Clean up with Augean

The group is engaged in hazardous landfill, incinerator ash management, low-level radioactive waste disposal and treatment of wastes from offshore oil and gas exploration. Since early 2014 the group has been working to build sustainable market positions and to that end has increased the amount of revenue delivered through contracts and framework agreements - this is how it now gets 95 per cent of revenue from its top 20 customers, which in turn account for about half its sales. We feel this reflects the demands of modern waste disposal that underpin Augean's business model.

Augean had a good year in 2015, with double-digit growth in sales, reported profits and earnings. Sales were up by 29 per cent in the core energy and construction segment, which accounts for two-fifths of sales and four fifths of cash profits. Meanwhile the group's North Sea services segment held up remarkably well despite the prolonged slump in Brent crude prices with revenues up 2 per cent.

The group recently expanded its footprint in several key specialist areas of waste management through the acquisition of industrial services provider Colt for up to £14m, in a deal that will boost Augean's presence in the industrial, oil refinery, rail and utilities markets. Hull-based Colt reported revenue of £7m last year and earnings of £1.4m, and the company is engaged in some of the most stringently regulated - and profitable - areas of waste management, including specialist tank cleaning and high-pressure jetting, hydro abrasive cutting, asbestos removal and tanker haulage.

Just prior to the Colt deal, the group entered into several new contracts with an existing customer to treat and dispose of air pollution control residues (APCR); growth in the volume of APCR treated by the energy and construction business remains a key strategic objective for management in the short and medium term.

Operating in a highly regulated environment does present challenges as well as opportunities, though. Augean's shares pulled back substantially during the first quarter of 2016, partly due to concerns over the impact of updated tax guidance on landfill volumes that means waste processors need to meet tougher criteria to get the lowest tax rate. Worries about the impact of the low oil price on the business and delays to nuclear decommissioning are also issues.