Final Results

08 March 2011

Embargoed until 07:00

Hydro International plc

("Hydro", the "Company" or the "Group")

Unaudited Final Results

Strong performance in difficult market conditions

Hydro International (AIM: HYD), a leading provider of environmentally sustainable and innovative products for the control and treatment of water, is pleased to announce its unaudited final results for the year ended 31 December 2010.

Financial Highlights

Statutory

·; Revenue increased 3% to £28.2m (FY2009: £27.3m)

·; Operating Profit increased 20% to £2.4m (FY2009: £2.0m)

·; PBT increased 33% to £2.4m (FY2009: £1.8m)

·; EPS increased to 10.43p (FY2009: 7.97p)

·; Proposed final dividend of 3.3p per share (FY2009: 3.0p)

Non-Statutory

·; Adjusted Operating Profit* increased 29% to £2.7m (FY2009: £2.1m)

·; Adjusted EPS** increased to 11.54p (FY2009: 8.42p)

·; Net Cash*** increased to £4.1m (FY2009: £1.5m)

·; Closing order book £23.7m (FY2009: £7.8m)

* excluding exceptional other operating income and amortisation of acquisition related intangible assets, as disclosed in the income statement.

** excluding exceptional other operating income and amortisation of acquisition related intangible assets, as disclosed in the income statement, and related corporation tax effect at 37.5% (2009: 37.7%). 

*** cash and cash equivalents, less borrowings

Operational Highlights

·; Record UK Wastewater orders placed totalling £23.1m

·; Landmark contract of £15.6m signed by UK Wastewater division

·; US Wastewater business performance strong during the year

·; Increasing large-scale US & international wastewater project opportunities

·; Entering Mexican market through International Stormwater distribution agreement

Steve Hides, CEO of Hydro International plc, commented:

"I am delighted that we have returned to our long term record of growth following a difficult 2009. Despite market conditions we have increased both revenue and profit.

Water and flood management remain high up on political agendas due to growing populations, increasing urbanisation and climate change. Whilst there is potential for continued short term trading challenges, the building momentum of contract wins across the business divisions, both during the financial year and post year end, provides great encouragement. The investment in the sales teams alongside the Group's international reach and innovative, quality products are delivering results, demonstrating that our strategic direction is the correct one.

The Group is financially strong and well positioned to continue to grow organically in its core UK and US markets as well as seek opportunities to expand in other international markets."

For further information please contact:

About Hydro International

Hydro International plc (AIM:HYD.L) (Hydro) is a global supplier of environmentally sustainable products and innovative solutions for the control and treatment of stormwater, wastewater and combined sewer overflows. Hydro's products use a range of advanced technologies including award-winning advanced vortex technology. Headquartered in Clevedon, North Somerset, Hydro also operates in the UK from offices in Ely, Cambridgeshire as well as across the US from bases in Portland, Maine and Hillsboro, Oregon. The Group has a growing presence outside of its core US and UK markets in Ireland, Egypt, Middle East, European Union, Malaysia, Singapore, Japan, Korea, Australia and New Zealand.

Please visit the website for further information www.hydro-international.biz.

Chairman's Statement

Results

Hydro has a track record of revenue growth, profitability and cash generation and its return to growth in 2010 from a disappointing 2009 is particularly pleasing. These results were achieved despite market conditions remaining difficult during the year. Against a background of the challenging global economic conditions combined with the slowdown in project flow to the UK Wastewater business as the UK moved to Asset Management Programme 5 (AMP5) (the latest five year periodic review for the water industry), new order flow to Hydro's UK Wastewater business was generally delayed.

This set of encouraging results reflects the implementation of the strategic changes outlined in the interim results announcement of 7 September 2010. The Group increased sales revenues over the period by 3% to £28.2m. Profitability improved on the previous year due to a higher proportion of Hydro's proprietary products sold compared to lower margin third party products. Gross margin increases were also derived from supply chain improvements, and as a result, operating profit margin increased to 8.6% (2009: 7.5%) and total Group operating profit rose by 19% to £2.4m (2009: £2.0m).

