Hammond Power Solutions Inc.
TSX : HPS.A

Hammond Power Solutions Inc.

July 21, 2011 17:31 ET

Hammond Power Solutions Inc. Reports Quarter 2, 2011 Financial Results

Dollar amounts are in thousands unless otherwise specified

NOTE: All numbers have been stated under IFRS

HIGHLIGHTS FROM THE QUARTER

- Revenue growth of $1,510

- Order bookings increase of 20%

- Order backlog increase of 21%

GUELPH, ONTARIO--(Marketwire - July 21, 2011) - Hammond Power Solutions Inc. ("HPS") (TSX:HPS.A) a leading manufacturer of dry type transformers and magnetic, today announced its financial results for the second quarter of 2011.

"Hammond Power Solutions Inc. has come through a more challenging quarter than expected due to severe spring weather which delayed over $3,000 in Canadian sales, which now will be shipped later in 2011. Our vastly improved booking and backlog performance bodes well for the remainder of the year. We have implemented market specific price increases in the United States which will improve our profit performance going forward." commented Bill Hammond, Chairman & Chief Executive Officer of Hammond Power Solutions Inc.

SECOND QUARTER RESULTS

Sales for the quarter-ended July 2, 2011, were $52,330 up $1,510 or 3.0% from the comparative quarter last year, and were higher by $10,014 or 10.5% year-to-date, finishing at $105,107 compared to $95,093 last year. Due to an increased order booking activity, sales in the United States stated in U.S. dollars were $31,258 in Quarter 2, 2011, an increase of $830 or 2.7% from Quarter 2, 2010. Year-to-date sales in the United States were $61,186, an increase of $3,582 or 6.2%, when compared to $57,604 in 2010. The sales increase can be attributed to higher shipments in both the American and Canadian markets and additional European market sales attributed to the Company's recent acquisition.

Bill Hammond stated, "The Company continues to grow sales in its strategic markets, geographically and as well has seen a moderate improvement in overall market activity in the electrical industry in the U.S. and Canada as evidenced by increased quotation and order booking activities."

Sales growth initiatives combined with better market conditions produced a 20 % increase in Quarter 2, 2011 bookings as compared to Quarter 1, 2010.Due to the increased level of bookings our order backlog increased by 21.4% from the Quarter 1, 2011 and increased 23.0% from Quarter 2, 2010.

The Company's gross margin rates were impacted by negative selling price pressures, and the detrimental impact that a stronger Canadian dollar has on U.S. resale margins. These influences resulted with Quarter 2, 2011 gross margin rates finishing at 22.9% versus 24.8% in Quarter 2, 2010, a decrease of 1.9%. On a year-to-date basis, gross margin rates were 23.6% compared to 25.7% in 2010, down 2.1%.

"Gross margin rates will benefit from market specific price increases as well as increased manufacturing throughput in the second half of the year. The Company is also focused on productivity improvements and cost reductions throughout the organization, which will improve our financial performance going forward." Bill Hammond commented.

Total selling and distribution expenses were $5,506 in Quarter 2, 2011, versus $4,889 in Quarter 2, 2010, an increase of $617 or 12.6%. Year-to-date, selling and distribution costs were $10,893 versus $9,425 in 2010, an increase of $1,468 or 15.6%. Due to sales increases, variable selling expenses in Quarter 2, 2011 were impacted by higher freight and commission expense and increased salaries associated with strategic hires to support the sales strategies of the Company.

The general and administrative expenses for Quarter 2, 2011 totaled $4,764, an increase of $395 or 9.0%, compared to Quarter 2 2010, costs of $4,369. Almost all of this increase was attributed to additional general and administrative costs relating to its new Italian operation. Year to date, general and administrative costs are higher by $1,359 or 16.7%, totaling $9,511 when compared to $8,152 for 2010. On a year to date basis, the company has seen increases in stock option expense, costs related to the company's ongoing acquisition activities, and R & D engineering costs. Also, half of this increase was attributed to additional general and administrative costs relating to its new Italian operation.

The interest expense for Quarter 1, 2011, finished at $77 compared to $24 in Quarter 2, 2010, an increase of $53. Year to date interest cost was $107, an increase of $46 when compared to year to date 2010 expense of $61.

The foreign exchange loss in Quarter 2, 2011 was $180 compared to a foreign exchange loss of $1,378 in Quarter 2, 2010. For the first six months of 2011 the exchange loss of $482 was compared to a foreign exchange loss of $305 for the same period of 2010.

Net earnings for Quarter 2, 2011, decreased by $488 or 41.7%, finishing at $682 compared to $1,170 in Quarter 2, 2010. On a year to date basis net earnings finished at $2,253 a decrease of $1,893 when compared to year to date 2010 net earnings of $4,146.

Net cash used in operating activities for Quarter 2, 2011 was $6,504 versus cash provided of $2,012 in Quarter 2, 2010, a difference of $8,516. Year to date cash used from operations was $9,061 compared to 2010 cash provided of $3,619 a change of $12,680.

Quarter 2, 2011 usage was primarily a net result of an increase in inventory warehouse stocking levels in the United States, a rise in accounts receivable primarily caused by a postal service interruption in Canada, partially offset by an increase in accounts payable.

The Company's overall debt, net of cash was $7,520 in Quarter 2, 2011, compared to a net cash position of $10,626 in Quarter 2, 2010, a reduction in cash position of $18,156. The major contributing factors to this were the Quarter 1, 2011 purchase of Euroelettro S.p.A. for $7,786 plus the assumed debt of $6,573.

Mr. Hammond concluded, "We have taken prudent measures to enhance our financial performance and we remain confident that HPS will deliver respectable financial results in the remaining quarters, especially in light of the continuing economic and financial challenges that the world still faces"

THREE MONTHS ENDED:
(dollars in thousands)
July 2, 2011 July 3, 2010 Change
Sales $ 52,330 $ 50,820 $ 1,510
Earnings from Operations $ 1,726 $ 3,361 $ (1,635 )
Exchange Loss $ 180 $ 1,378 $ (1,198 )
Net Earnings $ 682 $ 1,170 $ (488 )
Earnings per share
Basic .06 .10 (0.04 )
Diluted .06 .10 (0.04 )
Cash (Used) Provided by Operations $ (6,504 ) $ 2,012 $ (8,516 )
SIX MONTHS ENDED:
(dollars in thousands)
July 2, 2011 July 3, 2010 Change
Sales $ 105,107 $ 95,093 $ 10,014
Earnings from Operations $ 4,395 $ 6,867 $ (2,472 )
Exchange Gain / (Loss) $ 482 $ 305 $ (177 )
Net Earnings $ 2,253 $ 4,146 $ (1,893 )
Earnings per share
Basic 0.20 0.36 (0.16 )
Diluted 0.20 0.35 (0.15 )
Cash (Used in) Provided by Operations $ (9,061 ) $ 3,619 $ (12,680 )

TELECONFERENCE

Hammond Power Solutions Inc. will hold a conference call on Friday, July 22, 2011 at 10:00 a.m. EST, to discuss the Company's financial results for the Second quarter 2011.

Listeners may attend the conference by dialing:

1-416-340-2216 or 1-866-226-1792.

About Hammond Power Solutions Inc.

Hammond Power Solutions Inc., ("HPS" or the "Company") is the North American leader for the design of custom electrical engineered magnetic as well as the leading manufacturer of standard electrical dry type transformers. Advanced engineering capabilities, high quality products and fast responsive service to customers' needs has established the Company as a technical and innovative leader in the electrical and electronic industries. The Company has manufacturing facilities in Canada, the United States, Mexico and Italy.

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