4th Mar 2009 07:00
HYDRO INTERNATIONAL plc
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008
Hydro International plc ('Hydro' or 'the Group'), the provider of innovative products for the control and treatment of water, is pleased to announce its preliminary results for the year ended 31 December 2008.
KEY INDICATORS
|
Year ended 31 December 2008 |
Year ended 31 December 2007 |
||
|
Statutory: |
|||
|
Revenue |
£30.0m |
£26.0m |
|
|
Operating profit |
£2.8m |
£2.4m |
|
|
Profit before tax |
£2.7m |
£2.5m |
|
|
Earnings per share |
12.27p |
12.47p |
|
|
Cash and cash equivalents |
£5.8m |
£4.8m |
|
|
Non-Statutory: |
|||
|
Adjusted operating profit* |
£3.2m |
£2.3m |
|
|
Adjusted earnings per share** |
13.98p |
11.97p |
|
|
Closing order book |
£8.8m |
£7.0m |
*excluding exceptional other operating income, amortisation of acquisition related intangible assets.
**excluding exceptional other operating income, amortisation of acquisition related intangible assets and related corporation tax effect.
For further information, please contact:
Hydro International plc Tel: +44 (0) 1275 878371
Roger Lockwood, Chairman
Steve Hides, Chief Executive Officer
Tony Hollox, Group Finance Director
KBC Peel Hunt Tel: +44 (0) 20 7418 8900
Julian Blunt
4 March 2009 CHAIRMAN'S STATEMENT
Highlights
Revenue increased 16% to £30.0m
Operating profit (excluding exceptional items and amortisation of acquired intangible assets*) increased 41% to £3.2m
Closing order book up 25% to £8.8m
The acquisition of Eutek Systems, Inc. in May 2008 strengthened our presence in the US Wastewater market.
*Exceptional items in 2007 included exceptional other operating income from licence agreements
I am pleased to report that we developed well throughout 2008, and continued to make progress in the face of challenging trading environments in our core markets.
The successful acquisition and integration of Eutek Systems, Inc. significantly strengthened our US Wastewater market presence, and improved the geographic and sector spread of our activities.
2008 was a demanding year with order levels affected by the global contraction in economic activity, notably in the construction sector.
Despite this pressure total sales revenues (including Eutek) were up 16%, while sales excluding post acquisition sales by Eutek held up relatively well, reducing by just 3% on 2007 levels.
We remain confident that our operating markets contain considerable growth opportunities, as we continue to grow our market share and provide solutions to the challenges of new regulation, though in this environment we clearly recognise that we cannot be immune from wider macro-economic forces.
Acquisition of Eutek Systems
Eutek Systems, based in Portland, Oregon, was our main competitor in the supply of non-powered grit removal technology to the US Wastewater market. In May 2008 we completed the acquisition of 100% of the shares in Eutek Systems, Inc. for an initial cash consideration of $8.5m, with additional consideration of 5% of revenues generated from Eutek products payable for a five year period to 30 April 2013. This additional consideration is capped at $5.0m.
The acquisition was largely funded by debt totalling $7.0m supplemented by cash, and scheduled debt repayment is due to begin in 2009. In view of the general tightening in bank lending, we decided to hold cash balances through 2008 rather than make accelerated debt repayments. We will continue to review this position during 2009 and a review of the financial facilities available to the Group is shown in note 5 to this statement.
Our integration of Eutek Systems, Inc. has progressed well. The Portland, Oregon office is now our US Wastewater business base, and has also been given responsibility for our proprietary grit removal technology. The Eutek business has traded strongly since the acquisition, and future prospects are very encouraging. These prospects include scope for international expansion of Eutek products beyond the US.
Stormwater review
Demand for Stormwater products is typically driven by planning and environmental regulation on new build construction, an area that suffered in 2008, and our Stormwater revenues reduced by 2% to £13.6m (2007: £13.9m). This reflected difficult trading conditions in the second half of the year caused by contraction in the construction sector, particularly in the UK and Ireland.