The Group's US Wastewater business has had a strong year, and its trading performance has underpinned the performance of the Group as a whole. This strength in the US has been supplemented by a year of record-setting orders in the UK. Whilst projects generally were slow to get started during the transition to AMP5, 2010 saw the UK Wastewater business secure £23.1m of orders, including its largest ever project to supply its Zickert sludge scraper systems to Thames Water. These projects will be delivered over the next 2 to 4 years. It is also pleasing that this has continued post year end with a further £3.5m contract awarded in February 2011 by Tamesis for Zickert equipment at Thames Water's Crossness site in London.

The Group's Stormwater businesses have performed well given the extremely difficult markets. Recovery in residential housing and commercial construction has been slower than expected and this has impacted on trading across Hydro's Stormwater operations. Fragile global economic conditions and underlying uncertainty in financial markets continue to create a difficult environment for Stormwater growth in the short term. It was, however, pleasing to see our US business achieve modest growth over the previous period, demonstrating the benefit of the management changes made. We expect further progress and improvement in US market-share to come from the continuing focus on improved sales effectiveness and further extension of our distribution channels.

There is evidence to suggest that the Group's Stormwater businesses will benefit from recovery, albeit very slowly, in private sector construction activity during 2011. Key independent residential and commercial market indicators are trending upwards and our Stormwater businesses are starting to see an increase in the volume of enquiries for flow control, storage and treatment products.

Across Hydro's business divisions, the closing order book at 31 December 2010 of £23.7m provides the Group with confidence and a solid foundation to move forward into 2011.

People

I would like to thank all the members of the Hydro team for their loyalty, dedication and efforts over the last year.

Dividend

The Board is recommending an increased final dividend of 3.3 pence per share (2009: 3.0 pence per share), which, subject to approval at the Annual General Meeting on 26 May 2011 will be paid on 6 June 2011 to shareholders on the register on 3 May 2011.

Outlook

The Group has returned to profitable growth against a backdrop of global economic turmoil and the significant challenges faced by certain divisions. This is testament to the quality of Hydro products and the success of its implemented strategy. There remain opportunities for further growth in Wastewater and Stormwater in the US, the UK, and increasingly in other international regions. Additionally, Hydro believes it is well positioned on a number of large-scale strategic wastewater projects in the US and Middle East and expects further progress to be seen in 2011.

In the UK some uncertainty remains surrounding the potential knock-on impact on private sector spending as the government looks to balance public finances and implement wide scale spending cuts. However, over recent years Hydro has seen increased activity from the public sector on highway and flood mitigation projects, and is encouraged that water and flooding issues remain a priority area for the UK government.

Whilst there is potential for continued short term trading challenges, the Board remains confident of the Group's ability to deliver long term growth through the continued implementation of its proven strategic plan. In addition to a continued focus on organic growth and improvement in our UK and US Stormwater operations, our focus is increasingly turning to identifying opportunities to expand internationally. The Group remains financially strong, well placed to meet the challenges ahead and take advantage of the many opportunities.

Roger Lockwood

Chairman

08 March 2011

Overview and Growth Strategy

Hydro's objective is to achieve long-term sustainable growth by offering our customers a market leading range of environmentally sustainable and innovative niche products for the cost-effective control and treatment of stormwater and wastewater.

Markets for Hydro's solutions are typically driven by:

§ Increasing environmental legislation and regulation aimed at either improving water quality or controlling water quantity

§ The need to enhance water treatment infrastructure or replace aging plant equipment.

These market drivers are supported by population growth, increasing urbanisation and the effects of climate change.

Our business model is based upon:

§ Introducing patented, innovative technologies. The Group has a core portfolio of own-developed products based on vortex motion with no moving parts or power requirement, supported by a range of complementary solutions, including third party distributed products

§ Outsourced fabrication. Hydro is focused on sales, marketing and product development activities supported by third party fabricators in each operating region as required

§ Achieving organic growth within our traditional markets in the UK and US by improving sales channel effectiveness and ensuring solutions meet the developing needs of customers

§ Extending Hydro's reach into new international markets

§ Seeking to influence, develop and respond to markets by playing an active role on technical forums, industry bodies and in consultation with regulators on the development of legislation and national standards

In implementing the business model we continue to look for opportunities to enhance growth through carefully selected acquisitions or joint ventures which may provide access to new markets, diversify the Group's activities or gain access to new technology. We seek to build relationships with good quality potential target companies operating in our sectors which position Hydro as a preferred partner in the event of an acquisition opportunity arising. This approach, combined with the experience gained in previous acquisitions, minimises the risks associated with any future acquisition.

