Final results for the year ended 31 December 2020

1 March 2021

Augean plc ("Augean" or "the Group")

Final results for the year ended 31 December 2020

Augean, one of the UK's leading specialist waste management businesses, announces its final results for the year ended 31 December 2020.

Financial highlights

Adjusted metrics exclude non underlying items1 

· Adjusted revenue2 before landfill tax decreased by 16% to £76.9m with the majority of the shortfall in the North Sea Services segment (2019: £91.5m)

· Adjusted profit2 before interest and tax increased to £20.5m (2019: £19.9m)

· Adjusted profit2 before taxation increased to £19.3m (2019: £19.2m)

· Statutory profit before taxation of £16.4m (2019: loss of £15.3m)

· Adjusted EBITDA3 increased to £29.0m (2019: £28.8m)

· Adjusted basic earnings per share decreased by 3% to 14.90 pence (2019: 15.33p)

· Statutory earnings per share was 12.70p (2019: Loss per share 12.26p)

· Strong operating cash generation of £28.0m resulting in a net cash4 position of £6.4m (December 2019: net bank debt4 of £13.2m)

· Return on capital of 35% (2019: 35%)

· Proposed resumption of dividend in 2021

Operational highlights

· All sites have remained fully operational all year with safe working practices in place to mitigate the impact of Covid-19

· Treatment & Disposal sales (excluding landfill tax) reduced by 4% principally due to Covid-19

· 15% growth in sales from residues from Energy from Waste (EfW) and other incinerators despite biomass incinerators being shut in quarter two due to lockdown

· New contracts signed with six EfW plants of which four are operational and two new. Annualised revenue from these plants is forecast to be approximately £6m

· Revenue from customers under contract or framework agreements generate in excess of 50% of the Group revenue including 70% of the APCr revenue with an average contract duration of over 4 years.

· Receipt of Recovery Code (R Code) for Augean North site infrastructure expands the available EfW market for the Group

· Improved margins contributed to small adjusted profit growth despite impact of Covid-19 in sales reduction

· Further progress demonstrated with soils being received by boat into Port Clarence demonstrating viability of new logistics channel

· Progress with planning applications made to extend the Augean South site and receipt of increased low level radioactive waste into the Augean North landfill

· Treatment business resilient in difficult conditions and important wins of new EfW business for expanding services beyond ash processing

· North Sea restructured to achieve break-even with contribution of successfully integrated Haliburton Ecocentre acquired in August 2020

HMRC

· The Group made payments in December 2019 against all landfill tax assessments for its companies Augean North and Augean South for a total of £40.4m (£37.7m excluding interest) and the first hearing, on one aspect of the claim, was heard by the First Tier Tax Tribunal in September 2020 and the outcome is awaited

· In December 2020, the Group was repaid £1.4m of the total payment made as HMRC agreed that tax should not have been assessed. The Group is also seeking reimbursement of costs.

Outlook

· Significant further growth targeted in the Group's core niche markets

· Strong cash generation - proposed return to dividend in 2021

· The Board is confident in the prospects for the Group

Commenting on the results, Jim Meredith, Executive Chairman, said:

"I am incredibly proud of our employees hard work and dedication during a year where everyone had to go beyond their normal duties so that the Group could deliver critical national services through a period of crisis. This was achieved whilst maintaining Group profitability, clearly demonstrating the Group's resilience during this period. Moreover services were delivered with improved safety across our sites. I look forward to working with our teams to further develop the Group and do this in an environmentally sensitive manner through 2021 and beyond on behalf of all our stakeholders."

There will be a call for analysts at 10am today organised by N+1 Singer.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation.

1 Non-underlying items are share based payments, the accounting for landfill tax liabilities, Impairment of tangible assets and other non-underlying items

