Interim Results

08 September

Embargoed until 07:00

Hydro International plc

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

Unaudited Interim Results

Hydro International (AIM: HYD), a leading provider of environmentally sustainable and innovative products and services for the control and treatment of water, announces its unaudited interim results for the six months ended 30 June 2015.

Financial Highlights

* excluding amortisation of acquired intangible assets

** cash and cash equivalents, less borrowings

Operational Highlights

· Financial improvement in H1 driven by positive trading conditions in the Stormwater divisions and delivery against a strong opening order book in Americas Wastewater

· AMEA division secured £2.0m Vortex Drop™ Shaft order for the major Doha Industrial Area Development project in Qatar

· Delays in the award of major Wastewater projects impacts order intake across the Group, particularly in the UK through the transition from AMP5 to AMP6

· Profitable growth funding the Group's ongoing programme of strategic investments, including:

- Continuing expansion of the Group's service capability in core markets, including the acquisition of the operating assets and brand of Settled Solids Management in Americas Wastewater

- Continuing extension of the Group's global product range

- Continuing recruitment to enhance organisational competence

· Net cash increased as working capital tied up in long-term projects released

Ian Griffiths, Chairman of Hydro International plc, commented:

"The 2015 interim results reflect the continued progress being made with the implementation of the Group's strategy, including a programme of investments aimed at improving our systems and business processes and bringing in high-quality people to deliver our strategy on the ground."

Michael Jennings, Chief Executive of Hydro International plc, further commented:

"Profitable growth in the UK and US has underpinned the results achieved with both the Americas divisions achieving record sales and profit for the period. Our growing presence in Asia, Middle East and Africa (AMEA) is also starting to deliver with strong order intake in H1.

The Group's steadily improving financial performance, even while investment continues, gives confidence for the full year outlook as well as for growth prospects for 2016 and beyond."

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 its core North American and UK markets in territories including: Ireland, the Middle East, Mexico, Brazil, Russia, the European Union, China, 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

The Group's steadily improving financial performance, even while investment continues in our programme of growth initiatives, gives confidence for the full year outlook as well as for growth prospects for 2016 and beyond.

Strong trading in the Group's Stormwater divisions, coupled with delivery against the substantial Americas Wastewater closing order book from 2014, helped first half-year revenues increase by 32% to £17.4m (H1 2014: £13.1m). The Group's business model, including outsourced product fabrication, is highly geared to sales volumes and consequently profitability for the period showed a strong gain against the equivalent period in 2014, with adjusted profit before tax increasing to £0.80m (H1 2014: £0.09m). Whilst trading conditions were strong in the Stormwater divisions, the Wastewater businesses experienced challenges with order intake during the period, principally due to the timing of projects experiencing delays relative to expectations. This challenge particularly affected the Europe Wastewater business, where the change in the UK water industry from AMP5 to AMP6 at the end of March 2015 has created a hiatus in project flow across the wider equipment supply industry. By contrast the AMEA division showed strong order intake, including a major £2m order in Qatar for delivery during 2015. The closing Group order book at 30 June 2015 was £13.8m (31 December 2014: £13.7m).

The Group has continued to make good progress with its programme of investments aimed at providing a broad and sustainable platform for future business growth. Over the period, these investments included territorial expansion (including the appointment of additional business development personnel in Dubai), further product range development (including the launch of a stormwater 'dry screening' product in the US), significant enhancements to our after-sales service resources (including the acquisition of the operating assets and brand of Settled Solids Management), and the continuation of the implementation of new Group-wide business systems, which has now been successfully implemented in the Europe Stormwater division. The cost of these investments is reflected in administrative expenses, which increased by £1.5m, to £7.4m (H1 2014: £5.9m). £1.2m of this increase relates to our investment in high quality individuals across all areas of the Group's operations.

During the period the Group has generated taxable profits in the US and taxable losses in the UK. As we experienced during 2014, this imbalance in profitability across the Group's major areas of operation has distorted the effective tax rate. As a consequence of this distortion, the Group is reporting an overall tax charge of £0.54m on the consolidated profit before tax for the period of £0.73m (H1 2014: tax charge of £0.11m on consolidated profit before tax for the period of £0.02m). The effective tax rate is anticipated to remain higher than would otherwise be expected for the full year in 2015, before returning to more typical levels with the return to profits in the Group's UK-based businesses in future years.

