Hydro International plc (Hydro International) has reported revenues of GBP30 million for the year-end 2008, up 16%, compared with the revenues of GBP26 million in the previous year-end. It has also reported a profit from continuing operations of GBP1.7 million, or 12.17 pence per diluted share, for the year-end 2008, compared with the profit from continuing operations of GBP1.8 million, or 12.36 pence per diluted share, in the previous year-end.
Highlights:
Operating profit (excluding exceptional items and amortization of acquired intangible assets) increased 41% to GBP3.2m;
Closing order book up 25% to GBP8.8m;
The acquisition of Eutek Systems, Inc. in May 2008 strengthened the company’s presence in the US wastewater market.
I am pleased to report that we developed well throughout 2008, and continued to make progress in the face of challenging trading environments in the company’s core markets, said Roger Lockwood, chairman.
The acquisition and integration of Eutek Systems, Inc. strengthened the company’s US wastewater market presence, and improved the geographic and sector spread of the company’s activities.
2008 was a demanding year with order levels affected by the global contraction in economic activity, notably in the construction sector.
Despite this pressure total sales revenues (including Eutek) were up 16%, while sales excluding post acquisition sales by Eutek held up relatively well, reducing by just 3% on 2007 levels.
The company remains confident that its operating markets contain considerable growth opportunities, as the company continue to grow the its market share and provide solutions to the challenges of new regulation; though in this environment the company clearly recognize that it cannot be immune from wider macro-economic forces.
Acquisition of Eutek Systems:
Eutek Systems, based in Portland, Oregon, was the company’s main competitor in the supply of non-powered grit removal technology to the US wastewater market. In May 2008, the company completed the acquisition of 100% of the shares in Eutek Systems, Inc. for an initial cash consideration of $8.5m, with additional consideration of 5% of revenues generated from Eutek products payable for a five year period to 30 April 2013. This additional consideration is capped at $5.0m.
The acquisition was largely funded by debt totalling $7.0m supplemented by cash, and scheduled debt repayment is due to begin in 2009. In view of the general tightening in bank lending, the company decided to hold cash balances through 2008 rather than make accelerated debt repayments.
The company’s integration of Eutek Systems, Inc. has progressed well. The Portland, Oregon office is now the company’s US Wastewater business base, and has also been given responsibility for the company’s proprietary grit removal technology. The Eutek business has traded strongly since the acquisition, and future prospects are very encouraging. These prospects include scope for international expansion of Eutek products beyond the US.
Stormwater review:
Demand for Stormwater products is typically driven by planning and environmental regulation on new build construction, an area that suffered in 2008, and the company’s Stormwater revenues reduced by 2% to GBP13.6m (2007: GBP13.9m). This reflected difficult trading conditions in the second half of the year caused by contraction in the construction sector, particularly in the UK and Ireland.
This relatively small reduction in revenues compares well to other parts of the construction industry. It also reflects in part the company’s diversification between domestic, commercial and publicly- funded construction projects.
The UK Stormwater market:
The UK Stormwater market is increasingly competitive. Nonetheless, the company remain confident of the company’s market leading position and future prospects, supported by the company’s commitment to innovation and the development of new and improved products.
In the UK, government consultation has continued on the implementation of the EU Water Framework Directive. This Directive concentrates on improvements in the management of stormwater quality, and the company is well positioned to offer proven technologies to assist with this problem.
The company also plays leading roles on the key industry bodies responsible for working with the UK and Irish governments on policy development, and run industry conferences and seminars on stormwater management.
Progress in the US Stormwater market:
The company’s progress in the US Stormwater market continued with both orders and sales up on 2007 levels, helped by the US Dollar gaining against sterling in the second half year.
In the US the company continues to focus on the drive for regulatory product approvals and the markets they open up for us. The company successfully secured a major approval for the company’s Up-Flo Filter product, and expect further sales growth in this area in 2009.
Despite difficult US trading conditions, there is still considerable potential for growth. The company aim to take advantage of this by increasing the company’s market share in the stormwater treatment sectors, further extending routes to market, and developing new markets for flow control and storage products.
Wastewater review:
A major boost to the company’s US Wastewater business:
The company’s acquisition of Eutek Systems, Inc. in May 2008 gave its US Wastewater business a major boost, contributing to the 36% increase in the company’s Wastewater revenues to GBP16.4m (2007: GBP12.1m).
Revenues from the company’s existing US grit removal business also performed ahead of 2007 levels.
The UK situation:
The UK situation proved more testing. In 2008’s Interim Report the company reported that spending patterns of UK water companies slowed in the second quarter of 2008, at a time when activity should have been peaking under the fourth asset management programme. Although order flow improved in the second half year – and was up on the same period in 2007 – levels remained below expectations.
In January 2009 the company secured a key GBP2.7m project to supply a second phase of innovative sludge scraper technology to Thames Water, building on an initial GBP2.3m contract awarded in 2007.
UK Wastewater business prospects remain strong, despite the project delays of 2008 caused by tightening credit conditions affecting the large water companies.
Outlook:
2009 promises to be a challenging period. The company’s major markets are facing the prospect of reduced activity and greater risk and uncertainty. The Board is fully aware that the trading environment will be tough and the company recognizes that it cannot be immune from wider macro-economic forces. As in previous years, the company expects the results for 2009 to be weighted more heavily towards the second half.
It is important to note, however, that the underlying robustness of the company’s business is well founded on an innovative and developing range of products, a diverse spread of market sectors and geographies served, and a strong balance sheet. The company remains focused on the implementation of the company’s strategic plan and believe that the company is well positioned to deliver growth over the long term.
Hydro International is a UK based provider of solutions for the management and treatment of stormwater and municipal wastewater.