2 A reconciliation of these measures is included in note 8 of this announcement

3 EBITDA means adjusted earnings before interest, tax, depreciation and amortisation

4 Calculated as statutory net cash / net debt excluding lease liabilities

Executive Chairman's statement

The Group continued its focus in 2020 on increasing revenue in attractive, growing segments of the hazardous waste market to drive underlying cash generation and adjusted profit. The underlying trading in the Group's businesses was positive and robust in spite of the significant impact of Covid-19 in quarter two, particularly on the construction and biomass sectors. Additionally, our North Sea business was adversely impacted from Covid-19 and the reduced oil price from quarter two and for the second half. As a result, the Group delivered growth in adjusted profit before tax to £19.3m (2019: £19.2m), a very credible achievement demonstrating the underlying resilience of the business. This profit excludes the one off-items which do not impact underlying performance, notably accounting charges of £0.9m in relation to the rationalisation for the North Sea business, impairment charges of £2.9m for the North Sea business and legal costs of £0.5m in pursuing our claim against HMRC offset by a profit of £1.8m due to an improved probability of success in our claim for tax recovery from HMRC. A reconciliation of adjusted to reported profits is set out in note 27. The Group made a statutory profit after tax of £13.3m in 2020 (2019: loss of £12.8m). The increase is primarily as a result of one-off exceptional costs recorded in 2019 relating to HMRC Landfill Tax Assessments.

We are pleased to report the Group maintained its record of a double-digit growth in Energy from Waste (EfW) revenue and profitability. A large number of construction sites closed through the second quarter due to the impact of Covid-19, which was more marked in the South than the North, reducing construction waste volumes which have traditionally represented more than a quarter of overall Group landfill volumes. A further knock-on effect was that construction site waste sent to biomass incinerators as fuel, was also curtailed, forcing some to close and thereby reducing the volume of ash we would otherwise have received. A total of six new EfW sites have been secured; four operational and two new. We are particularly excited about the recent receipt of the Recovery Code at our site in Port Clarence. This allows Augean the opportunity to grow its customer base by selling to a broader range of new and existing EfW facilities that require an R code for some, or all of their ash.

The impact of Covid-19 was most felt on Augean North Sea Services (ANSS). Covid-19 saw unprecedented declines in the Brent oil price with a consequent fall off in activity in the North Sea. This is seen in declining rig count (impacting volume of drilling waste and industrial service activity) but more importantly decline in discretionary decommissioning expenditure. In response to this, the Group has undertaken a rapid and significant rationalisation programme which has seen the overall ANSS workforce reduce by more than half, reduction in the senior management team expense, cost saving and rationalisation of sites. The total cost of the rationalisation of £0.9m has been treated as exceptional. In addition, a review of the asset values for ANSS has concluded that these are impaired and an appropriate impairment charge of £2.9m has been provided which has also been treated as exceptional.

The Group continues to secure further contracts with top-tier customers in Energy from Waste, Radioactive waste and construction waste. This year saw the first deliveries of waste into the Port Clarence site via boat thereby significantly expanding the geographical reach of this site but more importantly generating cost saving and significantly improved environmental outcomes for our customers including carbon and emissions reduction when compared to transport by truck.

The Group successfully argued and won one aspect of our Landfill Tax (LFT) dispute with HMRC, with the repayment of £1.4m (excluding costs of up to £0.2m still sought) which was received in December 2020. We await the decision of the Lower Tier Tax Tribunal on one other key aspect of the LFT dispute. Based on legal advice received, we maintain our position that we have correctly collected and paid the appropriate landfill tax, and we will continue to robustly challenge the assessments received through the tax tribunal system.

The Group's strong cash generation of £28.0m has resulted in net cash (excluding lease liabilities) at 31 December 2020 of £6.4m (2019: net debt of £13.2m). The net cash has benefitted from £3.2m of VAT deferred from March 2020 and which will fall due on 31st March 2021 in line with the government VAT deferral scheme. The Board will not pay a dividend for 2020 (2019 final: nil) but is proposing a return to paying dividends in 2021 having now fully repaid all debt associated with the disputed HMRC LFT assessments.

There has been no impact of Brexit on the results and the Group does not expect a material impact in 2021 as less than 1% of the Group profit arises from activity outside of the United Kingdom.

Health and safety remain the highest priority for the Board, management and employees across the Group. The management team has continually improved the safety environment by enhancing hazard recognition, risk evaluation and learning from incidents. There was an overall decrease in the number of incidents recorded by the business during 2020. While we remain one of the best performers in our industry we must not become complacent and we will continue to strive to improve. The Board continues to recognise the risks faced by our people, who work in challenging environments involving the moving, treating and disposing of hazardous waste.

Protecting the environment is not only a matter of compliance with permits but encompasses our broader responsibilities to society and future generations. The Group diligently monitors its performance in this regard, the results of which are regularly reported to the Board. The majority of our sites in England are ranked by the Environment Agency as Category A or as "Excellent" by the Scottish Environmental Protection Agency. We had one site that scored an E, which was highly unusual for our operations, but was associated with the exceptional rain and flood events during early 2020 and matters have been addressed to prevent any recurrence.