We continue to refine this model which has underpinned Hydro's business strategy for many years and has delivered a measure of resilience to the cyclical nature of the global economy and our markets. Despite the rapid rate of change in the economy seen over recent years, and the impact this has had on private and commercial construction levels, we remain confident that the business model is right for our Company now and will remain so into the foreseeable future.

Operational Review

Wastewater Overview

Wastewater revenues increased by 7% to £18.8m (2009: £17.5m) with sales growth seen in the US and International businesses. The UK Wastewater business experienced an exceptionally quiet period in the first half as a result of the slowdown at the end of AMP4 and a slow start to AMP5. In May 2010, however, the UK business secured a £4.0m contract to supply Zickert scrapers for the Mogden wastewater treatment works in the London area; the largest single contract ever placed with Hydro at that time. In November that record was surpassed as Hydro won a landmark contract, valued at £15.6m, for further Zickert Scrapers at the Beckton wastewater treatment works also in London.

Operating profit margin within the Wastewater businesses increased to 22.1% (2009: 19.7%) and total operating profit for the division rose by 20% to £4.2m (2009: £3.4m). The operating margin improvement was derived from enhanced purchasing arrangements, including increased competition for business amongst suppliers.

The success of the Wastewater division in securing large contracts during 2010 has been the prime contributor to the Group's record closing order book of £23.7m.

UK Wastewater

AMP5 commenced on 1 April 2010 and during the transition most water companies put projects on hold, delaying the release of key contracts. The second half of the year saw an improvement in the general flow of projects, and the business was given a tremendous boost by the major Zickert Scraper orders. These projects followed directly from previous successful installations of Zickert technology at facilities between 2006 and 2009. In particular, the Group signed a landmark deal worth £15.6m with GBM, the joint venture of Galliford Try, Biwater Treatment and Mott MacDonald, as part of their wider £63m contract to upgrade the Beckton wastewater treatment works under Thames Water's AMP5 investment programme. Equipment supplied under this contract will be delivered progressively over the next four years.

Developed by Hydro's Swedish partners, the Zickert Scraper technology is an innovative sludge transportation system for use in sedimentation tanks, reducing operating and infrastructure capital costs when compared to conventional sludge scraper systems. The success of the UK Wastewater business in promoting this product continued post year end with the award of another significant contract for a value of £3.5m for the Crossness wastewater treatment facility, as announced on 16 February 2011.

2010 saw the UK Wastewater business secure additional distribution rights for the Meva range of screens, washers and dewatering equipment from our Swedish partner. The first order under this extension of our relationship, for a Meva fine screen, was booked in the last quarter of the year.

US Wastewater

The US Wastewater business delivered a solid performance over the period and ended the year with a strong order book, securing the outlook for 2011 sales. The award of the contract to supply two 44ft diameter Storm Kings® to the City of Boonville, Indiana, is also a great boost to the Combined Sewer Overflow (CSO) team who are developing a new market for Hydro products in the US.

As the awareness and acceptance of Hydro's innovative Headcell® technology increases we are seeing an encouraging trend with more opportunities for larger scale, higher value projects coming through. This progress is particularly pleasing as it is an area of the grit removal market in which Hydro has previously struggled to gain acceptance.

Hydro's network of 32 independent sales representatives, employing over 100 sales personnel, is acknowledged as one of the best in the industry. The plans for further growth of the US Wastewater operation include identifying complementary products that can be introduced to the market through this network to be offered alongside Hydro's portfolio of fine grit removal products. In October 2010 the team successfully launched the Hydro SludgeScreen™ at the annual industry tradeshow, WEFTEC, into the US market. The Hydro SludgeScreen™ is a home-grown product sourced from the UK Wastewater business and the first order is expected in early 2011.

International Wastewater

As in 2009, sales of Hydro's Grit King® into Egypt were a major contributor to international sales growth of 27% year-on-year. In 2010 a record 44 Grit King® units were shipped to Egypt bringing the total number of units supplied to date on the first-time sewerage 'Villages Project' along the River Nile to 90. Further progress was also made in developing our business in the Middle East with Hydro Drop Shafts™ being supplied to Qatar.

