TIDMHYD
RNS Number : 5426Q
Hydro International PLC
01 March 2016
1 March 2016
Embargoed until 07:00
Hydro International plc
("Hydro", the "Company" or the "Group")
Unaudited Final 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
final results for the year ended 31 December 2015.
2015 Highlights
-- Revenue up 18% to GBP37.9m; adjusted profit before tax up 29% to GBP2.41m
-- 40% increase in EPS to 9.52 pence
-- Full year proposed dividend of 3.8 pence per share, up 6% on 2014
-- Order intake in the year increased 21% to GBP42.5m with good
progress being made across the Americas, Europe and AMEA
-- Open order book at year end increased by 34% to GBP18.4m, providing good visibility for 2016
-- Acquisitions of Settled Solids Management in January 2015 and M2 Renewables in December 2015
Ian Griffiths, Chairman of Hydro International plc,
commented:
"Today's strong set of results show that the steps taken over
the past two years to strengthen our core business have positioned
us well to better serve the markets within which we operate. As we
continue to invest in our strategy for the expansion of our
business, we expect to see an acceleration, underpinning our
targets for profitable sustainable growth."
Michael Jennings, Chief Executive of Hydro International plc,
further commented:
"Our strategy is working. In 2015, we delivered strong top and
bottom line growth across the business. With a good improvement in
our open order book across all regions, we expect this to continue
for full year 2016."
2015 Financial Summary
2015 2014 Change
Group revenue GBP37.9m GBP32.2m +18%
Adjusted profit before taxation
* GBP2.41m GBP1.87m +29%
Adjusted operating profit margin
* 6.2% 5.9%
Profit before taxation GBP2.24m GBP1.73m +29%
Adjusted earnings per share
** 10.29p 7.40p +39%
Earnings per share 9.52p 6.80p +40%
Dividend per share (proposed) 3.80p 3.60p +6%
Net cash *** GBP2.3m GBP2.3m -
---------------------------------- --------- --------- -------
* excluding amortisation of acquired intangible assets
** excluding amortisation of acquired intangible assets and the
associated tax effect
*** cash and cash equivalents, less borrowings and obligations under finance lease
For further information please contact:
Hydro International plc Arden Partners plc Brunswick Group
LLP
Tel.+44 (0)1275 878371 Tel. +44 (0)20 7614 Tel. +44 (0)20 7404
5900 5959
Michael Jennings, CEO Steve Douglas Gill Ackers
Tony Hollox, CFO Patrick Caulfield Will Rowberry
Patrick Rutherford
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
Chairman's Statement
In my first year as Chairman of Hydro International I am
delighted with the rate of progress that we have made. The revamped
Board and Executive team are now in place and the implementation of
our strategy is well underway. The steps taken over the past two
years to strengthen our core business have positioned us well to
better serve the markets within which we operate. As we continue to
invest, we expect to see growth accelerate, underpinning our
targets for profitable sustainable growth.
Results
Revenues grew 18% in the year to GBP37.9m, adjusted profit
before tax increased 29% to GBP2.41m, and earnings per share rose
40% to 9.52 pence. Our net cash position remains solid at GBP2.3m,
unchanged across the year having funded the acquisitions of Settled
Solids Management and M2 Renewables from organic cash flow.
Dividend
The Board is proposing a 6% increase in the dividend to 3.8p per
share. This gives dividend cover of 2.51 times (2014: 1.88 times).
Our policy is to grow dividends progressively in line with
earnings, and the proposed increase in dividend represents the
first increase since 2011. During this period we have successfully
maintained the dividend while investing in our strategy for
profitable sustainable growth.
Governance
The Board and I are committed to promoting the highest standards
of corporate governance and ensuring effective communication with
shareholders. This year's Annual Report has been revised and
re-designed to provide a clear a picture of our business model and
strategic plan.
We have recently conducted a detailed internal review and
assessment of Board effectiveness. This will form the basis from
which we will look to develop Board performance in the spirit of
driving continuous improvement and best practice in everything we
do.
Strategy
Over the last year I have visited the Company's operations and
people around the world. It is clear to me that our strategy is not
only the right one but is also being successfully implemented in
all of our regions. As we become a global company this kind of
organisational alignment is critical. Our business plans are
detailed and focused, ensuring that we have a clear route to
achieving our strategic goals. These focus on broadening the scope
of our supply into a wider services offering, enhancing our product
coverage, penetrating new market segments and extending our
geographical reach.
Execution of our plans for organic growth has required
investment, and this will continue. However, as we progress with
our strategy we expect to see the growth in the business yield a
progressive increase in adjusted operating profit margins.
Alongside our core strategy, we intend to accelerate our strategic
development through M&A activity. The recent acquisitions of M2
Renewables, in December 2015, and Hydro-Logic, announced yesterday,
underline these ambitions, and signal our intent to pursue more
strategic infill acquisitions in the coming years.
Board
It was my pleasure to be elected as Chairman at the 2015 Annual
General Meeting. In March, Huw Davies joined as a Non-Executive
Director and Chairs the Audit Committee. Huw brings a wealth of
Board and relevant industry experience with him.
People
We have outstanding employees and, on behalf of the Board, I
would like to thank them all for their ongoing support and
commitment to Hydro International and our shared strategic vision.
Our success is built on a foundation of successful harnessing and
deployment of their experience and expertise across the entire
company, globally. In short, One Hydro.
Outlook
In the near term our results will remain strongly biased to the
second half of the year. Across the full year, we are confident
that 2016 will be another successful chapter in our continuing
growth story.