The Board recognises that our business success is dependent on the quality, diligence and hard work of all Augean's employees and I would like to take this opportunity on behalf of the Board to thank everyone who has contributed to the continuation of operation of all of the Group sites which have not lost a single days operational trading during this global pandemic.

As in previous years, I am pleased to note the addition of new shareholders to our register during the year and again I am thankful for the continued support from our investors.

The Group has set ambitious internal targets for the 2021 year which will undoubtedly be an economically uncertain period for the UK whilst Brexit plays out and the impact of Covid-19 continues; however, with limited direct exposure to EU markets, coupled with a strong start to 2021 trading and a robust pipeline of activity, the Board remains confident in the Group's prospects for the new financial year.

I look forward to updating shareholders on our continuing progress during 2021.

Jim Meredith

Executive Chairman

26 February 2021 

Operating Review

Introduction

The Group operated through two business units during 2020 and 2019, being Treatment & Disposal and North Sea Services. This reflects the operational management of the business. Within these segments, the Group's core strategic markets are Energy from Waste, treatment, nuclear decommissioning and North Sea decommissioning.

Adjusted revenues exclude intra segment trading and landfill tax. Adjusted operating profit excludes non-underlying items. A reconciliation of these adjusted metrics is shown in note 8.

Business performance

Treatment and Disposal

The principal activity of this business unit is the treatment and disposal of waste from Energy from Waste (EfW) incinerators, construction and industrial sites. The largest waste stream by revenue and profit is the disposal of ash from EfW sites which comprises bottom ash and fly ash from the burning of biomass and municipal waste to generate energy. The second waste stream by tonnage is contaminated waste materials and soils (including asbestos), mainly from the manufacturing and construction sectors. A key growth market in Treatment and Disposal is low level radioactive waste decommissioning.

Adjusted revenues, excluding landfill tax, decreased by 4% to £54.6m (2019: £56.6m), due to the input of construction sector wastes being reduced as a result of Covid-19 lockdown. Ash inputs increased 5% to 222,000 tonnes (2019: 211,000) with municipal ash up 38% to 130,000 tonnes. The overall ash growth would have been stronger still but for the biomass incinerators being largely closed through the second quarter due to a lack of input materials resulting from the closure of municipal waste sites and the impact of lockdown on the construction sector. Overall ash revenue has grown by 15% to £19.7m (2019: £17.2m). Radioactive waste volumes decreased to 7,600 tonnes from 14,200 tonnes in 2019. The effect of Covid-19 has been most marked on the radioactive and North Sea waste streams.

The adjusted operating profit of Treatment and Disposal increased to £20.0m (2019: £18.1m) due to increased ash sales, improved margins and the continued cost control offset by the impact of lower construction soils volumes and radioactive waste volume.

The Treatment and Disposal strategy is to continue to win new treatment contracts, win new and existing EfW sites particularly now we have an R coded process for ash treatment, optimise the use of our treatment plants, and maximise the market opportunity from shipping waste by boat to Port Clarence. We expect nuclear decommissioning and construction sector wastes to recover from the impact of Covid-19 experienced in 2020. 

North Sea Services (ANSS)

The ANSS business unit operates in the North Sea Oil & Gas market. The primary revenue streams are from drilling waste management (DWM), including the rental of offshore engineers and equipment to customers, production waste management, onshore & marine industrial services, decommissioning and water treatment. Decommissioning is expected to grow to be the most significant revenue and profit generator in the coming years.

ANSS revenue decreased by 36% to £22.4m (2019: £34.9m). This segment saw a decrease in adjusted operating profit to £1.4m (2019: £2.6m) due to the impact of Covid-19, the subsequent reduction in the oil price resulting in unprecedented reductions in drilling and decommissioning activity. Revenue in the first half of the year benefitted from the decommissioning of the Shell Curlew vessel in Dundee. This was completed and all performance and contractual obligations satisfied by June 2020. Revenue in the first half was some 50% higher than in the second half of the year with the impact of Covid-19 felt more seriously. In response to this the workforce in ANSS has been reduced by over half, the senior management team cost reduced, sites rationalised and the overhead cost base reduced substantially. The cost of this rationalisation is £0.9m and has been shown as an exceptional cost. In addition, The Group has reviewed the carrying value of the assets in ANSS and has impaired the value of these assets by £2.9m which has also been shown as an exceptional cost.