Whilst we acknowledge the uncertainty created by the current instability across the Middle East, international business expansion generally is a key plank of Hydro's future growth plans. In 2011 we plan to augment our small international team with the recruitment of an experienced business manager to improve strategic focus and assist with sales channel development.

Stormwater Overview

The demand for the Group's Stormwater products is largely driven by local planning requirements, environmental regulation and permits for new build residential and commercial construction. There is also a growing market for the Group's Stormwater products for retrofit applications within the urban drainage systems to alleviate flooding and reduce pollution associated with stormwater runoff from paved surfaces.

In 2010 Group Stormwater revenues reduced by 5% to £9.4m (2009: £9.8m) reflecting the continued difficult trading conditions caused by contraction in the new housing and commercial construction sectors in the UK, US and most international markets. Trading conditions in Ireland have become particularly difficult over the last 12 months and the Group has scaled back to a core Irish presence, supported by our UK-based operations. While recovery in the sector has been weak to date there are encouraging signs of increased activity with more frequent requests for proposals being seen. Independent market indicators in both the UK and US, such as architectural billings and new housing statistics, are all trending upwards supporting the signs for a continued but slow recovery. Additionally, Hydro's presence in both the Stormwater and Wastewater sectors alongside its territorial diversity has helped mitigate exposure.

Operating profit margin within the Stormwater businesses was increased to 15.0% (2009: 10.9%) and total operating profit for the division rose by 31% to £1.4m (2009: £1.1m). The operating margin improvements can largely be attributed to sales mix, driven by a higher proportion of higher value sales of Hydro's proprietary products over lower margin third party distributed products. There was also a significant trading improvement in our US Stormwater business, which returned to operating profitability following a management restructure in 2009 and continued development of distribution sales channels.

Competitive price pressures are evident in some sectors of the Stormwater market. However, Hydro strives to maintain its leadership position in traditional markets and build markets in newer territories by focusing on marketing highly differentiated products allied with technical experience, application knowledge and customer service.

UK Stormwater

Trading conditions in the UK Stormwater business, with the majority of its sales historically to the residential and commercial building sector, continued to be difficult in 2010.

A number of new initiatives have been put in place to bolster the performance of the business, including sales channel improvements and the development of a comprehensive marketing and public relations campaign designed to underpin Hydro's market-leading position in this critical market. Development of the next generation Hydro-Brake® Flow Controls continued in 2010, and 2011 will see Hydro offer customers enhanced performance and external accreditation across the full range of flow controls, clearly differentiating the Group from its competition.

The growing requirement to address chronic urban flooding problems, following the enactment of the Flood and Water Management Act in April 2010, is providing opportunities for Hydro to supply flow control and storage products to the retrofit market. Potential applications range from small local drainage schemes to the large watershed based systems incorporating large Hydro-Brake® Flow Control units, such as those supplied as part of the White Cart Water flood alleviation project in Glasgow completed in 2010. Hydro's approach to flood management involves controlling flows at source at the local level. This approach is gaining wider recognition as being a cost effective way of reducing the risk of flooding without the high capital cost associated with wide scale regional flood defence schemes, which have been identified as an area of potential cost savings under the Government's austerity measures.

In the UK, and elsewhere there is a growing movement towards sustainable drainage systems (SUDS) and low impact development (LID) that is generating a demand for "natural" systems to manage surface water flows and treat and remove pollutants associated with urban stormwater runoff. As a leader in this field, Hydro is well positioned to provide products for SUDS and LID applications and has developed a new micro website highlighting the environmental benefits of "Engineering Nature's Way" using Hydro technology. In addition, in late 2010, Hydro completed commercial preparation of the Hydro-Filterra bio-retention system which was brought to the UK under licence from the US in 2009. This system uses natural processes to remove contaminants from stormwater and will be formally launched in the UK in the second quarter of 2011.

US Stormwater

Business in the new residential housing and commercial construction sector in 2010 remained steady while business derived from publicly funded projects rose significantly over previous years. The US represents the largest stormwater market in which Hydro currently operates and, despite the downturn in the economy, it is a market that offers Hydro strong growth potential.

