2023
ANNUAL REPORT
Over 100 Years
& Four Generations
Server Racks and Cabinets
Electrical Enclosures
Power Distribution
Small Enclosures
Electronic Transformers
Over 100 years
& four generations
in business.
Established 1917.
Fred Hammond, VE3HC
(right) was part of the
second generation of a fast
growing family run business.
Fred was one of six brothers
and two sisters.
Quality Products.
Service Excellence.
We have a broad product offering
to serve our customers in multiple
markets and industries.
We promise ten day back order
recovery on standard product. We
work hard to provide you with your
required product in a prompt time
line.
Value added services
(modifications,assembly and
drop shipment): we go above
and beyond our competition and
provide our customers with the
exact solution required.
Our Values:
• We are dedicated to our customers.
We provide quality products and
service that create value to our
customers.
• We are responsible to our
shareholders. We provide an
adequate return on their investment
over the long term.
• We are committed to our employees.
We provide competitive pay, open
and frank communication and a safe
work environments.
• We recognize the importance of our
suppliers assisting us in our ability
to serve our customers.
Hammond Manufacturing Company Limited
2023 Annual Report
4
5
Report to Shareholders
Management Discussion and Analysis
23 Management’s Responsibility for Financial Reporting
24
29
30
31
32
33
68
Independent Auditors’ Report
Consolidated Statements of Financial Position
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Corporate Directory
www.hammondmfg.com
Annual Report 2023 3
REPORT TO SHAREHOLDERS
Dear fellow shareholders, employees, and stakeholders:
We are pleased to communicate the results for 2023.
2023 began with the expectation we were headed into a recession and an outlook that the Canadian
dollar was going to strengthen. We did see low growth in our North American markets and our UK and
European markets did contract. Overall, our sales of $238 million were up 5.5% over 2022.
The US dollar was stronger than expected in 2023 and 2.6% of the sales growth came from foreign
exchange.
Our gross profit levels improved over 2022 helped by several factors including foreign exchange. The
growth we experienced in 2021 and 2022 during COVID came at a fast pace. During this time we saw
the positive impact of more output with the same fixed infrastructure. The addition of employees to meet
the demand did come at the higher cost of an inexperienced work force. In 2023 with sales growth
slowing, we were able to catch up our inventories and focus on operational efficiencies. We also saw
the price increases put through in 2022 holdup against our competition.
With the unprecedented growth we experienced in 2021 and 2022 it was clear our existing production
facilities were becoming our constraining factor. In June of 2023 we opened a new 97,000 square foot
facility in Ontario.
We continue to build long term security and success for all our associates and once again want to
express our appreciation for everyone’s involvement in the year’s success.
Sincerely,
Robert F. Hammond
Alex Stirling
Chairman & CEO
CFO
ANNUAL MEETING
The meeting of the Shareholders will be held on
April 30, 2024 at
Cutten Fields
190 College Avenue East, Guelph, Ontario
Commencing at 10:00 a.m.
www.hammondmfg.com
Annual Report 2023 4
MANAGEMENT DISCUSSION AND ANALYSIS
This management discussion and analysis (MD&A) comments on the consolidated financial position and
financial performance of Hammond Manufacturing Company Limited (“HMCL” or “the Company”) for the
year ended December 31, 2023. This discussion should be read in conjunction with the Company’s
consolidated financial statements for the year ended December 31, 2023 and related notes. Additional
information about the Company can be found on its website, www.hammfg.com, or through the SEDAR
website at www.sedar.com which includes the Company’s Annual Information Form. The information
contained herein is dated as of March 5, 2024.
The annual consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS).
All amounts in this report are in Canadian dollars unless otherwise stated.
Cautionary advisory–Certain information in this MD&A is forward-looking and is subject to important
risks and uncertainties. This MD&A contains forward-looking statements that involve a number of risks
and uncertainties, including statements that relate to among other things, HMCL 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 HMCL 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. HMCL 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.
www.hammondmfg.com
Annual Report 2023 5
MANAGEMENT DISCUSSION AND ANALYSIS
COMPANY PROFILE
Hammond Manufacturing Company Limited manufactures electronic and electrical enclosures, outlet
strips and electronic transformers that are used by manufacturers of a wide range of electronic and
electrical products. Products are sold directly to Original Equipment Manufacturers (OEM) and through
a global network of distributors and agents.
Facilities are situated in Canada, the United States of America (US), the United Kingdom (UK), Taiwan,
the Netherlands and Australia, with agents and distributors located worldwide. The Company also
maintains a 40% ownership share of RITEC Enclosures Inc. (RITEC) located in Taiwan. RITEC
produces a line of small cases for sale through the Hammond Manufacturing Company’s sales channels
and also manages the sourcing of die cast and plastic enclosures.
OPERATIONS
Founded in Guelph, Ontario, Canada in 1917. In the early years, the Company manufactured radios,
power amplifiers and battery eliminators. The Company has grown over the years and has established
a global name for quality products of Electrical Enclosures, Racks and Cabinets, Small Electronic Cases,
Outlet strips and Electronic Transformers. Our customers include electrical, electronic and datacom
OEM’s/MRO’s, utilities and institutions which are served through a network of agents and distributors.
Hammond has a team of over 900 employees supported by a commitment to ongoing capital investment
and our continuous improvement programs combine to affirm the Hammond reputation for quality.
Ongoing efforts to differentiate ourselves through high levels of service and customer satisfaction are a
key corporate focus. These are the cornerstones to our future success.
Demand for Hammond products has been increasing at a rapid rate and in 2023, Hammond realized its
highest annual revenues in the company history.
Primary manufacturing is in Ontario Canada with supporting manufacturing capabilities in the USA and
United Kingdom. In June of 2023 Hammond opened a 97,000 square foot facility in Palmerston, Ontario
to expand its production capabilities.
The company holds high levels of inventory to ensure our customers are serviced well. This policy served
the company and our customers well as markets surged in 2021 and 2022.
www.hammondmfg.com
Annual Report 2023 6
MANAGEMENT DISCUSSION AND ANALYSIS
QUARTERLY INFORMATION
HAMMOND MANUFACTURING COMPANY LIMITED
Summary of Quarterly Financial Information
(In thousands of Canadian dollars except earnings per share)
2023
Q1
Q2
Q3
Q4
Year-to-date
Total
Net product sales
$62,492
$61,417
$57,101
$57,275
$238,285
Income from operating activities
Net income for the period
Earnings per share
- Basic & diluted
6,238
4,155
$0.37
8,006
5,540
$0.49
6,575
3,995
$0.35
7,269
5,071
$0.45
28,088
18,761
$1.66
Net product sales
$54,976
$57,251
$56,848
$56,847
$225,922
Q1
Q2
Q3
Q4
2022
Year-to-date
Total
Income from operating activities
Net income for the period
Earnings per share
- Basic & diluted
FOURTH QUARTER RESULTS
NET PRODUCT SALES
3,530
2,205
$0.19
3,980
2,295
$0.21
4,951
2,504
$0.22
6,981
4,999
$0.44
19,442
12,003
$1.06
Net product sales for the three months ended December 31, 2023 were $57,275,000, up 0.3% compared
to net product sales of $57,101,000 in the third quarter of 2023. All our markets were down in local
currencies over the prior quarter but the gain from USD foreign exchange offset this drop. In local
currencies the Canadian market was down 4.8% while the US market was down slightly. Our UK &
European market was down 6.1%. This is a normal cycle for this market as in the last two weeks of the
year shipping and businesses shut down for the holidays. We are attributing lower sales in this quarter
compared to the prior quarter to the impact of the yearend holidays and customers deferring taking
inventory for a better balance sheet presentation for those with a December 31 yearend.
Net product sales for the current quarter were up 0.8% compared to net product sales of $56,847,000
for the three months ended December 31, 2022. Comparatively in local currencies, Canada was down
0.5% and the UK & European markets were down 3.3% compared to the fourth quarter of 2022. The US
market was up compared to the fourth quarter of 2022 in USD by 1.0%. Foreign exchange from the USD
provided a lift of $1,275,000 and the impact of the British pound pulled sales up by $106,000.
GROSS PROFIT
Gross profit of $22,298,000 for the fourth quarter of 2023 was 38.9% of net sales compared to 36.2% in
the third quarter of 2023. If we adjust for the impact of foreign exchange this quarters gross margin is
closer to 38.7% compared to the 36.2% in the prior quarter. Earlier price increases are now impacting
our gross margins. These price increases were in anticipation of our annual labor cost increases that
went through in November and January so we will lose some of this upside in the first quarter of 2024.
www.hammondmfg.com
Annual Report 2023 7
MANAGEMENT DISCUSSION AND ANALYSIS
When we compare gross profit levels between the comparative fourth quarter of 2022 and 2023 we can
see a significant increase from 35.4% to 38.9%. The impact of foreign exchange compared to levels in
the fourth quarter of 2022 helped increase margin levels by approximately 2.4%.
SELLING AND DISTRIBUTION, GENERAL AND ADMINISTRATIVE EXPENSES AND
LOSS ON DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT
Fourth quarter selling and distribution, general and administrative expenses and gain / loss on the
disposal of property plant and equipment of $15,029,000 was 26.2% of net product sales for the three
months ended December 31, 2023. This compared with spending of $14,099,000 in the previous quarter
that was 24.7% of net sales. The fourth quarter of 2022 saw spending levels of $13,127,000 which was
23.1% of net sales.
Selling and distribution spending in the fourth quarter of 2023 was $13,089,000 (22.9% of net product
sales) up from $12,448,000 (21.8% of net product sales) in the third quarter of 2023. Freight expenses
were up significantly this quarter. One of our US carriers went bankrupt in the third quarter, and we
expanded the coverage of this area to another carrier. General freight costs increased on top of this in
the quarter.
Selling and distribution spending was up $1,323,000 over the fourth quarter spending of $11,766,000 in
2022 (20.7% of net product sales). Foreign exchange accounts for $252,000 of this increase. As noted
above freight costs have risen over the year and we were also forced to move to another carrier. Freight
cost account for $813,000 of additional spending.
General and administrative expenses of $1,930,000 (3.4% of net product sales) in the fourth quarter is
up 16.9% (or $279,000) over the previous quarter’s spending of $1,651,000 (2.9% of net product sales).
Employee costs account for $126,000 of the increase and bad debt reserve additions accounted for
another $58,000. Insurance expenses were up $31,000. Yearend social events increased spending by
$36,000.
This quarter’s spending was up $572,000 compared to the fourth quarter of 2022 general and
administrative expenses of $1,358,000 (2.4% of net product sales). A legal settlement we received in
the fourth quarter of 2022 had reduced our spending in that quarter by $112,500. Other spending
increases included employee costs up $137,000, placement fees and outside consulting fees are up
$93,000, insurance is up $50,000 which is a function of more asset coverage and IT expenses were up
$75,000.
INCOME FROM OPERATING ACTIVITIES
This quarter income from operating activities was $7,269,000 (12.7% of net product sales). This is up
from the prior quarter of $6,575,000 (11.5% of net product sales) and up from the 2022 fourth quarter
amount of $6,981,000 (12.3% of net product sales).
INTEREST
Fourth quarter net interest expense on bank indebtedness and loans was $587,000 compared to an
expense of $454,000 for the fourth quarter 2022.The comparative borrowing base has grown throughout
the year and is up just over $8.5 million from the end on 2022 to the end of 2023.
www.hammondmfg.com
Annual Report 2023 8
MANAGEMENT DISCUSSION AND ANALYSIS
Net Interest expense is comprised as follows:
Long term debt interest
Bank indebtedness interest
Interest expense
Three Months Ended:
December 31, 2023 December 31, 2022
$
614
$
268
1
186
$
615
$
454
Interest income earned on cash
(29)
-
Net Interest Expense
Interest expense leases
$
586
$
454
$
139
$
133
Total Interest and lease interest expense
$
725
$
587
FOREIGN EXCHANGE TRANSACTIONAL IMPACT
During the fourth quarter of 2023, the Company recognized a gain on transactional foreign exchange of
$191,000 compared to a gain of $329,000 in the three months ended December 31, 2022. The
intercompany balance payable to our US entity accounts is a big driver of this movement. There is an
offset to the intercompany impact found in the foreign exchange translation of foreign operations as the
offsetting US receivable is due from the Canadian entity and is part of the translational adjustment of
the US entities balance sheet on consolidation.
INCOME TAX EXPENSE
Fourth quarter taxes of $1,646,000 is 24.5% of income before taxes which brings the overall years tax
rate to 25.0% of income before taxes.
NET INCOME FOR THE PERIOD
Net income of $5,071,000 (8.9% return on net product sales) was recognized for the fourth quarter
ended December 31, 2023. This is up from a net return of $3,995,000 (7.0% return on net product sales)
in the previous quarter and up from the net return of $4,999,000 (8.8% return on net product sales)
recognized in the fourth quarter of 2022.
FOREIGN EXCHANGE TRANSLATION OF FOREIGN OPERATIONS
The translation adjustment for the fourth quarter of 2023 was a loss of $602,000 compared to a
translation loss of $116,000 in the fourth quarter of 2022.
TOTAL COMPREHENSIVE INCOME
Comprehensive income for the fourth quarter ended December 31, 2023 was $4,469,000 (7.8% of net
product sales) down from the 3 months ended December 31, 2022 of $4,883,000 (8.6% of net product
sales) and down from the previous quarter’s total comprehensive income of $4,532,000 (7.9% of net
product sales).
www.hammondmfg.com
Annual Report 2023 9
MANAGEMENT DISCUSSION AND ANALYSIS
FULL YEAR RESULTS
NET PRODUCT SALES
Net product sales of $238,285,000 in 2023 were up 5.5% compared to net sales of $225,922,000
reported in 2022. Foreign exchange had a positive impact on year-over-year reporting by approximately
$5,799,000, 2.6% of the sales increase. Our Canadian market is flat compared to 2022 while the US
market is up 6.2% when measured in USD. Due to the impact of foreign exchange the US sales are up
10.1% when measured in CAD. The rest of the world’s activity is down approximately 6.0%. This
segment is mostly made up of our UK & European sales.
GROSS PROFIT
In 2023, gross profit was $86,206,000 or 36.2% of net product sales compared to $71,631,000 or 31.7%
achieved in 2022. If we remove the foreign exchange impact in 2023, gross margin would be closer to
33.7%. Price increases that went in throughout 2022 have held and offset cost increases we have seen
from our vendors throughout the year providing a positive impact on our gross margin levels.
SELLING AND DISTRIBUTION, GENERAL AND ADMINISTRATIVE, AND LOSS ON
DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT
Selling and distribution, general and administrative including the net impact of the disposal of property,
plant and equipment of $58,118,000 (24.4% of net product sales) was up 11.4% compared to the 2022
spend of $52,189,000 (23.1% of net product sales). 2.0% or $1,035,000 of the increase can be attributed
to foreign exchange. This compares to a year-over-year sales increase of 5.5%.
Selling and distribution expenses of $51,018,000 increased $4,964,000 or 10.8% compared to 2022.
Foreign exchange had the impact of increasing comparative costs by $945,000. Including the foreign
exchange impact, freight expenses are up $2,082,000 or 10.5%. Freight costs were running higher in
the first three quarters of 2023 and jumped significantly in the fourth quarter as we had to change one
of our main US freight vendors in the last quarter of the year. Our existing vendor went into bankruptcy,
and we had to redistribute this area to another more expensive carrier. Employee expenses are up
$827,000 and commissions are up $940,000.