Despite the tough outlook for ANSS the Group used this as an opportunity to purchase the Haliburton Ecocentre at Peterhead to process drilling and other waste from the North Sea oil and gas customer base. This was completed at a significant discount in August and the initial consideration was £1.1m with a further £0.3m due in August 2021. This asset has not been impaired as it is trading broadly in line with expectation set at the time of the acquisition.

The ANSS strategy continues to gain traction as the business moves up the supply chain, dealing directly with Oil & Gas operators and top-tier customers, so providing opportunities to widen its service scope more directly with those customers. The opportunity remains for Augean to continue to service this growing North Sea decommissioning market, worth multi-billion pounds for many years to come however the group does not expect this market to pick up until late 2022 or early 2023. ANSS actively markets these facilities, through each of its sites although primarily through Dundee.

HMRC assessment

Since August 2017, the Group has received assessments (including accrued interest) for uncollected Landfill Tax where HMRC does not agree with the Group's interpretation of the rate of Landfill Tax that applies. The total value of assessments received, including interest accrued to the date of payment of the assessments, is £40.4m.

In December 2019, the Group paid these assessments in full. This prevents any further accrual of interest and allowed the Group to receive a corporation tax deduction. Payment of the assessment does not change the Group's legal position where we remain of the view the Group has applied the appropriate treatment in respect of levying LFT on waste received therefore the Group intends to maintain our robust challenge of HMRC's LFT Assessments. A number of separate legal challenges are being made of which the first was heard by the Lower Tier Tax Tribunal in September 2020 and the decision of the Tribunal is awaited.

The Group currently accounts for the legal costs of the dispute with HMRC, totalling £0.5m in 2020, as a non-underlying cost. The payments made to HMRC in December 2019 were accounted for in line with International Accounting Standard (IAS) 37, resulting in an expense in 2019 of £26.2m and a residual tax deposit asset of £14.2m held on the balance sheet (categorised as an "other receivable") as at the end of 2019. The application of IAS 37 involves the application of probabilistic modelling to tribunal outcomes, which are impacted by a number of different factors. The Group considers that the accounting outcome of meeting the obligations of IAS 37 is not necessarily representative of its expectation of any potential tribunal result. The assessments, points of law, interpretations and interconnectivity of aspects of the assessments means that the expected value approach taken does not necessarily result in accurate real-life possible outcomes.

In December 2020, the Group received £1.4m of Landfill Tax relating to overpayment for a particular customer which was a small element of the £40.4m paid in December 2019. As a result of this, and in conjunction with our external counsel, we have re-assessed the IAS 37 probabilistic modelling of our legal challenges to the HMRC Assessments resulting in a theoretical accounting profit of £1.8m which has been treated as an exceptional item. The tax deposit asset held as a non-current asset is £14.6m compared to £14.2m in 2019. Given the length of time the tribunal process has taken, and is expected to continue for before a settlement is reached, this receivable has been shown as due in greater than one year.

Additionally, the Group submitted a claim to HMRC for £11m associated with material used for engineering purposes beneath but forming a functional support layer for the landfill cap. The Group's claim results from a successful challenge by other Landfill operators against HMRC's interpretation of applicable LFT rates. The matter has been heard at the Lower and Upper Tax Tribunals with the courts having found against HMRC. HMRC are however continuing the appeal process to the final stage which is going to be heard during the first quarter of 2021. The Group's £11m claim includes approximately £10m of material currently contained within the £40.4m assessment value and approximately £1m of LFT paid but not included within the current assessment values. Should Augean be successful in our legal challenge of the HMRC Assessments the value of this separate claim will reduce to £1m which is disclosed as a contingent asset as at 31 December 2020, as any recovery is not yet seen as virtually certain.

Planning and permitting

The current site planning permissions extend to 2026 in the case of East Northants Resource Management Facility (ENRMF), 2034 for the Thornhaugh site and for a period of more than 50 years in the case of Port Clarence.

The Group has an option to purchase approximately 90 acres of land adjacent to its existing East Northants Resource Management Facility (ENRMF) landfill site near Peterborough which would prolong the life of the ENRMF site until at least the mid-2040s.

