Annual Report
2024
Initiating Progress: Building a Sustainable Future
Annual General Meeting
of Shareholders to be held:
May 8, 2025
1:30 pm (ET)
Delta Hotels by Marriott
Guelph Conference Centre
(John McCrae Room)
50 Stone Road West
Guelph, Ontario Canada N1G 0A9
1
Hammond Power Solutions Annual Report 2024
2
A YEAR OF STRATEGIC ADVANCEMENTS
3
2024 BUSINESS HIGHLIGHTS
4
SHAREHOLDERS MESSAGE
6
GROWTH MARKETS
8
HPS GLOBAL STRATEGY
10
SHAPING OUR FUTURE WITH POWER QUALITY
12
2024 REVIEW OF OPERATIONS
14
YEAR IN REVIEW
16
MANAGEMENT’S DISCUSSION & ANALYSIS
39
AUDIT REPORT
42
FINANCIAL STATEMENTS
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
96
COMPANY INFORMATION
Inside this REPORT
2
As we prepare for the future, with a clear vision for 2025 and beyond, we continue to lay the groundwork for a
scalable future by investing in our manufacturing facilities, broadening our product portfolio, and building our
internal systems such as customer relationship management (“CRM”), price management and global enterprise
resource planning (“ERP”). These investments not only streamline operations but also position us for continued
growth in emerging industries, reinforcing our commitment to building a sustainable, adaptable business that
can thrive across evolving markets.
A year of
STRATEGIC ADVANCEMENTS
We believe that honouring our
past is key to creating a bright
future.
Our history of providing reliable,
high-quality power solutions has
shaped everything we do today.
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Hammond Power Solutions Annual Report 2024
Increase in planned capital program by
approximately $20 million over two years.
Acquisition of Micron Industries Corporation
located in the U.S., an industrial control
transformer manufacturer.
Enhancing logistics and delivery capabilities
through the U.S. and Canada by opening HPS’
12th distribution centre near Dallas, Fort Worth.
CertifiedTM by Great Place to Work® at all HPS
Canada, U.S., and India locations.
Bill Hammond, retired CEO and now Chair of
HPS, was honoured with the Electro Federation
Canada (“EFC”) Industry Recognition Award for
his significant contributions to the Canadian
electrical industry. This prestigious award,
presented annually, recognizes individuals who
have had a profound impact on the sector
through strong leadership, industry involvement,
and dedication to regional, national, and
community initiatives.
HPS was recognized as the top-performing
company in the 2024 TSX30 ranking,
highlighting the top-performing companies on
the Toronto Stock Exchange. Being named the
top company in the 2024 TSX30 underscores
the commitment from employees and
customers to the company and reinforces
the focus on growth and profitability.
2024 Business
HIGHLIGHTS
TM
TM
TM
•
•
•
•
•
•
To our
SHAREHOLDERS
The past year has marked another milestone of
significant achievements and growth. Our success
was driven by our unwavering focus on meeting the
increasing demand from our customers. Although
there was some softness in the overall economy
and standard products during the second half of
the year, our diversified exposure across multiple
sectors helped us reduce the impact on our business.
Our custom business performed well, particularly in
emerging sectors such as data centers, infrastructure,
and battery storage. Additionally, our traditional
markets saw increased activity, resulting in another
year of significant growth in 2024.
I am pleased to report that our year-end revenues
grew by 11% in 2024. As our revenue scaled, so did our
operating leverage. With strong pricing discipline and
a favorable product mix, we expanded gross margins,
increasing 20 basis points to 32.7%.
Throughout 2024, we increased our manufacturing
capacity organically, acquired businesses to improve
our power quality portfolio, and strengthened our
distribution channel.
We successfully brought new production online
with the opening of a new factory in Mexico and we
announced an additional $20 million investment
for custom transformer capacity expansion This
additional capital will be deployed over the course of
2025 and early 2026.
Our continued focus on M&A opportunities led to
the successful acquisition of the industrial control
transformer business of Micron Industries Corporation
(“Micron”). This deal expands our Original Equipment
Manufacturer (“OEM”) market presence and will help
us expand our ability to serve more customers with
our power quality portfolio. Micron’s manufacturing
capabilities in the United States (“U.S.”) allow us to
better meet the increasing demand for domestically
made, energy-efficient solutions.
We continue to develop our distributor channel
across the U.S. and Mexico. We have strengthened
existing distributor relationships by lowering lead
times, improving inventory levels and by integrating
our power quality products into their networks. With
approximately two-thirds of our sales coming from a
well-diversified distribution channel, we are making it
easier for them to do business with HPS.
Our people and culture efforts saw recognitions
highlighted by our Great Place to Work™ certification in
Canada, the U.S., and India. We promoted John Bailey,
to become our new Chief Operations Officer, bringing
deep industry expertise to our leadership team.
Additionally, our Chair of the Board, Bill Hammond,
received a Lifetime Achievement Award from the
Electro Federation of Canada – an honour that reflects
his lasting contributions to the industry.
Our teams continue to actively engage in sustainability
initiatives supporting our dedication to making a
meaningful impact on the planet and the communities
we serve. We are committed to transparency and
aligning Environmental, Social, and Governance
(“ESG”) efforts with our broader business goals. I
4
ADRIAN THOMAS
CHIEF EXECUTIVE OFFICER
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Hammond Power Solutions Annual Report 2024
With our resilient business model,
diversified market exposure, and
continued focus on innovation, I am
confident that we are well-positioned
to manage through these turbulent
times and to become a
transformational
force in the electrification
of the world.
encourage you to explore more about our initiatives
by reviewing our 2024 ESG Report.
As we look to 2025 and beyond, we see near-term
challenges presented by geopolitical uncertainties,
tariff concerns, and shifting economic landscapes.
These factors together are creating what futurist
Jamais Cascio has described as a Brittle, Anxious,
Non-linear, and Incomprehensible (“BANI”) world. We
are uniquely poised to respond to this BANI world,
through our flexibility in how we work with customers
and suppliers, the humanity built into our employee
culture over many years, our diversity of sales and our
nimbleness in developing both capacity and markets,
and our attention to continuous improvement and
innovation. These responses were key in how we
adapted to the impacts of the COVID pandemic, and
they will serve us well going forward. In addition to our
own response, the general market of electrification
continues to see accelerated demand growth.
A recent S&P Global Commodity Insights report
predicts a 35-50% increase in electricity demand
in the U.S. from now until 2040. With our resilient
business model, diversified market exposure, and
continued focus on innovation, I am confident that
we are well-positioned to manage through these
turbulent times and to become a transformational
force in the electrification of the world.
6
Growth MARKETS
HPS’ core markets are
experiencing the benefits
of manufacturing and
supply chains returning
to North America.
2025 marks a strategic shift towards
fortifying our newly expanded
organization and exploring avenues
for the future.
Near Shoring to
North America
As the electrical grid
increases in complexity
and introduces more
power electronics,
power quality products
will be essential.
Power Quality
Increasing adoption of
cloud computing, the
rise in data generation
due to the Internet of
Things (“IoT”), big data
analytics and the growing
demand for artificial
intelligence (“AI”).
Data Centres
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Hammond Power Solutions Annual Report 2024
Wind, natural gas and
photovoltaic power are
all experiencing
exponential growth.