Our general and administrative expenses of $7,230,000 were up $1,110,000 or 18.1% compared to
2022 spending levels of $6,120,000. Foreign exchange had the impact of increasing comparative costs
by $90,000. Employee costs are up $310,000. Legal and professional fees were up $87,000 as a suit
against the company was closed out in 2022 and we were awarded $112,500 toward our defense costs
at that time. IT software and hardware expenses were up $244,000 as we continue to strengthen our
overall infrastructure and in 2023 we upgraded our ERP system in our UK offices.
This year we saw a net gain of $130,000 on the disposal of property, plant and equipment. This
compares to a net loss on disposals of $15,000 recognized in 2022.
INCOME FROM OPERATING ACTIVITIES
Overall, 2023 income from operating activities was $28,088,000 (11.8% of net product sales) which is
up compared to 2022 earnings of $19,442,000 (8.6% of net product sales).
INTEREST
Net interest expense on bank indebtedness and loans was $2,508,000 compared to an expense of
$1,372,000 for 2022. The comparative borrowing base has increased throughout the year and is up
almost $8.5 million from the end of 2022 to the end of 2023.
www.hammondmfg.com
Annual Report 2023 10
MANAGEMENT DISCUSSION AND ANALYSIS
The following is a breakdown of the interest expenses.
Long term debt interest
Bank indebtedness interest
Interest expense
December 31, 2023 December 31, 2022
$
1,668
$
1,032
880
340
$
2,548
$
1,372
Interest income earned on cash
(40)
-
Net Interest Expense
Interest expense leases
$
2,508
$
1,372
$
544
$
566
Total Interest and lease interest expense
$
3,052
$
1,938
FOREIGN EXCHANGE TRANSACTIONAL IMPACT
A $29,000 foreign exchange transactional gain was reported in 2023, compared to a transactional loss
of $1,270,000 in 2022. The Canadian dollar opened 2022 at $1.00 USD to $1.268 CAD closed 2022 at
$1.00 USD to $1.354 CAD. The value fluctuated through the year closing2023 at $1.00 USD to $1.323
CAD. In 2023 the average rate was $1.00 USD to $1.350 CAD level.
A large portion of the transactional impact is from our intercompany receivable. Our Canadian entity has
a payable to our US entity in US dollars. This is offset in translational gains of other foreign operations.
INCOME TAX EXPENSE
2023 tax expenses of $6,238,000 were 25.0% of income before income tax. This compares to a 2022
tax expense of $4,032,000 which was 25.1% of income before income tax.
NET INCOME FOR THE YEAR
Net income for the year ended December 31, 2023 was $18,761,000 (7.9% of net product sales)
compared to the prior year net income of $12,003,000 (5.3% of net product sales).
FOREIGN EXCHANGE TRANSLATION OF FOREIGN OPERATIONS
During 2023, a loss of $627,000 on translational foreign exchange was recorded compared to a gain of
$1,530,000 in 2022. As noted earlier a large part of the transactional impact is offset by the foreign
exchange transactional impact of intercompany loans.
TOTAL COMPREHENSIVE INCOME
Comprehensive income for 2023 was $18,134,000 (7.6% of net product sales) this compared to
comprehensive income of $13,533,000 (6.0% of net product sales) in 2022.
www.hammondmfg.com
Annual Report 2023 11
MANAGEMENT DISCUSSION AND ANALYSIS
SELECTED ANNUAL INFORMATION
Consolidated Statements of Comprehensive Income
2023
2022
2021
Net product sales
Income from operating activities
Net income for the year
Per share - basic & fully diluted
net earnings for the year
$
238,285
$
225,922
$
190,128
28,088
18,761
19,442
12,003
11,773
7,702
$1.66
$1.06
$0.68
Consolidated Statement of Financial Position
2023
2022
2021
Total assets
Total funded debt and lease liabilities
Working capital
Net cash generated from operating activities
Dividends declared and paid
Shareholders' equity
$
$
$
189,132
56,451
43,075
16,895
680
98,999
168,005
48,392
32,665
4,824
680
81,545
136,976
35,533
32,786
14,923
453
68,692
$
$
$
CAPITAL RESOURCES AND LIQUIDITY
Net cash generated in operating activities for 2023 was $16,895,000 (net cash generated in 2022 -
$4,824,000). Cash flows from financing activities generated $5,195,000 (2022 – financing activities
generated $11,091,000). Net cash used in investing activities was $13,624,000 (2022 - $20,158,000).
Trade and other receivables of $30,856,000 as at December 31, 2023 have increased 2.8% compared
to the 2022 year end. The increase can be attributed to higher sales in the corresponding periods.
The year-end investment in inventory of $67,552,000 saw an increase of 6.8% from the 2022 inventory
value of $63,267,000. Inventory turnover decreased to 2.3 from 2.8 (cost of sales for the year divided
by the twelve-month average inventory level). Turns of 2 to 3 reflect our historical levels. Our value
statement hinges on having our standard product on our shelves.
Trade and other liabilities decreased by $4,794,000, or 16.2% over 2022 to $24,815,000. At year end
2022 we had accrued expenses of $2,530,000 toward our new facility project. Total long-term debt,
lease liabilities and bank indebtedness increased by $8,059,000 over the prior year to $56,451,000. This
was driven by our investment in our new facility. Our debt-to-equity ratio at year-end (excluding lease
liabilities) was approximately 0.46:1 (2022 - 0.45:1). Debt-to-equity calculated inclusive of the lease
liabilities was 0.57:1 (2022 – 0.59:1). Debt is made up of Bank Indebtedness, Long-term Debt and Lease
Liabilities. In July of 2023 the company fixed $26,000,000 in long-term debt secured against some of
our properties. The debt will be amortized over 25 years and has a fixed rate of 6.25% for the first 5
years.
Total dividends paid in 2023 were $680,000 (2022 - $680,000).
Property, plant, equipment and intangible asset additions excluding right of use assets in 2023 were
$13,764,000 down from $20,218,000 in 2022. The Company spent $4,275,000 (2022 - $14,514,000) on
land, building and leasehold improvements. $1,060,000 (2022 - $198,000) was invested toward
replacing machinery and equipment, $7,090,000 (2022 - $5,078,000) was invested toward machinery
and equipment for capacity growth, $804,000 (2022 - $339,000) was invested in tooling, $424,000 (2022
- $40,000) was invested in office equipment. $75,000 (2022– $49,000) was spent on software and
development costs. 2023 spending on product development of $36,000 compared with $nil in 2022.
www.hammondmfg.com
Annual Report 2023 12
MANAGEMENT DISCUSSION AND ANALYSIS
The overall cash position increased by $7,948,000 in 2023 compared to a cash position decrease of
$3,127,000 in 2022. The company took the opportunity to fix interest rates on debt before additional rate
increases went through in 2023. The excess cash will be utilized to fund future growth projects.
In the second quarter of this year the company renewed the lease of one of our production facilities
comprising of approximately 26,454 sq. ft. The lease will run until May 31, 2028, and has a renewal
option for an additional 5 years. The adjustment to the present value of the lease liability and Right-of-
use asset was $1,507,000.
In the fourth quarter of this year the company renewed the lease of one of our sales offices comprising
of approximately 2,237 sq ft. The lease will run until Dec 31, 2028, and has a renewal option for an
additional 5 years. The adjustment to the present value of the lease liability and Right-of-use asset was
$140,000.
The Company is in compliance with all the bank covenants, and the credit facilities are well designed to
meet expected on-going requirements.
As at December 31, 2023 the contractual obligations showing demand loans as current was as follows.
Contractual obligations
(In thousands)
Current 1-2 Years 2-3 Years 3-4 Years 4-5 Years
After 5
Years
Total
Long-term debt
Lease Liabilities
$
44,727
$
38,428
$
1,404
$
1,476
$
1,551
$
1,553
$
315
11,293
2,435
2,529
1,825
1,084
869
2,551
Total contractual obligations
$
56,020
$
40,863
$
3,933
$
3,301
$
2,635
$
2,422
$
2,866
As at December 31, 2023 the contractual obligations based on repayment not being called early.
Contractual obligations
(In thousands)
Current 1-2 Years 2-3 Years 3-4 Years 4-5 Years
Total
After 5
Years
Long-term debt
Lease Liabilities
$
44,727
$
3,740
$
4,726
$
8,414
$
2,082
$
25,450
$
315
11,293
2,435
2,529
1,825
1,084
869
2,551
Total contractual obligations
$
56,020
$
6,175
$
7,255
$
10,239
$
3,166
$
26,319
$
2,866
In addition to the contractual obligations above, the Company has current obligations of $395,000 (2022
- $9,959,000) against open purchase orders for outstanding capital expenditures.
The Company also has open purchase commitments with RITEC as at December 31, 2023 of $452,000
(2022 - $2,805,000). These expenditures should be completed in the first half of 2024.
SHARE CAPITAL
As of March 5, 2023, 8,556,000 Class A subordinate voting shares and 2,778,300 Class B common
shares were issued and outstanding. The Company also has a management share option plan, with no
options currently outstanding.
EBITDA
EBITDA for 2023 was $36,500,000. This showed improvement over EBITDA of $25,535,000 achieved
in 2022.
EBITDA adjusted for transactional impact of foreign exchange was $36,471,000 in 2023 compared to
an adjusted EBITDA of 26,805,000 in 2022. EBITDA and adjusted EBITDA is calculated as outlined in
the following table:
www.hammondmfg.com
Annual Report 2023 13
MANAGEMENT DISCUSSION AND ANALYSIS
Reconciliation of Net Earnings to Earnings Before Interest, Taxes Depreciation and Amortization
(EBITDA)*.
(In thousands of Canadian dollars)
Years Ended:
Three Months Ended:
Net income for the period
Add
Income tax expense
Depreciation and amortization
Right-of-use depreciation
Finance costs on debt
Right-of-use finance costs
Subtotal
EBITDA*
Add:
FX transactional loss (gain)
December 31,
2023
18,761
$
December 31,
2022
12,003
$
December 31,
2023
5,071
$
December 31,
2022
4,999
$
6,238
5,769
2,680
2,508
544
17,739
4,032
4,748
2,814
1,372
566
13,532
1,646
1,435
684
586
139
4,490
1,633
1,144
714
454
133
4,078
$
36,500
$
25,535
$
9,561
$
9,077
(29)
1,270
(191)
(329)
Adjusted EBITDA *
$
36,471
$
26,805
$
9,370
$
8,748
* EBITDA and Adjusted EBITDA are non-IFRS earnings measures, therefore they do not have any
standardized meaning prescribed by International Financial Reporting Standards and may not be similar
to measures presented by other companies. EBITDA represents earnings before interest, income taxes,
depreciation and amortization. Adjusted EBITDA removes the impact of foreign exchange transactional
so management can assess the impact of this on the operating results. Management uses these
measurements to evaluate the operating results of the Company. These measures are also important
to management since they are used by the Company’s lenders to evaluate the ongoing cash generating
capability of the Company and therefore the amounts those lenders are willing to lend to the Company.
Investors find EBITDA and Adjusted EBITDA to be useful information because they provide measures
of the Company’s operating performance.
ENVIRONMENTAL ISSUES
The Glen Ewing Property is a 50% co-tenancy with Hammond Power Solutions Inc. (HPSI) of a vacant
property located at 2 Glen Road, Georgetown. The soil has been contaminated by diesel oil, which is
believed to be related to site operations of prior owners. The Company and HPSI, as co-tenants, have
been working co-operatively with our environmental consultant, the Ministry of Environment and the
adjacent property owner to contain and remove any free-flowing contaminants. The Company’s share
of expenses for legal and consulting work for 2023 related to this property was $78,000 (2022 -
$148,000).
The parties started remediation of the site in October 2009. The Company has relied on its consultant’s
best estimate for the remaining environmental remediation costs. The remediation plan’s intent is to
contain and collect any mobile pollutants. It does not include obtaining a record of site condition. Our
provision covers the next four years’ activities. The Company’s remaining portion of environmental
remediation costs for this site is $225,000 (2022 - $225,000) with $80,000 (2022 - $80,000) presented
as a current liability in the consolidated financial statements.
A third-party statement of claim was issued on March 6, 2019, against the Company with respect to an
adjacent property to one of our Waterloo facilities. The claim alleges that contaminants originating from
our property have migrated to the adjoining property owned by the claimants. The amount of the claim
is estimated at $160,000 to $670,000. Our records do not show any spills of chemicals at this location
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Annual Report 2023 14
MANAGEMENT DISCUSSION AND ANALYSIS
and management is unable to reasonably estimate any liability that may arise as a result of this claim.
As such, no amount has been recorded in these condensed consolidated financial statements.
Other than the above noted sites, management is not aware of any unusual or significant environmental
issues.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements in conformity with IFRS requires management to make estimates
and assumptions that affect the application of accounting policies and the reported amount of assets,
liabilities, income and expense. Actual results may differ from these estimates. Revisions to accounting
estimates are recognized in the period in which the estimates are revised and in any future periods
affected. Management periodically reviews its estimates and underlying assumptions relating to the
following items:
i)
Inventory
Inventories are valued at the lower of cost or net realizable value. When necessary, the
write-down of inventory to its net realizable value is recorded as a result of industry
conditions. We have made certain assumptions when determining expected future demand
by utilizing information such as inventory quantities and aging, historical sales of inventory
and general market understanding. Reductions in demand for certain of our inventories or
declining market values, as well as differences between actual results and the assumptions
utilized by us when determining the market value of our inventories, could result in the
recognition of write-down expenses in future periods.
ii) Amortization
Management makes estimates of the appropriate useful lives to be assigned to intangible
assets based on the individual circumstances of an acquisition. Management reviews the
appropriateness of the lives assigned and makes adjustments prospectively, where
necessary.
iii) Impairment tests
Management makes estimates of sustainable earnings, future expected cash flows and
discount rates in the determination of the value-in-use or fair value less costs of disposal of
cash-generating units (“CGUs”).
iv) Provision against accounts receivable
Management makes estimates on the expected credit losses (“ECLs”) of accounts
receivable balances based on customer specific facts and circumstances as well as past
experience of write-offs. Changes in the economic conditions in which the Company’s
customers operate and their underlying financial stability may impact these estimates.
v) Employee future benefits
Management estimates the discount rates, retirement age and future costs of benefits
associated with providing future employee benefits and exercises judgment to determine
how many employees will utilize these benefits.
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Annual Report 2023 15
MANAGEMENT DISCUSSION AND ANALYSIS
vi) Tax assets
Deferred tax assets and liabilities contain estimates about the nature and timing of future
permanent and temporary differences as well as the future tax rates that will apply to those
differences. Changes in tax laws and rates as well as changes to the expected timing of
reversals may have a significant impact on the amounts recorded for deferred tax assets
and liabilities. Management closely monitors current and potential changes to tax law and
bases its estimates on the best available information at each reporting date.
vii) Depreciation
Management estimates future residual values and the rate at which the useful lives of
property and equipment are consumed to determine appropriate depreciation charges.
Estimates of residual value and useful lives are based on data and information from various
sources, including vendors, industry practice and Company-specific history. Management
reviews the appropriateness of the lives assigned and makes adjustments prospectively,
where necessary.
viii) Property value
Management estimates the value of the investment property to assess if impairment has
occurred. The estimate is made by reviewing local land prices and current sales of similar
properties as well as property tax value assessment.
ix) Environmental remediation:
Management estimates the value to complete the remediation project on the Glen Ewing
Property each year by reviewing the project status and activities still to be completed. Any
changes to the project scope are updated in the cost estimation model and any change in
the required reserve is recorded in the current year.
x) Sales returns:
Management estimates the value of product that will be returned based on a historical
analysis. Any change to the estimate is recorded as a reduction of revenue in the current
period.
xi) Leases:
For the purpose of initial and subsequent measurement of leases the Company utilizes a
discounted interest rate in the lease that is readily available or the Groups incremental
borrowing rate. The group also utilizes its best estimate of any costs to dismantle and
remove the asset at the end of the lease.
