Our Business Model and Strategy

Hazardous waste overview  
The market for hazardous waste in the UK is based on a legislative environment underpinned by the implementation of the European Union’s Waste Framework Directive and the UK’s own hazardous waste National Policy Statement (NPS), which encourage sustainable methods of managing waste and the development of treatment, recycling and recovery facilities as the key focus of future waste management activities. The adoption of the NPS in June 2013 confirmed the need for the portfolio of treatment and disposal facilities and services developed by Augean. Importantly, the Group plays an active part in five of the eight sectors identified as essential for the management of hazardous wastes in the UK. The Waste Hierarchy provides a framework for waste management and implementation of infrastructure which will allow sustainable waste management solutions. However, the Waste Hierarchy is a simplification of Best Overall Environmental Outcome, which is the goal of environmental strategy, policy and regulation, and for hazardous wastes there is a particular need to consider the fate of the persistent and toxic pollutants in the waste.   

The hazardous waste market is highly segmented with a total volume of approximately five million tonnes (Environment Agency estimate) of waste handled in the UK each year. Within this arena Augean continues to focus on the treatment and disposal of waste from construction and demolition activities, Oil & Gas, energy from waste operators, specialist manufacturers, clinical and pharmaceutical waste, and other industrial producers.  

Hazardous landfill  
Data published by the Environment Agency for 2015 on the production of hazardous waste indicated that approximately 0.9 million tonnes are disposed per annum to hazardous landfill sites and the total UK capacity for hazardous landfill was approximately 16 million tonnes (source: Environment Agency). Augean’s Energy & Construction business continues to be a leading provider within this market, holding in excess of 40% of the UK’s remaining hazardous landfill capacity.   

Energy-from-Waste and Biomass Energy waste market  
Augean’s treatment and disposal to landfill includes the management of certain byproducts from energy-from waste (EfW) plants, required to deliver the UK’s obligation to significantly reduce the landfilling of municipal solid waste by 2020, and from biomass energy plants. These facilities produce air pollution control residues (APCR). The Group has developed the capability to treat and dispose of APCR at our sites at Port Clarence and East Northants Resource Management Facility (ENRMF), handling approximately 122,000 tonnes, representing an approximate 40% market share (2016: approximate 40% share). This market, of approximately 300,000 tonnes per annum excluding EfW operators who treat and dispose of their own APCR arisings, is expected to grow at 9% compound average growth rate from 2016 to 2022. The Group actively monitors technological developments in the treatment and recycling of this material to ensure its long-term competitive position in this market.   

Construction waste market
Construction soils are a key input to the Group’s landfill sites. In 2017, the Group received lower volumes of this waste into its sites at ENRMF and Port Clarence where contaminated soils are treated and disposed to landfill. The volume of these soils available to the Group is variable and linked to activity in the construction sector, including the progress of large-scale infrastructure projects. The market for these soils, by nature, is not operated on a long-term contracted basis. It is sensitive to the prevailing market spot price, influenced by haulage costs and thus proximity to the disposal site.   

The Group has also invested in soil washing and treatment equipment to promote recycling of a proportion of such materials, as required by the market.   

Radioactive waste market  
The Group’s key radioactive waste market is the nuclear decommissioning market, relating to the closure and dismantling of the UK’s redundant nuclear power and research facilities. This is managed on behalf of the UK government by the Nuclear Decommissioning Authority (NDA). The disposal of naturally occurring radioactive material (NORM) generated principally from the oil and gas industry is the second key radioactive waste market for the Group. Augean has planning permission and environmental permits in place to dispose of low activity low level waste (LLW), very low-level waste (VLLW) and NORM. The NDA publishes regular forecasts on the volumes of radioactive wastes requiring disposal and treatment.   

Industrial waste market 
The waste market has again remained stable as a result of shutdown and maintenance work being carried out across a broad range of sectors and overall growth in the UK manufacturing sector.   

As large energy-intensive industries have reduced production in the UK, the demand for organic waste derived fuels in the UK market has reduced. The market is reliant on facilities in mainland Europe for the recovery of energy from these fuels. The opportunity to send waste to energy recovery routes within mainland Europe continued to reduce with capacity being taken up by volume generated within the region, further displacing UK waste. This has resulted in an increase in costs and a decrease in rebates associated with these disposal routes. A resultant upward price pressure has been experienced in the UK kiln fuel market.   

North Sea Oil & Gas waste services market  
The markets for waste produced in the exploration, appraisal, development, production and decommissioning of North Sea oil & gas are centred on Aberdeen, extend to the Shetland Isles for the northern sector, and Great Yarmouth for the Southern sector. Augean North Sea Services (ANSS) provides a full range of services, equipment rental and manpower provision for the containment, treatment and associated specialised industrial cleaning of all Oil & Gas offshore and terminal wastes. These include the cuttings and slop waters from drilling, contaminated waters from the production process, production wastes, oil sludges, including those contaminated with low level naturally occurring radioactive material (NORM), swarf containment from abandonment activities, as well as a more general range of industrial general and hazardous wastes.  In addition, ANSS now provide full NORM decontamination of wellbore and topside production equipment in their new decommissioning centre in the Port of Dundee.   

The dependence of the UK’s energy sector on oil and gas will continue over several decades, leading to increased levels of demand for specialised industrial service-related waste management for offshore production facilities and onshore terminals, as the sector, depending on economics, extends the life of, or begins decommissioning, the assets in the North Sea.   

The oil & gas market has been adversely impacted since Q3 2015 because of significant reductions seen in oil prices, with oil & gas companies cutting capital expenditure and seeking efficiencies at all levels from the supply chain. These cost efficiencies were key to the sustainability of business. With 2015 came a downturn in drilling activity which continued into 2016 and resulted in a significant reduction in the size of the market for drilling wastes. The market increased slightly throughout 2017 with the recovering oil price.   

The market has seen an upturn in decommissioning-related plug and abandonment activities. NORM builds up over time on the downhole production equipment, processing lines and topside equipment, which requires decontamination with specialised industrial jetting equipment, resulting in the generation of NORM scale. The volume of downhole and topside equipment requiring decontamination is rising rapidly alongside plug and abandonment decommissioning activities, requiring specialised decontamination, treatment and disposal. 

Objectives
The business currently has two short-term objectives. After significant progress has been made on these a revised long term strategy will be presented to Shareholders.

Strategic focus 

Description

KPIs 

Resolve HMRC Position HMRC has been discussing with the Group whether it has paid sufficient landfill tax in relation to its treatment and disposal of hazardous waste. Those discussions are ongoing. Based on the legal and other advice received by the Group over several years, Augean is very confident that the Group has met its obligations in respect of landfill tax, consistent with the law and official
guidance at the time.
  • Resolution of issue
Maximise profitability and cash generation of business The Board has implemented several rounds of cost reduction, including a management re-organisation, to save at least a further £4.0m of cost annually. The one-off cost of this was £1.0m and is shown as an exceptional cost. The additional cost savings are expected to be realised fully in 2018.
  • Year-on-year profit growth
  • Repayment of bank debt