The Group is currently preparing an application for a Development Consent Order (DCO) for an extension in the area and life of the East Northants Resource Management Facility (ENRMF). The proposal at ENRMF is classified as a Nationally Significant Infrastructure Project (NSIP) under the Planning Act 2008 and consent must be granted by the Secretary of State in the form of a DCO. The Group will therefore submit the DCO application in Spring 2021 to the Planning Inspectorate (PINS) rather than to Northamptonshire County Council or the emerging North Northamptonshire Council. PINS is an impartial public body whose role is to consider all important and relevant matters and advise the Secretary of State whether consent should be granted for nationally significant infrastructure projects.

The Group has also submitted planning applications to Stockton-on-Tees Borough Council in the year for permissions specifically to accept wastes contaminated with small amounts of radioactivity - Low Level Waste - for treatment in the Waste Recovery Park or disposal into the hazardous and non-hazardous waste landfill sites.

An application for an Environmental Permit to accept LLW for disposal into the landfill has already been submitted to the Environment Agency. The permit application is supported by an Environmental Safety Case which contains a wide range of risk assessments in order to demonstrate to the Environment Agency that the proposals will not result in harm to people in the local area or to the environment. The Environment Agency is undertaking a determination process and has consulted on the Permit application. It is anticipated that the application will be determined in 2021.

Augean has submitted a planning application to Peterborough City Council requesting a change in the currently approved sequence of the excavation and engineering of landfill cells at Thornhaugh Landfill Site. The application, if successful will simply facilitate a now preferred site engineering and filling sequence plus assist the logistics of access route.

Financial performance

Group overview

A summary of the Group's financial performance, is as follows:

The Group considers adjusted metrics, as reconciled to statutory metrics in note 8, as being appropriate to understand the underlying performance of the Group's businesses. The adjusted metrics exclude one-off items or items outside the normal course of activities for the group. The adjusted items in the current year are non-underlying items as detailed below, and include asset impairment, restructure cost and adjustment to the accounting assessment for the HMRC Landfill Tax Assessment.

A summary of the Group's financial performance, excluding non-underlying items, is as follows:

A consideration of the operational factors affecting performance is included in the operating review.

Trading, adjusted operating profit and EBITDA

Adjusted revenue excluding landfill tax, for the 12 months ended 31 December 2020 decreased by 16% to £76.9m (2019: £91.5m).

Adjusted operating profit increased by 3% to £20.5m (2019: £19.9m) and adjusted profit before tax increased by 1% to £19.3m (2019: £19.2m), on the same basis.

Adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA), before non-underlying items, is determined as follows:

Non-underlying items

Non-underlying items in 2020 totalling £2.8m comprise: ANSS impairment £2.9m, ANSS restructuring cost £0.9m, updated assessment of IAS 37 potential LFT liability resulting in an exceptional profit of £1.8m, Landfill Tax legal cost £0.5m and other cost £0.3m. In 2019 non-underlying items include £0.5m expense related to landfill tax legal costs, £26.2m related to the charge associated with the payment of landfill tax assessments, £7.7m share based payments and £0.1m of other costs.

Finance costs

Total finance charges were £1.2m (2019: £0.7m) including the interest on bank debt, other financial liabilities, the amortisation of upfront fees associated with obtaining the facility and the non-cash unwinding of discounts on provisions. The interest will return to historic 2019 levels following the repayment of debt taken on in late 2019 to pay all outstanding Landfill Tax assessments.

Earnings per share

Adjusted basic earnings per share (EPS) excluding non-underlying items, decreased by 3% to 14.90 pence (2019: 15.33 pence) due to the Covid-19, reduced oil sector activity and higher interest costs.

Statutory basic earnings per share (EPS) increased to 12.70 pence (2019: loss 12.26 pence) due to the exceptional charge in 2019 related to HMRC Landfill Tax Assessments and other non-underlying items noted above.

The Group made an adjusted profit after taxation of £15.6m (2019: £15.9m), all of which was attributable to equity shareholders.

The total number of ordinary shares in issue increased during the period from 104,085,198 to 104,971,924 with the weighted average number of shares in issue increasing from 104,006,779 to 104,371,664 for the purposes of basic EPS due to the issue of shares to satisfy options granted in previous years.