Ian Griffiths
Chairman
29 February 2016
Chief Executive's Review
We have continued to implement our strategic plans to create a
global business capable of delivering profitable sustainable
growth. The investment to support these plans has been funded by
our improving financial performance and is delivering results. Our
strategy is working.
Performance
The previously reported challenges with order intake during the
first half of the year eased substantially during the second half,
helping us to deliver a full-year order intake of GBP42.5m up 21%
on 2014. Whilst the hiatus in orders during 2015 is expected to
hold back revenues for the first half of 2016, we are beginning to
see the growth drive we have made in the last two years pay-off.
This was illustrated by all three regions each increasing their
yearly order intake by double-digit percentages in 2015. As a
result, momentum is building, and our open order book at year end
is up by 34% on 2014, standing at GBP18.4m.
Revenue for the full year increased by 18% on 2014 to GBP37.9m.
Achieving our goal of long-term growth requires both increased
scale and breadth and will result in a broader revenue base across
our activities. The measure of our top line performance is not just
share gains in existing markets but also growth via new products
and services, market segments and geographies; all providing
ever-increasing growth opportunities.
We continued to focus on our range of higher-margin proprietary
products and services, which incorporate our valuable expertise and
intellectual property assets. This led to improved average gross
margins of 46.4% (2014: 45.3%). The revenue growth, combined with
these margins, generated an increase in gross profit of 21% on 2014
to GBP17.6m. Adjusted profit before taxation increased by 29% to
GBP2.41m even after funding for our programme of investments.
Overall, performance has stepped-up in 2015 and we are positioned
to accelerate our progress in the coming year.
Investment
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In focusing on performance, we enable ourselves to build a
stronger business model through our continued investment programme,
the costs of which are mostly reflected in administrative expenses,
which increased by GBP2.6m in the year. The major areas of
investment included the following significant elements during
2015:
-- Extending our Product range through new introductions,
including Hydro-Brake(R) Agile and Hydro-Brake(R) Isolator,
broadening our range of market-leading flow controls into a wider
number of application areas. Similarly our grit removal range has
been augmented by the Hydro MIV, while first orders have been
secured in the year for Hydro DryScreen(TM), which addresses the
customers' need to minimise the leaching of organic matter from
captured stormwater pollutants.
-- Expanding Services across our business, particularly
increased field resources focused on supporting wastewater
treatment equipment spares and servicing, sand and grit removal
(via the Settled Solids Management acquisition), maintenance of
stormwater treatment devices, and wider water management
services.
-- Targeting new market Segments such as industrial through
additional sales resources dedicated to building new application
opportunities for our existing technology.
-- Expanding access to new Geographies with additional sales
resources in territory to successfully build our presence and serve
new customers.
-- Enhancing our core enabling functions with new resources in
key roles to develop our capability across marketing and supply
chain management to IT, systems and finance.
All these investments strengthen our capability and capacity to
successfully deliver our long-term growth plans. We see
acquisitions as a means to accelerate the deployment of our
strategy and have worked to build up a clear understanding of the
part they could play in our wider development as a business. Over
the course of 2015 we made two acquisitions. In January 2015 we
acquired the operating assets and brand of Settled Solids
Management, which expanded our services offering in the wastewater
grit removal sector. We will be looking to replicate the services
offered by Settled Solids Management from a starting base in
Florida, U.S. across a broader geography during 2016. In December
2015 we acquired the intellectual property assets and brand of M2
Renewables. Importantly, this added the Hydro MicroScreen(TM)
rotating belt screen to our portfolio, enabling us to address new
process water and wastewater management applications in industrial
and municipal markets, accelerating diversification beyond our core
markets. Both of these acquisitions are expected to provide
incremental growth during 2016.
We have also been pleased to announce our intention to acquire
Hydro-Logic Limited and the business of Hydro-Logic Services LLP.
These acquisitions, which should complete in early March, provide
us with new water monitoring technology and a range of associated
new water management services.
Our progress was very good in 2015. We remain committed to
delivering improving financial performance whilst being fully
focused to stay on track with our ambitious long-term growth
plans.
Michael Jennings
Chief Executive
29 February 2016
Region Reviews
Americas
2015 2014 Change
Revenue GBP21.0m GBP18.0m +17%
Profit * GBP4.30m GBP4.04m +6%
---------- ---------- ---------- -------
* profit excluding amortisation of acquired intangible assets
and central Group costs
The Americas region delivered another strong year of growth in
2015. Order intake grew by 12.5%, revenue grew by 17% and adjusted
operating profit grew by 6%. The reported challenges in order
intake during the first half of the year continued through the
third quarter before easing substantially in the last quarter, when
we finished strongly to secure 41% of the full-year order intake.
While this provides us with another strong open order book of
GBP10.9m (2014: GBP10.3m) to carry into 2016, the timing of orders,
coupled with the traditionally low levels of construction activity
in the first quarter, will impact the recognition of revenue, which
is expected to be strongly biased to the second half of the
year.
Acquisitions made a modest contribution to the region during the
year following the acquisition of the brand and operating assets of
Settled Solids Management, Inc. in January 2015, and the
acquisition, late in the year, of the intellectual property assets
of M2 Renewables, Inc., including the M2R MicroScreen rotating belt
screen filtration technology. Repositioned as the Hydro
MicroScreen(TM), the technology expands our water treatment
capability, broadening the options available to customers across
our screening to separation to filtration platforms. It also
accelerates the development of our business and supports our growth
strategy by enabling us to access new industrial market segments
and address new challenges in our established municipal markets,
building on a number of important initial projects with major
customers in the United States. Both acquisitions are expected to
make a growing contribution over the coming financial periods.