Renewable and
Clean Energy
An essential component
of electronic devices,
enabling advances in
communications and
clean energy as
well as countless
other applications.
Semiconductor
Fabrication
Most vehicle manufacturers
are moving from conventional
vehicles to electric vehicles
(“EV”) with double-digit annual
growth rates projected.
Electric Vehicle Industry/
Charging Stations
HPS is well positioned to meet the
evolving needs of our traditional
markets while becoming a leading
player in a growing number of
other market sectors.
8
Our VISION
To be a transformative force that electrifies the world.
Our MISSION
We simplify electrification by shaping power
solutions with our customers.
Our STRATEGIC INITIATIVES
1
Drive organic growth through competitive product offering and unparalleled
customer experience and enhance strategic growth via acquisitions.
Customers and Markets
2
Achieve operational excellence through continuous improvement and
efficiency plays, and grow revenue / EBITDA with opportunistic acquisitions
and cost reduction initiatives.
Operational and
Financial Excellence
3
Build the next leadership team, and be a preferred employer due to our clarity
of purpose and employee value proposition.
People and Culture
4
Design energy-efficient products; shrink the ecological footprint of our
operations and energize the world responsibly for generations to come.
Sustainability
HPS
GLOBAL STRATEGY
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Hammond Power Solutions Annual Report 2024
Our VALUES
We Care
We do the
right thing
We strive to
be better
We win
together
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The future is bright for HPS. Growth is a constant reality as we offer more custom solutions and stay flexible
to take advantage of new opportunities.
With smart investments in our infrastructure and resources, we’re building the capacity to meet future demands
and strengthen our foundation. This approach gives us a competitive edge and prepares us for long-term
success. By prioritising innovation, flexibility and sustainability, we’re excited to lead the way toward a more
electrified and sustainable future.
We believe that honouring our past is key to creating a bright future – we’ve been around for more than 100
years. Our history of providing high-quality, reliable power solutions has shaped everything we do today. As our
customers grow quickly, we’re dedicated to staying ahead of the curve, making sure we have the ability to scale
and adapt to fast-changing markets.
Shaping our Future
WITH POWER QUALITY
Growth is a constant reality.
We continue to offer more custom
solutions and stay flexible in order
to take advantage of new
opportunities.
Hammond Power Solutions Annual Report 2024
11
HPS offers a variety of products designed to
address and mitigate power quality issues.
The HPS TruWave™ Active Harmonic Filter helps
mitigate harmonic distortion, correct power factor, and
address voltage unbalance.
The HPS Centurion™ P Passive Harmonic Filter
reduces harmonic current distortion to less than 5% and
corrects true power factor to over 95%.
The HPS Centurion™ S SineWave Filter conditions
the pulse width modulated (“PWM”) output of a
variable frequency drive (“VFD”) into a nearly perfect
sinusoidal waveform.
The HPS Centurion™ D1 dV/dT Filter protects motors
by slowing down the rate of voltage increase and
minimizing damaging peak voltages.
The HPS Centurion™ Line and Load Reactors help
minimize harmonic distortion, reduce line notching, and
mitigate voltage spike nuisance tripping with VFDs.
The HPS Sentinel™ H Harmonic Mitigating Transformer
is designed to address power quality issues caused by
harmonics.
Data centres need reliability in their power and users
expect 99.99% uptime and consistent access to
their data. HPS offers a full line of products to ensure
consistent power quality, reduce harmonic distortion
and improve power efficiency in data centres.
12
Throughout 2024, we increased
our manufacturing capacity
organically, acquired businesses
to improve our power quality
portfolio, and strengthened our
distribution channel.
Despite questions about the economy as we entered the year,
we continued to deliver growth as a result of our business
diversity and continued demand for custom products.
Financially, the fourth quarter ended with record shipments
of $208 million globally. This represents an 11.5% increase over
the fourth quarter of last year and an 11% increase on a year-to-
date basis. Our strong top line performance and higher mix of
custom sales supported margin rates of 32.7% for the quarter
and 32.8% for the full year, up 20 basis points from 2023.
2024 Review of
OPERATIONS
As the year progressed, we saw industrial and
commercial construction markets slow, leading to a
decline in our standard product sales that are primarily
sold in those markets, however, project related custom
orders remained resilient. Our Original Equipment
Manufacturers (“OEM”) and private label channels grew
moderately year-over-year with notable activity in capital
equipment, mining, and data centres. Overall, we set
another high-water mark with strong 9.3% growth in
our combined United States (“U.S.”) and Mexico sales.
In Canada, we saw more consistent growth across
all product lines and in multiple sectors leading to a
significant 22.6% year-over-year growth.
The India business saw a decline in revenue versus
2023, impacted by a large project in Q1 2023 that was not
repeated in 2024. We also saw uncertainty and activity
slow during the local election cycle driving more intense
competition, especially around domestic projects. The
renewable sector remains to be a strong contributor to
our business.
Beyond transformers, our Mesta product sales
were significantly lower than in 2023, mainly due to long
delays to projects with a key customer. Compounding
these delays were slower than anticipated ramp up of
our power quality sales. Presales development cycles
for both products tend to be longer and combined with
some of the project delays, it became difficult to recover
in the second half, however, revenue did increase in
Q4. We believe that there is still an unmet need in the
market for these kinds of products and as such, we have
increased our training and marketing efforts to boost
awareness, increased business development activities
and expanded our product portfolio. We launched
several additional frame sizes of filters throughout the
year to better meet customer needs. Finally, with the
opening of our new factory in Monterrey, we have begun
the production of power quality equipment in Mexico.
A significant focus of our long-term strategic growth
includes identifying strategic acquisitions. In October,
we acquired Micron Industries, which is an industrial
control transformer manufacturer with operations in
Sterling, IL. With our focus on developing opportunities
13
Hammond Power Solutions Annual Report 2024
for our power quality business, and with the global
focus on industrial automation, the acquisition gives us
more access to OEM customers where we can develop
business.
We continued to expand our capacity to meet the
growing demand and needs of our customers. We
continued to progress in 2024 with the completion of
our Monterrey 3 facility which will allow us to produce
a variety of smaller transformers and power quality
products. We also announced the addition of another
$20 million investment in a new factory to increase
production of our power transformers. Overall, we have
invested over $45 million on our $80 million capital
program and expect to spend an additional $35 million
by the end of 2026 to complete our capacity build outs.
Already we have seen the benefits of this additional
capacity, which has allowed us to reduce lead times
and remove bottlenecks that limit our ability to serve
customers. We will continue to monitor the market
and our growth rates and are ready to expand
capacity further.
In addition to capacity development, we completed
a significant phase in our U.S. warehousing optimization.
A new location outside of Baltimore was added in
2023, and a new location in the Dallas area was set
up this year to allow us to provide fast service across
the U.S. In addition, with the strategic location of our
Dallas warehouse, we will be able to simplify logistic
channels and flows. We expect that these changes will
reduce logistic costs, optimize inventories and improve
lead times.
Finally, as we continue to scale, our technology
platforms and tools must provide us with the ability
to work faster and smarter. We implemented several
commercial and financial software platforms. Our new
pricing tool will help us manage the vast complexity
of pricing in multiple markets and with dynamic
conditions. Our customer relationship management
(“CRM”) deployment will give us more insights into our
interactions with our customers that we can use to
develop business and improve our competitiveness.
