Mr. Bill Hammond reports

HAMMOND POWER SOLUTIONS INC. ANNOUNCES QUARTER 1 2016 FINANCIAL RESULTS: SALES UP, MARGINS UP, EARNINGS UP-STRONG QUARTER

Hammond Power Solutions Inc. has released its financial results for the first quarter of 2016. (Dollar amounts are in thousands unless otherwise specified.)

First quarter results

Sales for the quarter ended April 2, 2016, were $68,722, an increase of $5,585 or 8.8 per cent from first quarter 2015 sales of $63,137. U.S. sales decreased by $433 or 1.1 per cent, finishing at $38,690 for first quarter 2016 compared with $39,123 in first quarter 2015. The decrease in U.S. sales was expected given the abnormally stronger fourth quarter 2015 sales demand impacted by the new Department of Energy (DOE) regulations that became effective Jan. 1, 2016. Canadian sales were $17,925 for the quarter, an increase of $1,247 or 7.5 per cent from first quarter 2015 sales of $16,678. International sales for first quarter 2016 finished at $12,107 versus $7,336 in first quarter 2015, a significant increase of $4,771 or 65.0 per cent.

The company increased bookings 5.7 per cent over first quarter 2015 due to stronger bookings in both the distributor and direct channels in North America. Booking rates in the distributor channel increased 9.4 per cent over first quarter 2015. On a direct channel basis, bookings were higher than first quarter 2015 by 2.5 per cent. Backlog increased 7.2 per cent over fourth quarter 2015. This change was due primarily to order mix and an increased level of energy-efficient transformer orders for the U.S. distributor market.

Gross margin rates for first quarter 2016 were 24.3 per cent compared with first quarter 2015 margin rates of 22.2 per cent, an improvement of 2.1 per cent of sales. The change in margin rates can be attributed to product and customer mix, pricing gains, and lift in manufacturing throughput due to the increased sales levels.

Bill Hammond commented: "I am pleased to report that our first quarter 2016 performance exceeded our expectations in these challenging economic times. The company attained increases in both sales and margins compared to the same quarter a year ago."

Total selling and distribution expenses were $7,637 in first quarter 2016 or 11.1 per cent of sales versus $6,746 in first quarter 2015 or 10.7 per cent of sales, an increase of $891 or 13.2 per cent. The company held its general and administrative spending rates in the quarter as compared with first quarter 2015.

General and administrative expenses for first quarter 2016 totalled $6,411 or 9.3 per cent of sales, an increase of $589 from first quarter 2015 expenses of $5,822 or 9.2 per cent of sales.

First quarter 2016 earnings from operations were $2,677, an increase of $1,231 or 85.1 per cent from $1,446 for the same quarter last year. The improvement in the quarter is a result of higher sales and increased gross margin-dollar contribution.

Interest expense for first quarter 2016 finished at $201, an increase of $85 or 73.3 per cent compared with the first quarter 2015 expense of $116 as a result of higher operating debt levels due to the joint venture investment, operational capital expenditures and working capital.

The foreign exchange loss in first quarter 2016 was $321. This loss relates primarily to the transactional exchange pertaining to the company's U.S.-dollar trade accounts payable in Canada compared with a foreign exchange gain of $290 in first quarter 2015.

The joint venture, Corefficient S de RL de CV, designs, manufactures and sells energy-efficient electrical cores, a major component used in dry-type and liquid-filled transformers. These electrical cores comply with new U.S. energy efficiency standards that came into effect Jan. 1, 2016. The first quarter 2016 share of loss of investment in joint venture was $528, primarily as a result of start-up costs and lower manufacturing capacity utilization.

Net earnings for first quarter 2016 increased by $103 or 13.2 per cent and finished at $884 compared with net earnings of $781 in first quarter 2015. This growth in the quarter earnings is a result of higher sales, increased gross margin, partially offset by foreign exchange losses, and start-up losses on the investment in the joint venture. Excluding the share of loss of investment in the joint venture, net earnings would have been $1,412, an increase of $631 or 80.8 per cent from the first quarter 2015 earnings.

Basic earnings per share were seven cents for first quarter 2016, excluding the share of loss of investment in the joint venture. The adjusted basic earnings per share would have been 12 cents as compared with seven-cent earnings per share in first quarter 2015.

Net cash used in operating activities for first quarter 2016 was $3,380 versus cash provided by operating activities of $421 in first quarter 2015, a decrease of $3,801. During the quarter, non-cash working capital used cash of $3,731 compared with $2,880 for the same quarter last year.

The company's overall operating debt balance net of cash was $17,579 in first quarter 2016 compared with $14,419 in first quarter 2015, an increase in debt position of $3,160 primarily reflecting joint venture financing.

The company continued with its regular quarterly dividend program, paying six cents per Class A subordinate voting share of Hammond Power and six cents per Class B common share of Hammond Power on March 25, 2016.

Mr. Hammond concluded: "We remain cautious and mindful of the continuing uncertainty that is currently holding back growth rates in certain parts of the world. However, we believe Hammond Power Solutions is well placed to deliver profitable growth over time given our diversified geographic, market and product positions, combined with our well-developed engineering and manufacturing capabilities."

                         FINANCIAL RESULTS
                      (dollars in thousands)

                                          Three months ended             
                                     April 2, 2016       March 28, 2015

Sales                               $       68,722       $       63,137
Earnings from operations            $        2,677       $        1,446
Exchange loss (gain)                $          321       $         (290)
Share of loss of investment
in joint venture                    $          528       $            -
Net earnings                        $          884       $          781
Earnings per share
Basic                               $         0.07       $         0.07
Diluted                             $         0.07       $         0.07
Cash (used in) provided by
operations                          $       (3,380)      $          421

Teleconference

Hammond Power Solutions will hold a conference call on May 4, 2016, at 10 a.m. EST, to discuss the company's financial results for the first quarter 2016.

Listeners may attend the conference by dialling:

Local/toll-free (Canada/the United States):  1-416-340-2216/1-866-225-0198

International:  1-416-641-6103/1-866-303-8430

Instant replay:

Dial-in numbers:  905-694-9451 or 1-800-408-3053

Passcode:  8341309

End date:  May 18, 2016

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