Hammond Power Solutions Inc.
TSX : HPS.A

Hammond Power Solutions Inc.

March 09, 2017 17:30 ET

Hammond Power Solutions Inc. Announces Quarter 4, 2016 Financial Results

GUELPH, ONTARIO--(Marketwired - March 9, 2017) -

(Dollar amounts are in thousands unless otherwise specified)

Hammond Power Solutions Inc. ("HPS") (TSX:HPS.A), a leading manufacturer of dry-type and cast resin transformers and related magnetics, today announced its financial results for the Fourth Quarter of 2016.

FOURTH QUARTER RESULTS

Mr. Hammond commented, "Despite a number of unexpected challenges during the year the company generated strong performance in its core business, delivering growth in gross margin rates and strong cash flow giving us a solid balance sheet which will assist in weathering the continued slow electrical industry environment and allow us to take advantage of growth opportunities. We recognize that our fourth quarter was a disappointment, driven primarily by a very weak U.S. economy. We believe that most of this malaise was caused by both the distraction and the uncertainties surrounding the U.S. Presidential election. Evidence of this assumption is supported by the significant increase in activity and bookings that commenced in January of the new year, along with renewed confidence in prospects for 2017. We share this belief as we see a broad based recovery across many markets, including those that have been dormant for several years."

Sales for the quarter ended December 31, 2016 were $74,073, a decrease of $6,667 or 8.3% from the comparative quarter last year. Year-to-date sales in 2016 were $274,793 as compared to sales of $274,639 in 2015, a slight increase of $154. U.S. sales decreased $4,929 or 9.7% and were $45,775 for Quarter 4, 2016 compared to $50,704 in Quarter 4, 2015. Year-to-date U.S. were $159,982, a decrease of $5,768, or 3.5%, compared to 2015 sales of $165,750. Canadian sales were $18,113 for the quarter, a decrease of $2,432 or 11.8% from Quarter 4, 2015 sales of $20,545. Canadian sales were $77,711, an increase of $1,647 or 2.2% as compared to sales of $76,064 in 2015. International sales increased in Quarter 4, 2016 finishing at $10,185 versus $9,491 in Quarter 4, 2015, an increase of $694 or 7.3%. On a year-to-date basis, the Company realized sales growth internationally of $4,275 or 13.0%, finishing at $37,100 for the year versus sales of $32,825 in 2015.

The Company's Quarter 4, 2016 bookings decreased by 8.2% over Quarter 4 2015. During the quarter, direct sales bookings decreased 1.4% and 16.1% through our distributor channel. Overall, 2016 bookings increased by 2.2% over the prior year. In 2016, direct sales bookings increased by 5.1% and bookings in the distributor channel had a slight decrease of 0.9%.

Gross margin rates increased to 25.9% in Quarter 4, 2016 versus 25.5% in Quarter 4, 2015 an increase of 0.4%. Year-to-date, The Company is pleased with the increased gross margin rates of 24.3% achieved in 2016 versus 24.0% in 2015, an improvement of 0.3% of sales. The change in margin rates can be attributed to product and customer mix, pricing gains, geographic blend, and cost reductions.

Total selling and distribution expenses amounted to $7,217 in Quarter 4, 2016 versus $8,806 in Quarter 4, 2015, an increase of $1,589 or 18.0%. Year to date selling and distribution expenses were $29,886 for 2016 versus $29,914 in 2015, a small decrease of $28 or 0.1%. When compared on a percentage-of-sales basis, total selling and distribution remained consistent at 10.9% of sales in both 2016 and 2015.

The general and administrative expenses for Quarter 4, 2016 totaled $5,895, a decrease of $232 or 4.1% when compared to Quarter 4, 2015 costs of $5,663 and $24,734 year to date as compared to $23,324 for 2015, an increase of $1,410 or 6.0%. On a percentage-of-sales basis these costs increased from 8.5% in 2015 to 9.0% in 2016.

Quarter 4, 2016 earnings from operations decreased $1,467 from $6,100 in Quarter 4, 2015 to $4,633 in Quarter 4, 2016. Earnings from operations were $10,873 in 2016, as compared to $12,644 in 2015, a minor decrease of $1,771 or 14.0%. The change in earnings from operations is a result of the increase in sales and gross margin contribution offset by an increase in general and administrative expenses and the non-cash impairment charge of $1,417 against goodwill.