We continue to pursue geographic expansion, and during the year
additional sales management resources were deployed to extend the
promotion of our stormwater treatment products into
construction-related end markets in California and the Pacific
Northwest territories. In early 2016 we also appointed sales
management personnel into Canada.
On a broader level, growth in this market segment is dependent
on the strength of distribution sales channels and the achievement
of competitive product approval certification, and further progress
was made during the year on both fronts. We appointed a number of
new regional distribution partners to grow our existing strong
network of partners across North America with both national and
regional reach.
We secured important product certifications for our stormwater
treatment products, including the enhanced First Defense(R)
hydrodynamic separator, which has recently achieved a
market-leading rating for stormwater treatment volumes with the New
Jersey Department of Environmental Protection. We expect this to
build on the strong levels of sales that we have seen for this
product following its introduction into the region in late 2014. We
have also launched a project to secure the important Washington
State Department of Ecology approval for the Up-Flo(R) Filter
stormwater treatment system during 2016, which will enable us to
access additional markets for stormwater filtration in a number of
western US states.
In 2016 we will broaden the business by pursuing opportunities
for our products in industrial end-market applications. We
recruited dedicated sales resources to focus on industrial sectors,
and this investment enabled us to secure a number of early success
stories, including a major order for heavy metals removal from
contaminated effluent at an electronics manufacturer, and two
orders for grit removal in dairy farms. The recent addition of the
Hydro MicroScreen(TM) to our portfolio further extends the range of
products with clear industrial end-market application.
During the year we continued our investment in our service
capability. In addition to the acquisition of Settled Solids
Management Inc., which provides sand and grit removal services for
wastewater treatment plants, we are now marketing an expanded range
of support services, which includes maintenance services in support
of our stormwater treatment products that will be delivered
initially in the North East region of the US in conjunction with a
regional maintenance partner. Services currently comprise a small
but rapidly growing part of our Americas business, representing 4%
of orders received during the year, but experiencing 93% order
growth over the prior year.
The primary new product introduction during the year was the
Hydro DryScreen(TM), a product that captures leaf litter and other
debris from stormwater flows. We developed this product in response
to our municipal customers' requirement to minimise the leaching of
organic matter from captured stormwater pollutants. We received our
first orders and carried out our first installations during the
year.
The level of investment in the resources necessary to build our
capability to generate growth during the year resulted in a
reduction in adjusted operating profit margin from 22.5% to
20.5%.
Our enquiry and bid levels for larger wastewater treatment
projects remains strong and we are optimistic that construction
forecasts for the US economy suggest continued growth over the
medium term. Beyond North America we also see opportunities to
expand our presence in Mexico with a view to establishing a
presence and capturing market share in Central and South America in
the medium term. Against that backdrop, and with our expanding
range of market-leading products supported by an increasing service
capability, we see encouraging scope for growth in the
Americas.
Europe
2015 2014 Change
Revenue GBP14.2m GBP12.2m +16%
Profit * GBP0.99m GBP1.01m -2%
---------- ---------- ---------- -------
The Europe region saw encouraging growth in both order intake
and revenue, which grew by 21.9% and 16% respectively over the
prior year. Adjusted operating profit levels were marginally down
on the prior year due to our programme of investments aimed at
building our ability to drive future growth. In the Europe region,
these investments were primarily targeted at further developing our
service capability and expanding our sales teams, including the
recruitment of dedicated resources to target opportunities for our
products and services in new industrial end markets beyond our
strong core water utility and construction markets.
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Expenditure by the UK water utility companies is influenced by
five-year asset management programmes (AMPs) agreed between the
companies and their economic regulator OFWAT, and our investment in
services is intended both to smooth the effects of this cyclical
budget process, and to help our water utility customers to make
efficiency savings independent of the cycle. The fifth of these
programmes, AMP5, concluded at the end of March 2015, giving rise
to the start of AMP6. As reported in the Interim Report, the change
from AMP5 to AMP6 created a hiatus in order intake for major
wastewater treatment projects, with the timing of opportunities
moving out. Order intake improved markedly in the second half of
the year, providing us with a substantially stronger open order
book of GBP6.4m (2014: GBP3.4m) when compared to the prior
year.
In addition to providing the economic drivers for new major
project expenditure, AMP6 heralded an expected focus by the UK
water companies on service and maintenance as a means of enhancing
asset life and reducing overall costs - a perceptual shift from the
separate focus on operating and capital expenditure (OPEX and
CAPEX) to viewing investment as total expenditure (TOTEX). During
the year we expanded our wastewater service team to meet the
increased demand for spares and services from the utility
companies, which saw after-market revenues from this sector
increase by 44% over the prior year.
UK construction market activity, which is the primary
macro-level driver for sales of our surface water management
products in this country, remained robust during the year, with
core house building and infrastructure sectors both showing
continued growth. The specific requirements that turn construction
activity into opportunities come from a combination of legislation
and best practise in urban drainage design. While the expected
National Standards for Sustainable Drainage Systems (SuDS) failed
to materialise in the early part of the year, the industry moved to
fill the void through the publication, in November 2015, of CIRIA's
revised SuDS Manual C753. We were selected to participate in the
project steering group, and - importantly for us - proprietary
treatment systems that were previously considered as pre-treatment
only are now presented as viable treatment components in their own
right. We expect this to further reinforce demand in future
years.
Our primary sales channel to access construction-related end
markets is via a network of partner merchant distributors. Over
recent years we have broadened our partners to include the full
breadth of the merchant sector, including national, regional and
local companies. We maintained this activity during the year, and
supplemented it with a direct approach to 'key account' agreements
with contractor customers. The combination of positive economic
conditions and the continued development of our product ranges and
channels to market, helped deliver a 21% increase over the prior
year in revenue derived from surface water management products.