We plan to continue to invest in our technological tools
and infrastructure as ways to enhance our productivity
and speed.
An important aspect of capacity expansion is
developing the necessary workforce. We have now
grown to a company of over 2,000 employees across
Canada, U.S, Mexico, and India. As we grow revenues,
add capacity and enter new businesses, we need
to attract and retain top talent. One of our employee
highlights in 2024 was our certification last June as a
Great Place To WorkTM certified company in Canada, U.S.
and India.
We continue to focus on progressing in the area
of sustainability with focus on our 5 pillars (people,
community, environment, economics and continuous
improvement). In 2024, we saw continued improvements
in our focus areas, especially around waste reduction
where some highlights included our wood use reduction
and our first external waste management certification
at our Granby facility. Along with our rapid growth, our
consumption of energy has increased with output.
We have improved our energy efficiency, and we will
continue to strive to reduce our carbon footprint further.
While 2024 started off with some economic
momentum the second half of the year was held back
by continued geopolitical tensions, multiple elections
across the world and uncertainty around inflation.
We believe that the large market access provided by
our many distribution partners across all countries in
North America will continue to give us exposure to a
diverse set of customers and markets. This coupled
with our close collaboration with our OEM and private
label customers, gives us more resiliency to uncertain
dynamics. We are focused on building our company for
the future, continuing to grow in our existing markets
while at the same time continuing to build out our power
quality business.
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Year in REVIEW
Gross Margin %
32.8%
2024
Consolidated Sales
$788,340
(in thousands of dollars)
2024
Basic Earnings
Per Share
$6.01
(in dollars)
32.5%
27.0%
2020
2023
26.9%
2021
29.6%
2022
$710,064
$380,202
$322,097
2020
2023
2021
2022
$558,464
$5.33
$1.20
$1.29
$3.79
2020
2023
2021
2022
2024
15
Hammond Power Solutions Annual Report 2024
Geographic Sales
(in thousands of dollars)
U.S.
$198,324
$231,738
$349,170
$489,579
$534,888
Canada
$109,080
$130,184
$184,495
$175,619
$215,394
India
$14,693
$18,280
$24,259
$44,866
$38,058
2024
* Non-GAAP financial measure,
refer to page 17 of the annual report
* Non-GAAP financial measure,
refer to page 17 of the annual report
Adjusted EBITDA*
$130,484
2024
Net Operating (Debt) Cash* to Equity
0.12
2024
(in thousands of dollars)
$117,229
$29,359
2020
2023
$30,675
2021
2022
$73,435
0.15
(0.01)
2020
2023
0.01
2021
0.12
2022
2020
2023
2021
2022
16
Hammond Power Solutions Inc. (“HPS” or the “Company”)
enables electrification through its broad range of dry-type
transformers, power quality products and related magnetics.
HPS’ standard and custom-designed products are essential
and ubiquitous in electrical distribution networks through an
extensive range of end-user applications. The Company has
manufacturing plants in Canada, the United States (“U.S.”),
Mexico and India and sells its products around the globe. HPS
shares are listed on the Toronto Stock Exchange and trade
under the symbol HPS.A.
Hammond Power Solutions – Energizing our world
Management’s
Discussion
AND ANALYSIS
The following is Management’s Discussion and
Analysis (“MD&A”) of the Company’s consolidated
financial position and performance for the years ended
December 31, 2024 and 2023, and should be read
in conjunction with the accompanying Consolidated
Financial Statements of the Company as at December
31, 2024 and 2023, which have been prepared in
accordance with IFRS Accounting Standards (“IFRS”).
This information is based on Management’s knowledge
as at March 20, 2025. All amounts in this report are
expressed in thousands of Canadian dollars unless
otherwise noted. Additional information relating to the
Company may be found on SEDAR’s website at www.
sedar.com or on the Company’s website at www.
hammondpowersolutions.com.
Caution regarding forward-looking information
This MD&A contains forward-looking statements that
involve a number of risks and uncertainties, including
statements that relate to among other things, Hammond
Power Solutions Inc.’s (the “Corporation” or “HPS”)
strategies, intentions, plans, beliefs, expectations and
estimates, in connection with general economic and
business outlook, prospects and trends of the industry,
expected demand for products and services, product
development and the Corporation’s competitive position.
Forward-looking statements 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
the Corporation believes that the expectations reflected
HPS’ strategic vision and
operational initiatives have
supported our industry leadership,
operational strength and financial
stability. The combination of
our resilience, drive, decades
of experience, commitment,
engineering, expertise, solid
supplier relationships and a
board and unique business
perspective gained through our
diverse products, customers and
markets are all key factors
critical to our success.
17
Hammond Power Solutions Annual Report 2024
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
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 risks
related to foreign currency fluctuations and changing
interest rates); risks associated with the Corporation’s
business environment (such as risks associated with
the financial condition of the oil and gas, mining and
infrastructure project business); geopolitical risks;
climate related risks; changes in laws and regulations;
operational risks (such as risks related to existing
and developing new products and services; doing
business with partners and suppliers; product sales
and performance; legal and regulatory proceedings;
dependence on certain customers and suppliers;
costs associated with raw materials, products and
services; human resources; and the ability to execute
strategic plans. The Corporation 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.
This forward-looking information represents our
views as of the date of this MD&A and such information
should not be relied upon as representing our views as
of any date subsequent to the date of this MD&A. We
have attempted to identify important factors that could
cause actual results, performance or achievements
to vary from those current expectations or estimated,
expressed or implied by the forward-looking information.
However, there may be other factors that cause results,
performance or achievements not to be as expected
or estimated and that could cause actual results,
performance or achievements to differ materially from
current expectations.
There can be no assurance that forward-looking
information will prove to be accurate, as actual results
and future events could differ materially from those
expected or estimated in such statements. Accordingly,
readers should not place undue reliance on forward-
looking information.
Additional GAAP and Non-GAAP measures
This document uses the terms “earnings from
operations” which represents earnings before finance
and other costs/(income) and income taxes. “EBITDA”
is also used and is defined as earnings before interest,
taxes, depreciation and amortization. Adjusted EBITDA
represents EBITDA adjusted for foreign exchange
gain or loss and share based compensation. This
definition changed in 2023 due to the significant value
associated with share based compensation during
the year. Net cash or net indebtedness is defined as
the bank operating lines of credit net of cash and cash
equivalents. Net income taxes payable or receivable is
defined as current income taxes receivable less current
income taxes payable. Operating earnings, EBITDA
and Adjusted EBITDA are some of the measures the
Company uses to evaluate the operational profitability.
Net cash or net indebtedness and net income taxes
payable or receivable are measures the Company
uses to evaluate balance sheet strength. The Company
presents EBITDA to show its performance before interest,
taxes, and depreciation and amortization. Management
believes that HPS shareholders and potential investors
in HPS use additional GAAP and non-GAAP financial
measures, such as operating earnings, net cash or net
indebtedness, net income taxes payable/receivable,
EBITDA and Adjusted EBITDA in making investment
decisions about the Company and to measure its
18
operational results. A reconciliation of earnings from
operations, EBITDA and Adjusted EBITDA to net earnings
for the years ended December 31, 2024 and December
31, 2023 is contained within this MD&A. Earnings from
operations, EBITDA and Adjusted EBITDA should not be
construed as a substitute for net earnings determined in
accordance with IFRS Accounting Standards.
