5th Mar 2007 07:00
Hydro International PLC05 March 2007 HYDRO INTERNATIONAL plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 Hydro International plc ("Hydro" or "the Group"), provider of products forcontrol and treatment of water, is pleased to announce its preliminary resultsfor the year ended 31 December 2006. Highlights • Profit before tax increased to £1.7m* • Turnover growth of 20% to £22.4m • Cash at bank up £1m to £2.7m • Proposed dividend increased by 15% to 2.3 pence per ordinary share • Vexamus Water integration and rebranding as Hydro International successfully completed • Encouraging profits from the Water and Wastewater division despite delays in asset management programme (AMP4) spending by the UK water companies • Successful launch of Up-Flo(TM) Filter and StormBank(TM) products * this amounts to an increase of 16% before, or 26% after, the inclusion ofexceptional items incurred in 2005. For further information, please contact: Hydro International plc Tel: +44 (0) 1275 878371Roger Lockwood, ChairmanSteve Hides, Chief Executive OfficerTony Hollox, Group Finance Director KBC Peel Hunt Tel: +44 (0) 20 7418 8900Julian Blunt 5 March 2007 CHAIRMAN'S STATEMENT Operating Review In April 2007 the regulated water industry in England and Wales will completethe second year of AMP4, its fourth asset management program scheduled to run toMarch 2010. As reported previously in the Chairman's Statement at the AGM and inthe Group's 2006 Interim Report, the Water Industry Regulator's intended 'earlystart program' for AMP4 failed to materialise. Industry forecasters reportedthat new orders placed by the water and sewerage companies of England and Waleswere down 45% on the previous year. These delays impacted our UK wastewaterbusiness resulting in lower business volumes than were anticipated. However,efficiency gains, including those achieved by the adoption of the Hydro businessmodel within Vexamus mitigated these shortfalls and led to a significantimprovement in profitability. Enquiry levels remain buoyant and the prospectsfor 2007 are encouraging. The business was acquired (as Vexamus Water) in May2005 and now, as Hydro's Water and Wastewater Division, has been successfullyintegrated into the Group. Hydro's UK stormwater business continued to build on the solid performancedelivered in the first six months of 2006 with enquiries, orders and sales allat strong levels. Regulations governing planning consents for stormwatercontrol, storage and treatment are the main drivers. As a leader in the environmental/water sector Hydro will continue to demonstratea clear commitment to protecting the environment and sustainability.Environmental protection is an integral part of our strategic plan and a corevalue for the business. In 2006 Hydro entered the water conservation market withthe launch of StormBank(TM) - a compact and cost-effective rainwater harvestingsystem designed to collect and store rainwater from roofs, from both residentialand commercial properties. Hydro also sponsored a major new multi mediacampaign, "Save the Rain", which is designed to raise public awareness of theproblems associated with climate change, the growing risk of drought and theneed for making more efficient use of ever more scarce water resources. Thecentrepiece of the initiative is the campaign web site that can be visited atwww.savetherain.info. Our Irish subsidiary, HRD Technologies, which has secured important contracts inboth the industrial and municipal markets, made a sound contribution in 2006,delivering a strong result, despite increased competition in certain sectors. Hydro's US operations experienced a challenging year which was adverselyimpacted by a combination of the weak dollar, rapidly rising stainless steelprices and a shift in product mix. The rising price of stainless steel resultedin several large projects in the wastewater sector bidding over budget. As aconsequence there were several key projects that were not awarded that are stillawaiting approval of additional funding or are in the process of going out torebid. In the US stormwater sector, interest in the new Up-Flo(TM) filter, a uniquefilter system designed to remove fine particulates and associated pollutantsfrom stormwater runoff, is growing and the first US installations wereimplemented at the back end of 2006 with significant growth expected in early2007. It was also pleasing to see the rapid sales growth achieved over the lasttwelve months by First Defense(R), Hydro's entry level stormwater treatmentdevice. Despite the challenges faced in the US during 2006, enquiry levels remainencouraging in both the wastewater and stormwater sectors and the outlook for2007 is positive. In October 2006, Ed Izzo joined Hydro's US operations as US President takingover the operational responsibility