Hydro secured a number of key contract wins, through competitive bid processes, for major highway projects in the North Eastern US. The lead time on publically funded projects tends to be considerably longer than those associated with private developments and orders taken on these contracts in 2010 are expected to contribute to further growth in 2011.

Hydro has struggled in the recent past to gain traction in the US Stormwater market and in 2010 the Group set about implementing a plan to grow market share through a combination of improvements to the general operations, the local management team and brand awareness building. Following the recruitment of a National Sales Manager in late 2009, 2010 has seen the business enhanced by the further addition of an Operations Manager, a Regulatory Specialist and a Marketing Specialist.

The new management team has worked to improve performance in a number of key areas, including direct and indirect sales channels. Underperforming sales personnel have been removed and replaced and new distributors, both local and regional, have been appointed to strengthen our position in key territories and establish a platform for growth and expansion.

The drive to obtain key US regulatory approvals continues although the regulatory landscape is changing and in the future approvals could be secured based on testing under controlled laboratory conditions with a reduced emphasis on costly and time consuming field monitoring. Hydro is currently undertaking long-term field testing for its Up-Flo® Filter and Downstream Defender® products in support of the all important Washington DOE and New Jersey DEP approvals. These programmes are expected to last between 12-24 months. Should the change in regulatory approvals be accepted it should favour Hydro with our state-of-the-art hydraulic laboratories and association with top academic researchers and universities in the UK and US.

International Stormwater

Stormwater markets outside the UK and US struggled to show growth due to the stagnation in construction activity. The Group's strategy to drive growth internationally is to focus on the development of new territories whilst continuing to support existing markets.

In December 2010 Hydro signed a distribution agreement to offer flow control and treatment products to the Mexican market through a distribution agreement with Soluciones Hidropluviales; this represents the first time Hydro's products are available to the Mexican market. Stormwater management is an increasingly important consideration to real estate developers, urban planners, and environmental regulators across Mexico.

2010 also saw the first Downstream Defender installations in Malaysia following a period of time working closely with our partner to introduce this product to this territory.

Other Financial Matters

Operating Profit

Operating profits for business segments are disclosed excluding the recovery of central Group costs through royalty and other management charges in note 5 to this Preliminary Announcement. This is the measure used by the Group for management purposes and presents a consistent measure of segment performance. For the purposes of segmental reporting operating profit is stated before exceptional items and amortisation of acquired intangible assets.

Total administrative expenses were unchanged on 2009 levels at £9.6m; the presentation of central Group costs within this sum is shown in the segmental analysis of results in note 5. Group costs increased to £2.9m (2009: £2.4m) due principally to a change in the allocation of IT related costs that resulted in an additional allocation of £0.4m.

Group costs also include foreign exchange gains of £0.1m (2009: £0.2m loss) associated with the revaluation of net US dollar asset balances in the Company balance sheet.

Amortisation of Acquired Intangible Assets

£0.3m of amortisation of acquired intangible assets has been charged on assets recognised following the acquisition of Eutek Systems, Inc. ('Eutek') in 2008. Excluding goodwill, we acquired a total of £2.3m of intangible assets through the acquisition. The majority of these assets relate to developed technology and trademarks, which are being amortised over a period of 15 years, subject to any impairment.

Finance Costs

Net finance cost for the year was £0.1m (2009: £0.2m). This figure includes interest on bank loans taken in 2008 to assist with acquisition funding, the unwinding of discounting applied to the value of future payments of deferred consideration payable to the former shareholders of Eutek, and the gain or cost associated with derivative financial instruments. The year-on-year reduction was attributable to a gain on the valuation of foreign exchange forward purchase contracts at 31 December 2010.

The table below provides an analysis of net finance costs:

Taxation

The effective tax rate on profits was 37.5% (2009: 37.7%). The difference between the effective rate of tax and the statutory rate of 28% largely reflects the impact of profits generated from operations based in the US where combined federal and state tax rates are higher than those experienced in the UK. The Group should benefit from anticipated reductions in UK corporate tax rates, but due to the territorial profile of the Group's activities, we expect the overall effective tax rate to remain broadly unchanged going forward.

