap or a damp cloth and keep in a warm place till the dough has doubled in volume.
Line a large baking sheet with baking parchment.
When the dough has doubled, punch out the air and divide it into 4 parts. Roll each part into a ball and roll out each ball into a circle of approximately 10 inches. Place this on the baking sheet and spread a layer of Nutella evenly on the surface of the dough leaving about 1/4" gap along the edges.
Cover this with the second ball of dough that has been rolled out. Spread another layer of Nutella and cover it again with the third dough circle. Repeat till all the four dough circles are used up. Do not spread the Nutella on the top most layer.
Now place a drinking glass or cup with a 3 cm diameter right in the centre of the stack of dough circles. This is to prevent you from cutting through the dough.
Now using a sharp knife cut the stack into 16 segments (like pizza). Now take two segmets next to each other and twist them in opposite directions, away from each other, twice and seal the edges firmly together (you can dab the edges with a little water). Repeat till all segments are twisted.
Cover the dough with cling film or a large plastic bag and keep in a warm place to prove again.
Prepare the egg wash by mixing the egg yolk and water together
When the dough has doubled again, brush the surface with the egg wash/glaze and bake it in a preheated oven at 175 degrees C for 16-17 minutes or till the surface looks nice and golden.
Remove and let the bread cool on a wire rack before serving. Pull out each segment and enjoy it with a cup of tea or sprinkle with some caster sugar or slather with some more Nutella!