Use of judgments:
The preparation of financial statements in conformity with IFRS requires management to make
judgments that affect the application of accounting policies and the interpretation of accounting
standards. Management periodically reviews its judgments and underlying assumptions relating
to the following items:
xii) Provision for claims
Judgment is exercised in deciding whether a liability for a claim meets the criteria of a
present obligation and in assessing the probability of the outflow of economic resources.
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Annual Report 2023 16
MANAGEMENT DISCUSSION AND ANALYSIS
xiii) Leases
The Company exercises judgement as to whether it is likely to extend the term of the lease
when the option is provided.
xiv) Impairment tests
Management exercises judgment to determine whether there are factors that would indicate
that an asset or a CGU is impaired. The determination of CGUs is also based on
management’s judgment and is an assessment of the smallest group of assets that generate
cash inflows independently of other assets. Factors considered include whether an active
market exists for the output produced by the asset or group of assets as well as how
management monitors and makes decisions about the Company’s operations.
CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant
information is gathered and reported to management on a timely basis so that appropriate decisions can
be made regarding public disclosure.
The purpose of internal controls over financial reporting as defined by the Canadian Securities
Administrators is to provide reasonable assurance that:
(i)
financial statements prepared for external purposes are in accordance with the Company's
Generally Accepted Accounting Principles,
(ii) transactions are recorded as necessary to permit the preparation of financial statements, and
records are maintained in reasonable detail,
(iii) receipts and expenditures of the Company are made only in accordance with authorizations of
the Company's management and directors, and
(iv) unauthorized acquisitions, uses or dispositions of the Company's assets that could have a
material effect on the financial statements will be prevented or detected in order to prevent
material error in financial statements.
Internal controls over financial reporting, no matter how well designed have inherent limitations.
Therefore, internal control over financial reporting determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and may not prevent or detect all
misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Evaluation of Disclosure Controls and Procedures:
Management is responsible for establishing and maintaining disclosure controls and procedures. Under
the supervision and with the participation of the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), management evaluated the effectiveness of the Company’s disclosure controls and procedures.
Disclosure controls and procedures are designed to provide reasonable assurance that information
required to be disclosed in annual filings, interim filings or other reports filed or submitted by the
Company under securities legislation is recorded, processed, summarized and reported within the time
periods specified in the securities legislation and include controls and procedures designed to ensure
that information required to be disclosed in the annual filings, interim filings or other reports filed or
submitted under securities legislation is accumulated and communicated to management, including the
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Annual Report 2023 17
MANAGEMENT DISCUSSION AND ANALYSIS
Company’s certifying officers, as appropriate to allow timely decisions regarding required disclosure.
Management concluded that the Company’s disclosure controls and procedures were effectively
designed and are operating effectively as at the December 31, 2023 year end.
Evaluation of Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining internal control over financial reporting.
Under the supervision and with the participation of the Company’s CEO and the CFO, management
evaluated the effectiveness of the Company’s internal control over financial reporting. Internal control is
a process designed by, or under the supervision of, an issuer’s certifying officers, and effected by the
issuer’s board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS and includes those policies and procedures that: (a) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (b) are designed to provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with
the IFRS, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (c) are designed to provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the annual financial statements or interim financial
statements. The CEO and CFO did not identify any material weaknesses in their evaluation of internal
control, and concluded that the Company’s internal control over financial reporting was effective, as at
December 31, 2023.
RISKS AND UNCERTAINTIES
As with most businesses, the Company is subject to a number of marketplaces, industry and economic
related business risks, which could have some material impact on our operating results.
These risks include:
• Security Breaches or Disruptions of Information Technology Systems Risk;
• Key personnel;
• The cyclical effects, unpredictability and volatility of market driven commodity costs, raw
materials such as copper and steel pricing and supply and demand;
• A significant, unexpected change in the global demand for resources;
• The variability of the Canadian dollar versus the US dollar;
• Rising interest rates;
• Economic slowdown in the US and Canada;
• Trade restrictions;
•
Labour costs and labour relations;
• Competition; and
• Global political unrest;
• Pandemics
The Company continuously works to minimize the negative impact of these risks and strengthen its
position through diversification of its core business, market channel expansion, geographic diversity of
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Annual Report 2023 18
MANAGEMENT DISCUSSION AND ANALYSIS
its operations and business hedging strategies. There are, however, several risks that deserve particular
attention.
Security Breaches or Disruptions of Information Technology Systems Risk
The Corporation utilizes a variety of information technology systems to manage and operate its
businesses. These information systems may be owned and maintained by the Corporation, outsource
providers or third parties such as customers, vendors and contractors. These information systems are
subject to attacks, failures, and access denials from a number of potential sources including viruses,
destructive or inadequate code, power failures, and physical damage to computers, hard drives,
communication lines and networking equipment. Despite the implementation of extensive security
measures (including access controls, data encryption, vulnerability assessments, continuous
monitoring, and maintenance of back-up and protective systems), the Corporation’s information
technology systems are potentially vulnerable to interruptions or delays, unauthorized access, computer
viruses, cyber-attack and other events, ranging from individual attempts to advanced persistent threats.
It is possible a security breach could result in theft of trade secrets or other intellectual property or
disclosure of confidential customer, supplier or employee information. Should the Corporation be unable
to prevent security breaches, disruptions could have an adverse effect on the Corporation’s operations
and financial results, as well as expose the Corporation to litigation, increased cyber security protection
costs, and reputational damage.
Key Personnel
The Company is dependent on the experience and industry knowledge of its executive officers and other
key employees to execute its business plan. If the Company were to experience a substantial turnover
in its leadership or other key employees, business results from operations and financial condition could
be materially adversely affected.
Commodity Prices
An area that has had a definite effect on the Company’s costs and earnings is the cyclical effects and
unprecedented market cost pressures of copper commodity and steel pricing in the global market. Due
to this unpredictability and volatility, particularly with copper pricing, the Company does not currently
utilize future contracts. Strategic supply line agreements and alliances are in place with our major steel
suppliers to ensure adequate supply and competitive market pricing.
Foreign Exchange
The Company’s operating results are reported in Canadian dollars. A significant portion of our sales is
denominated in US dollars. A change in the value of the Canadian dollar against the US dollar will impact
revenues and earnings. We have created a bit of a natural hedge as this is partially offset by a
corresponding change in the cost of materials purchased from the US and commodities tied to US dollar
pricing. In general, a lower value for the Canadian dollar compared to the US dollar will have a beneficial
impact on the Company’s results; or, inversely, a higher value for the Canadian dollar compared to the
US dollar will have a negative impact on the Company’s profitability. In a sensitivity review, if we did not
react in any way to a one cent change in the value of the Canadian to US dollar value it would have an
approximate impact on income from operations of $1,104,000 for each cent movement. The Company
also has a US operating subsidiary and US dollar assets. The exchange rate between the Canadian and
US dollar can vary significantly from year to year. There is a corresponding positive or negative impact
to the Company’s Consolidated Statements of Comprehensive Income solely related to the foreign
exchange translation of its Consolidated Statements of Financial Position. We have partially reduced
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Annual Report 2023 19
MANAGEMENT DISCUSSION AND ANALYSIS
the impact of foreign exchange fluctuations through increasing our US dollar driven manufacturing
output. Finally, the Company periodically institutes price increases / reductions to help offset the
negative / positive impact of changes in foreign exchange and product cost increases / decreases. The
Company is also exposed to the impact from the British pound sterling and Euro as well as to the
Australian dollar but not to the level of exposure of the US dollar.
Interest Rates
Bank indebtedness makes up close to 39.4% of the Company’s debt financing (excluding Right of use
obligations). The interest rates have climbed significantly in 2022 as governments try to fight inflation.
The Company is cognizant that a rise in interest rates negatively impacts the financial results of the
Company. The Company continuously reviews this strategy of hedging this risk by fixing interest rates
on part of its total debt.
North American Economy
We will continue to react to the market conditions to grow our business. Our efforts over the next 12
months will continue to be on projects that will reduce our costs and improve our manufacturing flexibility.
We believe that being nimble as an organization will become even more important in order to respond
quickly to both unexpected opportunities as well as challenges. We also believe that our growing access
to a variety of markets both global and domestic through our OEM and distributor channels will help the
Company expand market share.
Global Political Unrest
Today’s politics can have significant repercussions on business. Issues are constantly changing, and
management has to assess the potential outcomes of the different issues and be prepared to react or
mitigate anything that would have a negative impact on our business.
PANDEMICS
Global Pandemics such as the COVID outbreak that started in 2020 can have dramatic impacts on
markets as supply chains, labour forces, logistics etc. become susceptible to disruption. It is important
to get out in front of these situations and be prepared to react to mitigate the issues as they arise.
ACCOUNTING POLICY CHANGES
International Accounting Standards Board (IASB) has
the
The
Interpretations and Amendments to Standards that were adopted by the Group.
issued
following Standards,
Definition of Accounting Estimates (Amendments to IAS8)
On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to
IAS8). The amendments introduce a new definition for accounting estimates, clarifying that they
are monetary amounts in the financial statements that are subject to measurement uncertainty.
The amendments also clarify the relationship between accounting policies and accounting
estimates by specifying that a company develops an accounting estimate to achieve the
objective set out by an accounting policy.
The amendments were adopted January 1, 2023. The impact of adoption of these amendments
did not have a material impact on the financial statements.
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Annual Report 2023 20
MANAGEMENT DISCUSSION AND ANALYSIS
Disclosure initiative – Accounting Policies (Amendments to IAS 1)
On February 12, 2021, the IASB issued amendments to IAS 1 Presentation of Financial
Statements and an update to IFRS Practice Statement 2 Making Materiality Judgements to help
companies provide useful accounting policy disclosures.
The key amendments to IAS 1 include a requirement for companies to disclose their material
accounting policies rather than their significant accounting policies; clarifying that accounting
policies related to immaterial transactions, other events or conditions are themselves immaterial
and as such need not be disclosed; and clarifying that not all accounting policies that relate to
material transactions, other events or conditions are themselves material to a company’s
financial statements.
The amendments were adopted January 1, 2023. The impact of adoption of these amendments
did not have a material impact on the financial statements.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction
(Amendments to IAS 12 Income Taxes)
On May 7, 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
The amendments narrow the scope of the initial recognition exemption (IRE) so that it does not
apply to transactions that give rise to equal and offsetting temporary differences. As a result,
companies will need to recognize a deferred tax asset and a deferred tax liability for temporary
differences arising on initial recognition of a lease and a decommissioning provision.
The amendments were adopted January 1, 2023. The impact of adoption of these amendments
did not have a material impact on the financial statements.
Future Accounting Changes
At the date of authorization of these financial statements, several new, but not yet effective, Standards
and amendments to existing Standards, and Interpretations have been published by the IASB. None of
these Standards or amendments to existing Standards have been adopted early by the Group and it is
still to be determined if any will have a material impact on the Group’s financial statements.
Lease Liability in a Sale and Leaseback (Amendments to IFRS 16
On September 22, 2022, the IASB issued Lease Liability in a Sale and Leaseback (Amendments
to IFRS 16). The amendments introduce a new accounting model which impacts how a seller-
lessee accounts for variable lease payments that arise in a sale-and-leaseback transaction.
The amendments are effective for annual periods beginning on or after January 1, 2024. Early
adoption is permitted.
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial
Statements, to clarify the classification of liabilities as current or non-current. On October 31,
2022, the IASB issued Non-current Liabilities with Covenants (amendments to IAS 1), to
improve the information a company provides about long-term debt with covenants.
The amendments are effective for annual periods beginning on or after January 1, 2024. Early
adoption is permitted.
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Annual Report 2023 21
MANAGEMENT DISCUSSION AND ANALYSIS
Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7)
On May 25, 2023, the IASB issued amendments to IAS 7 Statement of Cash Flows and IFRS 7
Financial Instruments: Disclosures. The amendments introduce two new disclosure objectives
– one in IAS 7 and another in IFRS 7 – for a company to provide information about its supplier
finance arrangements that would enable users (investors) to assess the effects of these
arrangements on the company’s liabilities and cash flows, and the company’s exposure to
liquidity risk.
The amendments are effective or periods beginning on or after 1 January 2024, with early
application permitted. However, some relief from providing certain information in the year of
initial application is available.
Management anticipates that all relevant pronouncements will be adopted for the first period beginning
on or after the effective date of the pronouncement. New Standards, amendments and Interpretations
not adopted in the current year have not been disclosed as they are not expected to have a material
impact on the Group’s financial statements.
OUTLOOK FACTORS FOR 2024
The feedback we have from our North American markets is that we will see growth in the low-single digit
area in 2024 compared to the level of activity we experienced in the latter half of 2023. Our UK and
European markets remain weak and we are watching this closely and will react accordingly.
The current outlook for the US dollar is that it will weaken from today’s levels. A weaker US dollar will
lower our return on sales in our US markets. We continue to competitively price our products and
stimulate market share growth.
The Company continues with the objective of sales growth and increased market share but will weigh
this against achieving acceptable margins.
Capital spending will continue to be focused on high impact projects as accommodated by cash flows.
Our primary focus continues to be on productivity and margin improvement.
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Annual Report 2023 22
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements are the responsibility of the management of Hammond
Manufacturing Company Limited. These statements have been prepared in accordance with IFRS
Accounting Standards, using management’s best estimates and judgments, where appropriate.
Management is responsible for the reliability and integrity of the consolidated financial statements, the
notes to the consolidated financial statements and other financial information contained in the report. In
the preparation of these statements, estimates are sometimes necessary because a precise
determination of certain assets and liabilities is dependent on future events. Management believes such
estimates have been based on careful judgment and have been properly reflected in the accompanying
consolidated financial statements.
Management is responsible for the maintenance of a system of internal controls designed to provide
reasonable assurance that the assets are safeguarded and that accounting systems provide timely,
accurate and reliable financial information.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial
reporting and internal control. The Board of Directors is assisted in exercising its responsibilities through
the Audit Committee of the Board, which is composed of four non-management directors. The Audit
Committee meets periodically with management and the auditors to satisfy itself that management’s
responsibilities are properly discharged, to review the consolidated financial statements and to
recommend approval of the consolidated financial statements to the Board of Directors.
KPMG LLP, the independent auditors appointed by the shareholders, has audited the Company’s
consolidated financial statements in accordance with Canadian generally accepted auditing standards
and their report follows. The independent auditors have full and unrestricted access to the Audit
Committee to discuss their audit and related findings as to the integrity of the financial reporting process.
R.F. Hammond
A. Stirling
Chairman & CEO
Secretary & CFO
Guelph, Ontario
March 5, 2024
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Annual Report 2023 23
KPMG LLP
120 Victoria Street South
Suite 600
Kitchener, ON N2G 0E1
Canada
Telephone 519 747 8800
Fax 519 747 8811
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Hammond Manufacturing Company Limited
Opinion
We have audited the consolidated financial statements of Hammond Manufacturing Company
Limited (the Company), which comprise:
the consolidated statements of financial position as at December 31, 2023 and 2022
the consolidated statements of comprehensive income for the years then ended
the consolidated statements of changes in equity for the years then ended
the consolidated statements of cash flows for the years then ended
and notes to the consolidated financial statements, including a summary of material accounting
policy information
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Company as December 31, 2023 and 2022, and its consolidated
financial performance and its consolidated cash flows for the years then ended in accordance with
IFRS Accounting Standards.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the “Auditor’s Responsibilities for
the Audit of the Financial Statements” section of our auditor’s report.