New product activity during the year centred on the further
broadening of our market-leading Hydro-Brake(R) flow control
product range. The new Hydro-Brake(R) Agile extends our existing
range by adding a float-activated flow control device that
maintains a constant discharge rate without the need for external
energy sources. This enables us to address sites where there are
considerable constraints on the available space for on-site
attenuation and stringent discharge consents. The Hydro-Brake(R)
Isolator pollution containment valve, which sits alongside our
water pollution management service, offers a watertight seal and
complete lockdown, enabling businesses to prevent financial and
reputational damage by containing spills, polluted flood and
fire-fighting water.
Another key product focus during the year was the introduction
into the UK of our Advanced Grit Management(TM) range of products,
which have been highly successful in the Americas. A pilot
Headcell(R) grit removal system was installed at a trial site
operated by Anglian Water, enabling them to undertake full trials
of the technology. The trials were successful and we expect that
this will provide a platform for further progress during 2016. In
addition to the Anglian Water trial we have undertaken wastewater
grit sampling in conjunction with four other UK water companies to
demonstrate how wastewater grit creates operational challenges,
increases costs and reduces wastewater treatment plant asset
lifetimes. Our Advanced Grit Management(TM) products address these
issues.
Looking to 2016, UK new construction markets are expected to
grow further and the AMP6 cycle moves into its second year, which
has traditionally been a busier period for water utility
procurement. Additionally, we expect to progress with plans to
explore opportunities for our products in new geographies within
Europe, and have recently appointed initial sales resources into
the French market to start that process. We will further develop
our service and maintenance operations, both with the UK water
utility companies under AMP6, and to realise new opportunities
associated with our surface water management products.
Asia, Middle East and Africa (AMEA)
2015 2014 Change
Revenue GBP2.6m GBP2.0m +30%
Profit * GBP0.92m GBP0.26m +254%
---------- ---------- ---------- -------
The AMEA region successfully overcame the headwinds following
political difficulties that effectively closed the Russian market
in 2014 to generate a solid year of growth in 2015. Order intake
grew by 109.6% and revenue grew by 30.0%. Adjusted operating profit
more than trebled, reflecting both volume growth and a shift in
product mix towards sales of our higher-margin proprietary
products. The progress made in the year is also reflected in our
open order book, which grew to GBP1.0m (2014: GBPNil) by the
year-end.
In the AMEA region we are applying our growth strategy by
progressively building representation for our proprietary products
in a wide range of high-potential geographies beyond our Americas
and Europe regions, using distribution partners supported by
business development resources located in three primary
territories: the Middle East, China and the wider Asia Pacific
region. Additional emerging geographies, including Russia, India
and South Africa, are also serviced, currently from a UK base. In
2014 we completed our initial placement of resources into each
primary territory, and each business development manager is
responsible for developing and maintaining the network of
distribution partners in their area. During 2015 we generated
sufficient momentum in the Middle East to support the recruitment
of an additional sales support engineer, located in Dubai. We also
expanded the pre-order engineering team in the UK.
Following the full initial resourcing of the AMEA strategy
during 2014, we were pleased to secure orders, and realise revenue,
in each of the primary AMEA territories during the year. The nature
of this diverse region means that we access a wide range of
differing economies, and we expect the growth in business generated
from different markets and economies to provide future resilience
and improved sustainability in results.
The largest trading territory during the year was the Middle
East, which accounted for 76% of revenue. Having invested the time
and money to build a strong technical awareness of our solutions,
2015 delivered a payback in the form of major project wins. Our
world-leading flow control solutions for large-scale drop-shafts
have proved very successful in Qatar to support the significant and
challenging programmes of infrastructure investment underway, and
we've also seen success in Dubai with projects focused on the
control and treatment of stormwater run-off, integral to numerous
construction developments.
In China, we have continued to focus on building our presence in
conjunction with our distribution partners across the country. We
have supported this more directly with a small-scale Grit King(R)
grit removal system demonstration unit that has been piloted in
numerous wastewater treatment plants, successfully illustrating the
improved energy efficiency savings and extended asset lifetimes
that our core grit removal offer delivers.
Proving the technological advantages and operational benefits of
our products is critical to our long-term success in new
geographies. We achieved this decisively with our first Storm
King(R) vortex separator project win, which we hope will establish
a new industry standard for China in dealing with the challenges
faced by combined sewer overflows. Looking ahead, this aligns
perfectly with China's stated new policy intentions around their
Sponge Cities programme.
Building our territorial coverage to serve such a large and
diverse region as AMEA is challenging, but in becoming a truly
global player we will overcome and learn from these challenges. The
size of the total addressable market justifies our presence, and
our capabilities enable us to address the macro-level drivers in
the individual countries precisely as well as they do in our
established markets in the UK and the US. We are committed to our
objective to make AMEA a truly material part of the Group. 2015 has
shown that we are making very good progress, and this will continue
in 2016.
Financial Review
Revenue and operating profit
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During the year the Group achieved growth in order intake,
revenue and gross profit, all of which increased by a double-digit
percentage over the prior year. Adjusted operating profit increased
to GBP2.33m, a 23% increase over the prior year. The rate of growth
of adjusted operating profit margin, which increased to 6.2% from
5.9% in the prior year, was constrained during the year by the
Group's programme of planned strategic investments. These
investments included additional investment in expanding the Group's
service lines of business, greater sales resources to target
expanded geographies and wider end-market segments, including
industrial markets, and the recruitment of specialist personnel in
key roles to enhance the Group's capability, including in the areas
of marketing, supply chain management, IT and systems and finance.
