HPS Announces Quarter 4 Results

GUELPH, ONTARIO — Hammond Power Solutions Inc. (“HPS”) (TSX:HPS.A) announced its financial results for the fourth quarter of 2014. (Dollar amounts are in thousands unless otherwise specified.)

FOURTH QUARTER RESULTS
Sales for the quarter-ended December 31, 2014 were $64,529, an increase of $1,725 or 2.7% from Quarter 4, 2013 sales of $62,804. Year-to-date sales were $247,756 in 2014 and $242,941 in 2013, an increase of $4,815 or 2.0%. U.S. sales grew $4,008 or 11.4% and were $39,209 for Quarter 4, 2014 compared to $35,201 in Quarter 4, 2013. Year-to-date U.S. sales were $143,500 in 2014 compared to $138,481 in 2013, an increase of $5,019 or 3.6%. Canadian sales were $18,160 for the quarter, a decline of $1,921 or 9.6% from Quarter 4, 2013 sales of $20,081. Year-to-date Canadian sales were $73,043 in 2014 compared to $79,766 in 2013, a decrease of $6,723 or 8.4%. The Company continues to aggressively increase both its market share and sales through distributor conversions. This increase has also been buoyed by a modestly improved North American Electrical Distributor (“NAED”) market, construction, alternative energy, and oil and gas market segments. International sales remained stable in Quarter 4, 2014 finishing at $7,160 versus $7,522 in Quarter 4, 2013, a decrease of $362 or 4.8%. On a year-to-date basis, international sales are gaining traction, increasing $6,519 or 26.4% over 2013 sales of $24,694 compared to 2014 sales of $31,213.

The Company’s Quarter 4 2014 bookings increased 23.7% over Quarter 4 2013 and 16.3% year-to-date due to increased U.S. distributor and International Original Equipment Manufacturer (“OEM”) booking rates. Direct sales bookings increased 22.8% and 10.2% through our distributor channel. Due to the higher booking rates the Company recognized a backlog increase of 11.7% over the prior year.

Bill Hammond commented, “Despite the continued soft general world economies and poorer North American OEM market conditions, quotation activity continues to increase. This bodes favorably going forward, as the Company is now seeing a brighter booking picture.”

Gross margin rates for Quarter 4, 2014 were 24.1% compared to 27.1% for Quarter 4, 2013. Year-to-date the margin rate was 23.2% in 2014 versus 24.9% in 2013, a decrease of 1.7% of sales. The change in margin rates can be attributed to less favourable product mix, marketing pricing pressures and lower than anticipated manufacturing throughput.

Total selling and distribution expenses were $7,202 in Quarter 4, 2014 or 11.2% of sales, versus $7,461 in Quarter 4, 2013 or 11.9% of sales, an increase of $259 or 3.5%. Year-to-date selling and distribution expenses were $28,247 or 11.4% of sales in 2014, compared to $27,156 or 11.2% in 2013, an increase of $1,091 or 4.0%.

The general and administrative expenses for Quarter 4, 2014 totaled $5,864 or 9.1% of sales, an increase from Quarter 4, 2013 expenses of $5,394 or 8.6% of sales, a difference of $470 or 8.7%. General and administrative expenses in 2014 were higher by $369 or 1.6%, totaling $22,778 when compared to $22,409 for 2013. On a percentage of sales basis these costs were consistent at 9.2% for both 2013 and 2014.

Quarter 4, 2014 earnings from operations was $2,472, a decrease of $1,685 or 40.5% from $4,157 for the same quarter last year. The year-to-date earnings from operations were $6,460 in 2014, as compared to $11,036 in 2013, a decrease of $4,576 or 41.5%. Earnings from operations for the year were unfavourably impacted by decreased gross margin rates and an increase in selling, general and administrative expenses.

The interest expense for Quarter 4, 2014 finished at $262, an increase of $107 or 69.0% compared to Quarter 4, 2013 expense of $155. The interest expense for the year-ended December 31, 2014, finished at $1,029 as compared to $860 in 2013, an increase of $169 or 19.7%. The increase in interest expense is a result of higher debt levels during the year as a result of lower net earnings.

The foreign exchange loss in Quarter 4, 2014 was $381, relating primarily to the transactional exchange pertaining to the U.S. dollar trade accounts payable in Canada, compared to a foreign exchange gain of $217 in Quarter 4, 2013. Year-to-date the foreign exchange loss was $621 compared to a foreign exchange loss of $80 in 2013. The increase in the foreign exchange loss is related to the increased volatility in the exchange rates during the year.

Net earnings for Quarter 4, 2014 were $804 compared to $2,895 in Quarter 4, 2013, a decrease of $2,091 or 72.2%. Year-to-date net earnings were $2,520 in 2014 and $6,104 in 2013, a decrease of $3,584 or 58.7%. The main contributors to the lower net earnings were a decrease in gross margins and foreign exchange losses of $621 in the current year compared to a loss of $80 in 2013.

Net cash provided by operating activities for Quarter 4, 2014 was $4,788 versus cash used in operations of $2,674 in Quarter 4, 2013, an increase of $7,462. Year-to-date cash provided from operating activities was $18,450 in 2014 and $765 in 2013, a positive change of $17,685. This is due to lower working capital usage of $16,274 from 2013.

The Company’s overall debt, net of cash was $14,833 as at December 31, 2014 compared to a net debt position of $21,104 as at December 31, 2013, a decrease in debt position of $6,271 due to the change in non-cash working capital.

The Company continued with its regular quarterly dividend program, paying six cents ($0.06) per Class A Subordinate Voting Share of HPS and six cents ($0.06) per Class B Common Share of HPS on December 10, 2014.

Mr. Hammond commented, “We are pleased to say we are making great progress on our joint venture with National Material LP to manufacture cores for the electrical transformer industry. We expect this state-of-the-art facility to be fully operational in the fourth quarter of 2015 and are confident this venture will enhance our performance going forward.”

Mr. Hammond concluded, “We are cautiously optimistic about our growth going forward which is supported by our growing bookings and backlog. We are confident that our financial strength, core competencies and long term strategies will accelerate our growth as markets start to improve.”

FINANCIAL RESULTS

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