year ended 31 december 2016 - augean plc · year ended 31 december 2016 march 2017 ... recovery of...

Preliminary resultsYear ended 31 December 2016

March 2017Presented by:

Dr Stewart Davies, Chief Executive OfficerMark Fryer, Group Finance Director

Specialist services focused on managing hazardous wastes

Agenda

• Financial headlines• Key messages• Strategic and business performance• Financial performance• Outlook

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Financial headlines

• 2016 results in line with market profit expectations• Total revenue increased by 25% to £76.0m• Profit before taxation increased 16% to £7.0m• Net operating cash flows increased by 21% to £13.4m• ROCE increased from 11.4% to 11.8%• Normalised EPS increased to 5.53p from 4.65p • Proposed dividend per share of 1.0 pence, an increase of 54%

(2015: 0.65 pence)• Exceptional costs of £5.7m (2015: £3.5m)

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Results from continuing operations and excluding exceptional items. Normalised eps refers to eps calculated assuming the headline rate of corporation tax was applicable to all profits


Key messages

• Continued strong performance from Energy & Construction– 47% growth in Air Pollution Control Residues (APCR) volumes– Smaller than expected reduction in construction soils

• Strong performance from Industry & Infrastructure with £1.2m increase in operating profit and Colt breakeven

• Continued strategic traction at Augean Integrated Services– Further success in winning additional TWM contracts with top-tier customers and

sales growth of 41% in 2016 – East Kent High Temperature Incinerator operational improvement programme has

increased levels of plant availability and continues to make AIS service proposition unique to customers

• ANSS traded strongly in the second half albeit down on 2015, with further progress on its diversification objective

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2016 profit growth

Operating profit in £’000 from continuing operations, excluding exceptional items

5

-

0.8

0.1 -

0.9

0.2

6.8

1.8

7.8

6,000

6,500

7,000

7,500

8,000

8,500

9,000

2015 E&C RWS AIS I&I ANSS Corporate 2016

1.2


Our strategy

Client focus

Service solutions

Specialist waste

expertise

Growth in profit

Growing profitable business

Improving margins

Growth in asset base

Investments returning

above WACCRetained

profit

Growth in returns

Increasing trading

cashflow

Appropriate funding model

Develop sustainable market positions Grow shareholder valueto

6

6

Respect Integrity Teamwork Excellence

Our aligned vision, values and goals

Creating value for our customers through innovative services that protect future

generations

Respect

‘All Together Better’Customer Focus, Service Solutions,

Specialist Waste Expertise

Increase shareholder value

GREAT CUSTOMER

SERVICE

OUR VISION

OUR VALUES

OUR WORK

OUR GOALS

Integrity Teamwork Excellence

Develop sustainable market positionsGrow through client focused solutions

Respect Integrity Teamwork Excellence

Our strategic development

Past activities Future activities

• Hazardous waste experts, with regulatory know-how

• Entry barriers from development of specialised assets, technology, permits and know how

• Strong reputation with customers and partners

• Top-Tier customer relationships, offering a complete service

• Referenceability as ‘integrator’ in key sectors: Haz Waste + service

• Capability to address waste hierarchy via treatment/TFS

• Extended service scope

• Dependence on brokers

• Lower margin value-destroying activities

• National coverage of transfer stations

Leave Remain Develop Not here

Strategy & plan for getting there

Not here

• Municipal, domestic waste

• Unproven technology

• International (yet)

• Contracts with excessive risk

• Standardise operating processes• Priority BU objectives & projects• Corporate Investments

• Sector growth led by BU Directors• Focus on customer solutions • ‘All Together Better’


Delivering the strategy

10

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Results from continuing operations and excluding exceptional items

Growth in profit

Growth in asset base

Growth in returns

18% increase in 2016 ROCE 11.8% 21% increase in 2016

Proposed dividend per share of 1.0 pence, an increase of 54%

4.4

5.4

6.0

7.1

2013 2014 2015 2016

Profit Before Tax (£m)

6.57.7

11.1

13.4

2013 2014 2015 2016

Operating Cashflow (£m)

