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 £37.9m; adjusted profit before tax up 29% to £2.41m

· 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 £42.5m with good progress being made across the Americas, Europe and AMEA

· Open order book at year end increased by 34% to £18.4m, 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

£37.9m

£32.2m

+18%

Adjusted profit before taxation *

£2.41m

£1.87m

+29%

Adjusted operating profit margin *

6.2%

5.9%

Profit before taxation

£2.24m

£1.73m

+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 ***

£2.3m

£2.3m

-

* 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 5900

Tel. +44 (0)20 7404 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 informationwww.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 £37.9m, adjusted profit before tax increased 29% to £2.41m, and earnings per share rose 40% to 9.52 pence. Our net cash position remains solid at £2.3m, 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 £42.5m 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 £18.4m.

Revenue for the full year increased by 18% on 2014 to £37.9m. 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 £17.6m. Adjusted profit before taxation increased by 29% to £2.41m 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

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 £2.6m 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® Agile and Hydro-Brake® 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™, 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™ 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

£21.0m

£18.0m

+17%

Profit *

£4.30m

£4.04m

+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 £10.9m (2014: £10.3m) 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™, 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® 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® 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™ 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™, 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

£14.2m

£12.2m

+16%

Profit *

£0.99m

£1.01m

-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.

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 £6.4m (2014: £3.4m) 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® flow control product range. The new Hydro-Brake® 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® 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™ range of products, which have been highly successful in the Americas. A pilot Headcell® 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™ 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

£2.6m

£2.0m

+30%

Profit *

£0.92m

£0.26m

+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 £1.0m (2014: £Nil) 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® 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® 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

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 £2.33m, 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 £321,000 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 £28,000 (2014: £90,000 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 £969,000, with a further estimated £1,231,000 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 £0.17m (2014: £0.14m) 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 £0.08m (2014: £0.03m 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 £2.3m, unchanged on the position at the start of the year. The largest categories of cash expenditure were, £0.97m on acquisitions, £0.95m of tax paid and £0.52m of dividends paid. A further £0.30m was spent on tangible asset purchases and £0.7m on intangible asset acquisitions, of which £0.4m 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 £0.5m to £1.5m.

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

· £3.0m 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 £0.2m (2014: £0.2m) 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 Statementunaudited

Year ended 31 December 2015

Year ended

31 December 2015

Year ended

31 December 2014

Continuing operations

£000

£000

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 share

Diluted earnings per ordinary share

9.52p

9.08p

6.80p

6.59p

Consolidated Statement of Comprehensive Incomeunaudited

Year ended 31 December 2015

Year ended

31 December 2015

£000

Year ended

31 December 2014

£000

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 Sheetunaudited

31 December 2015

31 December

2015

31 December

2014

31 December

2013

£000

£000

£000

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 Equityunaudited

Year ended 31 December 2014

Issued capital

Share premium

Foreign currency reserve

Retained earnings

Total

£000

£000

£000

£000

£000

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 Statementunaudited

Year ended 31 December 2015

Year ended

31 December 2015

Year ended

31 December 2014

£000

£000

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 activitiesunaudited

Year ended 31 December 2015

Year ended

31 December 2015

Year ended

31 December 2014

£000

£000

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 announcementunaudited

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 notconstitute the Group's statutory accounts for the years ended 31 December 2015, 2014 or 2013, and does notcontain 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 of3.8pence per share to be paid, totalling £548,000. 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 February 2016, with completion expected on 8 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

31 December 2015

Year ended

31 December 2014

Segment revenue

£000

£000

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 £4.0m (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

31 December 2015

Year ended

31 December 2014

Segment profit *

£000

£000

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)

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

31 December 2015

Year ended

31 December 2014

Year ended

31 December 2013

Segment gross assets

£000

£000

£000

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

£000

£000

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

Analysis of tax charge on ordinary activities

2015

£000

2014

£000

UK corporation tax based on profit for the period at 20.25%

(2014: 21.49%)

Foreign tax charge for current period

Adjustment in respect of prior years

-

974

(35)

(66)

904

(26)

939

812

Deferred tax:

Origination and reversal of timing differences

Adjustment in respect of prior years

Effect of changes in tax rate

(78)

8

-

(80)

14

-

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

£000

2014

£000

Profit on ordinary activities before taxation

2,242

1,725

Tax on profit on ordinary activities at standard rate

Effects of:

Expenses not deductible for taxation purposes

Research and development tax credits

Adjustments in respect of overseas taxes

Adjustments in respect of prior years

Adjustments in respect of losses

Other adjustments

454

91

(55)

385

(27)

-

21

371

(12)

(58)

453

(12)

(23)

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 £1,295,000 (2014: £685,000); 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

Options over shares

14,429,089

694,573

14,400,267

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.

Adjusted earnings per share

2015

2014

Adjusted earnings per share

Adjusted diluted earnings per share

10.29p

9.82p

7.40p

7.18p

Adjusted earnings exclude amortisation of acquisition related intangible assets and the related corporation tax effect.

Reconciliation of profit after tax to adjusted profit after tax

2015

2014

£000

£000

£000

£000

Profit after tax per accounts

1,373

979

Amortisation of acquired intangibles

166

141

Related tax effect

(54)

(54)

112

87

Adjusted profit after tax

1,485

1,066

7. Acquisitions

In January 2015 the Group purchased the operating assets and brand of Settled Solids Management (SSM) based in Florida, US. SSM is an established specialist provider of services to remove sand and grit from wastewater treatment plants. These operational services, based around a patented Vertical Grit Separator system, are well aligned with Hydro's world leading grit removal technologies. The business will operate as part of Hydro's Americas Wastewater division which is headquartered in Hillsboro, Oregon. The acquisition was a cash purchase with a total consideration of $0.46m. SSM contributed £0.14m revenue and £0.03m loss to the division's profit for the period from the date of acquisition to the balance sheet date.

In December 2015 the Group purchased the intellectual property and technology assets of M2 Renewables, Inc (M2R). M2R has successfully developed the MicroScreen rotating belt screen filtration technology for applications in municipal and industrial wastewater treatment plants, securing important initial projects with major customers in the United States. An initial amount of $1m in cash has been paid to date; an additional deferred consideration of 10% of sales incorporating the acquired intellectual property will be paid across the first five years. This additional consideration is capped at a maximum of $10.0 million. The business will operate initially as part of Hydro's Americas Wastewater division, before extending to other regions of the Group's business. The acquisition was funded from existing cash and debt facilities. M2R did not contribute to Group revenue or profit from the date of acquisition to the balance sheet date.

The assets acquired in these acquisitions were:

£000

Settled Solids Management

M2 Renewables, Inc

Intangible assets:

Goodwill

Patents and trademarks

Other

41

95

-

73

1,679

156

136

1,908

Tangible assets:

Motor vehicles

Engineering equipment

11

145

-

-

156

-

Total assets acquired

292

1,908

Satisfied by:

£000

Settled Solids Management

M2 Renewables, Inc.

Cash

292

677

Deferred consideration

-

1,231

292

1,908

8. Going concern

The Group's business activities, together with the main trends and factors likely to affect its future development, performance and position, and the financial position of the Group, its cash flows, liquidity position and borrowing facilities, are set out herein.

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 Swedish Kronor and the consequent impact on the cost of the Group's imports of products sold through its UK businesses; 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.

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 concluded that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adoptthe going concern basis in preparing the Annual Report and Accounts and this Preliminary Announcement.

Hydro International plc issued this content on 01 March 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 01 March 2016 08:15:05 UTC

Original Document: http://plc.hydro-intl.com/rns.php?id=24050475