“Order bookings” represent confirmed purchase
orders for goods or services received from our
customers. “Backlog” represents all unshipped customer
orders. Customer orders in Order bookings and Backlog
may not have confirmed ship dates, as the customer
may not know the date at which it would like to take
delivery at the time of placing the order. A significant
percentage of Order bookings could be cancelled
by customers without penalty, provided HPS has not
commenced purchasing or production for that order.
“Book value per share” is the total shareholders’ equity
divided by the average outstanding shares. The terms
“earnings from operations”, “EBITDA”, “adjusted EBITDA”,
“order bookings”, “backlog” and “book value per share”
do not have any standardized meaning prescribed
within IFRS and therefore may not be comparable to
similar measures presented by other companies.
The
Company’s
2024
consolidated
financial
statements,
which
comprise
the
consolidated
statements of financial position as at December 31, 2024
and December 31, 2023, the consolidated statements of
operations, comprehensive income, changes in equity
and cash flows for the years ended December 31, 2024
and December 31, 2023, and Notes thereto, have been
prepared under IFRS Accounting Standards.
Overview
Demand for HPS’ products increased in 2024 and HPS
realized its highest annual revenues in company history.
During the year, the Company saw activity increase in
many of the markets we serve, including data centres,
infrastructure and battery storage, while others, like
electrical vehicle (“EV”) charging and commercial
construction had moderated over the course of the year.
It is because of these market cycles that HPS strives
to maintain a diverse customer and market segment
base. It is our contention that despite short term cycles
within certain markets, many of them have strong future
growth profiles, as does electrification more generally.
HPS sells through distributors and direct to
Original Equipment Manufacturer (“OEM”) and private
label customers. Sales through distributors tend to
be made up of higher volume, standard and modified
standard product, with an increasing number of custom
projects, whereas OEM sales are mainly customized
and project-oriented sales. Private label sales contain
a mix of standard and custom products. HPS believes
that its focus on developing the distributor channel as
well as continuing to support the OEM channel with high
levels of service and quality have supported our growth
trajectory and created a more sustainable sales profile
by expanding our reach.
With an established global market presence and
a focus on market growth, HPS is positioned as a
transformer industry leader, providing standard and
custom order solutions, a broad product offering,
market access through multiple sales channels,
outstanding quality products and exceptional service.
HPS is leveraging its expertise in transformer magnetics
to broaden its market presence in terms of the products
it sells, the applications it serves and the geographic
regions into which it sells its solutions.
HPS’ manufacturing capabilities are primarily located
in North America, with most manufacturing capacity
located in Mexico, followed by Canada and the United
States (“U.S.”). North American production is focused
on dry-type transformers, power quality products and
induction heating products. These facilities form an
integrated supply chain serving the Canadian, U.S. and
MANAGEMENT’S DISCUSSION AND ANALYSIS
19
Hammond Power Solutions Annual Report 2024
Mexican markets. HPS also has manufacturing facilities
in India, which primarily serves the Indian domestic and
Southeast Asian markets with liquid-filled transformers.
HPS’ management team is proud of its commitment
to producing quality, innovative, energy efficient,
diverse transformers and related magnetic products.
The Company’s alignment of its operational initiatives
and strategic vision enhances these competitive
differentiators. HPS has a well-established and growing
market presence and a focus on continued growth by
addressing a greater share of our customers’ needs
with custom magnetics and power quality solutions.
The Company has a strong financial footing that
allows for continued focus on market share growth.
The Company’s broad global footprint provides a
gateway to new technologies, customers and markets.
These strengths are important to future revenue and
earnings growth.
HPS has been focused on capacity growth to meet
increasing customer needs. In the past two years, HPS
has invested over $56 million in capital to maintain its
capital base and support growth. HPS will continue to
execute on its capacity expansion plans throughout
2025. Beyond its investment in capacity, HPS maintains a
focus on acquisitions to support growth. The acquisition
of Mesta Electronics LLC (“Mesta”) in 2021 and Micron
Group, LLC (“Micron”) in 2024, were examples of
investments that provided important strategic assets
to support growth. Mesta added important active
harmonic filter and power electronics technology, while
Micron added a larger U.S. footprint, and a broadened
customer base. HPS’ strong balance sheet and ability
to generate cash provides considerable investment
capacity to continue with its plans to grow through
acquisitions.
Through
HPS’
strategic
planning
process,
the Company is identifying and developing new
market opportunities in new customer and sales
expansion, product and technology development,
cost
effectiveness,
competitive
lead-times
and
manufacturing flexibility. One of HPS’ key advantages
is its strong market access, which it can leverage to
broaden its scope and scale of the solutions we offer
our customers.
HPS’ strategic vision and operational initiatives have
supported our industry leadership, operational strength
and financial stability. The combination of our resilience,
drive, decades of experience, commitment, engineering
expertise, solid supplier relationships and a broad and
unique business perspective gained through our diverse
products, customers and markets are all key factors
critical to our success.
Sales
Geography
2024
2023
$ Change
% Change
U.S. & Mexico*
534,888
489,579
45,309
9.3%
Canada
215,394
175,619
39,775
22.6%
India
38,058
44,866
(6,808)
(15.2%)
Total
788,340
710,064
78,276
11.0%
* When stated in U.S. dollars, U.S. and Mexico sales have increased from $362,651
in 2023 to $390,771 in 2024, an increase of $28,120 or 7.8%.
U.S. and Mexico sales were positively impacted
by the strengthening of the U.S. dollar relative to the
Canadian dollar versus 2023. The average U.S. to
Canadian exchange rate for 2024 was $1.369 versus
$1.350 in 2023. 2024 U.S. sales at prior year exchange
rates would have been $7,224 or 1.4% lower at $527,664.
Year-to-date, the U.S. market experienced its
strongest growth in the distributor channel with growth
primarily driven by increasing sales in custom and
configured products. General economic conditions in
the U.S. deteriorated mid-year with slower industrial
and commercial construction markets. The lower sales
primarily affected standard stock and flow product,
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
20
while shipments of custom product remained resilient.
OEM and private label channels grew more moderately
year-over-year, with growth led by stronger sales to
private label, capital equipment, mining and data centres.
The Canadian market was very strong in the year.
It continued to achieve year-over-year growth through
distribution channels in both stock and flow product and
large projects in commercial construction, data centres,
public infrastructure, mining and utilities.
Indian sales for 2024 were $38,058 compared to
$44,866 in 2023, a decrease of 15.2%. A large project in
the first quarter of 2023 was not repeated in 2024. Sales
in India were also impacted in 2024 due to local election,
intensifying competition as well as vacancies in certain
key sales positions that the Company is actively working
to fill.
Hammond Power Solutions Latin America S. de
R.L. de C.V. (“LatAm”) sales were $11,218 year-to-date,
an increase of 8.4% from prior year sales of $10,348.
Mesta product sales were $14,823 in 2024 compared to
$18,497 in 2023, a decrease of 24.8%. The Company had
challenges getting traction in power quality sales with its
existing customer base, to which it has responded with
increased training and marketing efforts. In addition,
some large induction heating inverters (“IHI”) projects
were deferred to the back half of the year, which had
largely shipped by the end of the year. Both Mesta and
LatAm are included in the U.S. and Mexico geographic
segment. The Micron acquisition that was completed
in October contributed less than 1% to the annual year-
over-year sales growth.