The interest expense for Quarter 4, 2014 finished at $193, a decrease of $178 or 48.0% compared to Quarter 4, 2015 expense of $371. The interest expense for the year-ended December 31, 2016, finished at $1,067 as compared to $1,047 in 2015, an increase of $20 or 1.9%. The interest expense is comparable to prior year due to similar operating debt levels as prior year.

The foreign exchange loss in Quarter 4, 2016 was $643 compared to a foreign exchange gain of $113 in Quarter 4, 2015. The majority of the Quarter 4, 2016 foreign exchange loss was a result of transactional losses in Canada due to the strengthening of the U.S. dollar relative to the Canadian dollar offset by gains on settlements of foreign exchange contracts. The foreign exchange loss in 2016 of $844 related primarily to the transactional exchange loss pertaining to the Company's U.S. dollar trade accounts payable in Canada, compared to a foreign exchange loss of $4 in 2015.

Net earnings for Quarter 4, 2016 were $293 compared to $3,351 in Quarter 4, 2015, a decrease of $3,058 or 91.3%. Our 2016 net earnings were $1,793 versus $6,320 in 2015, a decrease of $4,527 or 71.6%. Net earnings were negatively impacted by a higher effective tax rate when compared to 2015.

Net cash generated in operations for Quarter 4, 2016 was $17,255 versus $9,107 in Quarter 4, 2015, an increase of $8,148. Cash provided from operating activities during 2016 was $15,216 versus $16,065 in 2015, a decrease in cash generated from operations of $849. This increase in cash generated from operating activities is due to increased income tax payments and decreased net earnings partially offset by decreased working capital usage.

Overall bank lines of credit, net of cash, resulted in net debt of $11,318 as at December 31 2016, an increase of $2,143 as compared to a net debt balance of $9,175 as at December 31, 2015, primarily reflecting the repayment of the long-term debt balance.

Total debt net of cash was $11,318 in 2016 compared to $13,202 in 2015, a decrease in the net debt position of $1,884.

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 16, 2016.

FINANCIAL RESULTS

THREE MONTHS ENDED:

(dollars in thousands)

December 31,
2016
December 31,
2015
Change
Sales $ 74,073 $ 80,740 $ (6,667 )
Impairment of Goodwill $ 1,417 $ - $ 1,417
Earnings from Operations $ 4,633 $ 6,100 $ (1,467 )
Exchange Loss (Gain) $ 643 $ (113 ) $ (756 )
Net Earnings $ 293 $ 3,351 $ (3,058 )
Earnings per share
Basic $ 0.03 $ 0.27 $ (0.24 )
Diluted $ 0.03 $ 0.27 $ (0.24 )
Cash (used in operations) $ 17,255 $ 9,107 $ 8,148

TWELVE MONTHS ENDED:

(dollars in thousands)

December 31,
2016
December 31,
2015
Change
Sales $ 274,793 $ 274,639 $ 154
Impairment of Goodwill $ 1,417 $ - $ 1,417
Earnings from Operations $ 10,873 $ 12,644 $ (1,771 )
Exchange Loss $ 844 $ 4 $ 840
Net Earnings $ 1,793 $ 6,320 $ (4,527 )
Earnings per share
Basic $ 0.16 $ 0.53 $ (0.37 )
Diluted $ 0.16 $ 0.53 $ (0.37 )
Cash provided by operations $ 15,216 $ 16,065 $ (849 )

Caution Regarding Forward-Looking Information

This press release contains forward-looking statements that involve a number of risks and uncertainties, including statements that relate to among other things, HPS' strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as "may", "will", "could", "should", "would", "likely", "expect", "intend", "estimate", "anticipate", "believe", "plan", "objective" and "continue" and words and expressions of similar import. Although HPS believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include but are not limited to: general business and economic conditions (including but not limited to currency rates); changes in laws and regulations; legal and regulatory proceedings; and the ability to execute strategic plans. HPS does not undertake any obligation to update publicly or to revise any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except as required by law.

ABOUT HAMMOND POWER SOLUTIONS INC.

Hammond Power Solutions Inc. (TSX:HPS.A) is a North American leader for the design and manufacture of dry-type custom electrical engineered magnetics, electrical dry-type and cast resin transformers. Leading edge engineering capabilities, high quality products, and responsive service to customers' needs have all served to establish HPS as a technical and innovative leader in the electrical and electronic industries.

HPS has operations in Canada, the United States, Mexico, India and Italy.

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