Interim Results

08 September 2021

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

Interim results for the six months ended 30 June 2021

Augean, one of the UK's leading specialist waste management businesses, announces its unaudited interim results for the six months ended 30 June 2021.

The Group has continued to grow in its key market of Energy from Waste (EfW) treatment and seen recovery in both the construction, treatment and to a lesser extent radioactive waste sector which were impacted in 2020 as a result of the Covid-19 pandemic. The North Sea service business continues to be subdued however revenue remains in line with management expectation.

Financial summary

Adjusted metrics are excluding non-underlying items

· Adjusted revenue1 before Landfill Tax decreased by 8% to £37.9m (2020: £41.4m)

· Adjusted profit1 before taxation increased 19% to £10.1m (2020: £8.5m)

· Adjusted EBITDA2 increased by 7% to £14.2m (2020: £13.3m)

· Adjusted basic earnings per share increased by 16% to 7.79 pence (2020: 6.70p)

· Net cash of £6.1m (December 2020: £6.4m) excluding lease liabilities

· Return on capital of 46.2% compared with 44.9% at December 20203

Operational summary

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

· Sales growth1 of 20% in Treatment and disposal with strong growth in all waste streams

· Strong growth of 20% in residues from Energy from Waste (EfW) and other incinerator plants as a result of annualised growth and new contracted plants coming online

· Successful application for an onsite EfW r-code solutions at our Port Clarence landfill

· North Sea service business revenue remains in line with management expectation

HMRC

· As announced on 10 December 2019, the Group paid £40.4m to HMRC to clear all outstanding Landfill Tax assessments. In 2020 HMRC subsequently repaid £1.4m relating to one aspect of the Landfill Tax dispute

· On 25 May 2021 HMRC issued a Landfill Tax assessment for £1.5m relating to time periods that had previously remained unassessed in relation to the Landfill Tax assessments. This has no impact on the income statement as modelling for the IAS37 and probabilistic losses already factored in the unassessed time periods.

· On 23 June 2021, the decision of the preliminary hearing of the First Tier Tax tribunal heard in September 2020 was received. The preliminary decision in relation was as to whether Augean had appropriately interpreted certain elements of Landfill Tax law as described in guidance note LFT1 (published by HMRC). The decision of the Tribunal found in favour of Augean. HMRC have subsequently applied to the Tribunal for a determination to extend or move the appeal period of the initial decision.

Outlook

· Further growth targeted in the core markets of Energy from Waste and construction soils

· Subdued market for North Sea Services with no new significant decommissioning project expected in 2021

· The Board expects to meet management expectations for the full year

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

"The Group has delivered pleasing growth in our core markets in the first half. We anticipate this to continue in the second half with full year results therefore anticipated to be in line with our expectations.

1 A reconciliation of these measures is included in note 9 of this announcement

2 EBITDA means adjusted earnings before interest, tax, depreciation and amortisation.

3 Return on capital twelve months to June 2021 compared with twelve months to December 2020. Return on capital employed excludes non-underlying items, defined as adjusted operating profit divided by closing capital employed, where capital employed is net assets excluding net cash, debt and Landfill Tax asset.

Strategic report

The Group's core strategic markets are Energy from Waste, construction soils, treatment, nuclear decommissioning and North Sea decommissioning:

Adjusted revenues exclude intra segment trading and Landfill Tax. Adjusted operating profit excludes non-underling items. A reconciliation of these adjusted metrics is shown in note 9.

Business performance

Market Conditions

The market for EfW continues to look positive with new EfW facilities being commissioned and annualization of growth for facilities opened in earlier years. Growth has been aided by 2020 being impacted by many biomass EfW sites being shut for periods during Q2.

The soil and construction market has rebounded as the Covid-19 restrictions have been lifted with construction waste volumes increasing in all locations but significantly in the South which was hardest hit in 2020 as market recovery was slower than in the North.

Industrial waste volumes have increased as the market has reopened with volumes now approaching pre-pandemic levels. Volumes remain on course to exceed prior year.

Nuclear decommissioning, a long-term growth market, remains subdued as operators take a cautious approach to reopening. Successful tendering on the LLWR metals framework has seen a number of projects commence in Q2 which will drive strong performance during the second half with revenues expected to grow significantly for the full year.

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 volume, revenue and profit is the disposal of ash from EfW sites which comprises bottom ash and ash from the burning of biomass and municipal waste to generate energy. Construction waste including asbestos and other contaminated waste materials and soils continue to be a significant input. A key growth market in Treatment and disposal is low level radioactive waste decommissioning.

Adjusted revenues, excluding Landfill Tax, increased by 19% to £30.9m (2020: £25.7m), with an increase in disposal revenue with increases in volumes and revenue across each waste stream.

The adjusted operating profit of Treatment and disposal increased by 37% to £11.2m (2020: £8.2m), due to growth in EfW revenues and recovery of the construction and radioactive market following the Covid-19 pandemic.