We are independent of the Company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in Canada and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated
with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP
Annual Report 2023 24
Page 2
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements for the year ended December 31, 2023. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated
in our auditor’s report.
Evaluation of the write-down of inventory for excess or obsolescence
Description of the matter
We draw attention to notes 2(d)(i), 3(c) and 5 to the financial statements. The Company has
inventory with a carrying value of $67,552 thousand. Inventory is valued at the lower of cost or net
realizable value. When necessary, the Company will write-down inventory to its net realizable value.
The determination of net realizable value requires the Entity to make certain assumptions including
forecasted demand.
Why the matter is a key audit matter
We identified the evaluation of the write-down of inventory for excess and obsolescence as a key
audit matter. There is a high degree of estimation uncertainty as well as complexity in predicting
forecasted demand. Significant auditor judgement was required to evaluate the results of our audit
procedures due to the estimation uncertainty associated with the determination of net realizable
value.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We evaluated the Entity’s ability to accurately forecast demand by comparing the Entity’s prior year
expectations of forecasted demand to actual sales data, inventory usage, and publicly available
industry outlook reports.
Other Information
Management is responsible for the other information. Other information comprises:
the information included in Management’s Discussion and Analysis filed with the relevant
Canadian Securities Commissions.
the information, other than the financial statements and the auditor’s report thereon, included in
a document entitled “Annual Report”.
Our opinion on the financial statements does not cover the other information and we do not and will
not express any form of assurance conclusion thereon.
Annual Report 2023 25
Page 3
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for
indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions and the Annual Report as at the date of this auditor’s
report. If, based on the work we have performed on this other information, we conclude that there
is a material misstatement of this other information, we are required to report that fact in the auditor’s
report.
We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS Accounting Standards, and for such internal control as management
determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern and
using the going concern basis of accounting unless management either intends to liquidate the
Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of the financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
Annual Report 2023 26
Page 4
We also:
Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting
intentional omissions,
misrepresentations, or the override of internal control.
involve collusion,
from error, as
fraud may
forgery,
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Company's ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future events or conditions may cause the
Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
Communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
Provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group Entity to express an opinion on the financial statements. We
are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
Annual Report 2023 27
Page 5
Determine, from the matters communicated with those charged with governance, those matters
that were of most significance in the audit of the financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law
or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our auditor’s report
because the adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditor’s report is Matthew Betik.
Kitchener, Canada
March 5, 2024
Annual Report 2023 28
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
Note December 31, 2023 December 31, 2022
Assets
Current assets:
Cash
Trade and other receivables
Income taxes receivable
Inventories
Prepaid expenses
Total current assets
Non-current assets:
Property, plant and equipment
Intangible assets and goodwill
Right-of-use assets
Investment property
Equity investment
Total non-current assets
Total assets
Liabilities
Current liabilities:
Bank indebtedness
Trade and other payables
Income taxes payable
Current portion of provisions
Current portion of employee future benefits
Current portion of long-term debt
Current portion of lease liabilities
Total current liabilities
Non-current liabilities:
Provisions
Employee future benefits
Long-term debt
Lease liabilities
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Equity:
Share capital
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Total equity
$
4, 26
5
8,890
30,856
799
67,552
1,890
109,987
66,817
383
10,378
1,044
929
79,551
$
942
30,014
-
63,267
1,859
96,082
57,286
347
12,423
1,044
823
71,923
$
189,538
$
168,005
$
431
24,815
406
260
137
38,428
2,435
66,912
145
336
6,299
8,858
7,989
23,627
90,539
10,249
290
2,786
85,674
98,999
$
14,446
29,609
2,481
220
114
13,962
2,585
63,417
145
286
8,236
9,163
5,213
23,043
86,460
10,249
290
3,413
67,593
81,545
6
7
8
9
10
11
14
15
16
12
8
15
16
12
8
17
19
Total liabilities and equity
$
189,538
$
168,005
The notes on pages 33 to 65 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2023 29
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars, except earnings per share)
For The Years Ended December 31,
Note
2023
2022
Net product sales
Cost of sales
Gross profit
Selling and distribution
General and administrative
(Gain) Loss on disposal of property, plant and equipment
Income from operating activities
Net interest expense
Interest expense leases
Foreign exchange gain (loss)
Net finance expense
Share of profit (loss) of equity accounted investees
Share of expenses from investment property
Income before income tax
Income tax expense
27
$ 238,285
$ 225,922
152,079
86,206
154,291
71,631
51,018
7,230
(130)
28,088
(2,508)
(544)
29
(3,023)
12
(78)
24,999
6,238
46,054
6,120
15
19,442
(1,372)
(566)
(1,270)
(3,208)
(51)
(148)
16,035
4,032
13
13
10
9
18
Net income for the period
$ 18,761
$ 12,003
Other comprehensive Income (loss):
Foreign currency translation for foreign operations, net of income tax
(627)
1,530
Total comprehensive income for the period
$ 18,134
$ 13,533
Earnings per share
Basic earnings per share
Diluted earnings per share
22
22
$ 1.66
$ 1.66
$ 1.06
$ 1.06
The notes on pages 33 to 65 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2023 30
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Changes in Equity
For the years December 31, 2023 and December 31, 2022
(in thousands of Canadian dollars)
Attributable to equity holders of the Company
Share
Capital
Contributed
Surplus
AOCI**
Retained
earnings
Total
equity
Balance at January 1, 2022
$
10,249
$
290
$
1,883
$
56,270
$
68,692
Net income for the year
Other comprehensive income:
Foreign currency translation differences
Total comprehensive income for the year
Transactions with owners, recorded directly in equity:
Dividends to equity holders
-
-
-
-
-
-
-
-
-
12,003
12,003
1,530
-
1,530
1,530
12,003
13,533
-
(680)
(680)
Balance at December 31, 2022
$
10,249
$
290
$
3,413
$
67,593
$
81,545
Balance at January 1, 2023
$
10,249
$
290
$
3,413
$
67,593
$
81,545
Net income for the year
Other comprehensive loss:
Foreign currency translation differences
Total comprehensive income (loss) for the year
Transactions with owners, recorded directly in equity:
Dividends to equity holders
-
-
-
-
-
-
-
-
-
18,761
18,761
(627)
-
(627)
(627)
18,761
18,134
-
(680)
(680)
Balance at December 31, 2023
** Accumulated other comprehensive income (loss)
$
10,249
$
290
$
2,786
$
85,674
$
98,999
The notes on pages 33 to 65 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2023 31
HAMMOND MANUFACTURING COMPANY LIMITED
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
For The Years ended December 31,
Note
2023
2022
Cash flows from operating activities
Net income for the period
Adjustments for:
Depreciation of property, plant and equipment
Amortization of intangible assets
Depreciation of right-of-use assets
Interest expense
Interest expense on leases
Income tax expense
Loss (gain) on disposal of property, plant and equipment
Provisions and employee future benefits
Equity investments
Change in inventory allowance for lower of cost or market
Change in non-cash working capital:
Inventories
Trade and other receivables
Prepaid expenses
Trade and other payables
Cash generated in operating activities
Interest paid
Interest paid on leases
Income tax paid
Net cash generated in operating activities
Cash flows from financing activities
Bank indebtedness (repayment) withdrawl
Payment of long-term debt
Payment of lease liabilities
Advances of long-term debt
Payment of dividends
Net cash generated in financing activities
Cash flows from investing activities
Proceeds from disposal of property, plant and equipment
Acquisition of property, plant and equipment
Intangible asset additions
$
18,761
$
12,003
5,691
78
2,680
2,508
544
6,238
(130)
113
(106)
251
4,698
50
2,814
1,372
566
4,032
15
7
13
57
36,628
25,627
(4,426)
(1,159)
(29)
(4,772)
26,242
(2,508)
(544)
(6,295)
16,895
(14,015)
(3,429)
(2,681)
26,000
(680)
5,195
140
(13,653)
(111)
(17,974)
(2,114)
(140)
2,706
8,105
(1,372)
(566)
(1,343)
4,824
13,457
(2,935)
(3,091)
4,340
(680)
11,091
60
(20,169)
(49)
6
7
8
13
13
18
10
13
13
6
7
Net cash used in investing activities
(13,624)
(20,158)
Net increase (decrease) in cash
Cash at beginning of period
Foreign exchange gain on cash and cash
equivalents in a foreign currency
Cash at end of period
8,466
942
(4,243)
4,069
(518)
1,116
$
8,890
$
942
The notes on pages 33 to 65 are an integral part of these consolidated financial statements.
www.hammondmfg.com
Annual Report 2023 32
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
1)
Introduction:
a) Reporting entity:
Hammond Manufacturing Company Limited (“HMCL” or the “Company”) is a public company
traded on the Toronto Stock Exchange under the symbol “HMM.A” and is incorporated under
the Ontario Business Corporations Act. The address of the Company’s registered office is 394
Edinburgh Road North, Guelph, Ontario. The consolidated financial statements of the Company
as at and for the year ended December 31, 2023 include the Company and its subsidiaries
(together referred to as the “Group” and individually as “Group entities”) and the Group’s interest
in jointly controlled entities. The Group primarily is involved in the design, manufacture and sale
of electrical and electronic components. Facilities are located in Canada, the US, the UK, the
Netherlands, Taiwan and Australia, with agents and distributors located worldwide. The
Company also maintains a 40% ownership share of RITEC Enclosures Inc. (RITEC) located in
Taiwan. RITEC produces plastic and die cast enclosures for sale through the Company’s sales
network and its own existing market channels.
2) Basis of preparation:
a) Statement of compliance:
These consolidated financial statements have been prepared in accordance with IFRS
Accounting Standards.
The Board of Directors approved these consolidated financial statements on March 5, 2024.
b) Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis.
c) Functional and presentation currency:
The consolidated financial statements are presented in Canadian dollars. The functional
currency of the Group’s entities is the currency of their primary economic environment. Foreign
currency translation differences are recognized in other comprehensive income which is
included in accumulated other comprehensive income. The functional currency of the
Company’s subsidiary operations located in the US, UK, Netherlands, Taiwan and Australia are
the US dollar, the British pound sterling, Euro, Taiwan dollar and the Australian dollar
respectively. The functional currency of the Company’s Canadian operations is the Canadian
dollar.
d) Use of estimates:
The preparation of financial statements in conformity with IFRS requires management to make
estimates and assumptions that affect the application of accounting policies and the reported
amount of assets, liabilities, income and expense. Actual results may differ from these
estimates. Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected. Management periodically reviews its
estimates and underlying assumptions relating to the following items:
i)
Inventory
Inventories are valued at the lower of cost or net realizable value. When necessary, the
write-down of inventory to its net realizable value is recorded as a result of industry
www.hammondmfg.com
Annual Report 2023 33
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
conditions. We have made certain assumptions including expected forecasted demand by
utilizing information such as inventory quantities and aging, historical sales of inventory and
general market understanding. Reductions in demand for certain of our inventories or
declining market values, as well as differences between actual results and the assumptions
utilized by us when determining the market value of our inventories, could result in the
recognition of write-down expenses in future periods.
ii) Amortization
Management makes estimates of the appropriate useful lives to be assigned to intangible
assets based on the individual circumstances of an acquisition. Management reviews the
appropriateness of the lives assigned and makes adjustments prospectively, where
necessary.
iii) Impairment tests
Management makes estimates of sustainable earnings, future expected cash flows and
discount rates in the determination of the value-in-use or fair value less costs of disposal of
cash-generating units (“CGUs”).
iv) Provision against accounts receivable
Management makes estimates on the expected credit losses (“ECLs”) of accounts
receivable balances based on customer specific facts and circumstances as well as past
experience of write-offs. Changes in the economic conditions in which the Company’s
customers operate and their underlying financial stability may impact these estimates.
v) Employee future benefits
Management estimates the discount rates, retirement age and future costs of benefits
associated with providing future employee benefits and exercises judgment to determine
how many employees will utilize these benefits.
vi) Tax assets
Deferred tax assets and liabilities contain estimates about the nature and timing of future
permanent and temporary differences as well as the future tax rates that will apply to those
differences. Changes in tax laws and rates as well as changes to the expected timing of
reversals may have a significant impact on the amounts recorded for deferred tax assets
and liabilities. Management closely monitors current and potential changes to tax law and
bases its estimates on the best available information at each reporting date.
vii) Depreciation
Management estimates future residual values and the rate at which the useful lives of
property and equipment are consumed to determine appropriate depreciation charges.
Estimates of residual value and useful lives are based on data and information from various
sources, including vendors, industry practice and Company-specific history. Management
reviews the appropriateness of the lives assigned and makes adjustments prospectively,
where necessary.
www.hammondmfg.com
Annual Report 2023 34
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
viii) Property value
Management estimates the value of the investment property to assess if impairment has
occurred. The estimate is made by reviewing local land prices and current sales of similar
properties as well as property tax value assessment.
ix) Environmental remediation:
Management estimates the value to complete the remediation project on the Glen Ewing
Property each year by reviewing the project status and activities still to be completed. Any
changes to the project scope are updated in the cost estimation model and any change in
the required reserve is recorded in the current year.
x) Sales returns:
Management estimates the value of product that will be returned based on a historical
analysis. Any change to the estimate is recorded as a reduction of revenue in the current
period.
xi) Leases:
For the purpose of initial and subsequent measurement of leases the Company utilizes a
discount rate in the lease that is readily available or the Group’s incremental borrowing rate.
The Group also utilizes its best estimate of any costs to dismantle and remove the asset at
the end of the lease.
e) Use of judgments:
The preparation of financial statements in conformity with IFRS requires management to make
judgements that affect the application of accounting policies and the interpretation of accounting
standards. Management periodically reviews its judgments and underlying assumptions relating
to the following items:
i) Provision for claims
Management exercises judgement in deciding whether a liability for a claim meets the
criteria of a present obligation and in assessing the probability of the outflow of economic
resources.
ii) Leases
Management exercises judgement as to whether it is likely to extend the term of the lease
when the option is provided.
iii) Impairment tests
Management exercises judgement to determine whether there are factors that would
indicate that an asset or a CGU is impaired. The determination of CGUs is also based on
management’s judgement and is an assessment of the smallest group of assets that
generate cash inflows independently of other assets. Factors considered include whether
an active market exists for the output produced by the asset or group of assets as well as
how management monitors and makes decisions about the Company’s operations.
www.hammondmfg.com
Annual Report 2023 35
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
3) Summary of material accounting policies:
Except for the changes explained in “new standards and interpretations adopted” below, the
accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements. These accounting policies have been consistently applied by all
Group entities.
a) Basis of consolidation:
The consolidated financial statements include the accounts of Hammond Manufacturing
Company Limited, its wholly owned subsidiaries, Hammond Manufacturing Company Inc.,
Hammond Electronics Limited, Hammond Electronics Pty Limited, Les Fabrications Hammond
(Quebec) Inc., Hammond Electronics Asia Limited, Hammond Electronics B.V. and its
proportionate share of the Glen Ewing Property, an unincorporated co-tenancy (50%). All
significant intercompany balances and transactions have been eliminated on consolidation. The
consolidated financial statements include the investment in RITEC, which is accounted for using
the equity method.
b) Revenue recognition:
The Company principally generates revenue through the manufacturing and sale of industrial
enclosures, electronic enclosures, racks and cabinets, transformers and other products.
