The market does not like the message alongside interim results from storm and waste water technology firm Hydro International (HYD:AIM) – the shares down 10.5% at 98p.

Hydro says full-year results will be in line with forecasts but this still means revenue and profitability will be materially lower than in 2012. The expiry of major contracts with Thames Water forced a profit warning on 15 January and led to the departure of previous chief executive officer (CEO) Steve Hides. We must hold our hands up and admit our belief, outlined last month, that a revived UK construction market might help cast the group in a more positive light failed to come to fruition.

First-half pre-tax profits are up 28.9% year-on-year to £490,000 but earnings per share fell from 1.96p to 1.91p reflecting a bigger contribution from the US where the tax rate is higher.

New CEO Michael Jennings, who joined the company at the end of July, says he hopes to take advantage of 'opportunities to broaden the scope of what the company does'. His success or failure will help decide if we were premature or simply mistaken in our sympathetic view.

Hydro has five main divisions: UK Stormwater; UK Wastewater; US Stormwater; US Wastewater and a nascent international business. The first of these units sells proprietary sustainable drainage systems into new construction projects and we suggested it might benefit from improved conditions in Britain's building sector. In the first six months of 2013 UK Stormwater posted an operating loss of £45,000 and finance director Tony Hollox says he would like to see the uptick in the underlying market 'take hold' before he can confidently predict an improved performance for the division.

There were some positives in the results, order intake increased 6% to £18.1 million, both US businesses delivered better returns and net cash was almost unchanged on its 2012 year end level at £2.9 million. Jennings says he has a 'solid platform' from which build and will look to step out from simply being a provider of original equipment to offer a range of services to its customers. He says: 'The first-half results are respectable but I don't think any of us would accept that sort of performance going forward.'

House broker Arden, which has an 'add' recommendation on the stock, comments: 'Although Hydro International faces significant challenges due to the lumpy nature of its business and the need to balance the short-term cost of growth initiatives against the longer-term opportunities, it has market leading products, good market positions and a wealth of opportunities to expand the business.'

Issue Date: 03 Sep 2013