Profitability slumps at waste management firm
Waste management firm Augean has reported a 19% decrease in profitability as the firm had a challenging 2017 due to HMRC Landfill Tax Assessments and the loss of legacy contracts.
Pre-tax profits at Wetherby-based Augean for the year ended 31 December 2017 stood at £5.8m, down from £7.2m in 2016. Its total revenue increased 11% to £84m.
The group has put in measures to reduce its cost base by £4m on an annualised basis which has seen over 50 employees, or over 15% of the workforce, leave the business.
Commenting on the Results, Jim Meredith, executive chairman, said: “2017 was a challenging year with the HMRC Landfill Tax assessments and a decline in Group profitability. We remain in active discussions with HMRC but do not anticipate a swift resolution. Steps have been taken to reduce the Group cost base by £4m and we have also reduced Group debt from over £18m in the Autumn to under £11m by year-end. Trading has commenced the year in line with board expectations.”
Yesterday, Augean announced it had sold total waste management broker, AIS, to Regen Devco for £3.8m. Regen Devco, a subsidiary of Regen Holdings Limited, is based near Grantham.
As at 19 March, net debt stood at £8.9m. A further £800,000 consideration in relation to the sale of AIS is expected in the next month.
Meredith said this morning that the drop in group pre-tax profits was also because of losses on the legacy Colt contract and cost increases committed through the second half of 2016.
He added: “The legacy contract has now been completed and settlement reached. The Group has enacted measures to reduce the cost base by £4m on an annualised basis which has seen over 50 employees, or over 15% of the workforce leave the business. The Group is currently trading in line with expectations for 2018. A focus on cash control is reflected in our debt position.”
Meredith said that at an operational level, the group had achieved a number of key strategic goals including securing further contracts with top-tier customers and a significant increase in Energy from Waste (EfW) volumes.
He said that given the HMRC position, the Board would not pay a dividend for 2017.
In October, Augean issued a profit warning after reporting a “continued weak trading performance” as it also announced the resignation of its then chief executive, Stuart Davies.
The company said it had been impacted by the HMRC investigation looking at whether it had paid sufficient land fill tax in relation to treatment and disposal of hazardous waste
Since then, the firm received a further two assessments from HMRC on the same basis as the previous assessments. Meredith said: “We expect to receive further assessments to be issued in order for HMRC to protect subsequent periods and we will continue to provide appropriate and periodic updates without announcing the receipt of each and every update. The total number of quarterly assessments received to date is five, and the value of these assessments received at the date of this report is £12m, including interest of £1.2m.”
On 19 March 2018, the firm was advised by HMRC that certain waste types assessed as standard rated in one of the three assessments received for Augean South, will be treated as exempt for the February 2014 quarter.
The impact of this is to potentially remove £1.5m from the February 2014 quarterly assessment when this is formally re-issued. This represents 53% of that quarter’s £2.8m original assessment.
Meredith said: “Whilst this is clearly a welcome development in proving our case with HMRC, there is still substantial time and clarification required to fully justify our position. Despite this, we believe the assessments are without merit, we will robustly defend the assessments, have not provided for these and do not expect to make a net cash payment.”
Christopher Mills and Roger McDowell have joined the board, along with Andrew Bryce who has re-joined to bring his particular skills to bear in resolution of the HMRC issue.