Revenue is recognized when control of a product is transferred to a customer. This is generally
at the point in time when product is available for physical delivery, and the customer has legal
title to, physical possession of (or through their carrier), and the risks and rewards of ownership
of the product have transferred; therefore, the customer is able to direct the use of and obtain
substantially all of the benefits of the product. There is only a single performance obligation,
except for where delivery is provided by Hammond after the point of transfer.
Revenue is measured based on the consideration specified in a contract with a customer, net
of variable consideration, including rebates, returns and discounts. Rebates are accrued using
sales data and rebate percentages specific to each customer contract. Accruals for sales returns
are calculated based on the best estimate of the amount of product that will ultimately be
returned by customers. All customer receivables are expected to be paid within one year and
therefore the Company does not adjust for the effects of a financing component.
Contract liabilities are recorded when cash payments are received or due in advance of the
Company’s performance.
c)
Inventories:
Inventories are measured at the lower of cost, determined on a first-in, first-out basis and net
realizable value, and include expenditures incurred in acquiring the inventories, production or
conversion costs and other costs incurred in bringing them to their existing location and
condition. In the case of manufactured inventories and work in progress, costs include an
appropriate share of production overheads based on normal operating capacity. Net realizable
value is the estimated selling price in the ordinary course of business, less the estimated costs
of completion and selling expenses. When circumstances that previously gave rise to an
inventory write down no longer exist, the previous impairment is reversed.
www.hammondmfg.com
Annual Report 2023 36
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
d)
Investment property:
Investment property is property held either to earn rental income or for capital appreciation or
for both, but not for sale in the ordinary course of business, use in the production or supply of
goods or services or for administrative purposes. The Group measures its investment property,
being the land held by Glen Ewing Property, at historical cost.
e) Property, plant and equipment:
Property, plant and equipment are shown in the statements of financial position at their historical
cost. Costs include expenditures that are directly attributable to the acquisition of the asset.
Assets are amortized over their useful life on a straight-line basis, except for specific tooling
items which are amortized based on units of production method.
The depreciation rates based on the estimated useful lives for the current and comparative
periods are as follows:
Asset
Buildings
Office equipment
Machinery and equipment
Tooling general use
Tooling specific part
Useful Life
20 to 40 years
4 to 10 years
4 to 10 years
4 to 10 years
Based on anticipated life unit output
Depreciation methods, useful lives and residual values are reviewed at each financial year-end
and adjusted, if appropriate.
f)
Intangible assets other than goodwill:
Intangible assets are stated at cost less accumulated amortization. Intangible assets with a
finite life are amortized using the straight-line method at rates calculated to amortize the cost of
these assets over their estimated useful lives.
The amortization rates based on the estimated useful lives for the current and comparative
periods are as follows:
Asset
Computer software
Development costs
Straight-Line Method
5 years
5 years
Amortization methods, useful lives and residual values are reviewed at each financial year-end
and adjusted, if appropriate.
g)
Investments measured using equity method:
The Company uses the equity method as a basis of accounting for investments in companies
over which it exercises significant influence or joint control. Under the equity method, the
Company records these investments initially at cost and the carrying values are adjusted
www.hammondmfg.com
Annual Report 2023 37
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
thereafter to include the Company's pro rata share of post-acquisition earnings of the investees,
computed by the consolidation method. The adjustments are included in the determination of
net income by the Company, and the investment accounts of the Company are also increased
or decreased to reflect the Company's share of capital transactions (including amounts
recognized in other comprehensive income). Profit distributions received from investees reduce
the carrying values of the investments. Unrealized intercompany gains or losses are eliminated.
The Company uses the equity method to account for its 40% interest in RITEC.
h)
Income taxes:
The Company uses the asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted or substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the date of enactment or substantive enactment. A deferred
tax asset is recognized for unused tax losses, tax credits and deductible temporary differences,
to the extent that it is probable that future taxable profits will be available against which they can
be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax benefit will be realized.
i) Provisions:
Provisions may include liabilities of uncertain timing or amounts that arise from environmental,
litigation, commercial or other risks. Provisions are recognized when a legal or constructive
obligation exists stemming from a past event and when the future cash outflows can be reliably
estimated. Provisions are determined by discounting the expected future cash flows at a pre-
tax rate that reflects the current market assessments of the time value of money and the risks
specific to the liability.
j) Financial assets and financial liabilities:
Financial assets are initially measured at fair value. On initial recognition, the Company
classifies its financial assets at either amortized cost, fair value through other comprehensive
income or fair value through profit or loss, depending on its business model for managing the
financial assets and the contractual cash flow characteristics of the financial assets.
Financial liabilities are initially measured at fair value, net of transaction costs incurred. They
are subsequently carried at amortized cost using the effective interest rate method; any
difference between the proceeds (net of transaction costs) and the redemption value is
recognized as an adjustment to interest expense over the period of the borrowings.
Financial liabilities include bank indebtedness, trade and other payables and long-term debt.
k)
Impairment:
i) Financial assets:
ECLs are recognized on all financial assets not carried at fair value through profit or loss.
Expected credit losses are based on the difference between the contractual cash flows due
www.hammondmfg.com
Annual Report 2023 38
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
in accordance with the contract and all the cash flows that the Company expects to receive,
discounted at an approximation of the original effective interest rate.
For trade receivables and contract assets, the Company applies a simplified approach in
calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead
recognizes a loss allowance based on lifetime ECL at each reporting date. The Company
has established a provision matrix that is based on its historical credit loss experience,
adjusted for forward looking factors specific to the debtors and the economic environment.
ii) Non-financial assets:
The carrying amounts of the Group’s non-financial assets are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists,
then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that
have indefinite useful lives or that are not yet available for use, the recoverable amount is
estimated each year at the same time.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair
value less costs to sell. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For the purpose
of impairment testing, assets that cannot be tested individually are grouped together into
the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets.
For the purposes of goodwill impairment testing, goodwill acquired in a business
combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from
the synergies of the combination. The value in use is based on their future projected cash
flows discounted to the present value at an appropriate pre-tax discount rate.
The Group completed its annual impairment test at December 31, 2023 and December 31,
2022, and concluded there was no impairment.
l) Employee Benefits:
i) Defined contribution plans:
A defined contribution plan is a post-employment benefit plan under which an entity pays
fixed contributions into a separate entity and will have no legal or constructive obligation to
pay further amounts. Obligations for contributions to defined contribution pension plans are
recognized as an employee benefit expense in the periods during which services are
rendered by the employees. Prepaid contributions are recognized as an asset to the extent
that a cash refund or a reduction in future payments is available.
ii) Other long-term employee benefits:
The Group’s net obligation in respect of long-term employee benefits, other than pension
plans, is the amount of future benefit that employees have earned in return for their service
in the current and prior periods; that benefit is discounted to determine its present value and
the fair value of any related assets is deducted. Any actuarial gains and losses are
recognized in profit or loss in the period in which they arise.
www.hammondmfg.com
Annual Report 2023 39
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
iii) Termination benefits:
Termination benefits are recognized as an expense when the Group is committed
demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either
terminate employment before the normal retirement date, or to provide termination benefits
as a result of an offer made to encourage voluntary redundancy. Termination benefits for
voluntary redundancies are recognized as an expense if the Group has made an offer of
voluntary redundancy, it is probable that the offer will be accepted, and the number of
acceptances can be estimated reliably. If benefits are payable more than 12 months after
the reporting period, then they are discounted to their present value.
iv) Short-term employee benefits:
Short-term employee benefit obligations are measured on an undiscounted basis and are
expensed as the related service is provided. A liability is recognized for the amount expected
to be paid under short-term cash bonus or profit-sharing plans if the Group has a present
legal or constructive obligation to pay this amount as a result of past service provided by
the employee, and the obligation can be estimated reliably.
m) Segment reporting:
The continuing operations of the Company are in one operating segment, electrical and
electronic components.
n) Finance costs:
Finance costs consist of interest on borrowings and finance leases.
o) Government Grants:
Grants from the government are recognized at their fair value where there is a reasonable
assurance that the grant will be received and the Company will comply with all attached
conditions.
Government grants in respect of capital expenditures are credited to the carrying amount of the
related asset and are released to income over the expected useful lives of the relevant assets.
Government grants which are not associated with an asset are credited to income so as to net
them against the expense to which they relate.
p) Leases:
The Group recognizes a right-of-use asset and a lease liability at the lease commencement
date. The right-of-use asset is initially measured at cost, which comprises the initial amount of
the lease liability adjusted for any lease payments made at or before the commencement date,
plus any initial direct costs incurred and an estimate of costs to dismantle and remove the
underlying asset or to restore the underlying asset or the site on which it is located, less any
lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the
commencement date to the end of the lease term, unless the lease transfers ownership of the
underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset
reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be
depreciated over the useful life of the underlying asset, which is determined on the same basis
www.hammondmfg.com
Annual Report 2023 40
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
as those of property and equipment. In addition, the right-of-use asset is periodically reduced
by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not
paid at the commencement date, discounted using the interest rate implicit in the lease or, if that
rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group
uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various
external financing sources and makes certain adjustments to reflect the terms of the lease and
type of the asset leased.
The lease liability is measured at amortized cost using the effective interest method. It is
remeasured when there is a change in future lease payments arising from a change in an index
or rate, if there is a change in the Group’s estimate of the amount expected to be payable under
a residual value guarantee, if the Group changes its assessment of whether it will exercise a
purchase, extension or termination option or if there is a revised in-substance fixed lease
payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount
of the right-of-use asset has been reduced to zero.
Short-term leases and leases of low-value assets:
The Group has elected not to recognize right-of-use assets and lease liabilities for leases of
low-value assets and short-term leases, including IT equipment. The Group recognizes the
lease payments associated with these leases as an expense on a straight-line basis over the
lease term.
q) New standards and interpretations adopted:
The International Accounting Standards Board (IASB) has issued the following Standards,
Interpretations and Amendments to Standards that were adopted by the Group.
Definition of Accounting Estimates (Amendments to IAS8)
On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to
IAS8). The amendments introduce a new definition for accounting estimates, clarifying that they
are monetary amounts in the financial statements that are subject to measurement uncertainty.
The amendments also clarify the relationship between accounting policies and accounting
estimates by specifying that a company develops an accounting estimate to achieve the
objective set out by an accounting policy.
The amendments were adopted January 1, 2023. The impact of adoption of these amendments
did not have a material impact on the financial statements.
Disclosure initiative – Accounting Policies (Amendments to IAS 1)
On February 12, 2021, the IASB issued amendments to IAS 1 Presentation of Financial
Statements and an update to IFRS Practice Statement 2 Making Materiality Judgements to help
companies provide useful accounting policy disclosures.
www.hammondmfg.com
Annual Report 2023 41
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The key amendments to IAS 1 include a requirement for companies to disclose their material
accounting policies rather than their significant accounting policies; clarifying that accounting
policies related to immaterial transactions, other events or conditions are themselves immaterial
and as such need not be disclosed; and clarifying that not all accounting policies that relate to
material transactions, other events or conditions are themselves material to a company’s
financial statements.
The amendments were adopted January 1, 2023. The impact of adoption of these amendments
did not have a material impact on the financial statements.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction
(Amendments to IAS 12 Income Taxes)
On May 7, 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
The amendments narrow the scope of the initial recognition exemption (IRE) so that it does not
apply to transactions that give rise to equal and offsetting temporary differences. As a result,
companies will need to recognize a deferred tax asset and a deferred tax liability for temporary
differences arising on initial recognition of a lease and a decommissioning provision.
The amendments were adopted January 1, 2023. The impact of adoption of these amendments
did not have a material impact on the financial statements.
r) New standards and interpretations not yet adopted:
At the date of authorization of these financial statements, several new, but not yet effective,
Standards and amendments to existing Standards, and Interpretations have been published by
the IASB. None of these Standards or amendments to existing Standards have been adopted
early by the Group and it is still to be determined if any will have a material impact on the Group’s
financial statements.
Lease Liability in a Sale and Leaseback (Amendments to IFRS 16
On September 22, 2022, the IASB issued Lease Liability in a Sale and Leaseback (Amendments
to IFRS 16). The amendments introduce a new accounting model which impacts how a seller-
lessee accounts for variable lease payments that arise in a sale-and-leaseback transaction.
The amendments are effective for annual periods beginning on or after January 1, 2024. Early
adoption is permitted.
Classification of Liabilities as Current or Non-current (Amendments to IAS 1)
On January 23, 2020, the IASB issued amendments to IAS 1 Presentation of Financial
Statements, to clarify the classification of liabilities as current or non-current. On October 31,
2022, the IASB issued Non-current Liabilities with Covenants (amendments to IAS 1), to
improve the information a company provides about long-term debt with covenants.
The amendments are effective for annual periods beginning on or after January 1, 2024. Early
adoption is permitted.
Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7)
On May 25, 2023, the IASB issued amendments to IAS 7 Statement of Cash Flows and IFRS 7
Financial Instruments: Disclosures. The amendments introduce two new disclosure objectives
www.hammondmfg.com
Annual Report 2023 42
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
– one in IAS 7 and another in IFRS 7 – for a company to provide information about its supplier
finance arrangements that would enable users (investors) to assess the effects of these
arrangements on the company’s liabilities and cash flows, and the company’s exposure to
liquidity risk.
The amendments are effective or periods beginning on or after 1 January 2024, with early
application permitted. However, some relief from providing certain information in the year of
initial application is available.
4) Trade and other receivables:
Trade receivables
Employee receivables
Other receivables
Estimated credit losses
Trade and other receivables
December 31, 2023
December 31, 2022
$ 30,895
15
487
31,397
(541)
$ 30,856
$ 28,910
12
1,501
30,423
(409)
$ 30,014
The Company’s exposure to credit and currency risks, and impairment losses related to trade and
other receivables is disclosed in note 26.
5)
Inventories:
Raw materials
Work-in-process
Finished goods
Inventories
December 31, 2023
December 31, 2022
$ 17,120
5,615
44,817
$ 67,552
$ 16,877
6,832
39,558
$ 63,267
Inventories carried at net realizable value
$ 1,788
$ 2,261
In 2023, raw materials, consumables and changes in finished goods and work in progress
recognized as cost of sales amounted to approximately $151,828,000 (2022 - $154,234,000). In
2023, the write-down of inventories to net realizable value net of recovery was $251,000 (2022 -
$57,000).
www.hammondmfg.com
Annual Report 2023 43
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
6) Property, plant and equipment:
Cost
Balance at December 31, 2021
Reclassifications
Additions
Disposals
Effect of movements in exchange rates
Land and
buildings
$
26,610
$
(322)
14,514
(21)
(4)
Machinery
and
equipment
$
54,995
$
799
5,276
(388)
86
Tooling
Office
equipment
Total
$
11,968
$
2,504
$
96,077
$
128
339
-
64
$
509
40
-
6
$
1,114
20,169
(409)
152
Balance at December 31, 2022
$
40,777
$
60,768
$
12,499
$
3,059
$
117,103
Reclassifications
Additions
Disposals
Effect of movements in exchange rates
-
$
4,275
(146)
3
$
5,377
8,150
(1,008)
(44)
$
181
804
(175)
(17)
-
$
424
(54)
(1)
$
5,558
13,653
(1,383)
(59)
Balance at December 31, 2023
$
44,909
$
73,243
$
13,292
$
3,428
$
134,872
At December 31, 2023, the amount of expenditures recognized in the carrying amount that were in
the course of construction was $Nil (2022 - $15,741,000) in land and buildings, $166,000 (2022 -
$3,828,000) in machinery and equipment and $47,000 (2022 - $194,000) in tooling.
