23rd Mar 2006 07:02
Augean Plc23 March 2006 23rd March 2006 Augean Plc Results for the period from 6 August 2004 to 31 December 2005 Augean Plc ("Augean" or "the company") is one of the UK's market leaders in themanagement of hazardous waste. Financial Highlights • Turnover of £ 26.1 million • Operating profit before amortisation of £ 3.7 million • Earnings per share before amortisation of 4.14 pence • Loss per share of 16.41 pence after charging £10.1m of amortisation costs • Strong operating cash flow of £ 7.3 million Operational Highlights • Successfully integrated three separate businesses to form a more profitable unit • Prices stable • Granted Pollution Prevention Control permit to operate the Stable Non Reactive Hazardous Waste monocells at the Thornhaugh site • Planning regularized at King's Cliffe • £8 million acquisition of Proactive Waste Solutions Limited • Operating management team strengthened David Williams, Chairman of Augean Plc said: "We have established a strong position within a specialised niche of the wasteindustry. We have very little debt and enjoy good cash flow and I can reportthat the New Year has started encouragingly as a result of progress which hasbeen made in a number of important areas." For further information, please contact: John Huntington, Chief Executive, Augean Plc - 01937 844 980 Jonathon Brill/Billy Clegg, Financial Dynamics - 020 7831 3113 Chairman's Statement Introduction I have pleasure in presenting our first full set of results. During the period, on turnover of £26.1 million, an operating profit of £3.7million was achieved before amortisation of intangible assets. After charges foramortisation of £10.1 million and interest of £300,000, a loss before tax of£6.4 million was recorded. These charges for amortisation do not have a cashimpact on our company and it is worth noting that net cash in-flow fromoperating activities during the period under review was £7.3 million. Thisdemonstrates our company's cash generative capability. This result is slightlybetter than our revised expectations but well below the level we had hoped toachieve. The reasons for this were outlined in my statement accompanying theinterim results as reported in September, 2005. The hazardous waste market was boosted as a result of changes in legislationboth in July 2004 and July 2005. It is rapidly establishing itself as animportant sub sector within the waste industry and we now own a meaningful shareof the total UK hazardous void space. Prices for hazardous waste, having leapteighteen months ago are stable, with some chemical waste prices trendingupwards. Recognising the needs of our customers for pre-treatment services as well as thedisposal facilities, we acquired Proactive Waste Solutions Limited for£8million. Proactive, a leading hazardous waste treatment operator is based inCannock in the West Midlands and has a licensed site covering approximately4,500 square meters. This acquisition, which has now been re-branded as AugeanTreatment, is proving highly complementary to our hazardous landfill sites. At the time of our listing on AIM we noted our intention to appoint anadditional independent non-executive director alongside Roger McDowell andduring the period under review we have been pleased to welcome Andrew Bryce onto our Board in that role. Andrew is well known and respected within the wastesector and, in an ever changing regulatory environment, his input is invaluable. In December 2005, Gary Downey, our finance director, left the company. We haveappointed an interim finance director and we will be making a statementregarding a permanent appointment in due course. Outlook We have established a strong position within a specialised niche of the wasteindustry. We have very little debt and enjoy good cash flow and I can reportthat the New Year has started encouragingly as a result of progress which hasbeen made in a number of important areas outlined in our Chief Executive'sreview. Chief Executive's Review 2005 proved to be a year of progress for Augean and its employees as we haveaddressed a number of challenges. I am confident that the people and systems wehave in place will give the company a firm base from which to strengthen ourposition in the growing hazardous waste sector. Market and legislation Augean was set up in 2004 to take advantage of the hazardous waste regulationswhich had recently been introduced in Europe and the UK; as with mostlegislation, however, this has taken time to be fully implemented and, moreimportantly, policed by the appropriate authorities. The Environment Agency hasnow increased its efforts to combat hazardous waste, particularly contaminatedsoils, being blatantly misdirected to non-hazardous facilities. An independent market report indicated that a year's worth of special/hazardousconstruction and demolition waste was excavated and deposited in the six monthsleading up to the 16 July 2004 deadline of the new legislation. We believe thatthis abnormal quantity suppressed the volumes of this type of waste beingproduced from July 2004 to the