This relatively small reduction in revenues compares well to other parts of the construction industry. It also reflects in part our diversification between domestic, commercial and publicly- funded construction projects.
The UK Stormwater market
The UK Stormwater market is increasingly competitive. Nonetheless, we remain confident of our market leading position and future prospects, supported by our commitment to innovation and the development of new and improved products.
In the UK, government consultation has continued on the implementation of the EU Water Framework Directive. This Directive concentrates on improvements in the management of stormwater quality, and we are well positioned to offer proven technologies to assist with this problem.
We also play leading roles on the key industry bodies responsible for working with the UK and Irish governments on policy development, and run industry conferences and seminars on stormwater management.
Progress in the US Stormwater market
Our progress in the US Stormwater market continued with both orders and sales up on 2007 levels, helped by the US Dollar gaining against sterling in the second half year.
In the US we continue to focus on the drive for regulatory product approvals and the markets they open up for us. We successfully secured a major approval for our Up-Flo™ Filter product, and expect further sales growth in this area in 2009.
Despite difficult US trading conditions, there is still considerable potential for growth. We aim to take advantage of this by increasing our market share in the stormwater treatment sectors, further extending routes to market, and developing new markets for flow control and storage products.
Wastewater review
A major boost to our US Wastewater business
Our acquisition of Eutek Systems, Inc. in May 2008 gave our US Wastewater business a major boost, contributing to the 36% increase in our Wastewater revenues to £16.4m (2007: £12.1m).
Revenues from our existing US grit removal business also performed ahead of 2007 levels. This included the completion of the large City of Clearwater contract mentioned in our 2007 Annual Report.
The UK situation
The UK situation proved more testing. In 2008's Interim Report we reported that spending patterns of UK water companies slowed in the second quarter of 2008, at a time when activity should have been peaking under the fourth asset management programme. Although order flow improved in the second half year - and was up on the same period in 2007 - levels remained below expectations.
In January 2009 we secured a key £2.7m project to supply a second phase of innovative sludge scraper technology to Thames Water, building on an initial £2.3m contract awarded in 2007.
UK Wastewater business prospects remain strong, despite the project delays of 2008 caused by tightening credit conditions affecting the large water companies.
People
I would like to thank everyone who helped contribute to the success of Hydro International during 2008.
Dividend
The Board is recommending a final dividend of 3.0 pence per share, an increase of 7% over the previous year's final dividend of 2.8 pence per share.
Subject to approval at the Annual General Meeting on 21 May 2009, the dividend will be paid on 1 June 2009 to shareholders on the register on 1 May 2009.
Outlook
2009 promises to be a challenging period. Our major markets are facing the prospect of reduced activity and greater risk and uncertainty. The Board is fully aware that the trading environment will be tough and we recognise that we cannot be immune from wider macro-economic forces. As in previous years, we expect the results for 2009 to be weighted more heavily towards the second half.
It is important to note, however, that the underlying robustness of our business is well founded on an innovative and developing range of products, a diverse spread of market sectors and geographies served, and a strong balance sheet. We remain focused on the implementation of our strategic plan and believe that we are well positioned to deliver growth over the long term.