Earnings-per-Share

Our adjusted basic earnings-per-share increased by 37% to 11.54 pence per share (2009: 8.42 pence per share). Basic earnings-per-share, which includes the impact of exceptional items and amortisation of acquired intangibles, increased by 31% to 10.43 pence per share (2009: 7.97 pence per share).

A diluted earnings-per-share calculation is presented for both the basic and adjusted earnings-per-share amounts. This calculation reflects the impact of potential ordinary shares from unvested share option schemes.

Cash Flow and Working Capital

At 31 December 2010, net cash and cash equivalents totalled £4.1m, compared to £1.5m at 31 December 2009 and £0.7m at the half year.

Cash generated from operations was £4.6m in the year (2009: £2.1m). This includes a working capital inflow of £1.6m (2009: outflow of £0.7m). The working capital changes in any given year are principally due to the timing of large contracts, typically on the Wastewater side of the business. These contracts may have commercial terms that can materially affect the measure of working capital at a given point in time. In general terms, such contracts require a higher level of working capital than the shorter turnaround Stormwater sales. During 2010 the Group benefitted from receipt of initial stage payments against the large Zickert Scraper contracts received during the year. The balance of trade and other payables increased at 31 December 2010 over the position at 31 December 2009 due to a combination of:

§ Deferred income, relating to the value of these payments not yet recognised as income, and

§ Accruals for costs recognised on these contracts that remained un-invoiced at 31 December 2010.

Corporation tax payments were £0.8m (2009: £0.5m). This figure reflects the higher anticipated profitability of the Group and increased corporation tax payments on account as a consequence.

Capital payments on loans taken out to finance the 2008 acquisition of Eutek consumed £0.8m (2009: £0.7m) of cash reserves during the year. Additionally a further £0.3m (2009: £0.5m) was paid in deferred consideration to the former shareholders of Eutek.

Foreign exchange gains of £0.1m (2009: losses of £0.2m) were incurred in 2010 on cash balances denominated in foreign currencies (principally US dollars).

Financial Risk Management

The Group operates a central treasury function that controls cash management and borrowings and our financial risks. The main financial risks we face are liquidity, foreign currency, interest rates and credit risk. We only use derivatives to manage our foreign currency risks arising from underlying operational business. Transactions of a speculative nature are prohibited.

Further details of our financial risk management policies are summarised in note 22 to the 2009 Annual Report.

Borrowing Facilities

Our borrowing facilities comprise:

§ $2.2m US dollar term loan (secured on the Group's freehold properties) expiring in May 2013 on which interest is charged at 2.1% over US LIBOR;

§ $2.4m US dollar term advance (secured on the Group's freehold properties) expiring in May 2018 on which interest is charged at 1.8% over US LIBOR; and

§ £1.6m net overdraft facility which is repayable on demand and subject to review on at least an annual basis. The most recent confirmation of this facility was in December 2010.

As at 31 December 2010 the overdraft facility was not in use and the Group maintained £7.0m of cash balances.

Borrowing facilities are subject to financial covenants which specify a maximum ratio of net debt to EBITDA of 2.0 times, a minimum interest cover of 3.0 times and a minimum ratio of cash flow to debt service of 1.25. In addition, the term advance is subject to a further covenant under which the amount borrowed shall not exceed 80% of the value of the properties against which the advance is secured.

At 31 December 2009 the Group did not meet the minimum ratio of cash flow to debt service and, as such, presented the full balance outstanding on both the bank loan and term advance as current liabilities in the balance sheet as at 31 December 2009. At 31 December 2010, and throughout the year, the Group has met the requirements of all banking covenants and has consequently reverted to showing a proportion of the outstanding loans as non-current liabilities.

The Group considers that its existing facilities provide adequate funding for the business.

On behalf of the Board.

Steve Hides

Chief Executive Officer

Tony Hollox

Chief Financial Officer

8 March 2011

Group Income Statement unaudited

Year ended 31 December 2010

Consolidated Statement of Comprehensive Income unaudited

Year ended 31 December 2010

Consolidated Balance Sheet unaudited

31 December 2010

Consolidated Statement of Changes in Equity unaudited

Year ended 31 December 2010

Consolidated Cash Flow Statement unaudited

Year ended 31 December 2010

*Represents deferred payments to the vendor of Eutek Systems, Inc, acquired in May 2008.