Due to our asset-light business model these investments are
reflected in a 20% increase in administrative expenses.
Operating profits for business segments are disclosed in the
Operating Review, and in note 3, excluding the amortisation of
acquired intangible assets and the recovery of central Group costs
through royalty and other management charges. This is the measure
used by the Group for management purposes and presents a consistent
measure of segment performance.
Currency
The impact of currency is both in the form of translation and
transaction differences. Given our significant operational presence
in the Americas, the currency with the greatest translational
impact on our results is the US Dollar, which strengthened by 7.3%
to an average rate of USD 1.5256 during 2015. We also incur a level
of central Group costs in the US, where we maintain a hydraulic
laboratory and team of product development engineers. The expense
of this team creates an exposure to transactional exchange
differences. The net of these translational and transactional
exposures was a gain of GBP321,000 to adjusted profit before tax in
the year.
We also trade in currencies outside the base currency of our
operating divisions, most notably in the Europe region where our
supply chain includes a level of purchases in both Euros and
Swedish Kronor. For specific projects which include a significant
requirement for either currency, we enter into forward purchasing
arrangements to help underwrite the profitability on those
contracts. We do not enter into generalised or speculative
purchasing or selling of currency. Losses totalling GBP28,000
(2014: GBP90,000 gain) arose during the year on assets and
liabilities denominated in currency.
Acquisitions and amortisation of acquired intangible assets
The Group made two asset-based acquisitions in the year, the
details of which are disclosed in note 7. The total spend on
acquisitions in the year was GBP969,000, with a further estimated
GBP1,231,000 in deferred contingent consideration in relation to
the acquisition of intellectual property and technology assets of
M2 Renewables, Inc. This deferred contingent consideration is
calculated as 10% of the sales value incorporating the acquired
intellectual property over the five-year period ending 23 December
2020, and is capped at a maximum of $10.0m.
No amortisation of acquired intangible assets from M2 Renewables
was charged during the year. The rise in the amortisation charge
related to acquired intangible assets to GBP0.17m (2014: GBP0.14m)
was due to the strength of the US Dollar and the acquisition of the
brand and operating assets of Settled Solids Management in the
early part of the year. The majority of the charge for amortisation
of acquired intangible assets during the year relates to developed
technology and trademarks recognised in connection with the
acquisition of Eutek Systems, Inc. (Eutek) in 2008. These
intangible assets are being amortised over a period of 15 years,
subject to any impairment.
Net finance income
Net finance income for the year was GBP0.08m (2014: GBP0.03m
cost). This figure includes interest on bank loans taken in 2008 to
assist with acquisition funding, interest income received on
short-term deposits, and the gain (or cost) associated with
derivative financial instruments. An analysis of the net finance
income is presented in note 4.
Taxation
The Group's effective tax rate reduced from 43.2% to 38.8%. The
difference between the effective rate of tax and the blended UK
statutory rate of 20.25% (2014: 21.49%) 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. As reported in 2014, the high effective tax
rate reflects the combination of significant taxable profits in the
US, at a relatively high tax rate, and a marginal loss in the UK,
which have given rise to an exceptional effective rate in excess of
our highest rate of tax payable. An analysis of the tax charge for
the year is shown in note 5.
In the short term the effective tax rate is expected to remain
relatively high, reflecting the continuing bias in profits to the
US. Future profitable growth of the Group's UK-based divisions,
which includes our International AMEA operations, is expected to
normalise the effective tax rate over the medium term, but, due to
the territorial profile of the Group's activities, we would expect
the overall effective tax rate to remain above the UK statutory
rate. Our approach to tax continues to be to operate on the basis
of full disclosure and co-operation with all tax authorities and,
where possible, to mitigate the burden of tax within the local
legislation.
Earnings per share
Increased operating profitability and a reduced effective tax
rate have resulted in a 39% increase in our adjusted earnings per
share to 10.29 pence per share (2014: 7.40 pence per share).
Earnings per share, which includes the impact of amortisation of
acquired intangibles, increased by 40% to 9.52 pence per share
(2014: 6.80 pence per share).
The calculations of earnings per share, including diluted
figures reflecting the impact of potential ordinary shares from
unvested share option schemes, are presented in note 6.
Dividends
The Board is proposing a 6% increase in the dividend to 3.8p per
share. This gives dividend cover of 2.51 times (2014: 1.88 times).
Our dividend policy is to grow dividends progressively in line with
earnings. The proposed increase in dividend represents the first
increase since 2011, prior to the reported decline in the Group's
profitability in 2012. Over the intervening period, the Group has
successfully maintained the dividend during the implementation of a
strategy for sustainable growth and a return to increased
profitability.
Cash flow and working capital
Net cash balances (cash and cash equivalents, less borrowing)
finished the year at GBP2.3m, unchanged on the position at the
start of the year. The largest categories of cash expenditure were,
GBP0.97m on acquisitions, GBP0.95m of tax paid and GBP0.52m of
dividends paid. A further GBP0.30m was spent on tangible asset
purchases and GBP0.7m on intangible asset acquisitions, of which
GBP0.4m related to capitalised software assets, including the
continuation of the implementation of new Group-wide business
systems. This investment was funded by cash generated from
operations backed up by a short-term extension in the Group's
overdraft facility from GBP0.5m to GBP1.5m.
At 31 December 2015, our other primary borrowing facilities
comprised:
-- $0.8m 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
-- GBP3.0m facility for the provision of bonds, guarantees
and/or indemnities. This facility is renewed on an annual basis
with the next review to be undertaken by the Group's bank during
May 2016.