Roger Lockwood
Chairman
Hydro International plc
Preliminary Results
Group Income Statement (Unaudited)
Year ended 31 December 2008
|
Continuing operations |
2008 £000 |
2007 £000 |
|
Revenue |
30,013 |
25,958 |
|
Cost of sales |
(17,865) |
(16,273) |
|
Gross profit |
12,148 |
9,685 |
|
Administrative expenses |
(9,333) |
(7,411) |
|
Exceptional other operating income |
- |
100 |
|
Operating profit before exceptional other operating income and amortisation of acquired intangibles |
3,208 |
2,274 |
|
Exceptional other operating income |
- |
100 |
|
Amortisation of acquired intangibles |
(393) |
- |
|
Operating profit |
2,815 |
2,374 |
|
Finance (costs)/revenue |
(159) |
174 |
|
Profit before tax |
2,656 |
2,548 |
|
Tax |
(908) |
(784) |
|
Profit for the period from continuing operations |
1,748 |
1,764 |
|
Basic earnings per ordinary share Diluted earnings per ordinary share |
12.27p 12.17p |
12.47p 12.36p |
Hydro International plc
Preliminary Results
Group Statement of Recognised Income and Expense (Unaudited)
Year ended 31 December 2008
|
2008 £000 |
2007 £000 |
|
|
Profit for the financial year Exchange differences on translation of foreign operations |
1,748 527
|
1,764
31 |
|
Total recognised income and expense |
2,275 |
1,795 |
Group Statement of Changes in Equity (Unaudited)
Year ended 31 December 2008
|
2008 £000 |
2007 £000 |
|
|
Opening shareholders' funds |
7,924 |
6,425 |
|
Total recognised gains and losses Dividend Proceeds from issue of new shares Fair value of share options granted |
2,275 (399) 17 15 |
1,795
(325) 26 3 |
|
Net increase in shareholders' funds |
1,908 |
1,499 |
|
Closing shareholders' funds |
9,832 |
7,924 |
Hydro International plc
Preliminary Results
Consolidated Balance Sheet (Unaudited)
|
31 December 2008 |
2008 |
2007 |
|
|
£000 |
£000 |
|
ASSETS |
||
|
Non-current assets |
||
|
Intangible assets - Goodwill |
5,619 |
1,399 |
|
Intangible assets - Other |
2,825 |
226 |
|
Property, plant and equipment |
2,027 |
1,930 |
|
Deferred tax assets |
191 |
73 |
|
Trade receivables |
64 |
163 |
|
10,726 |
3,791 |
|
|
Current assets |
||
|
Inventories |
687 |
794 |
|
Trade receivables |
8,944 |
7,043 |
|
Other receivables |
483 |
218 |
|
Cash and cash equivalents |
5,808 |
4,848 |
|
Derivative financial assets |
24 |
50 |
|
15,946 |
12,953 |
|
|
TOTAL ASSETS |
26,672 |
16,744 |
|
LIABILITIES |
||
|
Current liabilities |
||
|
Trade and other payables |
9,193 |
7,809 |
|
Current tax payable |
593 |
728 |
|
Deferred tax liability |
391 |
26 |
|
Borrowings |
819 |
- |
|
Obligations under finance leases |
- |
4 |
|
10,996 |
8,657 |
|
|
Non-current liabilities |
||
|
Trade and other payables |
991 |
- |
|
Deferred tax liability |
915 |
163 |
|
Borrowings |
3,938 |
- |
|
5,844 |
163 |
|
|
TOTAL LIABILITIES |
16,840 |
8,820 |
|
NET ASSETS |
9,832 |
7,924 |
|
EQUITY |
||
|
Called up share capital |
713 |
710 |
|
Share premium account |
967 |
953 |
|
Foreign currency translation reserve |
492 |
(35) |
|
Retained earnings |
7,660 |
6,296 |
|
TOTAL EQUITY |
9,832 |
7,924 |
Hydro International plc
Preliminary Results
Consolidated Cash Flow Statement (Unaudited)
Year ended 31 December 2008
|
31 December 2008 |
31 December 2007 |
|
|
|
£000 |
£000 |
|
Cash generated from operations |
2,443 |
3,478 |
|
Interest paid |
(260) |
(25) |
|
Corporation tax paid |
(596) |
(450) |
|
Net cash from operating activities |
1,587 |
3,003 |
|
