Interim Results

03 September 2013

Embargoed until 07:00

Hydro International plc

("Hydro" or "the Group")

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 Interim results for the six months to 30 June 2013.

Financial Highlights

1 excluding amortisation of acquired intangible assets

2 excluding amortisation of acquired intangible assets and associated tax effect

3 cash and cash equivalents, less borrowings

Operational Highlights

· Order intake in the period up 6% at £18.1m (H1 2012: £17.1m), including:

- Strong order intake in the Americas Wastewater division, including $3.6m Dallas contracts

- First major orders secured in Saudi Arabia with the award of £2.4m stormwater storage contracts

- UK water companies delay new projects as the latter stages of AMP5 approach

· Improved distribution continues to drive growth in the Americas Stormwater division

· Americas Wastewater division completes the delivery of equipment for the Bonnybrook contract in Calgary, Canada, ahead of expectations

· UK/Ireland Wastewater revenues pull back as the major Thames Water contracts near completion

· StormTrain™ range of stormwater quality products launched in the UK

Roger Lockwood, Chairman of Hydro International plc, commented:

"Hydro's markets continue to be challenging and the business remains exposed to the timing of major projects and the cyclical environment within certain sectors of our industry, most notably within the UK Wastewater division. Although these factors provide a level of continuing uncertainty, we have made solid progress during the first half-year and our expectations for the full year are in line with forecasts.

"We were delighted to welcome Michael Jennings as Chief Executive on 22 July 2013. Michael, based in the UK, has spent his career in industrial product and technology-led companies with global operations and has experience in building long-term revenue and income growth. Under his leadership we look forward to refining the business strategy and developing more sustainable growth platforms."

For further information please contact:

About Hydro International

Hydro International plc (AIM:HYD) (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 North American and UK markets in territories including; Ireland, Middle East, Mexico, Brazil, Russia, European Union, Malaysia, Singapore, Korea, Australia and New Zealand.

Please visit the website for further information www.hydro-int.com

Interim Management Report to the members of Hydro International plc

Group results

An acceleration in the schedule on a key wastewater contract at Bonnybrook WWTP, Calgary, Canada brought revenues forward from the second half of the year and helped the Group deliver revenues slightly ahead of our expectations at £15.1m (H1 2012: £15.3m) in the period. This acceleration partly mitigated the effect on first half-year results of the expected reduction in revenues from the UK/Ireland Wastewater division. Grit removal products sold into the American wastewater market are developed by, and proprietary to, Hydro, and consequently yield, on average, higher levels of profitability than products distributed on behalf of partner manufacturers. The change in the mix of Wastewater revenues towards the Americas has, therefore contributed towards improved gross margins and adjusted operating profits for the period.

Administrative expenses increased by £0.4m, to £5.5m, reflecting both the continued investment in new initiatives, particularly the enhancement of sales and distribution channels, including new personnel. It also reflects an absence of one-off research and development grant credits, totalling £0.2m, received in the equivalent period of 2012.

Net assets at 30 June 2013 were broadly unchanged against the level at 31 December 2012 at £14.0m. The profit after tax for the period of £0.1m and a gain on US Dollar denominated assets of £0.4m were offset by the dividend payment to shareholders in June 2013.

Net cash generated from operations for the period was £1.6m (H1 2012: £0.9m outflow). As in previous periods the principal drivers for cash generation have been the timing of receipts and payments on the larger contracts typically seen in the Group's Wastewater divisions. During the period the Group made capital repayments totalling £0.4m against borrowing facilities, and a further £0.3m was paid as deferred consideration (based on performance) to the former shareholders of Eutek Systems, Inc. which was acquired in 2008. The final payment of deferred consideration in relation to the acquisition of that company was paid in July 2013. Corporation tax payments of £0.7m (H1 2012: £nil) were made in the period. This increase relates to the timing of corporation tax payments on account by our US-based divisions. Along with the payment of the final dividend of £0.5m in respect of the year ended 31 December 2012, these were the principal movements in cash balances, which reduced by £0.3m over the period. Net cash at the period end was £2.9m (H1 2012: £3.6m, FY 2012: £2.9m).

Business operating review

Americas Wastewater

The Americas Wastewater division performed strongly in the first half-year, with revenues increasing by 48% to £5.3m and a more than doubling of profits to £1.6m. This performance largely reflects the timing of specific projects, including the earlier than anticipated completion of shipments on the major contract for Bonnybrook WWTP, Calgary, Canada, secured in 2012. The continuing strength in the core North American wastewater grit removal market was also demonstrated by a 23% increase in order intake for the first half-year, which included the $3.6m Dallas contracts announced in March 2013.