middle of 2005. It was suggested in the reportthat quantities would recover to previous levels only towards the end of 2005,or even the second quarter of 2006. The introduction of the Waste Acceptance Criteria, in July 2005, created manynew categories of hazardous waste but some confusion amongst our customers andresulted in a temporary dip in the volumes of chemical-related waste. I ampleased to report that this was partly outweighed by an increase in the volumesof construction-related wastes. Landfill Division We believe that, while the treatment and recovery of hazardous wastes willgradually increase over the next few years, landfill will always be needed todeal with waste that cannot be dealt with in this way, as well as for the finalrepository for waste from in-house and external treatment facilities. As a result, our focus in the first half of 2005 was directed towards theintegration of the two businesses which we acquired in December 2004. There wereinevitable changes in personnel during the year, but I am pleased to report thatmany of the existing staff stayed with the business and, in a number of cases,took on expanded roles. We made a number of improvements in the landfill division, including: • secured a stable and enthusiastic sales team; • approval from the Environment Agency for the hazardous waste monocells at Thornhaugh which will come on stream during the second quarter of 2006; • a new regional office facility at King's Cliffe, Peterborough; • standardisation of weighbridge facilities to improve customer turn-around times; • a significant plant replacement programme, which reduced costs and improved efficiency; • agreement from the Environment Agency to increase the annual hazardous waste licensed inputs at Port Clarence from 100,000 to 500,000 tonnes; • removal of waste from Thornhaugh to Marks Quarry, which improved the visual impact of the site and enabled us to continue to expand this important regional facility. At the end of March 2006, Marks Quarry will close on schedule. Marks Quarry willprovide Augean with a modest revenue stream going forward in the form ofLandfill Gas Royalties. Treatment Division The acquisition of Proactive Waste Solutions, which was acquired in August 2005to enable us to provide customers with an overall solution to their hazardouswaste problems, has proved to be an excellent addition to the Group. It haspotential for significant expansion during the coming year. We recognise that this sector will continue to develop and, as a result, intendto expand the Treatment Division during 2006. We plan to achieve this through amixture of acquisitions, development at existing facilities, and by increasingthe number of treatment options available. During the latter half of 2005, andthe beginning of 2006, we have researched a number of treatment facilities inthe UK and Europe, to enable us to formulate our strategy in this area. Financial performance Turnover for the period was £ 26.1 million, generating an operating profitbefore amortisation of intangible assets of £ 3.7 million, a loss before tax of£ 6.7 million and a loss per share of 16.41 pence. Net assets at the period endwere £ 104.7 million and there was a net cash inflow from operating activitiesof £ 7.3 million. The Board will not be recommending the payment of a dividend for the periodended 31st December 2005. Future developments During 2006 we will embark on a number of exciting developments to broaden theGroup's range of services and to deliver shareholder value. These include: • increasing throughput at Augean Treatment's Cannock treatment facility through the introduction of 24-hour working; • increasing the types of waste handled at Augean Treatment's Cannock facility by constructing a pilot plant to consolidate hazardous waste streams. This will be followed by a permanent installation towards the end of 2006; • developing treatment and pre-treatment facilities at our Port Clarence facility in the north-east of England; • developing an Augean treatment facility at a third-party site in the Yorkshire region; • introducing wharfage facilities at Port Clarence to enable us to capitalise on the lack of hazardous facilities in southern England; • opening of a purpose-built laboratory at our King's Cliffe site, in April 2006, for testing customers' material. This will reduce our reliance on third-party laboratory facilities and improve customer service. Management team During the integration of the three businesses it has acquired, the Company hasstrengthened its management team at all levels . At the operating level, we have added a depth and experience of management tosuccessfully drive volumes to our landfill and treatment businesses and to givethe company capacity to make further acquisitions and move the company forward.The strengthened team includes individuals with great experience in the wasteindustry. No company can survive without a dedicated management team which believes in,and supports, the ethos and strategy of its board of directors. I am happy tosay that, at Augean, we have