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. NPS confirmed the need for the portfolio of treatment and disposal facilities in line with the 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 5 million tonnes (source: Environment Agency (EA)) of waste handled in the UK each year. Within this arena Augean continues to focus on the treatment and disposal of waste from the growth areas of construction and demolition activities, Oil and Gas, Energy from Waste operators, specialist manufacturers and other industrial producers.

Hazardous landfill

Approximately 0.9 million tonnes of hazardous waste are disposed per annum to hazardous landfill sites and the total UK capacity for hazardous landfill is at most 14 million cubic metres and declining as hazardous landfills are closing and new hazardous landfills are not being permitted (source: EA and management estimates). Augean’s Treatment & Disposal Business continues to be a leading provider within this market, holding approximately 40% of the UK’s remaining and reducing scarce hazardous landfill capacity (source EA data and management estimate).

Overall volumes of waste deposited into landfill, including hazardous and non-hazardous material, decreased by almost 10% in 2020 to 570,000 tonnes albeit with a significant growth in municipal ash volumes of 38% offset by a significant decline in construction soils of 36% due to the Covid-19 lockdowns and consequent impact on activity and other waste reduced 5%.

Energy-from-Waste and Biomass Energy waste market

Augean’s treatment and disposal to landfill includes the management of certain by-products from Energy-from- Waste (EfW) plants, required to deliver the UK’s obligation to significantly reduce the landfilling of municipal solid waste and from biomass energy plants. These facilities produce air pollution control residues (APCR) also known as fly ash and a further residue known as intermediate bottom ash (IBA). The Group has developed the capability to treat and dispose of these ashes and residues at our sites at Port Clarence and East Northants Resource Management Facility (ENRMF). This market is expected to grow at 8% compound average growth rate through to 2024 (Source: Tolvik). With new incinerators having come on-line as well as winning ash contracts from existing plants it is pleasing that the Group was able to grow municipal ash volumes in 2020 by 38%. The Group actively monitors technological developments in the treatment and recycling of this material to ensure its long-term competitive position in this market. It was therefore particularly pleasing that Augean North has been granted a Recovery Code for its Port Clarence site.

The Group expects to continue winning market share in ash volumes and therefore exceed the market growth rate. This will be achieved as new municipal ash contracts, that have already been won and announced, come on-line in 2021.

Construction waste market

Construction soils are a key volume input to the Group’s landfill sites. 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 construction waste volumes declined by 36% in 2020 due to the impact of Covid-19 on the industry. Despite this it was pleasing that the Group was able to report the first shipments of waste into the Port Clarence site by boat. Utilising this alternate logistics solution will offer significant environmental benefits and cost savings to customers compared to road transportation. It will also expand the available geographic market for the Port Clarence site.

The Group expects the construction waste market to pick up in 2021 with less impact felt from the lockdowns due to Covid-19.

Industrial waste market

The waste market has again remained largely stable as a result of shutdown and maintenance work being carried out across a broad range of sectors and only a small downturn in the UK manufacturing sector due to Covid-19. In 2020 the Group maintained its very low share in this market.

The market has some reliance on facilities in mainland Europe for the recovery of energy from organic waste derived fuels. The opportunity to send waste to energy recovery routes within mainland Europe has remained stable and Augean benefits from these disposal routes. The impact of Brexit on these routes is not expected to have a significant impact on the Group. The Group has also established additional disposal routes, which it believes will ensure business continuity in this regard. The level of sales impacted by this potential change is small and the impact on profit is negligible.

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 material with a low radiation activity termed 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.

During 2020 the volumes of radioactive waste processed by the Group decreased by 46% as a result of significant fall off in activity from nuclear sites several of which were closed due to Covid-19. Historically the Group has only qualified for and hence received waste from the Waste Framework of the Low Level Waste Repository (LLWR). During the year the Group successfully qualified for and was added to the Metal Framework issued by the LLWR. Only qualified and competent entities are accepted onto the Frameworks which in turn then allows them to bid for individual treatment or disposal contracts issued under the Framework structure. The nominated expenditure on the Metal Framework is several times larger than the Waste Framework and it was pleasing therefore that the Group successfully completed a small £0.2m contract under the Metals Framework before the end of the year. This has been followed up early in 2021 by the award of a contract worth in excess of £2.5m under the Metals Framework and this will provide work for up to eighteen months. The performance in Radioactive waste is therefore positive however it should be understood that this may well be ‘lumpy’ and dependent on the timing of these new contracts.