2024 sales stated by geographic segment were
derived from U.S. sales of 67.9% (2023 – 68.9%) of total
sales, Canadian sales of 27.3% (2023 – 24.8%) and Indian
sales of 4.8% (2023 – 6.3%).
In total, sales are 11.0% higher than in 2023. There
was a price increase at the end of Quarter 1, 2024
resulting in 1.7% of the increase attributed to pricing and
1.4% due to a stronger U.S. dollar. While sales growth
in the U.S. was strong during the year, there was a
decrease in momentum and growth has shifted in the
past five quarters to Canada, which has experienced
higher growth rates in markets such as data centres,
public infrastructure, industrial and oil and gas markets.
Backlog
The Company’s December 31, 2024 backlog decreased
by 0.3% as compared to December 31, 2023 and has
decreased 0.1% from Quarter 3, 2024. During the second
half of the year, commercial construction and industrial
markets began to moderate in their growth profile, while
our capacity additions allowed us to ship more backlog
than previous quarters. As the backlog stabilizes,
product lead times are now shortening. The backlog
tenor is longer for large project driven, mostly custom
product, which can be over one year for some factories.
For those factories focused on standard product,
the backlog does not generally extend beyond six to
eight weeks.
The general economic outlook and economic
activity within certain sectors can cause volatility in
backlog. Standard product tends to track closely to
general business investment, macroeconomic growth
rates and electro-industry growth rates while custom
products are more dependent on sectoral investment
trends. Backlog represents a customer’s intent to buy,
but as not all orders in the backlog have firm ship dates,
and in cases where work has not begun, many can be
cancelled without penalty.
Gross margin
The consolidated gross margin in 2024 increased to
32.8% versus 32.5% in 2023, an increase of 30 basis
points. The improvement in gross margin was the
result of higher volume that resulted in better operating
leverage and a higher margin product mix as a result of
MANAGEMENT’S DISCUSSION AND ANALYSIS
21
Hammond Power Solutions Annual Report 2024
relatively more custom and configured product sales.
These areas of improvement were offset by slightly
higher commodity costs and start-up costs at the new
factory in Mexico.
Margin rates can be sensitive to selling price
pressures, volatility in commodity costs, customer mix
and geographic blend. Margins in the fourth quarter of
32.7% were consistent with the previous three quarters
and full year margins of 32.8%.
We completed construction on the new factory in
Mexico, which officially opened in mid-June and has
started production later in the year than planned. While
this new factory has started operations, there was further
investment announced in August 2024, to increase its
planned capital program by another $20,000 over two
years to build capacity to manufacture custom power
transformers in Mexico. The start-up costs in Mexico
had a 0.6% impact on the margin rate in 2024.
During 2024, HPS estimated a volume increase
of 7.0%. This increase, along with organic increases
in 2023, resulted in some facilities operating close or
at capacity. This volume increase resulted in higher
fixed overhead leverage and as a result, higher gross
margins. While some facilities were full, there was some
additional capacity built in 2024 that the Company is
working to fill.
Gross margins were affected by the product sales
mix, which was favourable throughout the course of
2024. Higher custom and configured product sales
relative to more competitively priced high running
products affected margins favourably.
In the interest of protecting gross margins the
Company has been proactive in anticipating cost
increases, judicious in maintaining margins and
conscientious of our customer relationships. Key
inputs to our products include electrical steel, copper,
aluminum, insulation, carbon steel, resin and fiberglass,
as well as labour and overheads. Generally, the price
of commodities has been stable over the course of
2024, while labour and overhead costs continued to
increase. The company has in the past increased prices
as its underlying costs rise and will continue to do so as
competitive conditions permit. Given past challenges
and the strain on the global supply markets, HPS has
heightened the focus on ensuring that materials required
for production are received on a timely basis and
when needed.
The Company continues to focus on long-term
investment to fuel future sales and margin growth.
Gross margin rates are supported by the maintenance
of market prices combined with material procurement
and engineering cost reduction initiatives. The Company
has reaped the benefits of higher absorption of factory
overheads due to increased sales volume. Purchasing
at scale, continuous improvement programs, a focus on
higher-margin solutions and products and maintaining
flexible manufacturing capabilities will all contribute to
the ability to maintain and improve margins over time.
Selling and distribution expenses
Total selling and distribution expenses were $83,412
for 2024 versus $76,283 in 2023, an increase of $7,129
or 9.3%. On a percentage-of-sales basis, total selling
and distribution expenses decreased to 10.6% of sales
for 2024 from 10.7% in 2023. The higher sales value for
the year resulted in additional commission expense,
higher freight costs and additional warehouse costs of
$3,965 which are variable selling expenses that naturally
fluctuate with sales changes. Approximately $670, or
0.1% of the selling and distribution expenses increase
relates to investments in people resources to support
growth, marketing and branding initiatives, as well as
increased incentive plan payments related to higher
sales and profits.
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
22
MANAGEMENT’S DISCUSSION AND ANALYSIS
General and administrative expense
General and administrative expenses in 2024 were
$76,106 compared to $68,007 for 2023, an increase of
$8,099 or 11.9%. On a percentage-of-sales basis these
costs have increased from 9.6% in 2023 to 9.7% in 2024.
Key drivers for the current year increase are as follows:
• Approximately $4,400 of the increase in the current
year is associated with strategic investments in people
resources and employee programs;
• Higher professional fees of $3,538 were paid in 2024
compared to 2023 due to various transactions and
initiatives during the year;
• Additional estimated credit losses increased expenses
by $1,446 during the year;
• Investments in technology and cloud-based software
increased expenses by $740;
• An additional $463 was spent on travel expenses
because of increased business;
• Micron acquisition contributed an additional $931 to
general and administrative expenses; and
• Share based compensation decreased expenses by
$2,862 from prior year.
HPS continues to invest in growth while remaining
very cognizant of prudent general and administrative
expense management.
Earnings from operations1
Earnings from operations improved, finishing at $98,760
in 2024, as compared to earnings of $86,721 in 2023 –
an increase of $12,039 or 13.9%. The increase in earnings
from operations is due to higher sales and additional
gross margin dollars offset by higher selling, distribution,
general and administrative expenses.
Earnings from operations are calculated as outlined
in the following table:
2024
2023
Net earnings
$
71,531
$ 63,399
Add:
Income tax expense
25,391
20,595
Finance and other costs
1,838
2,727
Earnings from operations $ 98,760
$ 86,721
Net Finance and other costs
Net finance and other costs decreased $889 from
$2,727 in 2023 to $1,838 in 2024. The decrease from the
prior year is a result of a lower foreign exchange loss in
the current year as well as lower interest expense.
Interest expense for the year-ended December 31,
2024 finished at $1,246 as compared to $1,320 in 2023, a
decrease of $74. Interest expense includes all bank fees.
The foreign exchange loss in 2024 of $519 related
primarily to the transactional exchange loss on the
Company’s U.S. dollar (“USD”) trade accounts receivable,
compared to a foreign exchange loss of $1,280 in 2023.
The change of the foreign exchange expense for the
year is related to the volatility in the exchange rates
during the year – primarily the U.S. dollar.