The term advance is subject to the following financial
covenants:
-- a maximum ratio of net debt to EBITDA of 2.0 times;
-- a minimum interest cover of 3.0 times; and
-- the amount borrowed shall not exceed 80% of the value of the
properties against which the advance is secured.
As in previous periods the principal impact on cash generation
has been the timing of receipts and payments on the larger
contracts typically seen in the Group's Wastewater divisions. In
general terms, such contracts typically have commercial terms that
can materially affect the measure of working capital at a given
point in time and require a higher level of working capital than
the typically shorter turnaround Stormwater sales.
Capital payments on a loan taken out to finance the 2008
acquisition of Eutek consumed GBP0.2m (2014: GBP0.2m) of cash
reserves during the year.
The Directors have assessed the future funding requirements of
the Group and compared them with the level of available borrowing
facilities and are satisfied that the Group has adequate resources
for the foreseeable future.
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
disclosed in the 2014 Annual Report on pages 74 to 77.
Tony Hollox
Chief Financial Officer
29 February 2016
Group Income Statement unaudited
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Year ended 31 December 2015
Year ended Year ended
31 December 2015 31 December
2014
Continuing operations GBP000 GBP000
--------------------------------------- ------------------ -------------
Revenue 37,860 32,163
Cost of sales (20,294) (17,589)
Gross profit 17,566 14,574
Administrative expenses (15,401) (12,821)
--------------------------------------- ------------------ -------------
Operating profit before amortisation
of acquired intangibles 2,331 1,894
Amortisation of acquired intangibles (166) (141)
--------------------------------------- ------------------ -------------
Operating profit 2,165 1,753
Finance income/(costs) 77 (28)
Profit before tax 2,242 1,725
Tax (869) (746)
Profit for the period from continuing
operations 1,373 979
Basic earnings per ordinary 9.52p 6.80p
share 9.08p 6.59p
Diluted earnings per ordinary
share
--------------------------------------- ------------------ -------------
Consolidated Statement of Comprehensive Income unaudited
Year ended 31 December 2015
Year ended Year ended
31 December 2015 31 December
GBP000 2014
GBP000
Profit for the period 1,373 979
Exchange differences on translation
of foreign operations 448 397
------------------------------------- ------------------ -------------
Total comprehensive income for
the period 1,821 1,376
------------------------------------- ------------------ -------------
Consolidated Balance Sheet unaudited
31 December 2015
31 December 31 December 31 December
2015 2014 2013
GBP000 GBP000 GBP000
------------------------------- ------------ ------------ ------------
ASSETS
Non-current assets
Intangible assets - Goodwill 5,250 4,911 4,673
Intangible assets - Other 4,621 2,278 1,962
Property, plant and equipment 1,850 1,714 1,529
Deferred tax assets 146 260 122
Trade receivables 405 602 1,379
------------------------------- ------------ ------------ ------------
12,272 9,765 9,665
Current assets
Inventories 1,686 779 808
Trade and other receivables 12,726 13,602 10,322
Current tax asset 57 132 389
Cash and cash equivalents 2,876 2,991 4,249
Derivative financial
assets 48 - -
------------------------------- ------------ ------------ ------------
17,393 17,504 15,768
TOTAL ASSETS 29,665 27,269 25,433
------------------------------- ------------ ------------ ------------
LIABILITIES
Current liabilities
Trade and other payables 10,968 9,773 8,977
Current tax payable 19 102 -
Borrowings 212 201 189
Obligations under finance
lease 24 - -
Derivative financial
liabilities - 24 -
11,223 10,100 9,166
Non-current liabilities
Deferred tax liability 1,576 1,672 1,530
Borrowings 319 503 662
Obligations under finance
lease 68 - -
------------------------------- ------------ ------------ ------------
1,963 2,175 2,192
TOTAL LIABILITIES 13,186 12,275 11,358
------------------------------- ------------ ------------ ------------
NET ASSETS 16,479 14,994 14,075
------------------------------- ------------ ------------ ------------
EQUITY
Called up share capital 721 721 720
Share premium account 1,073 1,073 1,035
Foreign currency translation
reserve 850 402 5
Retained earnings 13,835 12,798 12,315
TOTAL EQUITY 16,479 14,994 14,075
------------------------------- ------------ ------------ ------------
Consolidated Statement of Changes in Equity unaudited
Year ended 31 December 2014
Foreign
Issued currency Retained
capital Share premium reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
1 January 2013 718 1,014 205 11,975 13,912
----------------------- --------------- ------------------ -------------------- ---------------- ----------
Currency translation
difference - - (200) - (200)
Profit for the period - - - 762 762
----------------------- --------------- ------------------ -------------------- ---------------- ----------
Comprehensive income - - (200) 762 562
Equity shares issued 2 21 - - 23
Share-based payments - - - 95 95
Dividends paid - - - (517) (517)
----------------------- --------------- ------------------ -------------------- ---------------- ----------
31 December 2013 720 1,035 5 12,315 14,075
----------------------- --------------- ------------------ -------------------- ---------------- ----------
Currency translation
difference - - 397 - 397
Profit for the period - - - 979 979
----------------------- --------------- ------------------ -------------------- ---------------- ----------
Comprehensive income - - 397 979 1,376
Equity shares issued 1 38 - - 39
Share-based payments - - - 22 22
Dividends paid - - - (518) (518)
----------------------- --------------- ------------------ -------------------- ---------------- ----------
31 December 2014 721 1,073 402 12,798 14,994
----------------------- --------------- ------------------ -------------------- ---------------- ----------