such a team which is supported by a strong andcommitted workforce and I thank everyone for their valuable contribution during2005. Consolidated Profit and Loss Accountfor the period from 6 August 2004 to 31 December 2005 Note £'000 Turnover 3 26,113Cost of sales (18,025) Gross profit 8,088 Administrative expenses excluding amortisation of intangibles (4,400)Amortisation of goodwill (10,052)Amortisation of other intangible assets (28) Total administrative expenses (14,480) Operating profit before amortisation of intangible assets 3 3,688 Operating loss 3 (6,392)Interest payable and similar charges (565)Interest receivable and similar income 287 Loss on ordinary activities before taxation (6,670) Tax on loss on ordinary activities 4 (1,380) Loss on ordinary activities after taxation (8,050) Retained loss for the financial period (8,050) Basic and diluted loss per share (pence) 5 (16.41) All transactions in the period derived from acquired operations Consolidated Balance Sheetat 31 December 2005 2005 £'000 Fixed assetsIntangible fixed assets 85,812Tangible fixed assets 29,547 115,359 Current assetsStocks 1Debtors 6,870 6,871 Creditors: Amounts falling due within one year (9,838) Net current liabilities (2,967) Total assets less current liabilities 112,392 Creditors: Amounts falling due after more than one year (335) Provisions for liabilities and charges (7,336) Net assets 104,721 Capital and reservesCalled up share capital 6,549Share premium 106,222Profit and loss account (8,050) Equity Shareholders' funds 104,721 Consolidated Cash Flow Statementfor the period from 6 August 2004 to 31 December 2005 2005 Note £'000 Net cash inflow from operating activities 6 7,316 Returns on investments and servicing of finance 7 (278) Taxation - Capital expenditure and financial investment 7 (4,589) Acquisitions and disposals 7 (64,674) Cash outflow before financing (62,225) Financing 7 61,496 Decrease in cash in the period (729) Reconciliation of net cash flow to movement in net debt Decrease in cash in the period (729)Cash outflow from decrease in debt and lease financing 703 Change in net debt arising from cash flows (26)New finance leases and hire purchase agreements (63)Debt acquired with subsidiary (3,502) Movement in net debt in the period (3,591) Funds at 6 August 2004 - Net debt at 31 December 2005 (3,591) Notes 1. Principle Accounting Policies Basis of accounting The group financial statements have been prepared under the historical costconvention. Basis of consolidation The group financial statements incorporate the financial statements of thecompany and its subsidiary undertakings only. Acquisitions are accounted forunder the acquisition method. The results of companies acquired or disposed ofare included in the profit and loss account after or up to the date that controlpasses respectively. Intangible assets Goodwill arising on the acquisition of subsidiary undertakings and businesses,representing the excess of the fair value of the consideration given over thefair value of the identifiable assets and liabilities acquired, is capitalisedand amortised on a straight line basis over its useful economic life, withspecific account taken of the period of site licences ( 7 to 10 years).Provision is made for any impairment. Royalty agreements are capitalised and amortised over the life of the relatedsite licence (10 years). Turnover The turnover shown in the profit and loss account represents amounts invoicedduring the period, inclusive of Landfill Tax but exclusive of Value Added Tax,relating to the principal activities of the group. Tangible fixed assets and depreciation The acquisition, commissioning and site infrastructure costs for each landfillsite are capitalised when incurred. These costs are then depreciated over theuseful life of the site, which is assessed with reference to the usage of thevoid space available. Cell engineering costs are capitalised when incurred. The depreciation chargedto the profit and loss account is calculated with reference to actual costs todate and expected future costs for each cell, the total of which is spread overthe useful life of the cell. Useful life is again assessed by the usage of thevoid space available. Other tangible fixed assets are stated at cost, net of depreciation and anyprovision for impairment. Depreciation is provided evenly on all other tangiblefixed assets at rates calculated to write off the cost, less estimated residualvalue, of each asset over their useful lives. Restoration and after-care provisions The anticipated total cost of restoration and post-closure monitoring andaftercare is charged to the profit and loss account over the expected usefullife of the sites in proportion to the amount of void consumed at the sitesduring the period. The costs of restoration and post-closure monitoring will becharged to the provision when incurred. The provision has been estimated usingcurrent costs and is discounted. 