Net assets at 30 June 2015 reduced against the level at 31 December 2014 by £0.4m to £14.6m (H1 2014: £13.2m). The profit after tax for the period of £0.2m was offset by a loss on US Dollar denominated assets of £0.1m, share based payment expenses of £0.1m, and the dividend payment of £0.5m to shareholders in June 2015.

Net cash generated from operations for the period was £2.1m (H1 2014: £0.9m outflow). As in previous periods the principal impact on cash generation was 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 £0.1m against borrowing facilities, and a further £0.3m was paid to acquire the operating assets and brand of Settled Solids Management by the Americas Wastewater business. Net corporation tax payments of £0.4m (H1 2014: £0.1m refund) were made during the period. Along with the payment of the final dividend of £0.5m in respect of the year ended 31 December 2014, these were the principal movements in cash balances, which increased by £0.4m over the period. Net cash at the period end was £2.8m (H1 2014: £1.4m, FY 2014: £2.3m).

Business operating review

Note: In the following divisional analysis, segment profit excludes central Group costs and amortisation of acquired intangible assets

Americas Wastewater

* - excluding amortisation of acquired intangible assets

The Americas Wastewater division performed strongly during the period as it delivered on the strong order book in place at the end of 2014. Whilst the level of enquiries and bids remains encouraging, the division has experienced delays in order placement throughout 2015. Consequently the order book at 30 June 2015 closed £2.4m down on the 2014 year-end figure of £9.3m.

The division made significant progress in developing its service capability during the period, with the expansion of the core service team and, in January, the acquisition of the operating assets and brand of Settled Solids Management (SSM). SSM is a specialist provider of services, based around a patented Vertical Grit Separator system, to remove sand and grit from wastewater treatment plants. First orders were received during the period.

The division also made progress with diversification beyond its traditional municipal markets for wastewater grit removal into wider industrial applications, with two orders for grit removal in a dairy farm application received during the period. Dedicated sales personnel have been appointed to develop the division's approach to industrial markets, which along with the drinking water sector, is considered a key opportunity for future growth.

Americas Stormwater

The Americas Stormwater division has continued the growth seen during 2014, with orders and revenue increasing by 22% and 65% respectively over the comparable period in constant currency terms. In addition to the continued development of sales channels, including the establishment of new regional distribution partners, the division has continued to expand the product range. The market launch of the First Defense High Capacity® in 2014 has been a significant contributor to increased stormwater separator sales and the first order has been received for the newly introduced Hydro DryScreen, a product that captures leaf litter and other debris from stormwater flows.

The division also took first steps toward the establishment of a service offering to customers in support of its products. A Field Service Technician was appointed during the period and a partnership forged with a regional maintenance partner to ensure a sufficiently wide level of initial territorial coverage. Expansion into the industrial sector has also been progressing, with a significant increase in the number of industrial projects in the order pipeline, following the appointment of a business development manager to focus on applications in industrial markets, initially in California.

Europe Wastewater

The change in the UK from Asset Management Programme (AMP) 5 to AMP6 at the end of March 2015 has created a hiatus in project order intake during the first half-year of 2015, with a number of significant opportunities moving out in timing. Whilst progress is expected during H2, anticipating the timing of these projects remains difficult, with little visibility provided by the UK water companies on their detailed investment plans.

In contrast to the challenges with projects, the division saw a 62% increase in revenues from service-related operations. The ongoing development of the division's service operations has continued during the period, with additional resources deployed to meet the demand being driven by an increased focus and investment by the UK water companies, under AMP6, in the maintenance of existing assets and reduced whole-life costs.

Building on the work performed during 2014, the division has made good progress with its strategy to introduce the Group's advanced grit management products, which form the base of the Americas Wastewater division, to the UK market. A pilot Headcell® unit was installed at a site operated by Anglian Water, enabling them to undertake full trials of the technology. Feedback on the trial unit has been positive and it is hoped that this will provide a platform for further progress, both with Anglian Water and other UK water companies.