North Sea Oil & Gas waste services market

The markets for waste produced in the exploration, appraisal, development, production and decommissioning of North Sea Oil and Gas assets are centred on Aberdeen and 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 and 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 from our decommissioning centre sited in the Port of Dundee.

The dependence of the UK’s energy sector on oil and gas is set to reduce over the coming decades. This will lead to decreased levels of demand for specialised industrial servicerelated waste management for offshore production facilities and onshore terminals although, as the North Sea industry shifts towards decommissioning activities and away from oil and gas production, ANSS expects to benefit and return to profitability. The Group was busy in the first half of 2020 completing the specialised cleaning and preparation of the Shell Curlew Floating Platform, Storage and Offloading vessel. This is one of the Group’s first major decommissioning projects which has generated significantly more work than initially expected when the project started. The project has now completed. The impact of the Covid-19 pandemic on the oil price and so the Oil and Gas Industry has been significant. This reduction has seen a significant decline in exploration and drilling and the associated activities. In response to this the Group has reduced headcount by more than half at a cost of £0.9m (shown as exceptional) and the ANSS assets have been impaired by £2.9m.

The Group has a pipeline of decommissioning contracts as well as a strong and growing supply of equipment, pipelines and tubulars requiring cleaning and NORM disposal. Given the current oil price and North Sea outlook the Group does not expect decommissioning to pick up until late 2022 or early 2023 although it will exhibit long-term sustained growth albeit with a certain level of ‘lumpiness’ around the timing of the major projects.

Despite this ANSS made a small acquisition of assets in the year adding the Haliburton Ecocentre site in Peterhead at a total cost of £1.4m with £0.3m consideration deferred to 2021. This asset is performing as expected at the time of acquisition and is expected to pay back in a relatively short period despite current market conditions.

The Group’s sales in the North Sea decreased by 36% in 2020 with adjusted operating profit declining to £1.4m from £2.6m in 2019.

The above five areas represent the Group’s targeted niche growth markets which, with the exception of the North Sea, the Group expects to grow in 2021.

OBJECTIVES

The strategy of the Group previously set out has been to focus on growing shareholder value in niche higher growth hazardous market segments.
The business currently has five short-term objectives against which good progress has been made in 2020.

STRATEGIC FOCUS DESCRIPTION KPI’s
Maximise profitability and cash generation of business The Board has achieved a small increase in profit despite the Covid-19pandemic and consequent significant fall off in activity in the North Sea oil sector. Year on year profit growth using adjusted profit before interest (note 27).
Strong cash generation (note 20).
Appeal HMRC £40.4m assessments HMRC has repaid £1.4m to date with the outcome of the First Tier Tax Tribunal awaited. Based on legal advice received, we maintain our position that we have correctly collected and paid the appropriate landfill tax. Tribunal outcome expected in quarter one 2021 earliest.
Debt elimination and resumption of dividends The Group utilised bank debt to pay HMRC and was unable to pay dividends while the HMRC assessments were not fully settled. The bank debt has now been paid off and it is proposed that dividends will resume for 2021 year. Return to proposed dividend announced in January 2021.
Selective acquisitions in niche markets The Group acquired the Haliburton Ecocentre in Peterhead and is looking at other value creating bolt-on acquisitions using the Group surplus cashflow after potential dividends. First bolt-on acquisition since 2017 restructuring successfully integrated.
Reduce carbon footprint The Group has developed a series of sustainability targets and initiatives expressed in the ESG page of our website and our Corporate Sustainability Report (CSR).
We use our expertise to assess, handle, treat and process some of the most difficult materials to minimise the adverse environmental impact of these materials, where possible re-using for positive purposes. We also recycle materials, attempt to minimise the carbon footprint of our operations and employees which are amongst some of the measures we consider and monitor.
Scope of disclosed ESG data, including carbon emissions reporting to be increased from 2021.