8.9%

10.7%

11.4%11.8%

2013 2014 2015 2016

ROCE

9.7%


Our sector-focused businesses

▶ Oil & Gas

▶ North Sea support services

▶ North Sea decommissioning

▶ High Value Manufacturing

▶ Life Sciences

▶ Clinical

▶ Refineries & Chemicals

▶ Ports

▶ Waste management operators

▶ Energy from Waste

▶ Construction & Demolition

▶ Nuclear Energy

▶ Oil & Gas waste Intermediaries

▶ Medical scanning & radiotherapy

Radiological waste treatment & disposal

Integrated solutions for waste-producing clients

Complete waste services for North Sea

Recovery of resourcesfrom wastes

Waste treatment & disposal solutions

Energy & Construction

IntegratedServices (AIS)

RadioactiveWaste Services

Industry & Infrastructure

North SeaServices (ANSS)

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Energy & Construction12

• Revenue increased 25% to £25.3m• Operating profit increased 28% to £8.4m • 47% APCR volume growth under framework contracts with typical

term of 3-5 years• 20% reduction in soils volumes due to LFT1 guidance in December

2015, although volumes higher than expected• Continued volume growth in all other waste streams• Certainty over 3 x WAC derogations


Defra decision on APCR – February 2017

“Defra Ministers have taken the decision not to remove the derogation that allows Air Pollution

Control Residues (APCRs) that are three times above Landfill Directive waste acceptance criteria

(3xWAC) to be landfilled. This decision follows several years of work by the Environment Agency and

Defra to assess the availability of suitable alternative treatment technologies. We have worked closely

with UK waste managers to generate an informed picture of UK capacity and costs. While some

alternative treatment options are already on line, and more capacity is planned for the future, the

availability remains limited, the costs uncertain and the environmental gains not strong enough

to support removing the 3xWAC derogation. On the basis of the available information we have

decided to take the decision now rather than to defer again, in order to remove the uncertainty for the

hazardous waste management sector”.

Source: Defra letter to stakeholders, February 2017

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Impact on Augean of 3x WAC decision

• Group investment in APCr treatment is now endorsed by Defra

• Supporting over one third of the developing Incineration and ash

market underpinning a key element of the UK waste strategy

• APCR is a growth market with 9% forecast annual growth to 2022

• Modest capex over next three to five years to maintain our market

leading position in this growing market

• We will continue to investigate recycling options where these can

be demonstrated to be best overall environmental outcome

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Radioactive Waste Services15

• Significant reduction in revenue and operating profit in 2016• Further slowdown in rate of Nuclear Decommissioning Authority

spending on removing Low Level (LL) waste• NDA forecast indicates recovery of LL waste volumes in 2017/8 to

grow 120% on 2016/17 levels

• Expansion of permitting at sites to allow treatment of a wider range of waste

• Focus on medium term growth outside LLWR to justify continued investment

• NORM treatment from North Sea decommissioning supports ANSS

Year Tonnes2014/5 4,3142015/6 5,7672016/7 3,5822017/8 8,001

Actual/expected volumes on VLLW framework. Source LLWR Ltd


Industry & Infrastructure16

• Revenue growth of 61% to £18.8m including Colt acquisition, 31% excluding Colt

• Operating profit growth to £0.5m (2016 £0.7m loss) including Colt at breakeven

• Strong performance across all sites• Improvement initiatives successfully completed at Avonmouth• Focus on broadening Industrial Services capacity including

acquisition of Colt Holdings in line with Group strategy


Colt Industrial Services

• H1 2016 cash outflow £8.9m - net of cash acquired and working capital adjustments

• Provides broad range of industrial services with strong reputation -complements and expands the Group's existing market offering

• Slower than expected start – customer delays and investment in new contracts

• Management plan on track to build pipeline, step up activity and generate returns from new investments

• Expect the business to trade in line with acquisition business case during 2017.

