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 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 5 million tonnes (Environment Agency) 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.
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: Environment Agency (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 /management estimate).
Overall landfill volumes, including hazardous and non-hazardous, increased by over 20% in 2019 to in excess of 600,000 tonnes. The Group has focused on improving margins with an overall increase of over 13% achieved in 2019, worth approximately £3.1m.
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 plants, required to deliver the UK’s obligation to significantly reduce the landfilling of municipal solid waste by the end of 2020, and from biomass energy plants. These facilities produce air pollution control residues (APCR) also known as fly ash and 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). Disappointingly, due to funding cycles and operational issues, no new incinerators came online in 2019. With this background, it is particularly pleasing that the Group was able to grow ash volumes in 2019 by 12%. The Group actively monitors technological developments in the treatment and recycling of this material to ensure its long-term competitive position in this market.
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 online in 2020.
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 has invested in soil washing and treatment equipment to promote recycling of a higher proportion of such materials, as required by the market. Capitalising on the strong progress made in the second half of 2018, the Group has continued to grow construction waste volumes during 2019 which are up 46% compared to 2018.
The Group expects the construction waste market to be slower in the first half of 2020 due to the timing of the General Election and the potential impact of Brexit before it increases in the second half of the year. Any marked increase in Government infrastructure would positively impact volumes albeit over the medium term.
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.
During 2019 the volumes of radioactive waste processed by the Group increased by 35% as a result of significant volumes from a small number of significant contracts. These contracts will mainly expire in 2020 and therefore the Group will need to win new contracts to maintain and grow volumes. The performance may well therefore be ‘lumpy’ dependent on the timing of these new contracts.
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. In 2019 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 difficult to predict but the position is being closely monitored with the Group Board having access to expert advice. The Group has established additional disposal routes, which it believes will ensure business continuity in this regard. Additionally, inventories have been managed down to reduce risk as we progress towards the end of the transition period. The level of sales impacted by this potential change is less than 3% and the impact on profit is negligible.
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 are centred on Aberdeen and extend to the Shetland Isles for the Northern sector, and Great Yarmouth for the Southern sector. North Sea Services (NSS) provide 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, NSS now provide full NORM decontamination of wellbore and topside production equipment from the 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 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.
The Group has been very busy in 2019 on 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 in June 2019. The project has now substantially completed, with finalisation work being concluded by the half year. The Group has a strong pipeline of similar decommissioning contracts as well as a strong and growing supply of equipment, pipelines and tubulars requiring cleaning and NORM disposal. The Group expects the decommissioning market to exhibit long term sustained growth albeit with a certain level of ‘lumpiness’ around the timing of the major projects. The Group’s sales in the North Sea increased by 61% in 2019 with adjusted operating profit growing to £2.6m from £2.1m in 2018. Earnings before interest, tax and depreciation (EBITDA) similarly grew to £4.2m from £3.1m in 2018.
The above five areas represent the Group’s targeted niche growth markets. Each has shown good growth during 2019, validating the Group’s strategy.
The business currently has two short-term objectives against which good progress has been made in 2019.
|Resolve HMRC Position||HMRC has issued the group with assessments in relation to its treatment and disposal of hazardous waste. Based on the legal and other advice received by the Group over several years, Augean is confident that the group has met its obligations in respect of Landfill Tax, consistent with the law and official guidance at the time.||Payment of £40.4m in December 2019 with tribunal appeal expected in 2020 earliest|
|Maximise profitability and cash generation of business||The Board has implemented several rounds of cost reduction including a management reorganisation, which have resulted in a significant cost saving and increase in profitability.||Year-on-year profit growth
Increase in cash balance