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Pre-close trading update

We provide the following update to the market prior to commencement of our close period ahead of issuing its preliminary results for the year ended 31st December 2013.

Group revenues in 2013 rose by 13% to £47.8m (2012: £42.4m), driven by strong second half performances from the continuing operations of the Group. Adjusted profit before tax for 2013 is expected to be line with the revised expectations adopted following publication of the Interim Results.

As reported in September, the Board took the decision to sell or close the underperforming Waste Network division. This process is well advanced, with a number of offers received for the assets and goodwill of the division and two sale transactions underway. We expect these transactions to conclude during quarter one of 2014. The sites being sold as going concerns are continuing to trade whilst the sales process concludes. The Waste Network division has now closed and the targeted £1.0m per annum of overhead reductions have been included in the 2014 plan.

Following the Waste Network closure certain assets were retained and a new business, Augean Integrated Services (AIS) established. AIS began operations on 2nd January and will be focused on clients requiring total waste management services, utilising Augean’s expertise in the management and disposal of hazardous wastes.

At the Interim Results we reported that at the East Kent high temperature incinerator (HTI) the solid feed mechanical handling system had experienced breakdowns and caused significant outage during the year. The planned refurbishment of this equipment was successfully delivered and performance has now stabilised, providing an acceptable level of throughput. As previously reported, the East Kent site is expected to make an operating loss during 2013, but we continue to believe that the HTI represents a valuable future asset for the Group.

In the continuing operations of the Group, the Land Resources division performance improved strongly during the last quarter after a quiet summer period. The revenue generated from Low Level Waste (LLW) and Naturally Occurring Radioactive Material (NORM) disposal increased significantly over the previous year, with combined revenue from radioactive waste disposal totalling £1.6m (2012: £0.6m), in line with expectations. Total waste volumes into the Group’s landfill sites were 295,472 tonnes, a reduction from 320,392 tonnes in 2012, but representing an improvement to the margin mix as lower-value remediation work was replaced by ash from incinerators and low level radioactive wastes.

Augean North Sea Services (ANSS) delivered significant growth in revenues, operating profit and EBITDA from its first full year of trading. Supported by enhanced capital investment, the business exceeded its targets, driven by increases in incumbency on oil and gas drilling platforms, drill cuttings management and treatment of slops (oil-contaminated waters).

The Oil & Gas Services division continued to improve its performance in the second half of the year. Revenues from the division were slightly ahead of the previous year, but an improved margin mix and cost reductions delivered positive full year EBITDA and an improvement to the ongoing operating loss position. Further action will be taken during 2014 to reduce operating costs and improve margins.

The Group continued to invest in assets during the year to support generation of future revenues and cash flows. Capital investment exceeded £6.0m as the Group strengthened its capabilities in the growing specialist waste markets around treatment of ash from energy from waste incinerators and North Sea oil & gas exploration. This investment, and the now anticipated slight delay in receiving proceeds from the sale of Waste Network division assets, resulted in net debt at the end of the period rising to approximately £8.5m (2012: £6.1m). We expect this level of debt to reduce during 2014.

The Group’s preliminary results to 31st December 2013 are expected to be announced on 25th March 2014.

The performance of the Group in the second half was encouraging as trading improved in the businesses where we will have continuing operations during 2014. We have continued to benefit from our ability to provide an integrated offering to our customers and believe we are well positioned to strengthen our position in the growing specialist waste markets.

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