As at December 31, 2024, the Company had
outstanding foreign exchange contracts in place for
14,500 Euros (“EUR”) and $11,000 USD – both of which
were implemented as a hedge against translation gains
and losses on inter-company loans as well as $90,000
USD to hedge the U.S. dollar denominated accounts
payable in Canadian HPS operations. The Company
also had outstanding foreign exchange contracts to sell
for $45,000 USD.
Exchange rate volatility is managed by HPS’ foreign
exchange contract hedging program. Details of the
outstanding forward foreign exchange contracts as at
December 31, 2024 can be found in note 27 in the Notes
to Consolidated Financial Statements included in our
2024 Annual Report.
1 Refer to Non-GAAP financial measures on page 17 of this annual report
23
Hammond Power Solutions Annual Report 2024
Earnings before income tax
2024 earnings before income taxes were $96,922 as compared to earnings of $83,994 in 2023 – growing by $12,928
or 15.4%. The main contributors to the higher current year earnings before income tax were higher sales and additional
gross margin dollars. These gains were offset by increases in selling, distribution, general and administration expenses.
Income taxes
Income tax expense from operations for 2024 was $25,391 as compared to $20,595 in 2023 – an increase of $4,796 or
23.3%. The consolidated effective tax rate on earnings from operations for 2024 was 26.2% versus 24.5% last year – an
increase of 1.7%. The effective tax rate has increased due to differences in the impact of tax rates in foreign jurisdictions.
The Company’s deferred tax assets and liabilities are related to temporary differences in various tax jurisdictions,
primarily reserves and allowances, which are not deductible in the current year. A difference in the carrying value
of property, plant and equipment and intangible assets for accounting purposes and for tax purposes, is a result
of business combination accounting and a different basis of depreciation utilized for tax purposes. The Company’s
income tax provision is explained further in note 16 in the Notes to Consolidated Financial Statements included in our
2024 Annual Report.
Net earnings
Net earnings for 2024 finished at $71,531 compared to net earnings of $63,399 in 2023, an increase of $8,132 or 12.8%.
The main contributors to the higher current year net earnings were higher sales and additional gross margin dollars.
These gains were offset by increases in selling, distribution, general and administration expenses.
EBITDA
EBITDA for the year-ended December 31, 2024 was $112,873 versus $95,995 in 2023 – an increase of $16,878 or 17.6%.
Adjusted for foreign exchange loss/gain and share based compensation expenses adjusted EBITDA for 2024 was
$130,484 versus $117,229 in 2023 – an increase of $13,255 or 11.3 %.
EBITDA and adjusted EBITDA are calculated as outlined in the following table:
2024
2023
Net earnings
$
71,531
$
63,399
Add:
Interest expense
1,246
1,320
Income tax expense
25,391
20,595
Depreciation and amortization
14,705
10,681
EBITDA
$
112,873
$
95,995
Add (subtract):
Long-term incentive plan (“LTIP”) Expense
8,483
6,367
Deferred Share Units (“DSU”) Expense
8,609
13,587
Foreign exchange loss
519
1,280
Adjusted EBITDA
$
130,484
$
117,229
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
24
MANAGEMENT’S DISCUSSION AND ANALYSIS
Summary of quarterly financial information (unaudited)
Fiscal 2024 Quarters
Q1
Q2
Q3
Q4
Total
Sales
$
190,680
$
197,212
$
191,972
$
208,476
$
788,340
Net earnings
$
7,952
$
23,590
$
16,311
$
23,678
$
71,531
Net earnings per share – basic
$
0.67
$
1.98
$
1.37
$
1.99
$
6.01
Net earnings per share – diluted
$
0.67
$
1.98
$
1.37
$
1.99
$
6.01
Average U.S. to Canadian
exchange rate
$
1.348
$
1.368
$
1.367
$
1.394
$
1.369
Fiscal 2023 Quarters
Q1
Q2
Q3
Q4
Total
Sales
$
171,134
$
172,451
$
179,521
$
186,958
$
710,064
Net earnings
$
15,726
$
13,333
$
14,437
$
19,903
$
63,399
Net earnings per share – basic
$
1.32
$
1.12
$
1.21
$
1.68
$
5.33
Net earnings per share – diluted
$
1.32
$
1.12
$
1.21
$
1.68
$
5.33
Average U.S. to Canadian
exchange rate
$
1.351
$
1.345
$
1.340
$
1.365
$
1.350
HPS sales have increased quarter-over-quarter for the past two years with the exception of a dip in Quarter 3,
2024. The increase in sales over the past eight quarters is a function of increased pricing as well as higher volume and
additional sales related to Mesta, Mexico and Micron (for Quarter 4, 2024). Sales have also been positively impacted
by the stronger U.S. dollar exchange rate.
Gross margin rates for the quarter have increased from the same quarter last year. This margin rate improvement
is attributed to higher operating leverage, pricing, a shift to higher margin products, and margin improvements in India.
25
Hammond Power Solutions Annual Report 2024
Quarter 4, 2024 financial results
Quarter ended
December 31, 2024
Quarter ended
December 31, 2023
Sales
$
208,476
$
186,958
Gross margin rate
32.7%
35.5%
Earnings from operations
$
29,706
$
24,661
Exchange (gain) loss
$
(923)
$
1,593
Net earnings
$
23,678
$
19,903
Earnings per share – basic
$
1.99
$
1.68
Earnings per share – diluted
$
1.99
$
1.68
Cash provided by operations
$
22,413
$
21,120
Sales for the quarter ended December 31, 2024 were $208,476, an increase of $21,518 or 11.5% from the comparative
quarter last year. Sales were higher mainly due to higher volumes in the U.S. distributor and OEM channels.
Gross margin rates for the fourth quarter have decreased from the same quarter last year by 2.8% from 35.5%
in 2023 to 32.7% in 2024. The gross margin in the quarter was lower than what would be expected primarily due to
higher year-end inventory adjustments and year end reserves.
Total selling and distribution expenses amounted to $21,502 in Quarter 4, 2024 versus $19,988 in Quarter 4,
2023 – an increase of $1,514. Selling and distribution expenses as a percentage of sales have decreased to 10.3% in
Quarter 4, 2024 compared to 10.7% in Quarter 4, 2023, a decrease of 0.4% of sales. The increased expenses were a
result of higher commission and freight variable expenses.
General and administrative expenses as a percentage of sales have decreased to 8.1% in 2024 compared to 11.6%
in 2023. General and administrative expenses for Quarter 4, 2024 totaled $16,881, a decrease of $4,865 when compared
to Quarter 4, 2023 costs of $21,746. Share based compensation was a decrease of $9,203 with a recovery of $463
in Quarter 4, 2024 compared to an expense of $8,740 Quarter 4, 2023. Other general and administrative costs
increased in Quarter 4, 2024 due to increased professional fees, additional estimated credit losses and higher
compensation costs.
Quarter 4, 2024 net finance and other costs were a gain of $511 compared to a loss of $1,982 for the same quarter
in 2023, a decrease of $2,493. The Quarter 4, 2024 interest cost increased from $360 in Quarter 4, 2023 to $438 in
Quarter 4, 2024. Foreign exchange gain in Quarter 4, 2024 was $923 compared to a foreign exchange loss of $1,593 in
Quarter 4, 2023.