Dividend

The Board has decided not to declare a dividend for 2020 (2019 interim and final: £nil) but, with the tax assessments paid in full and the Group returning to cash positive, the Group is proposing to pay dividends in 2021.

Cash flow and net debt

Adjusted net operating cash flows were generated from operations as follows:

The cash flow of the Group is summarised as follows:

Prior year adjusted items include the working capital movement in relation to the recognition of an asset for a proportion of the Landfill Tax assessments paid. Adjusted net operating cash flow as a percentage of EBITDA was 97% in 2020 (2019: 94%).

The operating cash flow of the Group before adjusted items of £28.0m was used primarily to pay down debt and capital investment in property, plant & equipment and intangible assets made by the Group totalling £7.1m (2019: £5.8m), including spend offset against provisions, split between maintenance capital (to lengthen the productive life of existing assets) of £4.2m and expansion capital (for targeted future growth) of £2.9m. Maintenance capital expenditure has increased from the prior year as a result of cell construction and works. The development capex is substantially related to the acquisition of the Haliburton assets and the aforementioned planning consents.

Post-maintenance free cash flow, as set out in the table above, represents the underlying cash generation of the Group, before any investment in future growth or the payment of dividends to shareholders.

As a result of the above net cash movements, net cash, which excludes capitalised lease liabilities, was £6.4m at 31 December 2020 compared with net debt of £13.2m at 31 December 2019.

Financing

During 2020, the activities of the Group were substantially funded by cash from operations with bank debt renewed in 2019. The bank facility with HSBC Bank plc of £40m comprises a term loan of £20m and a revolving credit facility of £20m. £13m was drawn against this facility at 31 December 2020. The earliest maturity of the HSBC bank facility is December 2022.

Balance sheet and return on capital employed

Consolidated net assets were £61.0m on 31 December 2020 (2019: £47.6m) and net assets, excluding goodwill and other intangible assets, were £41.1m (2019: £27.8m), of which all was attributable to equity shareholders of the Group in both years.

Return on capital employed, defined as adjusted operating profit divided by average capital employed, where capital employed is net assets excluding net cash or net bank debt, increased marginally to 35.4% in 2020 (2019: 35.3%).

Impairment reviews

In accordance with IAS36 'Impairment of Assets', an annual impairment review was carried out for each cash-generating unit (CGU) to which significant goodwill is allocated and also any other CGU where management believed there may have been an indication of potential impairment to the carrying values of assets in those CGUs.

For the Group, this exercise was completed for the CGUs within the Treatment & Disposal and North Sea Services reportable segments.

Based on these reviews, a £2.9m impairment was made against North Sea services. The cash flows for all CGUs were discounted using a pre-tax discount rate of 12.2% (2019: 8.0%).

Employees

The Group employed an average of 316 staff (2019: 392) over the course of the year. The number of employees in the Group has decreased significantly during 2020 reflecting the Groups view of future trading in the North Sea Services sector.

Brexit

The Group is focused on trading in Britain and uses disposal infrastructure almost entirely based in the UK. Where disposal routes in mainland Europe are used, the financial impact of different scenarios which could result from this external change have been modelled. The impact of Brexit on these routes is difficult to predict but the position is being closely monitored with the Group board having access to expert advice. Coupled with UK Government advice that current waste movement structures will be rolled over in most EU States and the Group's work to establish alternatives, the risk of significant business disruption as a result is thought limited. 

Key performance indicators

The Augean plc Board of Directors, Group Management Board and local management teams regularly review the performance of the Group as a whole, along with the performance of individual business units. This includes the use of a balanced scorecard for applicable key performance indicators (KPIs) to monitor progress towards delivery of the Group's principal targets. These KPIs are consistent with those reported in 2019. The Group regard the performance in 2020 compared to their benchmark, which is the prior year performance, to be satisfactory.

The focus of the Group is in three priority areas:

1. Health & safety: monitored through near miss incidents and the number of accidents incurred;

2. Compliance with regulations, in particular Environment Agency and Scottish Environment Protection Agency audit results; and

3. Financial performance.

(1) The number of total reported accidents, that resulted in injury, including those resulting in damage to plant or equipment. This is an absolute figure which has not been normalised for changes in employee numbers.

(2) The total number of incidents reported which could have resulted in an accident or injury or damage to property.