Europe Stormwater

The Europe Stormwater division continued to see strong growth during the period, reflecting improved trading conditions in UK and Irish construction markets and market share growth through expansion of both product range and the scope of sales distribution partnerships in the UK.

The division has also broadened the scope of its services to include specialist capability in water pollution management. A newly formed team now provide customers with the capability to assess, model, and ultimately manage surface water run-off through containment and treatment on industrial sites with a critical pollution risk. 

AMEA (Asia, Middle East & Africa)

The AMEA division received £2.7m of orders during the latter part of H1, but not in time to generate revenue during the period. The orders received during H1, however, will be delivered during H2.

The AMEA business has continued to focus on developing and progressing significant opportunities in the Middle East. The case for investment in the territory was demonstrated by the receipt, in May 2015, of a £2m order for Hydro Vortex Drop™ Shaft for the major Doha Industrial Area Development project in Qatar. The order pipeline in the Middle East remains strong and a second regional sales resource has been appointed in Dubai.

Each of the division's four major international regions (the Middle East, China, Asia Pacific and Emerging countries) are starting to contribute thanks to the development work being done by each of our Regional Business Managers in territory. We now have 16 distribution partners in place covering 12 different countries.

Outlook

As previously reported in the 2014 Annual Report, the Group's financial progress during 2015 will be constrained by the investments we are making in the critical people, systems, products and processes required to implement our strategy to build long-term growth based on sustainable sources of revenue from the many opportunities available in our markets.

While trading in the Group's Stormwater divisions has provided a stronger start to 2015 than historically expected, the benefit of this trading has been mitigated in part by the challenges with order intake in the Europe and Americas Wastewater divisions. Consequently the Group's results are expected to be more evenly weighted across the year than in previous years.

The progress of our strategic initiatives is encouraging and looking beyond the current year we see considerable opportunities for the Group to deliver improving profitability.

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 and Irish markets 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 debit the income statement with net losses totalling £78,000 (H1 2014: £45,000 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 12 of the Annual Report 2014.

Segmental results for the six months ended 30 June 2015

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 (£519,000) in respect of the year ended 31 December 2014, 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 22 of the Annual Report 2014, 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 29 of the Annual Report 2014.

The Group remained in compliance with banking covenants as at 30 June 2015.

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

Michael Jennings

Chief Executive

7 September 2015

Hydro International plc

Condensed Group Income Statement unaudited

for the six months ended 30 June 2015

Condensed Group Statement of Comprehensive Income unaudited

for the six months ended 30 June 2015

Hydro International plc

Condensed Group Balance Sheet unaudited

30 June 2015

Hydro International plc

Condensed Group Statement of Changes in Equity unaudited

for the six months ended 30 June 2015

Hydro International plc

Condensed Group Cash Flow Statement unaudited

for the six months ended 30 June 2015

* - Relates to the acquisition of the operating assets and brand of Settled Solids Management

Hydro International plc

for the six months ended 30 June 2015

1. Basis of preparation

The condensed financial statements for the six months ended 30 June 2015 were approved by the directors on 7 September 2015.

The information for the year ended 31 December 2014 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 (IFRSs) and in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting". The same accounting policies, presentation and 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.

Hydro International plc

for the six months ended 30 June 2015

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 2015

4. Income tax charge

Income tax expense is recognised based on management's best estimate of the annual income tax rate expected for each operating entity within the Group for the full financial year.

During the period the Group has generated taxable profits in the US and taxable losses in the UK. As we experienced during 2014, this imbalance in profitability across the Group's major areas of operation has distorted the Group's effective tax rate. The effective tax rate is anticipated to remain higher than would otherwise be expected for the full year in 2015 before returning to more typical levels with the profitable growth of the business in future years.

Over the longer-term 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 or loss on ordinary activities after taxation, divided by a weighted average of 14,429,089 (H1 2014: 14,391,174) shares in issue during the period. The diluted earnings per share for the period ended 30 June 2015 were calculated after the inclusion of share options, and the weighted average of ordinary shares used in that calculation was 15,123,625. Diluted earnings per share is the same as basic earnings per share in the period ended 30 June 2014 because the Group recorded a loss and as such none of the shares that could potentially be issued were dilutive.

6. Reconciliation of profit to net cash flow from operations

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 2015 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 2015 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

7 September 2015