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Colt fit and synergies

• Complementary activities aligned with Group strategy going up the value-chain in service activities associated with waste management

• Technical and capability step-change in Industrial Services (IS)• Critical mass to grow IS activities geographically and sectorally

– New site in Avonmouth serving the South-west– New site on Teeside serving the South-east

• Supports integrated business model – I&I treats waste arising from industrial cleaning by Colt

• Further develops national coverage and reputation in key sectors, notably refineries and process industries

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Augean Integrated Services (AIS)

• Targets customers who generate significant volumes of hazardous waste, have high CSR demands and prefer one trusted provider

• AIS offers broader support services requirements to provide solutions to critical operational needs that are non-core to the client

• AIS service is consultative, value adding and commercial, and encompasses: – Total Waste Management (TWM)– niche sales for High Temperature Incineration at East Kent

• Typical customers are on term contracts of 3+ years• AIS continues to invest in sales and account management staff to

support 30-50% top line growth in TWM

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AIS TWM AIS East Kent

• 41% Growth in revenue in 2015 to £5.5m

• Operating profit of £0.1m vs £0.3m loss in 2015

• Further term contract wins during 2016

• Strong pipeline• Continuing to invest in the

commercial expertise and IT capabilities required for accelerated growth

• Operating loss of £0.8m vs £0.3m in 2015

• Operation improvement plan continues to break even

• 12% increase in tonnages processed year on year

• Impairment at year end minimises ongoing loss

• Strategic importance to AIS customers due to niche service offering

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Augean North Sea Services (ANSS)21

• Strong second half of 2016 – H1(£0.2m) to H2 £0.6m• Rig incumbency share maintained in line with drilling market

conditions• Successful diversification - 38% of revenue generated from

onshore activities vs 17% in 2015• Growth in production / on shore waste management

– Three major TWM contract wins and Great Yarmouth investment– Broadening of scope with existing customers– Port of Dundee and decommissioning opportunities onshore– Offshore decom contracts supporting Plug & Abandonment

FINANCIAL PERFORMANCEYEAR ENDED 31 DECEMBER 2016

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Income statement

2016 2015 Change £m £m %

Continuing and excluding exceptional itemsRevenue 76.0 61.0 25%Operating expenses (68.2) (54.2) 26%Operating profit 7.8 6.8 15%Finance charges (0.8) (0.8) 0%Profit before tax 7.0 6.0 16%

Exceptional items (5.7) (3.5)PBT including exceptional items 1.3 2.5

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Operating cash flows

2016£’m

2015£’m

Change%

EBITDA (continuing and before exceptional items) 14.1 12.1 17%Change in debtors (4.1) 1.2Change in creditors 4.8 (0.9)Interest, taxation and other (1.4) (1.3)Net operating cash flows (continuing and before exceptional items) 13.4 11.1 21%Exceptional and discontinued operating cash flows (2.2) (0.6)Net operating cash flows 11.2 10.5 7%

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Total cash flows and net debt

2016 2015 Change £m £m £m

Net operating cash flows 11.2 10.5 0.7 Maintenance capital expenditure (3.9) (5.5) 1.6 Post-maintenance free cash flow 7.3 5.0 2.3 Development capital expenditure (4.3) (1.8) (2.5)Acquisitions (8.9) (1.4) (7.5)Free cash flow (5.9) 1.8 (7.7)Dividends paid (0.7) (0.5) (0.2)Equity receipts 0.1 0.1 -Net cash flow (6.5) 1.4 (7.9)Opening net debt (4.3) (5.7)Closing net debt (10.8) (4.3)

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Key financial measures

2016 2015Profit before tax £7.0m £6.0m

EBITDA £14.1m £12.1m

Normalised earnings per share 5.53p 4.65p

Earnings per share 3.94p 4.65p

Return on capital employed 11.8% 11.4%

Net underlying operating cash flows £11.2m £10.5m

Post-maintenance free cash flow £7.1m £5.0m

Cash conversion 95% 92%

Dividend per share 1.0p 0.65p

Dividend cover 3.9x 7.2x

Closing net debt £10.8m £4.3m

Gearing (net debt/equity) 20% 8%

Net debt/EBITDA (covenant < 2.5x) 0.8x 0.4x

EBIT/bank interest charge (covenant > 3.0x) 20x 17xFrom continuing operations, excluding exceptional items