(3) The average of audit scores notified during the year by the Environment Agency (EA) in England or the Scottish Environment Protection Agency (SEPA) in Scotland. The EA notifies results on the scale A-F and SEPA notifies on the scale Excellent-Very Poor.

(4) Group profit before taxation, excluding non-underlying items and share based payments charges

(5) Net operating cash flows, less maintenance capital expenditure.

(6) Calculated as operating profit, excluding non-underlying items, divided by average capital employed, where capital employed is the consolidated net assets of the Group excluding net bank cash/debt.

Summary and Outlook

The Group performed well during 2020, generating £28.0m of cash before non-underlying outflows and was able to marginally grow adjusted profit before tax despite the impact of Covid-19 and the impact on the North Sea business. A pleasing start to trading has been made in the first few weeks of 2021 with results in line with Group expectations. The Board is confident in the prospects of the Group for the full year.

Consolidated statement of comprehensive income 

for the year ended 31 December 2020

Group Statement of financial position

As at 31 December 2020

* The comparative information is restated on account of correction of disclosures to separately disclose the Landfill tax asset within the Statement of financial position due to its material size and nature. This balance was classified within Trade and other receivables in 2019. This adjustment has no impact on net assets as at 31 December 2019 or the loss previously reported for the year then ended.

Consolidated statement of cash flow

For the year ended 31 December 2020

Statement of changes in shareholders' equity

for the year ended 31 December 2020

1 Basis of preparation

The financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The company has elected to prepare its parent Company financial statements in accordance with Financial Reporting Standard 101 (FRS101). The financial statements have been prepared on the historical cost basis with the exception of certain items which are measured at fair value as disclosed in the principal accounting policies set out below. These policies have been consistently applied to all years presented unless otherwise stated.

The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from these estimates.

The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements.

The auditors' reports on the accounts for 31 December 2020 and 31 December 2019 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The financial information for the year ended 31 December 2020 and the year ended 31 December 2019 does not constitute the company's statutory accounts for those years. Statutory accounts for the year ended 31 December 2019 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2020 were approved by the Board on 24 February 2021 and will be delivered to the Registrar of Companies in due course. The statutory accounts for the period ended 31 December 2020 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on our website www.augeanplc.com.

Significant judgements and key sources of estimation uncertainty

The preparation of the financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income, expenses and related disclosures. The estimates and underlying assumptions are based on historical experience, the best available information and various other factors that are believed to be reasonable under the circumstances. This forms the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may however differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Changes in accounting estimates may be necessary if there are changes in the circumstances on which the estimate was based, or as a result of new information or further information. Such changes are recognised in the period in which the estimate is revised. Certain accounting policies are particularly important to the preparation and explanation of the Group's financial information. Key assumptions about the future and key sources of estimation uncertainty that have a risk of causing a material adjustment to the carrying value of assets and liabilities over the next twelve months are set out below.

Landfill Tax assessments (estimate)

The Group have made payments to HMRC in 2019 of £40,393,000 in relation to Landfill tax assessments received. The payments made to HMRC and additional potential assessments have been accounted for in line with IAS 37 and with reference to IFRIC guidance issued in January 2019.

The assessments are divided into 5 distinct waste types ("baskets"). However, there are multiple points of law being considered and challenged within each basket and some interdependencies between assessments. In order to calculate the "best estimate" of settlement under IAS 37 the likelihood of success on each basket has been estimated by 3rd party legal experts together with a further uncertainty factor applied. These estimates have been applied to the baskets in creating a probabilistic assessment of likely economic outflow. The expected outflow has then been deducted from the total payment lodged with HMRC, to arrive at a tax deposit of £14,638,000 (2019: £14,200,000) recognised in the Statement of Financial Position. Further information can be found in note 28.

The probabilistic modelling is reassessed based on input from external lawyers at the end of each accounting period and adjustments are recognised as appropriate. The tax asset had been disclosed in 2019 as a current asset, as the tribunal for one of the waste types was expected to take place in less than one year and the Group had an expectation, at the time, that the assessments could be settled during 2020. As the Group are still awaiting a verdict on this tribunal, the asset has been classified as a non-current at 31 December 2020 as recoverability within 12 months is not certain.

Ultimately the economic outflow of this dispute will be determined by tribunals for each individual point of law with further appeals possible following which the outcome may be different from the amount charged to the Statement of Comprehensive Income. The range of possible outcomes from the assessments as at 31 December 2020 range from £nil to £42,750,000 should the group lose all assessments and periods not yet assessed.