Currency translation
difference - - 448 - 448
Profit for the period - - - 1,373 1,373
----------------------- --------------- ------------------ -------------------- ---------------- ----------
Comprehensive income - - 448 1,373 1,821
Share-based payments - - - 183 183
Dividends paid - - - (519) (519)
----------------------- --------------- ------------------ -------------------- ---------------- ----------
31 December 2015 721 1,073 850 13,835 16,479
----------------------- --------------- ------------------ -------------------- ---------------- ----------
Consolidated Cash Flow Statement unaudited
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Year ended 31 December 2015
Year ended Year ended
31 December 31 December
2015 2014
GBP000 GBP000
--------------------------------------- ------------- -------------
Cash inflow generated from operations 3,380 897
Interest paid (3) (16)
Corporation tax paid (945) (435)
Net cash from operating activities 2,432 446
--------------------------------------- ------------- -------------
Cash flows from investing activities
Purchases of property, plant and
equipment (280) (441)
Expenditure on patents and trademarks (121) (113)
Expenditure on software assets (398) (392)
Capitalised product development
expenditure (197) (132)
Acquisitions (see note 7) (969) -
Interest received 8 12
Net cash used in investing activities (1,957) (1,066)
--------------------------------------- ------------- -------------
Cash flows from financing activities
Proceeds from the issue of shares
to shareholders - 39
New finance lease raised 98 -
Repayment of finance lease (12) -
Repayment of borrowings (205) (190)
Dividends paid to shareholders (519) (518)
Net cash expended from financing
activities (638) (669)
--------------------------------------- ------------- -------------
Net decrease in cash and cash
equivalents (163) (1,289)
Cash and cash equivalents at the
beginning of the period 2,991 4,249
Exchange gains on cash and cash
equivalents 48 31
Cash and cash equivalents at the
end of the period 2,876 2,991
--------------------------------------- ------------- -------------
Reconciliation of profit to net cash flow from operating
activities unaudited
Year ended 31 December 2015
Year ended Year ended
31 December 31 December
2015 2014
GBP000 GBP000
--------------------------------------- ------------- -------------
Profit for the period 1,373 979
Net finance (income)/costs (77) 28
Corporation tax expense 869 746
Share-based payment expense 183 22
Depreciation 314 238
Amortisation of intangibles 352 396
(Increase)/decrease in inventories (907) 29
Decrease/(increase) in trade and
other receivables 1,212 (2,384)
Increase in trade and other payables 47 812
Loss on sale of fixed assets 14 31
Cash inflow generated from operations 3,380 897
--------------------------------------- ------------- -------------
Notes to the preliminary announcement unaudited
Year ended 31 December 2015
1. Basis of preparation and status of information
The preliminary announcement was approved by the Board of
Directors on 29 February 2016. Whilst the financial information
included in the preliminary announcement has been computed in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the EU, this announcement does not constitute the
Group's statutory accounts for the years ended 31 December 2015,
2014 or 2013, and does not contain sufficient information to comply
with IFRSs.
The financial information for the years ended 31 December 2014
and 31 December 2013 is derived from the statutory accounts for
those years which have been delivered to the Registrar of
Companies. The auditor 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) of the Companies Act 2006 or
equivalent preceding legislation.
The audit of the statutory accounts for the year ended 31
December 2015 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 12
months ended 31 December 2015 will be dispatched to shareholders,
and made available on the Group's website at www.hydro-int.com, on
24 March 2016 ahead of the AGM date of 19 May 2016. 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 24 March 2016. The
audited accounts will be delivered to the Registrar of Companies
following the AGM.
2. Post balance sheet event
Subsequent to the year-end the Directors have recommended a
dividend of 3.8 pence per share to be paid, totalling GBP548,000.
The dividend is subject to approval by the shareholders and will be
paid on 6 June 2016 to shareholders on the register on 13 May
2016.
The Group recently announced the intention to acquire 100% of
the shares of Hydro-Logic Limited and the business of Hydro-Logic
Services LLP. Conditional contracts were signed on 26(th) February
2016, with completion expected on 8(th) March subject to
satisfactory conclusion of outstanding legal process.
3. 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:
Americas: Wastewater and Stormwater
Europe: Wastewater and Stormwater
Asia, Middle East and Africa (AMEA)
Information regarding the Group's operating segments is reported
below.
3. Segmental analysis of results (continued)
Year ended Year ended
31 December 31 December
2015 2014
Segment revenue GBP000 GBP000
----------------- ----------------- -----------------
Americas
Wastewater 13,421 12,217
Stormwater 7,618 5,746
------------------ ----------------- -----------------
21,039 17,963
----------------- ----------------- -----------------
Europe
Wastewater 6,453 5,776
Stormwater 7,729 6,410
------------------ ----------------- -----------------
14,182 12,186
----------------- ----------------- -----------------
AMEA 2,639 2,014
------------------ ----------------- -----------------
Consolidated 37,860 32,163
------------------ ----------------- -----------------
There are no inter-segment sales. Within Americas Stormwater a
total of GBP4.0m (2014: 3.2m), representing 11% (2014: 10%) of
consolidated revenues for the year, was derived from contracts
either directly or indirectly with a single customer.