2. Fair Values of Acquisitions During the period the Group acquired three companies, being Atlantic WasteHoldings Limited and Zero Waste Holdings Limited ("the Landfill Division") andProactive Waste Solutions Limited. All the assets and liabilities of thoseacquired companies have been recorded at their fair values reflecting theircondition at the relevant acquisition date. However the assessment of these fairvalues in relation to the Landfill Division is complex and has resulted insignificant revisions throughout the period as the review, which is stillongoing, has progressed. As such, provisional fair values have been includedwithin the reported results, which may result in further changes to the carryingvalue of these net assets during the next financial year. The fair valueadjustments in relation to Proactive Waste Solutions have been finalised in thisperiod. 3. Segmental Analysis Turnover Adjusted Operating Profit* Operating Profit/(Loss) £000's £000's £000's Landfill division 24,184 3,327 (6,568) Treatment division 1,929 361 176 26,113 3,688 (6,392) All activities arise solely in the UK. * This is operating profit before the amortisation of goodwill and otherintangible assets. 4. Taxation 2005 £'000Current tax reconciliation Loss on ordinary activities before tax (6,670) Theoretical tax at UK corporation tax rate 30% (2003: 30%) 2,001 Effects of:Expenses not deductible for tax purposes (105)Capital allowances for period in excess of depreciation (456)Goodwill amortised (3,024)Utilisation of acquired tax losses 190Other short term timing differences 14 Actual current tax charge for period (1,380) 5. Loss per share 2005 Basic and diluted loss per share (pence) (16.41)Amortisation of Intangible assets (pence) 20.55 Earnings before amortisation of Intangible Assets (pence) 4.14 For the period ended 31 December 2005, the calculation of the basic loss perordinary share was based on the weighted average of 49,065,022 ordinary sharesin issue during the period and loss after taxation of £8,050,000. The earningsbefore amortisation per ordinary share is calculated by adding back £10,080,000amortisation charges and was based on the same weighted average ordinary sharesin issue as above. No diluted loss per share arises due to the loss in the year, resulting in nodilutive share options. 6. Reconciliation of Operating Loss to Net Cash Inflow from OperatingActivities 2005 £'000 Operating loss (6,392)Amortisation of intangible fixed assets 10,080Depreciation 4,986Decrease in debtors 2,244Decrease in creditors (3,602) Net cash inflow from operating activities 7,316 7. Gross Cash Flows 2005 £'000Returns on investment and servicing of financeInterest paid and similar charges 565Interest received (287) 278 Capital expenditure and financial investmentPayments to acquire tangible fixed assets 4,589 4,589 Acquisition of SubsidiariesPayments to acquire subsidiary undertakings 65,832Cash acquired with subsidiary undertakings (1,158) 64,674 FinancingIssue of ordinary share capital 97,821Capital element of finance lease payments (358)Debt factor advances (345)Repayment of loans (35,572)Redemtion of preference shares (50) 61,496 8. Analysis of Changes in Net Debt 2004 Cash flow Acquisitions Other changes 2005 £'000 £'000 £'000 £'000 £'000 Cash at bank and in hand - - - - -Overdraft - (729) - - (729) - (729) - - (729) Debt due within one year - 345 (2,691) - (2,346)Debt due after one year - - (100) - (100)Finance leases/HP - 358 (711) (63) (416) - 703 (3,502) (63) (2,862) Net debt (26) (3,502) (63) (3,591) 9. Statutory Information This statement which has been agreed with the auditors was approved by the Boardon 22 March 2006. It is not the Group's statutory accounts. The statutoryaccounts for the period ended 31 December 2005 have not yet been approved by theBoard. Copies of the 2005 Annual Report, which will be posted to shareholders inApril 2006, may be obtained from the date of posting, from the registered officeof the company, 4 Rudgate Court, Walton, Wetherby, LS23 7BF. This is the first set of results for the Group. There are no comparativefigures. The company's first ever Annual General Meeting will be held in London on 31 May2006. Details will be included within the 2005 Annual Report. APPENDIX: Consolidated Profit and Loss Account: Pro Formafor the period from 1 January 2005 to 31 December 2005 Note £'000 Turnover 25,235Cost of sales (17,586) Gross profit 7,649Administrative expenses (3,755)Amortisation of goodwill (9,657)Amortisation of other intangible assets (28) Total administrative expenses 13,440 Operating profit before amortisation of intangible assets 3,894 Operating loss (5,791)Interest payable and similar charges (554)Interest receivable and similar income 260 Loss on ordinary activities before taxation (6,085) Note to this Appendix This pro forma does not form part of the formal announcement, has not beendiscussed with the auditors and is not a part of the Group's statutory accounts.The purpose of the pro forma is solely to represent the performance of theGroup as though it had commenced trading on 1 January 2005 and it comprisedthose activities and operations that existed then. 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