from Group CEO, Steve Hides. This newappointment will allow Steve to focus on Group initiatives and the strategicdevelopment of the business. There has been good progress on the international business front with thesuccessful completion of Grit King(R) projects in Qatar, Doha and Egypt and thefirst Storm King(R) installation in Korea. The success of Hydro International'sGrit King(R) Separators in controlling sand and grit infiltration into sewageand waste water treatment plants in Egypt has led to an agreement with a majorCairo based engineering firm Intech. Enhancements to existing distributionagreements with Rocla Water Quality Products in Australia and HyndsEnvironmental in New Zealand have led to strong sales growth of the FirstDefense(R) and Up-Flo(TM) Filters respectively. The Innovation Team that oversees the Group's marketing, information systems,product development and technical support functions had a very productive year.The team's focus for 2006 was to standardise platforms across the Group andidentify ways of improving the efficiency of business processes. Notableachievements include the integration of IT systems across the Group, leading toimproved communications, enhanced technical support for the Group's licenseesand export sales function and the Group wide roll out of "Inventor" designsoftware which has led to improved outputs, shorter response times andsignificant cost savings. The team has continued to collaborate effectively withuniversities both in the UK and US leading to independent verifications tosupport product sales. In July former Group Finance Director, Keith Marshall left the business topursue other interests. Keith is succeeded by Tony Hollox who has quicklyestablished himself as a valuable member of the team and is working closely withthe existing Board in shaping our business going forward. Dividend Hydro International has performed in line with expectations and the directorspropose a final dividend payment of 2.3 pence per share. This represents anincrease of 15% over the previous year's final dividend of 2.0 pence per shareand is consistent with the Board's intention to continue with the final dividendpayments where such a payment is considered appropriate. The final dividend,subject to approval at the Annual General meeting on 24 May 2007, will be paidon 1 June 2007 to shareholders on the register on 4 May 2007. Outlook The outlook for 2007 is positive, as the underlying drivers remain strong and weexpect to make further progress over the next 12 months. In the UK, AMP4 spending is expected to increase in 2007 which should benefitHydro's Water and Wastewater business. In the US, recently signed sales anddistribution agreements will enhance our routes to market and improve ourpresence in new and existing territories. Overseas opportunities will be pursuedand further expansion plans are in hand for targeted markets in Europe and SouthEast Asia. Staff I would like to thank all members of the Hydro team for their dedication andefforts in 2006 and for delivering another year of significant growth. Roger LockwoodChairman Consolidated Profit and Loss AccountYear ended 31 December 2006 Unaudited Audited 2006 2005 Note £000 £000 Turnover - continuing activities 22,396 18,640 Gross profit 7,969 6,526 Administrative expenses Administrative expenses before exceptional items (6,282) (5,095)Exceptional restructuring expense - (200)Exceptional gain on revaluation of building - 79 Total administrative expenses (6,282) (5,216) Operating profit - continuing activities 1,687 1,310Net interest receivable 46 60 Profit on ordinary activities before taxation 1,733 1,370 Taxation (471) (400) Profit for the financial year 1,262 970 Earnings per ordinary share (2) 8.97p 7.02pDiluted earnings per ordinary share (2) 8.87p 6.88p Statement of Total Recognised Gains and LossesYear ended 31 December 2006 Unaudited Audited 2006 2005 £000 £000 Profit for the period 1,262 970 Unrealised surplus on revaluation of freehold - 671land and buildingsCurrency translation differences on foreign (66) 16currency net investments Total recognised gains and losses 1,196 1,657 Reconciliation of Movements in Group Shareholders' FundsYear ended 31 December 2006 Unaudited Audited 2006 2005 £000 £000 Opening shareholders' funds 5,471 4,003 Total recognised gains and losses 1,196 1,657Dividend (282) (235)Proceeds from issue of new shares 51 46 Net increase in shareholders' funds 965 1,468 Closing shareholders' funds 6,436 5,471 Note of Group historical cost profits and lossesYear ended 31 December 2006 Unaudited Audited 2006 2005 £000 £000 Reported profit on ordinary activities before 1,733 1,370taxationDifference between an historical cost 37 32depreciation charge and the actual depreciationcharge for the year Historical cost profit on ordinary activities 