Earnings from operations for the quarter were $29,706 in 2024 and $24,661 in 2023, an increase of $5,045 or
20.5%. Higher sales resulting in additional gross margin dollars were offset by higher general, administrative, selling
and distribution expenses.
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
26
MANAGEMENT’S DISCUSSION AND ANALYSIS
Quarter 4, 2024 income tax expense was $6,539 on
earnings before income taxes of $30,217 (an effective
tax rate of 21.6%) as compared to an income tax expense
of $2,776 on income before income taxes of $22,679
(an effective tax rate of 12.2%) in Quarter 4, 2023. The
lower Quarter 4, 2023 effective tax rate was a result of a
significant deferred tax asset adjustment at year-end.
Net income for Quarter 4, 2024 was $23,678
compared to net income of $19,903 in Quarter 4, 2023
– an improvement of $3,775.
Cash provided by operations for Quarter 4, 2024
was $22,413 versus $20,120 in Quarter 4, 2023 – an
increase of $2,293. The main driver for this change was
an increase in net earnings for the quarter offset by an
increase in cash used for working capital.
Overall net operating cash balance1 was $21,102
as at December 31 2024, a decrease of $13,018 as
compared to a net operating cash balance of $34,1202 as
at December 31, 2023, primarily reflecting the purchase
of Micron during 2024.
Capital resources and liquidity
The Company continued to focus on generating cash
from operations, debt management, investment and
liquidity.
Cash provided from operating activities during 2024
was $64,751 versus $44,108 in 2023, an increase in cash
generated of $20,643 or 46.8%. This increase in cash
generated from operating activities was due to higher
profitability and a decrease in non-cash working capital
versus 2023. Non-cash working capital used cash of
$38,090 in 2024 versus $51,708 in 2023, resulting in
a decrease of $13,618 from 2023. The change in non-
cash working capital in 2024 was primarily a result
of increases in inventory, accounts receivable, and
prepaids offset by increases in accounts payable.
Accounts receivable finished the year at $140,400
as compared to $128,030 as at December 31, 2023,
an increase of $12,370 – a result of higher sales in
Quarter 4, 2024 compared to Quarter 4, 2023. HPS’
days sales outstanding ratio remains stable, which
can be attributed to effective credit policies and tightly
managed accounts receivable administration.
Inventories finished the year at $143,276 as at
December 31, 2024, versus $114,590 as at December
31, 2023, an increase of $28,686. The higher inventory
levels in 2024 were attributed to increased sales volume,
and higher inventory required for the establishment of
our new distribution centre in the U.S.
Accounts payable and accrued liabilities were
$134,919 in 2024 and $126,360 in 2023, an increase of
$8,559. When excluding derivative and share based
compensation liabilities, this balance decreased by $727
finishing at $102,789 as at December 31, 2024 compared
to $103,516 at the end of 2023. The consistency in
accounts payable is due to timing of purchases from
and payments to suppliers.
Net income taxes payable3 were $780 as at
December 31, 2024, versus net income taxes payable of
$3244 as at December 31, 2023 – a change of $456 due
to increases in the provision and tax payments made
during the year.
Cash used in financing activities was $24,208 in
2024, compared to cash generated of $755 in 2023, a
change of $24,963. The change in the balance can be
attributed to repayment from the operating line in 2024
compared to advances on the bank operating lines in
2023 and higher dividend payments in 2024.
Cash used in investing activities in 2024 increased
$43,622 from $19,360 in 2023 to $62,982 in 2024. There
was an increase in capital spending for property, plant
and equipment of $20,464 over the prior year, totaling
1 Overall net operating cash balance is the cash and cash equivalents of $34,085 net of bank operating lines of credit of $12,983
2 Overall net operating cash balance is the cash and cash equivalents of $52,591 net of bank operating lines of credit of $18,471
3 Net income taxes payable consists of income taxes payable of $6,054 less income taxes receivable of $5,274
4 Net income taxes payable consists of income taxes payable of $4,602 less income taxes receivable of $4,278
27
Hammond Power Solutions Annual Report 2024
$40,633 in 2024 – compared to $20,169 for 2023. The higher capital spending is primarily the result of spending on
capacity increases. The acquisition of Micron during 2024 used cash of $21,223.
Bank operating lines of credit finished the year at $12,983 as at December 31, 2024, compared to $18,471 as at
December 31, 2023 resulting in a decrease of $5,488 in the year. The Company had cash and cash equivalent balances
of $34,085 as at December 31, 2024 as compared to $52,591 as at December 31, 2023.
Overall net operating cash balance was $21,1021 as at December 31 2024, a decrease of $13,018 as compared to
a net operating debt balance of $34,1202 as at December 31, 2023, primarily reflecting improved profitability and cash
generated from operations.
All bank covenants were met as at December 31, 2024, and the Company was in compliance with its covenants
throughout the year.
The Company’s liquidity is strong. HPS is well funded, with sufficient cash and debt capacity to fund its operating
activities, investments and strategic growth initiatives. The Company has several alternatives to fund future capital
requirements, including its existing cash position, credit facility, future operating cash flows and debt financing. The
Company continually evaluates these options to ensure that the appropriate mix of capital resources is effectively
managed for current and future requirements.
The Company has outstanding capital expenditure commitments of $15,771. These planned capital investments
are focused on areas targeted to increase capacity and reduce lead times for low voltage, power quality and induction
heating products. These investments are also expected to support HPS’ supply chain resilience initiatives. HPS intends
to focus the capital program primarily in Mexico and the U.S. In Mexico, HPS is in the process of further expansion in
Mexico, while also adding equipment to existing facilities there. HPS is also actively expanding its facility in Guelph,
Ontario, Canada.
Additional details of our change in non-cash working capital can be found in note 25 in the Notes to Consolidated
Financial Statements contained in our 2024 Annual Report.
Contractual obligations
The following table outlines payments due for each of the next 5 years and thereafter related to debt, lease, purchase
and other long-term obligations.
2024
2025
2026
2027
2028 &
Thereafter
Total
Accounts payable and accrued liabilities
$
134,919
–
–
–
–
$
134,919
Capital expenditure purchase commitments
15,711
–
–
–
–
15,711
Operating lines of credit
12,983
–
–
–
–
12,983
Lease liabilities
5,879
5,221
4,187
3,476
6,875
25,638
Contingent consideration
845
–
–
–
–
845
Total
$
170,337
$
5,221
$
4,187
$
3,476
$
6,875 $
190,096
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
1 Overall net operating cash balance is cash and cash equivalents of $34,085 net of the bank operating lines of credit of $12,983
2 Overall net operating cash balance is cash and cash equivalents of $52,591 net of the bank operating lines of credit of $18,471
28
MANAGEMENT’S DISCUSSION AND ANALYSIS
Contingent liabilities
Management is not aware of any contingent liabilities.
Regular quarterly dividend
The Board of Directors of HPS declared a quarterly cash
dividend of fifteen cents ($0.15) per Class A Subordinate
Voting Share of HPS and of fifteen cents ($0.15) per Class
B Common Share of HPS, for the first quarter of 2024.
The Board of Directors of HPS declared a quarterly cash
dividend of twenty-seven and a half cents ($0.275) per
Class A Subordinate Voting Share of HPS and twenty-
seven and a half cents ($0.275) per Class B Common
Share of HPS, for the second, third and fourth quarters
of 2024.