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How we will deliver our growth strategy27

E&C

• Maintain share of high-margin contracted APCR market with 9% CAGR to 2022

• Remain competitive in cyclical construction market• Invest in Best Available Techniques to produce the best environment

solutions for our customers and attractive returns on investment

RWS• Maintain market share of NDA/LLWR framework volumes• Increase revenues from Oil & Gas sector (NORM) and other

commercial customers to reduce dependency on NDA volumes

I&I• Grow industrial services business, with Colt to achieve the business

plan set out at the time of acquisition• Maximise synergies of ‘integrated model’ by internalising waste arisings

AIS• Accelerate growth in contracted Total Waste Management revenues • East Kent HTI to break-even and facilitate new TWM contract wins due

to the unique nature of the service offering

ANSS• Continue diversification into production waste and industrial services• Position business to maximise future opportunities from North Sea

decommissioning


Outlook

• Encouraging start to 2017 with a growing sales pipeline • Continued emphasis on moving Group revenues to long-term

contracts and frameworks• Board focused on further improving shareholder returns• Group is trading in line with market expectations for 2017

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Appendix 1: Revenue

£m Revenue Revenue2016 2015

Energy & Construction 25.3 20.2Radioactive Waste Services 1.2 1.9Industry & Infrastructure 18.8 11.7Augean Integrated Services 7.6 6.0Augean North Sea Services 12.9 14.8

65.9 54.6Landfill tax 10.1 6.4

76.0 61.0

From continuing operations

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Appendix 2: Operating profit

EBIT2016

EBIT2015

EBITMargin

EBIT Margin

£’m £’m 2016 2015Energy & Construction 8.4 6.5 33% 32%Radioactive Waste Services 0.3 1.1 26% 58%Industry & Infrastructure 0.5 (0.7) 2% (6)%Augean Integrated Services (0.7) (0.6) (9)% (9)%Augean North Sea Services 0.5 1.3 4% 9%Business units total 8.9 7.7Central (1.1) (0.9)

7.8 6.8 10% 11%

From continuing operations and excluding exceptional items

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Appendix 3: EBITDA

EBITDA2016

EBITDA2015

EBITDA Margin

EBITDA Margin

£’000 £’000 2016 2015Energy & Construction 12.0 9.5 47% 47%Radioactive Waste Services 0.4 1.2 37% 64%Industry & Infrastructure 1.5 0.4 8% 3%Augean Integrated Services (0.0) (0.2) (0)% (3)%Augean North Sea Services 1.3 2.0 10% 14%Business units total 15.2 13.0Central (1.1) (0.9)

14.1 12.1 19% 20%

From continuing operations and excluding exceptional items

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Appendix 4: Capital expenditure

£’m 2016Maint

2016Develop

2016TOTAL

Energy & Construction 2.6 1.1 3.6Radioactive Waste Services - - -Industry & Infrastructure 0.3 0.1 0.4 Augean Integrated Services 0.3 1.1 1.4 Augean North Sea Services 0.1 1.9 2.0 Other/corporate 0.6 0.1 0.8 Total 3.9 4.4 8.3

Excluding purchase of East Kent HTI

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Appendix 5: Balance sheet

2016 2015 Change£m £m £m

Goodwill and intangible assets 26.3 20.0 6.3 PPE and other non-current assets 45.8 45.2 0.6 Total non-current assets 72.1 65.2 6.9 Net current assets (excluding cash and debt) 0.2 0.4 (0.2)Restoration and capping provisions (7.5) (6.9) (0.6)Capital employed 64.8 58.7 6.1Net debt (10.8) (4.3) (6.5)Net assets 54.0 54.4 (0.4)

Gearing 20% 8% 12%Net debt/EBITDA 0.8x 0.4x 0.7x

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year ended 31 december 2016 - augean plc · year ended 31 december 2016 march 2017 ... recovery of...

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