In 2023, assets previously classified as right-of-use assets (note 8) were reclassified to property,
plant and equipment as a result of the buyout of the leased assets.
In 2022 the Company made certain opening balance reclassifications between property plant and
equipment, intangible assets and right-of-use assets during the period to align classification within
categories.
Accumulated depreciation
Land and
buildings
Balance at December 31, 2021
$
8,793
Machinery
and
equipment
$
35,776
Tooling
Office
equipment
Total
$
8,331
$
2,036
$
54,936
Reclassifications
Depreciation for the period
Disposals
Effect of movements in exchange rates
$
42
842
(10)
(5)
$
(144)
2,895
(324)
55
$
69
763
-
54
$
441
198
-
5
$
408
4,698
(334)
109
Balance at December 31, 2022
$
9,662
$
38,258
$
9,217
$
2,680
$
59,817
Reclassifications
Depreciation for the period
Disposals
Effect of movements in exchange rates
-
$
1,120
(141)
3
$
3,772
3,650
(1,007)
(22)
$
181
702
(171)
(14)
-
$
219
(54)
-
$
3,953
5,691
(1,373)
(33)
Balance at December 31, 2023
$
10,644
$
44,651
$
9,915
$
2,845
$
68,055
www.hammondmfg.com
Annual Report 2023 44
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Carrying amounts
Land and
buildings
Machinery
and
equipment
Tooling
Office
equipment
Total
At December 31, 2021
$
17,817
$
19,219
$
3,637
$
468
$
41,141
At December 31, 2022
$
31,115
$
22,510
$
3,282
$
379
$
57,286
At December 31, 2023
$
34,265
$
28,592
$
3,377
$
583
$
66,817
Depreciation of $5,691,000 (2022 - $4,698,000) was recorded in the consolidated statement of
comprehensive income as follows: cost of sales $5,254,000 (2022 – $4,285,000), selling and
distribution $336,000 (2022 – $299,000) and general and administrative $101,000 (2022 –
$114,000).
7)
Intangible assets and goodwill:
Cost
Goodwill
Balance at December 31, 2021
$
114
Computer
software
1,102
$
Development
costs
388
$
Total
$
1,604
Reclassifications (see note 6)
Additions
Effect of movement in exchange rates
-
$
-
(5)
$
(476)
49
7
8
$
-
-
$
(468)
49
2
Balance at December 31, 2022
$
109
$
682
$
396
$
1,187
Additions
Disposal
Effect of movement in exchange rates
$
-
-
3
$
75
(109)
(2)
$
36
-
-
$
111
(109)
1
Balance at December 31, 2023
$
112
$
646
$
432
$
1,190
Amortization
Goodwill
Balance at December 31, 2021
$
-
Computer
software
869
$
Development
costs
307
$
Total
$
1,176
Reclassifications (see note 6)
Amortization for the period
Effect of movement in exchange rates
$
-
$
-
-
$
$
(398)
22
6
$
6
$
28
-
$
$
(392)
50
6
Balance at December 31, 2022
$
-
$
499
$
341
$
840
Amortization for the period
Disposal
Effect of movement in exchange rates
$
-
-
-
$
48
(109)
(2)
$
30
-
-
$
78
(109)
(2)
Balance at December 31, 2023
$
-
$
436
$
371
$
807
www.hammondmfg.com
Annual Report 2023 45
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Carrying amounts
At December 31, 2021
At December 31, 2022
At December 31, 2023
Goodwill
Computer
software
Development
costs
Total
$
114
$
233
$
81
$
428
$
109
$
183
$
55
$
347
$
112
$
210
$
61
$
383
Amortization expense of $78,000 (2022 - $50,000) was recorded in the consolidated statement of
comprehensive income as follows: cost of sales $33,000 (2022 – $12,000), selling and distribution
$32,000 (2022 - $25,000) and general and administrative $13,000 (2022 – $13,000).
Impairment testing for CGUs:
The Company has defined its CGUs as each individual legal entity since each location is largely
independent of the other entities and each is ultimately responsible for sales generated in their
markets. The Company monitors the performance of each legal entity through the use of profitability
analysis based on the most recent business plan in place as at December 31, 2023.
Impairment testing for CGUs containing goodwill:
The Company performed an impairment test on the goodwill of its UK entity using the value in use
method, under which a five-year present value cash flow projection was completed using the
Hammond Electronics Limited weighted average pre-tax cost of capital of 9.0%. The cash flow
model also incorporated growth rates in the range of 2% – 4% based on the market location and the
facility’s operating history. This was then compared to the carrying value of the facility’s assets,
including goodwill, to determine if there was impairment. Effective December 31, 2023 and
December 31, 2022, the assets, including goodwill of $112,000 (2022 - $109,000), of the Company’s
wholly owned subsidiary, Hammond Electronics Limited, were tested and no impairment was found.
8) Leases:
Right-of-use assets
Balance at December 31, 2021
Buildings Machinery
and
equipment
$
15,238
6,351
$
Tooling
Office
equipment
$
221
$
17
Trucks
and
Vehicles
$
2,115
Total
$
23,942
Reclassifications (see note 6)
Additions for the period
Disposals
Effect of movements in exchange rates
-
$
-
-
(60)
$
(606)
-
(10)
(36)
(40)
$
-
-
-
-
$
-
-
$
978
(249)
6
(8)
1
$
(646)
978
(267)
(89)
Balance at December 31, 2022
$
15,178
$
5,699
$
181
$
10
$
2,850
$
23,918
Reclassifications (see note 6)
Additions for the period
Disposals
Effect of movements in exchange rates
-
$
1,647
-
73
$
(5,377)
-
-
16
$
(181)
-
-
-
-
$
19
-
(1)
-
$
499
(294)
(3)
$
(5,558)
2,165
(294)
85
Balance at December 31, 2023
$
16,898
$
338
$
-
$
28
$
3,052
$
20,316
www.hammondmfg.com
Annual Report 2023 46
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Accumulated depreciation
Balance at December 31, 2021
Buildings Machinery
and
equipment
$
2,982
4,924
$
Tooling
Office
equipment
$
221
$
8
Trucks
and
Vehicles
$
807
Total
$
8,942
Reclassifications (see note 6)
Depreciation for the period
Disposals
Effect of movements in exchange rates
-
$
1,722
-
19
$
24
573
(10)
3
(40)
$
-
-
-
$
-
3
(8)
-
-
$
516
(249)
-
$
(16)
2,814
(267)
22
Balance at December 31, 2022
$
6,665
$
3,572
$
181
$
3
$
1,074
$
11,495
Reclassifications (see note 6)
Depreciation for the period
Disposals
Effect of movements in exchange rates
-
$
1,826
-
11
$
(3,772)
267
-
1
$
(181)
-
-
-
$
-
4
-
-
-
$
583
(294)
(2)
$
(3,953)
2,680
(294)
10
Balance at December 31, 2023
$
8,502
$
68
$
-
$
7
$
1,361
$
9,938
Carrying amounts
Buildings Machinery
and
equipment
Tooling
Office
equipment
Trucks
and
Vehicles
Total
At December 31, 2021
$
10,314
$
3,369
$
-
$
9
$
1,308
$
15,000
At December 31, 2022
$
8,513
$
2,127
$
-
$
7
$
1,776
$
12,423
At December 31, 2023
$
8,396
$
270
$
-
$
21
$
1,691
$
10,378
Depreciation of $2,680,000 (2022 - $2,814,000) was recorded in the consolidated statement of
comprehensive income as follows: cost of sales $967,000 (2022 – $1,175,000), selling and
distribution $1,700,000 (2022 – $1,627,000) and general and administrative $13,000 (2022 –
$12,000).
Total Lease obligations:
Total Leases
Less current portion due in the next 12 months
Non-current leases
December 31,
2023
$ 11,293
December 31,
2022
$ 11,748
2,435
2,585
$ 8,858
$ 9,163
The Group leases warehouse and factory facilities. These leases typically run for a period of 5 years
with an option to renew the lease after that date. Lease payments generally are renegotiated every
five years to reflect current market rates of office and production buildings.
The Group leases automobiles with a typical lease period of 3 years. The Company provides for a
guaranteed residual value when the vehicle is turned in.
The Group’s fleet trucks are generally leased for a five-year term after which they are turned in. The
lease rates for the trucks are a fixed rate plus a variable charge per kilometer driven. The variable
charge is excluded from the initial measurement of the lease liability and asset. The variable charge
is expensed in the month it is incurred.
www.hammondmfg.com
Annual Report 2023 47
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The lease liabilities are secured by the related underlying assets. Future minimum lease payments
at December 31, 2023 were as follows:
Minimum lease payments due
Current 1-2 Years 2-3 Years 3-4 Years 4-5 Years
After 5
Years
Total
December 31, 2023
Lease Payments
Finance Charge
Net Present Value
December 31, 2022
Lease Payments
Finance Charge
Net Present Value
$
$
2,930
(495)
2,435
$
$
2,914
(385)
2,529
$
$
2,107
(282)
1,825
$
$
1,293
(209)
1,084
$
$
3,057
(472)
2,585
$
$
2,588
(373)
2,215
$
$
2,562
(278)
2,284
$
$
1,763
(192)
1,571
$
$
1,030
(161)
869
$
$
$
$
972
(133)
839
$
$
2,812
(261)
2,551
2,499
(245)
2,254
$
$
13,086
(1,793)
11,293
$
$
13,441
(1,693)
11,748
Lease payments not recognized as a liability:
The Group has elected not to recognize a lease liability for short-term leases (leases with an
expected term of 12 months or less) or for leases of low value assets. Payments made under such
leases are expensed on a straight-line basis. In addition, certain variable lease payments are not
permitted to be recognized as lease liabilities and are expensed as incurred.
The expense relating to payments not included in the measurement of the lease liability is as follows:
Year to date
Short Term leases
Variable lease payments
Total
9)
Investment property:
December 31, 2023 December 31, 2022
$ 347
55
$ 402
$ 628
55
$ 683
The Group has a 50% ownership of a property in Georgetown, Ontario (referred to as the Glen
Ewing Property). It is a vacant plot of land and currently under environmental remediation. The
property value represents the actual historical cost of the property. Management has reviewed the
property and local market conditions as well as the environmental condition of the property in
estimating the property’s fair value. Management estimates its interest in the property’s fair market
value to be approximately $1,250,000. This estimate is unchanged from December 31, 2022. No
independent evaluation has been performed. The property is currently vacant, and no income is
being derived from it. The Company’s direct operating expense in 2023 related to the property was
$78,000 (2022- $148,000).
www.hammondmfg.com
Annual Report 2023 48
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
10) Equity investment:
RITEC Enclosures Inc.
December 31, 2021
Equity in 2022 loss
December 31, 2022
Equity in 2023 earnings
December 31, 2023
Total
$ 836
(13)
$ 823
106
$ 929
Since 2008, the Company has had 40% ownership of RITEC. All dividends paid since taking the
40% holding in 2008 have been reinvested in RITEC.
For the years ended December 31,
2023
2022
Share of gain
Foreign exchange loss
$
117
$
13
(11)
(26)
Equity investment gain (loss)
$
106
$
(13)
Share of profit
Profit in inventory movement
$
117
$
13
(105)
(64)
Share of profit (loss) of equity accounted investees
$
12
$
(51)
RITEC Enclosures Inc.
Assets
Liabilities
Revenues
December 31, 2023 December 31, 2022
3,498
$
$
4,847
3,120
6,144
2,065
4,143
Profit (loss) (after tax)
$
293
$
33
11) Bank indebtedness:
Bank indebtedness is due on demand and secured by inventories, a general assignment of trade
receivables and a charge on specific assets of the Company. The Company has established
operating lines for the entities in Canada, the US and the UK. The following chart depicts the amount
utilized on each of the entities’ lines of credit.
www.hammondmfg.com
Annual Report 2023 49
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
December 31, 2023
December 31, 2022
Canadian entities CAD
UK entity
GBP
Bank indebtedness
$
-
£ 256
Local currency
CAD
$
-
431
$ 431
Local currency
$ 13,995
£ 277
CAD
$ 13,995
451
$ 14,446
Interest was payable at the rate of bank prime for all of 2022 and 2023.
12) Long term debt:
Demand term loan amortized over 25 years drawn in USD funds at
a fixed interest rate of 5.30% through November 2025, secured by
the assets of HMCL. Monthly blended installments of $9 USD.
Demand term loan amortized over 25 years drawn in CAD funds at
a fixed interest rate of 5.20% through December 2026, secured by
the assets of HMCL. Monthly blended installments of $9 CAD.
Demand term loan amortized over 25 years drawn in CAD funds at
a fixed interest rate of 6.25% through December 2026 (2022 - 4%
through December 2023), secured by the assets of HMCL. Monthly
blended installments of $37 CAD.
Demand term loan amortized over 7 years drawn in CAD funds at a
fixed interest rate of 4.43% through October 2025, secured by the
assets of HMCL. Monthly blended installments of $70 CAD.
Demand term loan amortized over 7 years drawn in CAD funds at a
fixed interest rate of 4.0% through December 2025, secured by the
assets of HMCL. Monthly blended installments of $26 CAD.
Term loan amortized over 7 years drawn in CAD funds at a fixed
interest rate of 3.83% through November 2028, secured by the
assets of HMCL. Monthly blended installments of $77 CAD.
Term loan amortized over 7 years drawn in CAD funds at a fixed
interest rate of 6.5% through June 2029, secured by the assets of
HMCL. Monthly blended installments of $64 CAD.
Demand term loan amortized over 25 years drawn in CAD funds at
a fixed interest rate of 6.25% through July 2028, secured by the
assets of HMCL. Monthly blended installments of $170 CAD.
Interest free term loan of $385 CAD made in 2015, $1,150 CAD in
2016, $958 CAD in 2017, $624 CAD in 2018 and $346 CAD in 2019
through the Federal Economic Development Agency for Southern
Ontario. Repayment will be over 60 equal monthly installments
starting January 1, 2020. Value represents the present value of the
stream of payments to repay utilizing a 5.2% discount factor.