Reconciliation of profit to net cash flow from operating activities unaudited

Year ended 31 December 2010

Notes to the Preliminary Announcementunaudited

Year ended 31 December 2010

1. Basis of preparation and status of information

The preliminary announcement was approved by the Board of Directors on 7 March 2011. Whilst the financial information included in the preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not constitute the Group's statutory accounts for the years ended 31 December 2010, 2009 or 2008, and does not contain sufficient information to comply with IFRSs.

The financial information for the years ended 31 December 2009 and 31 December 2008 are derived from the statutory accounts for those years which have been delivered to the Registrar of Companies. The auditors reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain any statements under s498(2) or (3) Companies Act 2006 or equivalent preceding legislation.

The audit of the statutory accounts for the year ended 31 December 2010 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the directors in the preliminary announcement.

Full audited accounts of Hydro International plc for the twelve months ended 31 December 2010 will be dispatched to shareholders, and made available on the Group's website at www.hydro-international.biz, on 14 April 2011 ahead of the AGM date of 26 May 2011. The AGM will be held at the registered office of Hydro International plc at Shearwater House, Clevedon Hall Estate, Victoria Road, Clevedon, BS21 7RD. Copies of the Annual Report and Accounts will also be available from the registered office from 14 April 2011. The audited accounts will be delivered to the Registrar of Companies following the AGM.

2. Earnings per share

Earnings per ordinary share are based on profit on ordinary activities after taxation, divided by a weighted average of 14,279,460 (2009: 14,265,823) shares in issue during the year. The diluted earnings per share are calculated after the inclusion of share options and the weighted average of ordinary shares used in the calculation is 14,316,943 (2009: 14,310,150).

3. Exceptional other operating income

The exceptional other operating income received during the year ended 31 December 2009 related to the reversal of a fair value adjustment made to the assets recognised on the acquisition of Eutek Systems, Inc. The circumstances giving rise to the reversal occurred more than 12 months after the date of the acquisition and as such could not be treated as an adjustment to restate the fair value of assets acquired.

4. Post balance sheet event

Subsequent to the year end the directors have recommended a dividend of 3.3 pence per share to be paid, totalling £472,000.

5. Segmental analysis of results

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board of Directors to allocate resources to the segments and to assess their performance. Information reported to the Group's Board of Directors for the purpose of resource allocations and assessment of segment performance is more specifically focused on the destination of products sold by the operating divisions and the combination of business activity as detailed above and the destination of the product.

The Group's reportable segments under IFRS 8 are therefore as follows:

Wastewater: UK and Ireland, the US and Rest of World

Stormwater: UK and Ireland, the US and Rest of World

Information regarding the Group's operating segments is reported below.

There are no intersegment sales. Within UK Wastewater, a total of £4.4m, representing 16% of the consolidated revenue in the year, was derived from contracts either directly or indirectly with a single customer. In 2009 no customer represented more than 10% of revenue.

* Segment profit represents the operating profit earned by each segment excluding amortisation of acquired intangibles, exceptional operating income, central administration costs including director's salaries, investment revenue and finance costs, and income tax expense. This is the measure reported to the Group's Board of Directors for the purpose of resource allocation and assessment of segment performance. The accounting policies of the reportable segments are the same as the Group's accounting policies.

*2009 amounts restated for reclassification between segments.

For the purposes of monitoring segment performance and allocating resources between segments, the Board of Directors monitor the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments with the exception of other financial assets (except for trade and other receivables) and tax assets.

6. Going concern

Whilst the Group has considerable financial resources, the current economic conditions create uncertainty particularly over (a) the level of demand for the Group's products; (b) the exchange rate between sterling and the Euro and the consequent impact on the cost of the Group's imports of stormwater storage products sold through its UK Stormwater business; and (c) the exchange rate between sterling and the US dollar and the consequence for the value of external borrowings denominated in that currency and the associated cost of servicing that debt.

Our borrowing facilities are set out in the preceding review of Other Financial Matters.

The Group prepares regular cashflow forecasts to assess compliance with banking covenants, allowing any necessary mitigating action to be taken to prevent a breach. Having taken account of reasonably possible changes in trading performance, our current forecasts show that the Group should be able to operate within the level of its current financial facilities for at least the next 12 months.

After making enquiries, the directors have concluded that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.