The Treatment and disposal strategy is to continue to win new treatment contracts, optimise the use of our treatment plants and maximise the market opportunity from growth in EfW ash waste volumes, nuclear decommissioning and construction sector wastes.

North Sea Services (NSS)

The NSS 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.

NSS revenue decreased by 55% to £7.0m (2020: £15.6m). An adjusted operating loss of £(0.1)m (2020 profit: £1.7m) is predominantly due to the successful completion of a large decommissioning project in H1 2020 and the continued impact of low activity levels coupled with the significant rationalisation programme undertaken at the end of the last financial year. As a result of the actions taken NSS is expected to break-even for the full year having returned to profitability during Q2.

The Haliburton Ecocentre in Peterhead, Aberdeenshire acquired in 2020 has been successfully integrated into the Group and is achieving management expectations.

As part of the reorganisation NSS has moved its Head Office and activity previously performed at the Woodside Road site in Aberdeen to its site in the Blackdog Industrial Park in Aberdeen.

The NSS 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 albeit stalled for 2021.

HMRC assessment

The Group paid all Landfill Tax assessments for its companies Augean North and Augean South for a total of £40.4m (£37.3m excluding interest) in December 2019.

In 2020 HMRC repaid £1.4m relating to one aspect of the Landfill Tax dispute.

In May 2021 HMRC issued and Augean paid a Landfill Tax assessment for £1.5m (£1.6m including interest) relating to time periods that had previously remained unassessed in relation to the Landfill Tax assessments related to Augean South. This has no impact on the income statement as modelling for the IAS37 and probabilistic losses already factored in the unassessed time periods.

On 23 June 2021, the decision of the preliminary hearing of the First Tier Tax tribunal heard in September 2020 was received. The preliminary decision in relation to the issue as to whether Augean had appropriately interpreted certain elements of Landfill Tax law as described in guidance note LFT1 (published by HMRC). The decision of the Tribunal found in favour of Augean. HMRC have subsequently applied to the Tribunal for a determination to extend or move the appeal period of the initial decision.

The Group continues to account for the legal costs of the dispute with HMRC as a non-underlying item, with £0.1m expensed in the half year.

The payments made to HMRC in December 2019 and May 2021 and the refund received in December 2020 have been accounted for in line with IAS37, resulting in an asset being held on the balance sheet of £16.2m. The application of IAS37 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 IAS37 is not representative of its expectation of any potential tribunal result as the application of probabilities to events with binary outcomes does not result in accurate real-life possible outcomes. The Group has not changed its view on probabilistic outcomes from the claim and as such the provision remains unchanged.

Financial performance

Group overview

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

Adjusted metrics exclude intra segment trading and Landfill Tax. Adjusted operating profit excludes non-underlying items. A reconciliation between the adjusted and statutory metrics is shown in note 9 to this announcement.

Non-underlying items are detailed below.

Trading, adjusted operating profit and EBITDA

Adjusted revenue, excluding Landfill Tax, for the six months ended 30 June 2021 decreased by 8% to £37.9m (2020: £41.4m).

Adjusted profit before tax increased by 19% to £10.1m (2020: £8.5m).

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

Non-underlying Items

Non-underlying items in 2021 were £0.1m, being legal and professional fees related to the Landfill Tax legal appeal and other matters.

Finance costs

Total net finance charges were £0.4m (2020: £0.8m). The main element of this charge relates to the service cost on the bank facility.

Earnings per share

Adjusted basic earnings per share (EPS) excluding non-underlying items, increased by 16% to 7.79 pence (2020: 6.70 pence) due to increase in higher margin activity through the Treatment and disposal segment.

The Group made an adjusted profit after taxation, excluding non-underlying items, of £8.2m (2020: £7.0m), all of which was attributable to equity shareholders.

The total number of ordinary shares in issue during the period was 104,971,924.

Dividend

The Board had previous declared an intent to return to paying dividends in 2021. Given the ongoing potential takeover of the Group the Board has decided not to declare an interim dividend (2020 interim and final: £nil).

Cash flow and net debt

Underlying net operating cash flows were generated as follows:

The cash flow of the Group is summarised as follows:

Underlying net operating cash flow as a percentage of EBITDA was 23% in 2021 (2020: 97%). This conversion was both planned, extremely low and is due to EBITDA of £14.2m being used to pay tax with deferred VAT from 2020 (Covid relief) paid of £3.2m, Corporation Tax of £3.5m (2020 final payment and 2021 payment on account) and with capital investment in property, plant & equipment and intangible assets made by the Group totalling £2.8m (2020: £2.0m), split between maintenance capital (to lengthen the productive life of existing assets) of £2.0m and development capital (for targeted future growth) of £0.8m. The increase in maintenance capital expenditure is due to timing in cell construction across the Group's three landfill sites being accelerated in 2021 to ensure void capacity is available to support revenue growth and avoid cost increases on fuel. The development capital expenditure is substantially for the planning application to support the expansion of the ENRMF landfill site and the creation of a 3D structure at Port Clarence to separate hazardous and non-hazardous cells creating a recycling route (r-code) for APCr.

