Water treatment firm Hydro International saw profits drop as margins were squeezed and it faced tough comparators from the previous year.

Pre-tax profits came in at £283,000, down from £951,000 in the first half of 2011.

The firm said a shift of sales mix from proprietary products towards lower margin, distributed products was largely to blame for the drop.

Chief Executive Steve Hides said the change in sales mix was often difficult to predict and Hydro's strategy was to mitigate this through further diversification across geographies and a broadening of the company's proprietary product portfolio.

"We anticipate that our full year results will be heavily second half weighted although sales will continue, as in the first half, to include a similar proportion of lower margin distributed products," he said.

Hides added that Hydro's core markets of the US and UK were expected to remain challenging, citing the UK construction industry in particular.

This uncertainty ruffled investors who pushed shares down almost 8% in morning trading following the announcement.

However, the firm remained financially robust and was making good progress with initiatives to underpin future growth for the business, Hides said.

Revenues for the year were up to £15.3m from £13.7m the year before and the company said it would pay no interim dividend.

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