Provisions

The provision for restoration and after-care relates to closure and post-closure costs for all landfill sites, charged over the estimated active life of the sites. The expenditure is incurred partially on completion of the landfill sites (restoration) and in part after the closure of the landfill sites (after-care) over a period up to 60 years from the site closure dates. After-care expenditure relates to items such as monitoring, gas and leachate management and may be influenced by changes in legislation and technology. The provision is based on management's best estimate and the use of external consultants of the annual costs associated with these activities over the 60 year period, using current costs and discounted using a discount rate of 3%. £50,000 of this provision is expected to be utilised within 12 months of the balance sheet date (2019: £50,000). In 2020 a balance of £550,000 was transferred from accruals to provision to better reflect the uncertainty of timing around spend related to transfer of clay from site.

The capping provision reflects the expected costs of capping established and active landfill cells. Capping is required following the end of a cell's useful economic life and the build-up of the provision is based on the rate of use of the available void space within each cell. Costs of site development and cell engineering/capping are estimated using either the work of external consultants or internal experts. The Group has accelerated the program of capping its landfills cells with a spend of £1,294k (2019: £324k) during the year. This provision is not discounted as the costs are expected to be incurred shortly after consumption of the void. £180,000 (2019: £450,000) of this provision is expected to be utilised within 12 months of the balance sheet date.

2 Operating segments

The Group has two reportable segments. The two segments are the Group's strategic business units.

These business units are monitored and strategic decisions are made on the basis of each business unit's operating performance. The Group's business units provide different services to their customers and are managed separately as they are subject to different risks and returns. The Group's internal organisation and management structure and its system of internal financial reporting are based primarily on these operating business units. For each of the business units, the Group's Executive Chairman (the chief operating decision-maker) reviews internal management reports on at least a monthly basis. The following summary describes the operations of each of the Group's reportable segments:

· Treatment and disposal: Augean provides waste remediation, management, treatment and disposal services through its six sites across the UK.

· Augean North Sea Services: Augean provides waste management, waste processing services and decommissioning work to oil and gas operators.

Information regarding the results of each reportable segment is included below. Performance is measured based on the segment operating profit, as included in the internal management reports that are reviewed by the Group's Executive Chairman. This profit measure for each business unit is used to measure performance as management believes that such information is the most relevant in evaluating the results of each of the business units relative to other entities that operate within these sectors.

Total revenue for one customer amounts to more than 10% of the total revenue of the Group. One customer accounts for £11.1m of revenue (2019:£14.1m) which is all reported in the North Sea Services segment.

Materially all activities arise almost exclusively within the United Kingdom. Inter-segment trading is undertaken on normal commercial terms.

3 Non-underlying items

The following pre-tax items have been charged / (credited) to operating profit:

4 Taxation

Tax reconciliation

The main rate of corporation tax in the UK was 19.00% (2019: 19.00%).

5 Earnings per share

The calculation of basic earnings per share (EPS) is as follows:

Exceptional items are stated net of a tax charge of £537,000 (2019: credit of £5,838,000).

The exceptional items have been adjusted, in the adjusted earnings per share, to better reflect the underlying performance of the business, when presenting the basic and diluted earnings per share. Share based payments are considered to be adjusting item in the prior year due the vesting of the scheme in full after 2 years compared to the expected life of five years.

6 Reconciliation of operating profit / (loss) to net cash generated from / (used in) operating activities

The above EBITDA and net cash generated from operating activities includes a total net cash inflow of £1,927,000 relating to non-underlying items which includes £1,824,000 reassessment of the IAS 37 liability in respect of landfill tax assessments (2019: total net cash outflow of £44,500,000 relating to non-underlying items which includes £40,400,000 in relation to the settlement of landfill tax assessments).

7 Analysis of changes in net cash / (debt)

The table below presents the net debt of the Group at the balance sheet date.

8 Reconciliation of performance metrics

The following metrics have been used in the Operating review.

Revenue

EBIT

EBIT

9 Annual Report & Accounts

The Annual Report will be sent to shareholders on or before 1 May 2021 and will be available on the Company's website www.augeanplc.com from that date. The Annual General Meeting will be held at 12 noon on 16 June 2021 at 4 Rudgate Court, Wetherby, LS23 7BF.