Year ended Year ended
31 December 31 December
2015 2014
Segment profit * GBP000 GBP000
----------------------------- ------------- -------------
Americas
Wastewater 3,407 3,348
Stormwater 896 687
------------------------------ ------------- -------------
4,303 4,035
----------------------------- ------------- -------------
Europe
Wastewater (135) 245
Stormwater 1,122 767
------------------------------ ------------- -------------
987 1,012
----------------------------- ------------- -------------
AMEA 920 256
------------------------------ ------------- -------------
Group (3,879) (3,409)
------------------------------ ------------- -------------
Consolidated 2,331 1,894
------------------------------ ------------- -------------
Amortisation of intangibles
Americas Wastewater (166) (141)
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------------------------------ ------------- -------------
Operating profit 2,165 1,753
------------------------------ ------------- -------------
Net finance cost 77 (28)
------------------------------ ------------- -------------
Profit before tax 2,242 1,725
------------------------------ ------------- -------------
Taxation (869) (746)
------------------------------ ------------- -------------
Profit after tax 1,373 979
------------------------------ ------------- -------------
* Segment profit represents the operating profit earned by each
segment excluding amortisation of acquired intangibles, central
administration costs including Directors' 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.
3. Segmental analysis of results (continued)
Year ended Year ended Year ended
31 December 31 December 31 December
2015 2014 2013
Segment gross assets GBP000 GBP000 GBP000
----------------------------- ------------- ------------- -------------
Americas
Wastewater 14,587 13,359 11,840
Stormwater 2,165 1,943 1,427
16,752 15,302 13,267
----------------------------- ------------- ------------- -------------
Europe
Wastewater 5,480 5,716 6,717
Stormwater 2,881 3,138 2,988
8,361 8,854 9,705
----------------------------- ------------- ------------- -------------
Group 4,552 3,113 2,461
----------------------------- ------------- ------------- -------------
Consolidated 29,665 27,269 25,433
----------------------------- ------------- ------------- -------------
Segment capital expenditure
----------------------------- ------------- ------------- -------------
Americas
Wastewater 193 50 26
Stormwater 46 130 88
239 180 114
----------------------------- ------------- ------------- -------------
Europe
Wastewater 15 84 22
Stormwater 9 69 -
24 153 22
----------------------------- ------------- ------------- -------------
Group 733 745 358
----------------------------- ------------- ------------- -------------
Consolidated 996 1,078 494
----------------------------- ------------- ------------- -------------
Segment depreciation
and amortisation
----------------------------- ------------- -------------
Americas
Wastewater 100 55
Stormwater 61 37
161 92
----------------------------- ------------- -------------
Europe
Wastewater 32 27
Stormwater 19 8
51 35
----------------------------- ------------- -------------
Group 288 366
----------------------------- ------------- -------------
Amortisation of acquired
intangibles:
Americas Wastewater 166 141
----------------------------- ------------- -------------
Consolidated 666 634
----------------------------- ------------- -------------
For the purposes of monitoring segment performance and
allocating resources between segments, the Board of Directors
monitors 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.
4. Net finance cost
2015 2014
GBP000 GBP000
---------------------------------- ------- -------
Bank deposit interest receivable 6 11
Other interest receivable 1 1
Derivative financial instruments 73 -
Finance revenue 80 12
---------------------------------- ------- -------
On bank loans and overdrafts (3) (16)
Derivative financial instruments - (24)
Finance costs (3) (40)
---------------------------------- ------- -------
Net finance cost 77 (28)
---------------------------------- ------- -------
5. Tax
2015 2014
Analysis of tax charge on ordinary activities GBP000 GBP000
UK corporation tax based on profit for
the period at 20.25% - (66)
(2014: 21.49%)
Foreign tax charge for current period 974 904
Adjustment in respect of prior years (35) (26)
------------------------------------------------ -------- -------------
939 812
Deferred tax:
Origination and reversal of timing differences (78) (80)
Adjustment in respect of prior years 8 14
Effect of changes in tax rate - -
------------------------------------------------ -------- -------------
Tax on profits on ordinary activities 869 746
------------------------------------------------ -------- -------------
Factors affecting tax charge for the year
The blended standard rate of tax for the year, based on the
Group's standard rate of corporation tax, is 20.25% (2014: 21.49%).
The actual tax charge for the current and previous year is more
than the blended standard rate for the reasons set out in the
following reconciliation.
2015 2014
GBP000 GBP000
-------------------------------------------- -------- --------
Profit on ordinary activities before
taxation 2,242 1,725
Tax on profit on ordinary activities
at standard rate 454 371
Effects of:
Expenses not deductible for taxation
purposes 91 (12)
Research and development tax credits (55) (58)
Adjustments in respect of overseas taxes 385 453
Adjustments in respect of prior years (27) (12)
Adjustments in respect of losses - (23)
Other adjustments 21 27
Total tax 869 746
-------------------------------------------- -------- --------
Factors that may affect the future tax charge
A deferred tax asset has not been recognised in respect of
timing differences relating to certain trading and capital losses
within the Group. The total gross amount of tax losses in respect
of which no asset has been recognised is GBP1,295,000 (2014:
GBP685,000); the related tax would be recovered if sufficient
taxable profits arise in future periods in the appropriate
companies in an appropriate time frame. The change in value for the
year reflects the increased losses in Hydro International plc.
6. Earnings per ordinary share
The calculation of earnings per share for each year is based on
the profit after taxation for the year, divided by the weighted
average number of shares in issue in the relevant year. The number
of shares used in the calculation is as follows:
2015 2014
-------------------------------------- -------------- --------------
Weighted average number of shares 14,429,089 14,400,267
-------------------------------------- -------------- --------------
The diluted earnings per share for each year is calculated after
the inclusion of share options, as per below:
2015 2014
Weighted average number of shares 14,429,089 14,400,267
Options over shares 694,573 461,708
Diluted weighted average of shares 15,123,662 14,861,975
------------------------------------ ----------- -----------
Excluded from this calculation were share options in respect of
the SAYE scheme, because they were anti-dilutive for the current
period.
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