Subtotal
Less current portion of long-term debt
Non-current long-term debt
December 31,
2023
December 31,
2022
$ 1,675
$ 1,769
1,255
1,296
5,632
5,837
1,490
2,253
606
891
4,131
4,880
3,504
4,027
25,833
-
601
$ 44,727
38,428
$ 6,299
1,245
$ 22,198
13,962
$ 8,236
www.hammondmfg.com
Annual Report 2023 50
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The following reflects the aggregate amount of principal payments required to meet the existing
long-term debt obligations in each of the next five years if the loans are not placed on demand:
2024
2025
2026
2027
2028
Thereafter
$
3,740
4,726
8,414
2,082
25,450
315
$
44,727
13) Interest expense
Long term debt interest
Bank indebtedness interest
Interest expense
December 31, 2023 December 31, 2022
$
1,668
$
1,032
880
340
$
2,548
$
1,372
Interest income earned on cash
(40)
-
Net Interest Expense
Interest expense leases
$
2,508
$
1,372
$
544
$
566
Total Interest and lease interest expense
$
3,052
$
1,938
Reconciliation of movements of liabilities to cash flows arising from financing activities:
Lease
Liabilities
Long-term
debt
Bank
indebtedness
Total
Balance at December 31, 2021
$ 13,862
$ 20,676
$ 995
$ 35,533
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of lease liabilities
Repayment of borrowings
Total changes from financing cash flows
Liability related
Interest expense
Interest paid
Impact of interest free term loan
Total liability-related other changes
-
(3,091)
-
(3,091)
566
(566)
-
-
4,340
-
(2,935)
1,405
1,032
(1,032)
-
-
Non-cash added liabilities
Foreign exchange impact
Balance at December 31, 2022
978
(1)
$ 11,748
-
117
$ 22,198
13,457
-
-
13,457
340
(340)
-
-
-
(6)
$ 14,446
17,797
(3,091)
(2,935)
11,771
1,938
(1,938)
-
-
978
110
$ 48,392
www.hammondmfg.com
Annual Report 2023 51
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Balance at December 31, 2022
$ 11,748
$ 22,198
$ 14,446
$ 48,392
Lease
Liabilities
Long-term
debt
Bank
indebtedness
Total
Changes from financing cash flows
Proceeds from loans and borrowings
Repayment of lease liabilities
Repayment of borrowings
Total changes from financing cash flows
Liability related
Interest earned on cash
Interest expense
Interest paid
Total liability-related other changes
-
(2,681)
-
(2,681)
-
544
(544)
-
26,000
-
(3,429)
22,571
-
1,668
(1,668)
-
-
-
(14,015)
(14,015)
26,000
(2,681)
(17,444)
5,875
(40)
880
(840)
-
(40)
3,092
(3,052)
-
Non-cash added liabilities
Foreign exchange impact
Balance at December 31, 2023
2,165
61
$ 11,293
-
(42)
$ 44,727
-
-
$ 431
2,165
19
$ 56,451
14) Trade and other payables:
Trade payables
Non-trade payables and accrued expenses
December 31, 2023
December 31, 2022
$ 8,500
16,315
$ 24,815
$ 8,205
21,404
$ 29,609
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed
in note 26.
15) Provisions:
Environmental
remediation
Sales returns
Total
Balance at December 31, 2021
$ 225
$ 140
$ 365
Provisions made during the period
Provisions used during the period
54
(54)
1,800
(1,800)
1,854
(1,854)
Balance at December 31, 2022
$ 225
$ 140
$ 365
Provisions made during the period
Provisions used during the period
57
(57)
2,353
(2,313)
2,410
(2,370)
Balance at December 31, 2023
$ 225
$ 180
$ 405
Non-current
Current
145
80
-
180
145
260
Balance at December 31, 2023
$ 225
$ 180
$ 405
www.hammondmfg.com
Annual Report 2023 52
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The provision for environmental remediation is based on the estimated costs to setup and extract
any free flowing contamination from the Glen Ewing Property. The anticipated costs are based on
an external consultant’s remediation plan, discounted for expected timing of expenditures. The
current estimate assumes the containment plan will be completed by 2027. The Glen Ewing Property
is owned equally as a co-tenant with Hammond Power Solutions Incorporated and any expenses or
liabilities in respect of the property have been agreed to be shared equally. The contamination did
not result from the normal operations of the Company. The parties have cooperatively developed a
remediation action plan and began remediation in October 2009. The Ministry of Environment is
aware of the remediation and the process being used. The Company is satisfied that their
consultants have provided the best estimate available for the Company’s remaining portion of the
environmental remediation costs for this site of $225,000 (2022 - $225,000) with $80,000 (2022 -
$80,000) presented as a current provision.
The provision for sales returns is based on estimates from historical returns of product. The provision
reflects the estimated profit margin of the anticipated returns.
16) Employee future benefits:
The Company’s net obligation in respect of its current and long-term employee benefits is calculated
by estimating the amount of future benefit that employees have earned in return for their service in
the current and prior periods. The terms of the agreements do not require the Company to fund
these obligations as they accumulate. The Company has accounted for these post-employment
benefits as defined benefit plans. The benefit plans are broken into two categories:
a) Benefit for post-employment health benefits:
If an employee meets the set criteria and retires between the age of 60 and 65, their health plan
will continue until age 65.
b) Disability health coverage:
This benefit is for employees who are off work due to a covered disability. Health coverage will
continue until they are off disability or reach the age of 65, whichever occurs first.
In determining both the post-employment health benefit and the disability health coverage liabilities
a 3.5% (2022 – 3.5%) per annum health cost increase and a discount rate of 4.0% (2022 – 4.0%)
were utilized to determine its present value.
Assumed healthcare cost trend rates affect the amounts recognized in profit and loss. A 1% change
in assumed healthcare cost trend rates would increase (decrease) the aggregate service and
interest costs by $24,700 (2022 - $22,100). Changes in assumptions resulted in nominal
gains/losses which have been included in general and administrative expense.
Post employment health benefits
Employee health benefits while on disability
Total employee future benefits
December 31, 2023 December 31, 2022
$ 60
$ 73
400
$ 473
340
$ 400
www.hammondmfg.com
Annual Report 2023 53
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Post employment
health benefits
Balance at December 31, 2021
$ 70
Employee health
benefits while on
disability
$ 323
Provisions made during the period
Provisions used during the period
4
(14)
149
(132)
Total
$ 393
153
(146)
Balance at December 31, 2022
$ 60
$ 340
$ 400
Provisions made during the period
Provisions used during the period
31
(18)
\
234
(174)
265
(192)
Balance at December 31, 2023
$ 73
$ 400
$ 473
Non-current
Current
56
17
280
120
336
137
Balance at December 31, 2023
$ 73
$ 400
$ 473
17) Deferred tax assets and liabilities:
Unrecognized deferred tax liabilities:
At December 31, 2023, temporary differences of $30,502,000 (2022 - $27,340,000) related to
investments in subsidiaries were not recognized because the Company controls whether the liability
will be incurred and it is satisfied that it will not be incurred in the foreseeable future.
Recognized deferred tax liabilities:
Deferred tax assets and liabilities are attributable to the following:
Deferred tax assets
Investment property
Inventories
Provisions
Other
Total deferred tax assets
Deferred tax liabilities
Other
Loans and borrowings
Property, plant and equipment
Total deferred tax liabilities
December 31, 2023
December 31, 2022
$ 8 $ 8
755 617
356 304
- 64
1,119 993
(23) (25)
(5) (16)
(9,080) (6,165)
(9,108) (6,206)
Net deferred tax liabilities
$ (7,989) $ (5,213)
18) Income tax expense:
December 31, 2023 December 31, 2022
Current tax expense
$ 3,430
$ 3,895
Deferred tax expense:
Origination and reversal of temporary differences
Total income tax expense
2,808 137
$ 6,238
$ 4,032
www.hammondmfg.com
Annual Report 2023 54
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
2023
2022
Income before income tax
$ 24,999
$ 16,035
Income tax using the Company’s domestic tax rate
26.50% 6,625
26.50% 4,249
Reduced rate for active business and manufacturing
and processing
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Other
(319)
(205)
34
(190)
(105)
44
103
24.95% $ 6,238
34
25.15% $ 4,032
19) Share capital:
a) Authorized:
Unlimited number of Class A subordinate voting shares, no par value.
Unlimited number of Class B common shares with four votes per share, convertible into Class
A subordinate voting shares on a one-for-one basis, no par value. Annual dividends on the Class
B common shares may not exceed the annual dividends on the Class A subordinate voting
shares.
Unlimited number of Class YA non-voting, no par value, redeemable, retractable shares entitled
to non-cumulative discretionary dividends. No dividends shall be declared or paid on the Class
YA shares unless the same dividend is simultaneously declared and paid on the Class YB
shares.
Unlimited number of Class YB non-voting, no par value, redeemable, retractable shares entitled
to non-cumulative discretionary dividends. No dividends shall be declared or paid on the Class
YB shares unless the same dividend is simultaneously declared and paid on the Class YA
shares.
b)
Issued:
8,556,000 Class A shares (2022 - 8,556,000)
2,778,300 Class B shares (2022 - 2,778,300)
$
10,242
7
$
10,242
7
$
10,249
$
10,249
December 31, 2023 December 31, 2022
No shares were issued in 2023 or in 2022.
c) Dividends:
The following dividends were declared and paid by the Company:
Cash dividends of $0.06 per Class A subordinate voting share were declared and paid in 2023
(2022 – $0.06) and cash dividends of $0.06 per Class B common share were declared and paid
in 2023 (2022 – $0.06).
Total dividends declared and paid in 2023 were $680,000 (2022 - $680,000).
www.hammondmfg.com
Annual Report 2023 55
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
20) Commitments:
The Company has contractual obligations for outstanding capital expenditures of $395,000 (2022 -
$9,959,000). The 2022 expenditures were primarily for a new facility and related equipment the
Company was building in Palmerston, Ontario.
21) Contingency:
A third party statement of claim was issued on March 6, 2019, against the Company with respect to
an adjacent property to one of our Waterloo facilities. The claim alleges that contaminants originating
from our property have migrated to the adjoining property owned by the claimants. The amount of
the claim is estimated at $160,000 to $670,000. The Company’s records do not show any spills of
chemicals at this location and management is unable to reasonably estimate any liability that may
arise as a result of this claim. As such, no amount has been recorded in these condensed
consolidated financial statements.
22) Earnings per share:
The computations for basic and diluted earnings per share are as follows:
Net income for the period
Average number of common shares outstanding:
Basic and Diluted
Earnings per share:
Basic
Diluted
December 31,2023
$ 18,761
December 31,2022
$ 12,003
11,334,300
11,334,300
$ 1.66
1.66
$ 1.06
1.06
No share options to purchase common shares were outstanding as at December 31, 2023 or
December 31, 2022.
23) Personnel expenses:
Wages and salaries
Health benefit plans
Canada Pension Plan and Employment Insurance
Contributions to defined contribution plans
Cost of sales
Selling and distribution
General and administrative
2023
$ 59,658
7,387
4,058
2,026
$ 73,129
2023
$ 56,036
13,606
3,487
$ 73,129
2022
$ 58,911
6,211
3,711
1,871
$ 70,704
2022
$ 54,812
12,705
3,187
$ 70,704
www.hammondmfg.com
Annual Report 2023 56
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
24) Management share option plan:
As at December 31, 2023, the Company has a stock-based compensation plan, which is described
below. No options were granted through December 31, 2023 or in 2022 and no stock options were
outstanding as of January 1, 2022, and, accordingly, no stock-based compensation expense has
been incurred in either year.
In 1986, the Company established the management share option plan providing for the granting to
directors, officers and key employees of the Company options to purchase the Class A subordinate
voting shares of the Company. A maximum number of 540,000 Class A subordinate voting shares
are issuable under the plan. The exercise price for purchasing Class A subordinate voting shares
may not be less than the market price of the Class A subordinate voting shares at the date the option
is granted.
25) Determination of fair values:
The carrying values of the Group’s financial assets and liabilities, consisting of cash, trade and other
accounts receivables, bank indebtedness, trade and other accounts payables approximate their fair
values due to the relatively short periods to maturity of the instruments.
The fair values of financial assets and liabilities together with the carrying amounts shown in the
statements of financial position are as follows:
Assets carried at amortized cost
Cash
Trade and other receivables
Liabilities carried at amortized cost
Bank indebtedness
Trade and other payables
Term loans
December 31, 2023
Carrying
amount
Fair value
December 31, 2022
Carrying
amount
Fair value
$ 8,890
30,856
$ 39,746
$ 8,890
30,856
$ 39,746
$ 942
30,014
$ 30,956
$ 942
30,014
$ 30,956
$ 431
24,815
44,727
$ 69,973
$ 431
24,815
44,418
$ 69,664
$ 14,446
29,609
22,198
$ 66,253
$ 14,446
29,609
20,092
$ 64,147
Term loans are considered level 2 in the fair value hierarchy.
Interest rates used to discount estimated cash flows, when applicable, are based on bank indication
rates for similar type arrangements.
www.hammondmfg.com
Annual Report 2023 57
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
Bank indication interest rates
December 31, 2023
December 31, 2022
Nonsecured variable interest rates
Fixed rates
1 year secured
2 year secured
3 to 4 year secured
5 year secured
7 year secured
10 year secured
From
7.20%
7.00%
6.40%
5.65%
5.45%
5.45%
5.65%
To
8.20%
7.80%
7.25%
6.80%
6.60%
6.60%
6.80%
From
6.45%
6.60%
6.60%
5.90%
5.75%
5.85%
6.20%
To
7.45%
7.60%
7.60%
6.90%
6.75%
6.85%
7.20%
Rates fluctuate depending on currency and jurisdiction.
26) Financial instruments and risk management:
Overview
The Group has exposure to the following risks from its use of financial instruments:
•
•
credit risk (ii)
liquidity risk (iii)
• market risk (iv)
•
•
•
foreign currency risk (v)
interest rate risk (vi)
operational risk (vii)
This note presents information about the Group’s exposure to each of the above risks, the Group’s
objectives, policies and processes for measuring and managing risk, and the Group’s management
of capital. Further quantitative disclosures are included throughout these consolidated financial
statements.
a) Risk management framework:
The Board of Directors has overall responsibility for the oversight of the Group’s risk management
framework. The Board is responsible for monitoring the Group’s risk management policies.
The Group’s risk management policies are established to identify and analyze the risks faced by the
Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect changes in market conditions
and the Group’s activities. The Group, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations.
The Group’s Audit Committee oversees how management monitors compliance with the Group’s
risk management policies and procedures and reviews the adequacy of the risk management
framework in relation to the risks faced by the Group. The Group’s Audit Committee is assisted in
its oversight role by the corporate finance group. The corporate finance group undertakes both
regular and ad hoc reviews of risk management controls and procedures, the results of which are
reported to the Audit Committee.
www.hammondmfg.com
Annual Report 2023 58
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
b) Credit risk:
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations and arises principally from the Group’s receivables
from customers. The carrying amount of financial assets represents the maximum credit risk
exposure.
Trade and other receivables:
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each
customer. However, management also considers the demographics of the Group’s customer base,
including the default risk of the industry and country in which customers operate, as these factors
may have an influence on credit risk.
The Group has established a credit policy under which each new customer is analyzed individually
for creditworthiness before the Group’s standard payment and delivery terms and conditions are
offered. The Group’s review includes external ratings, when available, and in some cases bank
references. Purchase limits are established for each customer, which represents the maximum open
amount without requiring approval from management. Customers that fail to meet the Group’s
benchmark creditworthiness may transact with the Group only on a prepayment basis.
In monitoring customer credit risk, customers are grouped according to their credit characteristics,
including whether they are an individual or legal entity, whether they are a wholesale, retail or end-
user customer, geographic location, industry, aging profile, maturity and existence of previous
financial difficulties. Trade and other receivables relate mainly to the Group’s wholesale customers.
Customers that are graded as “high risk” are placed on a restricted customer list and monitored by
the accounts receivable department, and future sales are made on a prepayment basis.
The Group does not require collateral in respect of trade and other receivables.
The Group establishes an allowance for doubtful accounts that represents its estimate of expected
credit losses that could arise from the failure or inability of customers to make payments when due.
This allowance is determined based on historical data of payment statistics for similar financial
assets and historical credit losses, adjusted for forward looking factors, specific to the debtor and
the economic environment.
The Company is exposed to financial risk that arises from the credit quality of the entities to which
it sells products and services. The Company sells to a variety of companies in a number of different
industries and geographic areas. As a result, the requirement for an industry specific or geographic
reserve is minimal.