The cutbacks in municipal budgets for combined sewer overflow projects reported during 2012 have continued to present a challenge to the division's 'Wet Weather' activities through the early part of 2013. Combined sewer overflow projects are currently attracting substantially less funding than wastewater programmes and, as a consequence, resources have now been redeployed to focus on the more buoyant grit removal sector of the market.

UK/Ireland Wastewater

Divisional revenues and profits for the first-half year reduced against levels in the corresponding period of 2012, by £2.4m and £0.4m respectively, as the three major Zickert Scraper contracts awarded by Thames Water in 2010 and 2011 approach their conclusion. These contracts provided revenues of £1.8m (H1 2012: £4.0m) over the first six months of 2013. The final project at the Beckton site is expected to complete in early 2014.

Following an encouraging year for order intake in 2012, the current year has seen a return to the uncertainty and poor project visibility experienced by the water company equipment supply chain in 2011. As a consequence projects are being delayed or deferred, with some moving out as far as the next asset management programme, AMP6.

Hydro continues to identify opportunities to broaden and diversify its business, thereby reducing the impact of the relatively cyclical nature of the municipal equipment sales market in the UK. AMP6, which commences in 2015, is expected to bring an increased focus and investment by the UK water companies in the maintenance of existing assets and reduced whole-life costs. This approach should drive the need for more on-going service provision and is therefore a significant opportunity for Hydro to drive repeat revenues, and a major programme is underway to build on our existing operational base to develop and strengthen our after-sales and site service offer to customers. The division is also focusing on strategies to increase its presence in industrial process water markets.

Americas Stormwater

The continuing development and expansion of sales distribution arrangements in the US and Canada has resulted in a substantial increase in first half-year stormwater revenues and orders, by 52% and 80% respectively.

Regulatory approvals are a pre-requisite for selling in key stormwater markets in the US and such approvals must be maintained once granted. We are pleased that a long-term field testing programme in support of our latest application for approval of the Up-Flo Filter by the New Jersey Department of Environmental Protection (NJDEP) has now been completed. The data arising from this programme is being compiled into a report, which will be submitted for review and approval by NJDEP in the second half of the year. NJDEP is one of the two major approvals in the US, and is widely used as a reference by other State approving bodies across the Eastern side of the US.

Product development for the Americas Stormwater market includes the new First Defense High Capacity, designed to accommodate larger pipe sizes and higher stormwater bypass flows. First revenues from First Defense High Capacity are expected in 2014 following full market launch in the second half of the year.

UK/Ireland Stormwater

The difficult trading conditions experienced in late 2012 in the UK construction market have remained a challenge through the first half-year, particularly in the first quarter, affecting revenues and profits for the period. In response, the division has continued to improve distribution arrangements with major national and regional builders' merchants and promote the Hydro-Brake Optimum® flow control launched in 2012.

Ahead of the expected introduction of national standards for Sustainable Drainage Systems (SuDS) in April 2014, the division formally launched the Group's range of stormwater treatment products in April 2013 under the StormTrain™brand in the UK. This major initiative, supported by a toolbox of online resources housed on the Group's website, provides customers and consultant engineers with unrivalled resources to assist them in identifying the most appropriate solution to their needs and circumstances, including natural, or combinations of natural and engineered, SuDS systems.

International

The International business has focused on developing and progressing opportunities in the Middle East, Russia and South East Asia. Whilst the speed at which many of these opportunities have progressed continues to frustrate, particularly in the Middle East, these markets offer good prospects for Hydro over the medium to long term. In addition the division has been working to assess the opportunities presented by, and determine an appropriate strategy for entering, the Chinese market. This assessment will be progressed further during the second half-year.

The appointment, in September 2012, of a Dubai-based regional sales manager has substantially improved our visibility of, and contact with, projects in the Middle East region. This investment, whilst increasing the cost base of the division over the period, helped the business secure major orders in June 2013, valued at £2.4m, for the supply of stormwater storage products to two projects in Saudi Arabia which are to be delivered in the second half-year.

Outlook

As previously reported in the 2012 Annual Report, the Group is not expecting growth in its businesses to make up for the conclusion over the coming year of the three major contracts with Thames Water secured by the UK Wastewater division in 2010 and 2011. Our view remains, therefore, that both revenue and profitability in 2013 will be materially lower than 2012 levels, and that results for the year will again be weighted significantly to the second half-year.

Our markets remain challenging and the business remains exposed to the cyclical environment within certain sectors of our industry. We continue to refine the business strategy, building from our platform of world leading products and financial strength, to identify and capitalise on opportunities to develop more sustainable and secure sources of revenue.

We are very pleased to welcome Michael Jennings on board as Chief Executive and look forward to working with him to progress the development of the Group over the coming periods.

