AUG.L Regulatory News (AUG)

25 January 2016

Augean plc

("Augean" or "the Group")

Trading update

Augean, one of the UK's leading specialist waste management businesses, provides the following update ahead of issuing its preliminary results for the year ended 31 December 2015.

2015 Group performance

The Group confirms that underlying profit before tax is expected to be in line with market expectations.

The Group generated strong net operating cash flows during 2015 and net debt, as at 31 December 2015, of £4.3 million is lower than market expectations.

2015 business unit performance

The Group operates five business units, in diverse markets. The 2015 performance of those businesses is summarised as follows:

· Strong performance from Energy & Construction throughout 2015, with a significant increase in volumes sent to landfill compared to 2014. The high levels of construction wastes seen in the first half of 2015 have continued to be received through the second half of the year;

· Improved performance from Radioactive Waste Services, with higher average prices more than compensating for lower volumes and leading to an overall increase in profit in 2015 compared to 2014;

· Solid performances at Port Clarence Waste Recovery Park, due to strong volumes of drill cuttings from the North Sea, and at Paisley in the Industry & Infrastructure business were offset by a disappointing performance at the Avonmouth site, where an improvement plan is currently being executed with the aim of delivering a profit in 2016;

· Continued strategic traction at Augean Integrated Services, with further success in winning additional Total Waste Management contracts with tier-1 customers, for average periods of 3-5 years. Additional investment was made in the East Kent High Temperature Incinerator which has ensured increased levels of plant availability were achieved in the latter part of 2015;

· Significant growth in revenues and operating profit from Augean North Sea Services ("ANSS") compared to 2014. This was despite the slowdown in the exploration and development drilling market which has continued during the year, with ANSS providing services on fewer drilling rigs since mid-2015 as a result. The business is gaining traction on its diversification objective, with additional contract wins in production waste management and onshore industrial services. Those contract wins are not expected to fully offset the reduction in profitability of this business unit in 2016, compared to 2015; however this diversification enables the business to be progressively less reliant on exploration and development drilling activity.

Revised landfill tax excise notice

On 16 December 2015, HM Revenue & Customs issued a revised excise notice in respect of landfill tax, updating the landfill tax treatment of various waste streams. This update could potentially impact the amount of landfill tax arising on the disposal of certain waste materials and, in turn, the selected disposal or treatment route for those materials. Although the impact of the revised excise notice on the market is as yet uncertain, there is a risk that volumes of those materials sent to hazardous landfill sites, including the sites that are operated by Augean's Energy & Construction business, may be reduced.

North Sea Services contract win

On 21 January 2016, ANSS entered into a new contract to provide production waste management and onshore industrial services to a major oil & gas operator. This represents both further progress on the strategy of diversification and also a significant entry-point for the Group to the market which exists in the southern part of the North Sea. The contract, which is directly with the operator, is for a period of three years, with the customer having the option for further annual extensions, up to a maximum period of seven years.

Impairment of assets

As described above, the strategy for ANSS to diversify its service offering is gaining traction. However, as previously highlighted at the time of the Group's interim results in September 2015, the Board anticipates that there will be a long-term reduction in volumes of drill cuttings from the North Sea Oil & Gas market and this is likely to cause a significant reduction in the drill cuttings volumes transferred by ANSS to the Port Clarence Waste Recovery Park, which forms part of Augean's Industry & Infrastructure business. It is therefore determined that the carrying value of our specialist thermal treatment assets should now be reduced, to reflect the latest medium term view of expected cash inflows to be generated from those assets. Accordingly, a non-cash impairment loss of £2.9 million will be recognised as an exceptional item in the consolidated income statement of the Group for the year ended 31 December 2015.

Dr Stewart Davies, Chief Executive Officer, commented:

"We have enjoyed strong trading and have good momentum across a number of our businesses as we start 2016. Despite some challenging market conditions, we have secured further total waste management contracts with tier-1 customers, including with oil & gas operators as we continue the diversification of our North Sea Services business. The Board remains confident in the Group's delivery of further sustainable growth, in line with our strategy."

The Group's preliminary results for the year ended 31 December 2015 are expected to be announced on 22 March 2016.

-Ends-

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