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 outflow, net debt excluding lease liabilities was at £6.1m at 30 June 2021 compared with £6.4m at 31 December 2020. Lease liabilities were £2.7m at 30 June 2021 compared with £3.3m at 31 December 2020.

Financing / Going Concern

The Group has a bank facility, comprising a term loan and a revolving credit facility. That facility was renewed in December 2019 with HSBC Bank plc at a level of £40m. The facility comprises of a £20m term loan and a £20m revolving facility for a three-year term. At 30 June 2021 £5m remain drawn against the facility (30 June 2020: £21.7m).

The Directors are therefore confident that the Group has sufficient funds and is forecast to be compliant with its debt covenants at all measurement dates.

Balance sheet and return on capital employed

Consolidated net assets were £69.0m on 30 June 2021 (2019: £54.3m) and net tangible assets, excluding goodwill and other intangible assets, were £49.2m (2020: £34.5m), of which all was attributable to equity shareholders of the Group in both years. Annualised return on capital employed based on the six months ending June 2021 excluding non-underlying items, defined as adjusted operating profit divided by closing capital employed, where capital employed is net assets excluding net cash, net debt and Landfill Tax asset, increased to 46.2% in the 12 months to June 2021 (12 month to December 2020: 44.9%).

Outlook

The Group is targeting further growth in the core market of Energy from Waste, construction and radioactive waste and expects growth to continue in the second half. We continue to see a tough market for North Sea Services with no new significant decommissioning projects expected in 2021. The Board expects full year profit to be in line with management expectations.

Jim Meredith

Executive Chairman

08 September 2021 

Unaudited consolidated statement of comprehensive income

For the six months ended 30 June 2021

Unaudited consolidated statement of financial position

At 30 June 2021

* The comparative information is restated on account of correction of disclosures.

Unaudited consolidated statement of cash flows

For the six months ended 30 June 2021

Unaudited consolidated statement of changes in equity

For the six months ended 30 June 2021

1 Statutory information

The financial information in the interim report does not constitute statutory accounts as defined by Section 434 of the Companies Act 2006 and has not been audited or reviewed as is permissible under the rules of the AIM market.

The financial information relating to the year ended 31 December 2020 is an extract from the latest published financial statements on which the auditor gave an unmodified report that did not contain statements under Section 498 (2) or (3) of the Companies Act 2006 and which have been filed with the Registrar of Companies.

The interim financial statements for the six months ended 30 June 2020 are available from the Group's website at www.augeanplc.com.

2 Accounting policies

The interim financial statements have been prepared in accordance with the AIM Rules for Companies and on a basis consistent with the accounting policies and methods of computation as published by the Group in its Annual Report for the year ended 31 December 2020, which is available on the Group's website.

3 Basis of preparation

The Group has chosen not to adopt IAS 34 'Interim Financial Statements' in preparing these interim financial statements and therefore the Interim financial information is not in full compliance with International Financial Reporting Standards.

Having considered current trading performance, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Financial forecasts and projections, taking account of reasonably possible changes and sensitivities in future trading performance and the market value of the Group's assets, have been prepared and show that the Group is expected to be able to operate within the level of cash and the available headroom on the current banking facility.

The Directors are confident that the Company will be able to meet its liabilities as they fall due over the next 12 months. As a result, the financial information has been prepared on a going concern basis.

4 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 provide waste remediation, management, treatment and disposal services through its six sites across the UK.

· North Sea Services: Augean provides waste management and waste processing services 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.

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

The segmental results for the six months ended 30 June 2021 were as follows:

Non-underlying items in 2021 were £0.1m, being legal and professional fees related to the Landfill Tax legal appeal and other matters.

The segmental results for the six months ended 30 June 2020 were as follows:

Non-underlying items in 2020 were £0.4m, being legal and professional fees related to the Landfill Tax legal appeal and other matters including restructure costs within North Sea Services.

.

5 Taxation

The taxation charge for the six-month period ended 30 June 2021 has been based on the anticipated full year effective tax rate of 19.0% (six months ended 30 June 2020: 19%).

No change in deferred tax compared to the position at 31 December 2020 has been reflected in these statements. The taxation charge for the six-month period to 30 June 2021 is all reflected within current tax, consistent with the 30 June 2020 position.

6 Earnings per share

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

The non-underlying 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.

The non-underlying 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.

7 Reconciliation of operating profit to cash generated from operations

The above EBITDA and cash flow generated from operations both include a net cash outflow of £129,000 relating to non-underlying items (H1 2020: outflow of £388,000).

8 Analysis of changes in net cash

9 Reconciliation of performance metrics

The following metrics have been used in the Operating Review.

Revenue

EBIT