Other Financial Matters

Foreign Currency

The Group is exposed to the risk of fluctuating exchange rates through transactions undertaken, and accounting balances held, in foreign currencies. Certain wastewater products sold into the UK market are sourced from Sweden, and stormwater storage products are also purchased from Germany and France. To mitigate this exposure, the Group may enter into forward purchase arrangements, resulting in minor foreign exchange gains or losses as the Kronor and Euro currencies move against Sterling. Equally, the movement in the value of the US Dollar against Sterling gives rise to foreign exchange gains or losses on significant US Dollar denominated assets. The overall impact of this, together with gains and losses associated with other currencies, was to credit the income statement with net gains totalling £124,000 (H1 2012: £13,000 loss).

Key performance indicators

In addition to the statutory revenue and profit measures, we monitor our performance in implementing our strategy with reference to progress in the financial highlights listed above and those shown in the "Measuring Our Performance" section on page 6 of the Annual Report 2012.

Segmental results for the six months ended 30 June 2013

A summary of the key financial results by segment is disclosed in note 2 to the condensed financial statements.

Dividend and dividend policy

In line with our current policy, no interim dividend has been proposed or approved by the Board for the period.

A final dividend of 3.6p per share (£517,000) in respect of the year ended 31 December 2012, as recommended by the Board of directors subsequent to the year-end, was approved at the AGM and paid during the period.

Principal risks and uncertainties

The principal risks and uncertainties which could affect the Group for the remainder of the financial year remain those detailed on page 18 of the Annual Report 2012, a copy of which is available at www.hydro-int.com. In addition, the Outlook section of this Interim Management Report provides a commentary concerning the remainder of the financial year.

Going concern

A full commentary on the risks affecting the Group's liquidity and details of the Group's borrowing facilities are outlined on page 23 of the Annual Report 2012.

The Group remained in compliance with banking covenants as at 30 June 2013.

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current financial facilities. Accordingly, and after making enquiries, the directors have concluded that the Group has adequate resources to continue in operational existence for the foreseeable future.

By order of the Board

Roger Lockwood

Chairman

2 September 2013

Hydro International plc

Condensed Group Income Statement unaudited

for the six months ended 30 June 2013

Condensed Group Statement of Comprehensive Income unaudited

for the six months ended 30 June 2013

Hydro International plc

Condensed Group Balance Sheet unaudited

30 June 2013

Hydro International plc

Condensed Group Statement of Changes in Equity unaudited

for the six months ended 30 June 2013

Hydro International plc

Condensed Group Cash Flow Statement unaudited

for the six months ended 30 June 2013

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

Hydro International plc

for the six months ended 30 June 2013

1. Basis of preparation

The Condensed Interim Financial Statements were approved by the directors on 2 September 2013.

The information for the year ended 31 December 2012 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The condensed set of financial statements has been prepared on a going concern basis using accounting policies consistent with International Financial Reporting Standards (IFRS's) and in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. The same accounting policies, presentation methods of computation are followed in the condensed set of financials as applied in the Group's latest annual audited financial statements, which are prepared in accordance with IFRSs as adopted by the European Union.

2. 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:

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

There are intersegment sales in the period of £43,000 (2012: £15,000).

Hydro International plc

for the six months ended 30 June 2013

2. Segmental analysis of results (continued)

The accounting policies of the reportable segments are the same as the Group's accounting policies. Segment profit represents the profit earned by each segment without allocation of amortisation of intangibles, 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.

3. Net finance costs

Hydro International plc

for the six months ended 30 June 2013

4. Income tax charge

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rate used for the year ended 31 December 2013 is 45.7% (2012: 22.2%). The effective tax rate is driven by the generation of taxable profits in the Group's US-based trading businesses, and losses in the Group's UK-based operations, generating an overall effective rate above the corporation tax rate in either territory.

The effective rate for the year ended 31 December 2012 was reduced by prior year adjustments in the period of £32,000.

The Group continues to expect its effective corporation tax rate to be higher than the standard UK rate due to higher corporation tax rates in the US.

5. Earnings per share

Earnings per ordinary share are based on profit on ordinary activities after taxation, divided by a weighted average of 14,361,787 (H1 2012: 14,361,787) shares in issue during the period. 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 14,694,458 (H1 2012: 14,647,926).

6. Reconciliation of profit to net cash flow from operating activities

7. Interim results

In accordance with AIM Rules 20 and 26 the interim results will be available on the Company's website at www.hydro-int.com, where they will be available to shareholders and the general public.

INDEPENDENT REVIEW REPORT TO HYDRO INTERNATIONAL PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 which comprises the condensed group income statement, the condensed group statement of comprehensive income, the condensed group balance sheet, the condensed group statement of changes in equity, the condensed group cash flow statement and related notes 1 to 7. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2013 is not prepared, in all material respects, in accordance with the AIM Rules of the London Stock Exchange.

Deloitte LLP

Chartered Accountants and Statutory Auditor

Bristol, United Kingdom

2 September 2013