Cash flows from investing activities |
||
|
Purchases of property, plant and equipment |
(320) |
(124) |
|
Proceeds from sale of property, plant and equipment |
13 |
- |
|
Purchases of patents and trademarks |
(59) |
(47) |
|
Purchase of software assets |
(25) |
(49) |
|
Expenditure on product development |
(1) |
(18) |
|
Interest received |
127 |
199 |
|
Cash acquired with subsidiary |
283 |
- |
|
Acquisition of subsidiary |
(3,376) |
- |
|
Net cash used in investing activities |
(3,358) |
(39) |
|
Cash flows from financing activities |
||
|
Proceeds from the issue of shares to shareholders |
17 |
26 |
|
Repayment of borrowings |
(860) |
(465) |
|
Finance lease capital payments |
(4) |
(8) |
|
Dividends paid to shareholders |
(399) |
(325) |
|
New bank loans raised |
3,492 |
- |
|
Net cash generated from financing activities |
2,246 |
(772) |
|
Net increase in cash and bank overdrafts |
475 |
2,192 |
|
Cash and bank overdrafts at the beginning of the period |
4,848 |
2,677 |
|
Exchange gains/(losses)on cash and bank overdrafts |
485 |
(21) |
|
Cash and bank overdrafts at the end of the period |
5,808 |
4,848 |
Reconciliation of profit to net cash flow from operating activities (Unaudited)
Year ended 31 December 2008
|
31 December 2008 |
31 December 2007 |
|
|
£000 |
£000 |
|
|
Profit for the period |
1,748 |
1,764 |
|
Finance costs |
159 |
(174) |
|
Corporation tax expense |
908 |
784 |
|
Share based payment expense |
15 |
- |
|
Depreciation |
326 |
286 |
|
Amortisation of intangibles |
506 |
136 |
|
Decrease/(increase) in inventories |
167 |
(456) |
|
(Increase) in trade and other receivables |
(239) |
(728) |
|
(Decrease)/increase in trade and other payables |
(1,151) |
1,866 |
|
Loss on sale of fixed assets |
4 |
- |
|
Net cash generated from operations |
2,443 |
3,478 |
Notes to the Preliminary Announcement
1. Basis of preparation
The preliminary announcement was approved by the board of directors on 3 March 2009, whilst the financial information included in the preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not contain sufficient information to comply with IFRSs. The company expects to publish full financial statements that comply with IFRSs in March.
2. Earnings per share
Earnings per ordinary share are based on profit on ordinary activities after taxation, divided by a weighted average of 14,244,771 (2007 - 14,150,502) 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 14,359,114 (2007 - 14,269,369).
3. Segment analysis of results
The primary format used for segmental reporting is by business segment as this reflects the internal management structure and reporting of the Group. Segment results, assets and liabilities include only items directly attributable to a segment.
Business segments
The Group comprises the following business segments:
Stormwater
The control of stormwater flows and the removal of trash, oil and sediment from these flows, largely for application in the existing urban environment and for new residential and commercial development.
Water and wastewater treatment
The full range of treatment products for screening, grit removal, primary, secondary and tertiary treatment, for application in the municipal and regulated water industry.
Geographic segments
Hydro International has a worldwide presence in both business segments through its subsidiary offices and through a network of licensees and distributors.