1,770 1,402before taxation Consolidated Balance Sheet31 December 2006 Unaudited Audited 2006 2005 £000 £000Fixed assets Intangible assets 74 90Goodwill 1,302 1,399Tangible assets 2,175 2,275 3,551 3,764 Current assets Stocks and work in progress 338 612Debtors 6,728 6,620Cash 2,677 1,703 9,743 8,935Creditors: amounts falling due within one year (6,377) (6,742) Net current assets 3,366 2,193 Total assets less current liabilities 6,917 5,957 Creditors: amounts falling due after more than (442) (486)one year Provisions for liabilities and charges (39) - Net assets 6,436 5,471 Capital and reservesShare capital 706 696Share premium account 931 890Revaluation reserve 602 639Profit and loss account 4,197 3,246 Total shareholders' funds 6,436 5,471 Consolidated Cash Flow StatementYear ended 31 December 2006 Unaudited Audited Note 2006 2005 £000 £000 Net cash inflow from operating activities (3) 1,680 57 Equity dividends paid (282) (235) Return on investment and servicing of finance 46 65 Taxation - net corporation tax paid (239) (282) Capital expenditure and financial investment (199) (87) Acquisitions:Purchase of subsidiary undertaking - (219)Net overdrafts acquired with subsidiary - (229) Cash inflow/(outflow) before management of liquidresources and financing 1,006 (930) Management of liquid resources -Net decrease in short term deposits - 1,215 Net debt financing cash outflow (4) (52) (68) Proceeds from issue of new shares 51 46 Increase in cash in period 1,005 263 Notes to the Preliminary Announcement 1. Basis of preparation The preliminary announcement was approved by the board of directors on 2 March 2007 and has been drawn up using the accounting policies as set out in the financial statements covering the year ended 31 December 2005. The financial information for the year ended 31 December 2005 is an abridged version of the Group's accounts which received an unqualified auditors' report and did not contain a statement under s237(2) or (3) of the Companies Act 1985 and have been filed with the Registrar of Companies. New accounting standards which have come into force during the current financial year had no impact on the Group. 2. Earnings per share Earnings per ordinary share are based on profit on ordinary activities after taxation, divided by a weighted average of 14,068,228 (2005 - 13,822,588) 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 14,232,587 (2005 - 14,102,794). 3. Reconciliation of the operating profit to net cash inflow from operating activities Unaudited Audited 2006 2005 £000 £000 Operating profit 1,687 1,310Depreciation charges 255 219Amortisation of intangible assets 39 36Amortisation of goodwill 97 56Profit on reversal of permanent diminution - (79)Decrease/(increase) in stocks 274 (131)Increase in debtors (130) (1,988)(Decrease)/increase in creditors (542) 634 Net cash inflow from operating activities 1,680 57 4. Reconciliation of net cash flow to movement in net funds Unaudited Audited 2006 2005 £000 £000 Increase in cash for the period 1,005 263Cash inflow from movements in short term deposits - (1,215)Cash outflow from reduction in debt 52 68 Change in net funds resulting from cash flows 1,057 ( 884)New finance leases - (12)Loans acquired with subsidiary - (573)Translation differences (31) 16 Movement in net funds in the period 1,026 (1,453)Net funds at start of period 1,170 2,623 Net funds at end of period 2,196 1,170 5. Post balance sheet event Subsequent to the year end the directors have recommended a dividend of 2.3 pence per share to be paid, totalling to £324,582. 6. Status of information The financial information set out above is unaudited and does not amount to full accounts for the purposes of Section 240 of the Companies Act 1985. The accounts for the year ended 31 December 2006 are not yet audited but will be finalised on the basis of the results included in this announcement. The profit and loss account and cash flow statement for the year to 31 December 2005 and the balance sheet as at that date represent an abridged version of the audited accounts of the Group which have been filed with the Registrar of Companies. The auditors reported on the accounts for the year ended 31 December 2005. Their report was unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. Full audited accounts of Hydro International plc for the twelve months ended 31 December 2006 will be dispatched to shareholders on 23 April 2007 ahead of the AGM date of 24 May 2007. Copies of the Annual Report and Accounts will be available from the Company's registered office at Shearwater House, Clevedon Hall Estate, Victoria Road, Clevedon, BS21 7RD from 24 April 2007. The audited accounts will be delivered to the Registrar of Companies following the Annual General Meeting. 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