The carrying amount of financial assets represents the maximum credit exposure which was as
follows at the reporting date:
www.hammondmfg.com
Annual Report 2023 59
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The maximum exposure to credit risk for cash and receivables at the reporting date by geographic
region was:
December 31, 2023
December 31, 2022
Cash and receivables:
Canada
US
UK
Australia
$ 16,090
22,113
1,412
131
$ 39,746
$ 15,440
14,055
1,324
137
$ 30,956
The following table reflects the net details of trade receivables as at December 31, 2023 and
December 31, 2022:
December 31, 2023
December 31, 2022
Gross
Impairment
Carrying
value
Gross
Impairment
Carrying
value
Aging of trade receivables:
1 – 30 days
31 – 60 days
61 – 90 days
Over 90 days
$ 15,127
12,053
2,462
1,253
$ $ 15,127
-
12,053
-
2,462
-
712
(541)
$ 13,492
12,103
2,664
651
$ $ 13,492
-
12,103
-
2,664
-
242
(409)
Trade receivables
$ 30,895
$
(541)
$ 30,354
$ 28,910
$
(409)
$ 28,501
The following table provides the roll forward of the allowance for doubtful accounts:
Allowance for doubtful accounts, beginning of year
December 31, 2023
$
409
December 31, 2022
$
316
Accounts provided for in the period
Amounts written off during the period
262
(130)
215
(122)
Allowance for doubtful accounts
$
541
$
409
Allowance for doubtful accounts as % of net
trade receivable
Net trade receivable
Employee receivables
Other receivable
1.8%
1.4%
December 31, 2023
December 31, 2022
$
30,354
15
487
$
28,501
12
1,501
Trade and other receivables
$
30,856
$
30,014
c) Liquidity risk:
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated
with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s
approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient
liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation.
www.hammondmfg.com
Annual Report 2023 60
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The Group uses planning tools to identify future cash flow requirements.
The Group has established a $30,000,000 (2022 – $30,000,000) overdraft facility that is secured
against inventory and accounts receivable. If drawn upon, interest would be payable at the rate of
bank prime (2022 - bank prime). The Company had available unused credit facilities in the amount
of $30,000,000 at December 31, 2023 (2022 - $16,043,000) to meet fluctuations in working capital
requirements.
The Group has available a line of credit to finance new equipment purchases of which it has available
$10,000,000 (2022 - $10,000,000).
In 2015, the Group successfully applied for and was approved by the Federal Economic
Development Agency for Southern Ontario for an interest free loan up to $3,461,500 on eligible
spending. As at December 31, 2023, the Group had received $3,461,500 of this funding (2022 -
$3,461,500). The present value of this funding of $2,646,385 was set up as long-term debt and
$815,115 which reflects the interest savings has been offset to property, plant and equipment.
Repayment of this loan is over five years and started in January of 2020. As at December 31, 2023
the present value of the funding is $601,000 (2022 – $1,245,000).
The interest free loan and grant noted above are contingent on adding new jobs and retaining
existing jobs at its Guelph, Ontario locations. As at December 31, 2023, the Group was in
compliance with this requirement.
The following are the contractual maturities of financial liabilities, including estimated interest
payments and excluding the impact of netting arrangements. It is not expected that the cash flows
included in the maturity analysis will occur significantly earlier or at materially different amounts.
December 31, 2023
Non-derivative financial liabilities
Carrying
amount
Contractual
cash flows
2024
2025
2026 to
2027
Thereafter
Term loans
Lease obligations
$ 44,727 $ (54,337) $(47,324) $ (1,692) $ (3,385) $ (1,936)
(13,086) (2,930) (2,914) (3,400) (3,842)
11,293
Trade and other payables
Bank indebtedness
24,815
(24,815) (24,815)
431 (431) (431)
- - -
- - -
Total
$ 81,266 $ (92,669) $(75,500) $ (4,606) $ (6,785) $ (5,778)
December 31, 2022
Non-derivative financial liabilities
Carrying
amount
Contractual
cash flows
2023
2024
2025 to
2026
Thereafter
Term loans
Lease obligations
$ 22,198 $ (24,689) $(15,364) $ (2,312) $ (3,385) $ (3,628)
(13,441) (3,057) (2,588) (4,325) (3,471)
11,748
Trade and other payables
Bank indebtedness
29,609
14,446
(29,609) (29,609)
(14,446) (14,446)
- - -
- - -
Total
$ 78,001 $ (82,185) $(62,476) $ (4,900) $ (7,710) $ (7,099)
www.hammondmfg.com
Annual Report 2023 61
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
d) Market risk:
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest
rates will affect the Group’s income or the value of its holdings of financial instruments. The objective
of market risk management is to manage and control market risk exposures within acceptable
parameters, while optimizing the return.
e) Foreign currency risk:
The Group has a substantial number of transactions denominated in US dollars and is exposed to
risk with respect to fluctuations in exchange rates between Canadian and US dollars. The Group
holds smaller positions in other foreign currencies. The Group does not use derivative instruments
to reduce its exposure to foreign currency risk. As a result, variations in foreign exchange rates
could cause unanticipated fluctuations in the Group’s operating results.
The following chart depicts the foreign currency positions.
Currency
Accounts receivable
Dec 31, 2023 Dec 31, 2022
Accounts payable
Dec 31, 2023 Dec 31, 2022
Australia
Europe
New Zealand
Taiwan
UK
US
AUD
EURO
NZD
TWD
GBP
USD
Currency
65
300
95
50
400
11,940
32
328
49
699
484
10,325
(18)
(53)
-
(4,375)
(530)
(5,118)
(26)
(27)
-
(2,328)
(572)
(3,592)
Long-term debt
Dec 31, 2023 Dec 31, 2022
Lease Liabilities
Dec 31, 2023 Dec 31, 2022
UK
US
GBP
USD
-
(1,267)
-
(1,306)
(1,541)
(556)
(1,753)
(944)
Long-term debt and lease liabilities denominated in foreign currencies may affect the amount of
principal and interest payments ultimately recorded.
Sensitivity Analysis:
An average one-cent decrease of the Canadian dollar against the US dollar in 2023 would have
increased net product sales by $1,078,000 (2022 - $1,025,000) and increased income from
operations by $1,183,000 (2022 - $1,104,000). Inversely, a one cent increase in the Canadian dollar
against the US dollar in 2023 would have had the equal but opposite effect. This analysis assumes
that all other variables remain constant. As noted, the Company does deal in other currencies but
the level of impact of these currencies would not be significant.
f)
Interest rate risk:
Interest rate risk arises from the possibility that the cash flows related to a financial instrument would
fluctuate as a result of changes in market interest rates. The Group is exposed to financial risk that
arises from the interest rate differentials between the market interest rate and the rates on its cash,
bank indebtedness, and its float rate term loans. Changes in variable interest rates could cause
unanticipated fluctuations in the Group’s operating results.
Sensitivity Analysis:
A one percent increase in the variable rates charged on ending 2023 bank indebtedness would
increase annual interest expense by $4,000 (2022 - $144,000). This analysis assumes that all other
www.hammondmfg.com
Annual Report 2023 62
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
variables remain constant. Inversely, a one percent decrease in the variable rates charged on ending
2023 bank indebtedness would have had the equal but opposite effect.
g) Operational risk:
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated
with the Group’s processes, personnel, technology and infrastructure, and from external factors
other than credit, liquidity and market risks such as those arising from legal and regulatory
requirements and generally accepted standards of corporate behavior.
The Group’s objective is to manage operational risk so as to balance the avoidance of financial
losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control
procedures that restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address
operational risk is assigned to senior management within each business unit. This responsibility is
supported by the development of overall Group standards for the management of operational risk in
the following areas:
•
•
•
•
•
•
•
•
•
•
requirements for appropriate segregation of duties, including the independent authorization
of transactions
requirements for the reconciliation and monitoring of transactions
compliance with regulatory and other legal requirements
documentation of controls and procedures
requirements for the periodic assessment of operational risks faced, and the adequacy of
controls and procedures to address the risks identified
requirements for the reporting of operational losses and proposed remedial action
development of contingency plans
training and professional development
ethical and business standards
risk mitigation, including insurance when this is effective.
Compliance with Group standards is supported by a program of periodic reviews undertaken by the
corporate finance group. The results of the reviews are discussed with the management of the
business unit to which they relate, with summaries submitted to the Audit Committee and senior
management of the Group.
Capital management:
In order to manage capital, the Group regularly identifies and assesses risks that threaten the ability
to meet the Company’s capital management objectives, and determines the appropriate strategy to
mitigate these risks.
The Group’s objectives when managing capital are to:
• maintain financial flexibility in order to preserve its ability to meet financial obligations
•
deploy capital to provide an appropriate investment return to its shareholders
• maintain capital structure that allows multiple financing options to the Group should a
financing need arise.
www.hammondmfg.com
Annual Report 2023 63
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
The Group defines its capital as follows:
•
•
•
shareholders’ equity
long-term debt, including the current portion
cash and cash equivalents and short-term borrowings
The Group is subject to externally imposed capital requirements through the covenants of its facility
arrangements with the bank. The covenants measure Debt to Total Net Worth, Debt Service Ratio
and Current Ratio. The Group is in compliance with its covenants at December 31, 2023 and has
been in compliance with its covenants through 2022 and 2023. There were no changes to the
Group’s approach to capital management during 2023. Neither the Company, nor any of its
subsidiaries, is subject to externally imposed capital requirements.
27) Segment disclosures:
The continuing operations of the Company are in one operating segment, electrical and electronic
components.
The Company and its subsidiaries operate in Canada, the US, the UK and Australia.
Geographic segments
Year ended:
December 31, 2023
December 31, 2022
Net product sales:
Canada:
Sales to customers
US:
Sales to customers
All other countries:
Sales to customers
Net product sales
Non-current assets:
Canada:
Non-current assets
US:
Non-current assets
All other countries:
Non-current assets
$ 80,643
$ 81,009
143,958
131,034
13,684
$ 238,285
13,879
$ 225,922
$ 74,561
$ 66,350
1,923
3,067
2,197
3,376
Total
Non-current assets
$ 79,551
$ 71,923
28) Related party transactions:
a) Key management includes the Company’s directors and members of the executive
management team. Compensation awarded to key management included:
Years ended:
December 31, 2023
December 31, 2022
Salaries and short-term employee benefits
$ 893
$ 835
b) The Company purchased $4,474,000 of products from RITEC in 2023 (2022 - $5,785,000). The
Company sold $3,400 of products to RITEC in 2023 (2022 - $43,600). These transactions were
made in the normal course of business and have been recorded at the exchange amounts,
being the amount agreed to by the two parties.
www.hammondmfg.com
Annual Report 2023 64
HAMMOND MANUFACTURING COMPANY LIMITED
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(tabular amounts (except share amounts) in thousands of Canadian dollars)
All outstanding trade balances with related parties are to be settled in cash within six months of
the reporting date. None of the balances are secured. Receivables as at December 31, 2023
were $140,000 (2022 - $185,000) while payables were $45,000 (2022 - $103,000). Trade
receivables and payables to related parties are included within trade and other receivables and
trade and other payables on the Consolidated Statement of Financial Position.
c) The Chairman of the Corporation, Robert Frederick Hammond, through direct and indirect
ownership of Class A and Class B voting shares effectively controls the Company.
d) Consolidated entities:
HAMMOND MANUFACTURING COMPANY LIMITED
Country of
incorporation
% Ownership interest
December 31,
2023
December 31,
2022
Les Fabrications Hammond (Quebec) Inc. /
Hammond Manufacturing (Quebec) Inc. Canada
Hammond Electronics Pty Limited
Australia
Hammond Electronics Limited
Subsidiary of above:
Hammond Electronics Asia Limited
Hammond Electronics B.V.
UK
Taiwan
Netherlands
Hammond Manufacturing Company Inc. US
Subsidiaries of above:
Hammond Holdings Inc.
Paulding Electrical Products, Inc
US
US
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
The year end for each of the entities listed in the table above is December 31.
www.hammondmfg.com
Annual Report 2023 65
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK
www.hammondmfg.com
Annual Report 2023 66
Through
the Years
2023
Additional contractor
product capacity
added in Ontario
Hammond Rack and
Cabinet Division
celebrates 85 years.
2019
2017
Hammond
Celebrates 100
Years in Business
Guelph Operations
Expands with an
additional state-of-the-art
Manufacturing Facility.
2016
2000
Dry-Type Transformer Business
split off under new company,
Hammond Power Solutions.
Shares of Hammond power
solutions distributed as a
separate public company
Hammond goes
Public on Toronto
Stock Exchange
1986
1980’s
Hammond expands to the
UK opening in Basingstoke
Hammond
Manufacturing
re-branded to
current identify
1976
1955
New Factory built
on Speedvale/
Edinburgh Road
Added NEMA
Enclosures
1950
1930
Transition into
manufacture of
Transformers, Wire
Wound Resistors
and Broadcast
Racks/Cabinets
Hammond O.S. & Son -
built radios, amplifiers, and
battery eliminators
1927
Backyard Workshop - Charging
batteries, installing antennas,
custom machining
1917
Corporate Directory
1-877-535-3282 (Canada) | 1-800-526-2266 (USA) | www.hammondmfg.com | @hammondmfg
Directors
Robert F. Hammond
Chairman and CEO
*Edward Sehl
Principal - Sehl Consulting
*Paul Quigley
President - Quigley Group Inc.
Sheila Hammond B.A., B.Ed., M.Sc.
Registered Marriage & Family Therapist
Officer & Director, Eramosa Group Ltd.
Officers / Senior Management
Robert F. Hammond
Chairman and CEO
Alexander Stirling
Secretary and CFO
Ross N. Hammond
Assistant Secretary
*Michael Fricker
CFO at Sarku Japan
Director of Tippet Foundation
Director for Odd Burger Corporation
*Blaine Witt
Vice President – Senior Consultant of Witt Holding Company Inc.
Sarah Hansen
Profit Centre Manager for Riptide Fulfillment Corporation in Calgary
Director of Eramosa Group Ltd.
Director of DKH Engineering Services Inc.
Stock Listing
Toronto Stock Exchange
Symbol: HMM.A
Bankers
HSBC
Auditors
KPMG LLP
Wise & Co., UK
ATA Audits PTY Ltd
Legal Counsel
Borden Ladner Gervais
Transfer Agent and Registrar
Computershare Investor
Services Inc.
*Members of the Audit Committee and Compensation Committee
Head Office
Hammond
Manufacturing
394 Edinburgh Rd N,
Guelph, ON, N1H 1E5
P. (519) 822 2960
F. (519) 822 0715
ir@hammfg.com
Québec
Les Fabrications
Hammond
(Québec) Inc.
985 Rue Bergar,
Laval, QC, H7L 4Z6
P. (450) 975 1884
F. (450) 975 2098
sales@hammfg.com
USA
Hammond
Manufacturing
Company Inc.
475 Cayuga Rd,
Cheektowaga, NY
14225
P. (716) 630 7030
F. (716) 630 7042
sales@hammfg.com
Australia
Hammond
Electronics Pty. Ltd.
11-13 Port Rd,
Queenstown
SA 5014
P. +61 8 8240 2244
F. +61 8 8240 2255
australia@hammfg.com
United Kingdom
Hammond
Electronics Ltd.
1 Onslow Close,
Kingsland Business Park,
Basingstoke, Hampshire,
RG24 8QL, England
P. +44 1256 812812
F. +44 1256 332249
sales@hammond-electronics.co.uk
HM- 2023- AnnualReport