3. Segment analysis of results (continued)
Analysis by business segment
|
31 December 2008 |
31 December 2007 |
|
|
£000 |
£000 |
|
|
Segment revenue |
||
|
Stormwater |
13,580 |
13,883 |
|
Water and wastewater |
16,433 |
12,075 |
|
Consolidated |
30,013 |
25,958 |
|
Segment operating profit (excluding exceptional other operating income and amortisation of acquisition related intangible assets) |
||
|
Stormwater |
1,514 |
1,724 |
|
Water and wastewater |
2,407 |
1,286 |
|
Group costs |
(713) |
(736) |
|
Consolidated |
3,208 |
2,274 |
|
Exceptional other operating income: Water and wastewater |
- |
100 |
|
Amortisation of acquisition related intangible assets: Water and wastewater |
(393) |
- |
|
Net finance (costs)/revenue |
(159) |
174 |
|
Taxation |
(908) |
(784) |
|
Profit after tax |
1,748 |
1,764 |
|
31 December 2008 |
31 December 2007 |
|
|
£000 |
£000 |
|
|
Assets |
|
|
|
Stormwater |
6,138 |
6,446 |
|
Water and wastewater |
17,432 |
7,511 |
|
Group and unallocated |
12,710 |
7,971 |
|
Eliminations |
(9,608) |
(5,184) |
|
Total |
26,672 |
16,744 |
|
Liabilities |
|
|
|
Stormwater |
2,060 |
2,405 |
|
Water and wastewater |
15,868 |
7,477 |
|
Group and unallocated |
8,520 |
4,122 |
|
Eliminations |
(9,608) |
(5,184) |
|
Total |
16,840 |
8,820 |
|
Capital expenditure |
|
|
|
Stormwater |
20 |
14 |
|
Water and wastewater |
54 |
36 |
|
Group and unallocated |
285 |
188 |
|
Total |
359 |
238 |
3. Segment analysis of results (continued)
|
31 December 2008 |
31 December 2007 |
|
|
£000 |
£000 |
|
|
Depreciation and amortisation |
|
|
|
Stormwater |
29 |
50 |
|
Water and wastewater |
440 |
110 |
|
Group and unallocated |
363 |
262 |
|
Total |
832 |
422 |
Items have been classed as unallocated when it is not possible to identify to which segment they should allocated, it was considered this gave a truer representation than allocating the items on a relevant basis.
Analysis by geographical segment
|
31 December 2008 |
31 December 2007 |
|
|
£000 |
£000 |
|
|
Revenue by destination |
|
|
|
UK |
16,988 |
19,027 |
|
Europe |
1,440 |
1,316 |
|
North America |
10,809 |
4,776 |
|
Rest of the world |
776 |
839 |
|
Total |
30,013 |
25,958 |
|
Revenue by origin |
|
|
|
UK |
17,998 |
19,492 |
|
Europe |
990 |
1,027 |
|
North America |
11,025 |
5,439 |
|
Total |
30,013 |
25,958 |
|
Profit/(loss) before tax by origin |
|
|
|
UK |
1,152 |
1,734 |
|
Europe |
88 |
108 |
|
North America |
1,416 |
706 |
|
Total |
2,656 |
2,548 |
|
Net assets by origin |
|
|
|
UK |
7,284 |
6,649 |
|
Europe |
602 |
396 |
|
North America |
1,946 |
879 |
|
Total |
9,832 |
7,924 |
4. Post balance sheet event
Subsequent to the year end the directors have recommended a dividend of 3.0 pence per share to be paid, totalling to £427,000.
5. 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.
Group borrowing facilities comprise a $4m US dollar term loan expiring in May 2013, a $3m US dollar term advance (secured on the Group's freehold properties) expiring in May 2018 and a £1.8m overdraft facility which is repayable on demand and subject to review in May 2009. As at 31 December 2008 the overdraft facility was not in use and the Group maintained £5.8m 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. The Group has remained in compliance with these covenants during 2008. 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. The strengthening of the US dollar against sterling would have caused a technical breach of this covenant had it been measured. The measurement of compliance was waived by the Group's bank at 31 December 2008 and 30 June 2009. The directors have considered the measurement of the covenant that will be required at 31 December 2009 and consider the group has sufficient cash available to make repayments on the loans if required to ensure compliance with this covenant.
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.
After making enquiries, the directors have a reasonable expectation that the Company and the Group have 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.
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 2008 are not yet audited but will be finalised on the basis of the results included in this announcement.
Full audited accounts of Hydro International plc for the twelve months ended 31 December 2008 will be dispatched to shareholders, and made available on the Company's website at www.hydro-international.biz, on 20 April 2009 ahead of the AGM date of 21 May 2009. The AGM will be held at the Company's registered office at Shearwater House, Clevedon Hall Estate, Victoria Road, Clevedon, BS21 7RD. Copies of the Annual Report and Accounts will be available from the registered office from 22 April 2009. The audited accounts will be delivered to the Registrar of Companies following the Annual General Meeting.
Related Shares:
HYD.L