The Quarter 1 dividend was paid on March 28, 2024
to shareholders of record at the close of business on
March 21, 2024 – the ex-dividend date was March 20,
2024. The Quarter 2 dividend was paid on June 25,
2024 to shareholders of record at the close of business
on the 18th day of June 2024 – the ex-dividend date
was June 18, 2024. The dividend for Quarter 3 was
paid on September 27, 2024 to shareholders of record
at the close of business on September 20, 2024 –
the ex-dividend date was September 20, 2024. The
Quarter 4 dividend was paid on December 20, 2024
to shareholders of record at the close of business
on December 13, 2024 – the ex-dividend date was
December 13, 2024.
In 2024, the Company has paid a total cash dividend
of ninety-seven and a half cents ($0.975) per Class A
Subordinate Voting Share and ninety-seven and half
cents ($0.975) per Class B Common Share. In 2023, the
Company had paid a total cash dividend of fifty-five
cents ($0.55) per Class A Subordinate Voting Share and
fifty-five cents ($0.55) per Class B Common Share.
Controls and procedures
The Chief Executive Officer and the Chief Financial
Officer are responsible for establishing and maintaining
disclosure controls and procedures and for establishing
and maintaining adequate internal controls over financial
reporting. The control framework used in the design of
disclosure controls and procedures and internal control
over financial reporting is the 2013 Internal Control
Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(“2013 COSO Framework”). Our internal control system
was designed to provide reasonable assurance to our
Management and Board of Directors regarding the
preparation and fair presentation of published financial
statements in accordance with IFRS Accounting
Standards. All internal control systems, no matter how
well designed, have inherent limitations, therefore, even
those systems determined to be effective can provide
only reasonable assurance with respect to financial
statement preparation and presentation.
As at December 31, 2024, the Company conducted
an evaluation, under the direction and supervision
of the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures. Based on
this evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that as of December
31, 2024 such disclosure controls and procedures were
operating effectively.
Internal controls over financial reporting
Management is responsible for establishing and
maintaining adequate internal controls over financial
reporting. Our internal control system was designed
to provide reasonable assurance to our Management
and Board of Directors regarding the preparation and
fair presentation of published financial statements
29
Hammond Power Solutions Annual Report 2024
in accordance with IFRS Accounting Standards. All
internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable
assurance
with
respect
to
financial
statement
preparation and presentation.
Canadian Securities Administrators require that
companies certify the effectiveness of internal controls
over financial reporting. It also requires a company to
use a control framework such as the COSO Framework
to design internal controls over financial reporting. As
well, the threshold for reporting a weakness of internal
controls over financial reporting should be of a “material
weakness” rather than “reportable deficiency.” HPS
has designed its internal controls in accordance with
the COSO Framework and has carried out retesting in
2024, which was completed in the fourth quarter.
As of December 31, 2024 Management, with the
supervision and participation of the Chief Executive
Officer and Chief Financial Officer, assessed the
effectiveness of the Company’s internal control over
financial reporting. Based on that assessment, the
Chief Executive Officer and Chief Financial Officer
have concluded that the internal controls are effective
and that there were no material weaknesses in the
Company’s internal control over financial reporting as
of December 31, 2024.
Changes in internal control over financial
reporting and disclosure controls and
procedures
During 2024 there were no material changes identified
in HPS’ internal controls over financial reporting that
had materially affected or were reasonably likely to
materially affect HPS’ internal control over financial
reporting. HPS does carry out ongoing improvements
to its internal controls over financial reporting, but
nothing was considered at a material level.
Subsequent events
Dividends
On March 5, 2025, the Company declared a
dividend of twenty-seven and a half cents ($0.275)
per Class A subordinate voting shares of HPS and a
quarterly cash dividend of twenty-seven and a half
cents ($0.275) per Class B common shares of HPS
payable on March 28, 2025 to shareholders of record
at the close of business on March 21, 2025. The ex-
dividend date is March 21, 2025.
Risks and uncertainties
The Company’s goal is to proactively manage risks in
a structured approach in conjunction with strategic
planning, with the intent to preserve and enhance
shareholder value. However, as with most businesses,
HPS is subject to several marketplace, industry and
economic-related business risks, which could cause our
results to vary materially from anticipated future results.
The Company is aware of these risks and continually
assesses the current and potential impacts that they
have on the business. HPS continuously strives to curtail
the negative impact of these risks through diversification
of its core business, market channel expansion,
breadth of product offering, geographic diversity of its
operations and business hedging strategies.
Implementation of tariffs
The execution of executive orders that will apply 25%
ad valorem duty to goods of Canadian and Mexican
origin represents a significant risk to HPS. The level of
risk depends on the competitive response to the higher
costs that most transformer providers will face. The
Company has a substantial manufacturing presence
in Canada and Mexico, and as the importer of record
in the U.S., will be responsible for remitting the tariffs.
The company has implemented its response plan to
evaluate the impact of these tariffs, and to consider
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
30
the Company’s response. The Company’s short-term
efforts are focused on protecting margins and ensuring
an orderly supply to our North American customers.
It is not possible to evaluate the effectiveness of the
Company’s response at this time.
Market supply and demand impact on
commodity prices
HPS relies on a global supply chain to meet its
manufacturing needs. The Company sources both
raw materials and components from our own factories
and third-party suppliers. Industry supply shortages
including those caused by logistics disruptions
and global conflicts, may interrupt manufacturing
production, therefore affecting our ability to ship
product to customers. One particular commodity that
is specific to the transformer industry is grain-oriented
electrical steel (“GOES”). GOES is produced in relatively
few mills in the world and as a result HPS is heavily
reliant on foreign sourced product. The Company
attempts to mitigate these commodity risks through
supplier agreements and supplier diversification.
The cyclical effects and unprecedented rise of
global commodity prices, including prices for copper,
aluminum and electrical steel may put margins at risk.
There is a risk in our ability to recoup the rapid escalating
commodity costs through timely and effective
selling price increases. Conversely, there is a risk that
decreasing commodity costs will create competitive
price pressure in our market, forcing prices down and
reducing our gross margins.
If any of the following risks were to occur, they could
materially adversely affect HPS’ financial condition,
liquidity or results of operations.
Risk of cyber attack
Globally there have been increased incidences of outside
cyberattacks and viruses on companies’ information
infrastructure and technologies. A successful cyber-
attack could result in misappropriation of assets, cause
interruptions to manufacturing and our ability to take
orders, as well as impact our general productivity.
This risk is reduced through several initiatives to
mitigate exposure, including a transition to cloud-
based applications, periodic risk assessments, and
more robust practices around employee training and
awareness and system updates.
Attraction and retention of skilled talent
Hammond Power Solutions is known for its engineering
depth and expertise. As we enter into broader power
electronics solutions, a key to our continued growth
along with maintaining our current core business, will
be our ability to acquire and retain key engineering
talent. As the world moves to electrification to support
decarbonization, as well as on-shoring of critical
components within North America, competition for top-
tier engineers to rival companies has been elevated. As
our world undergoes electrification, another significant
transformation is occurring as a substantial number of
baby boomers retire. HPS, too, experiences the effects
of these demographic changes, particularly in the
retirement of key and essential skill sets.
The demand for skilled engineering professionals is
exceeding the available global supply, making it harder
to find and attract the right talent locally or globally.
This is leading to extended recruitment lead times,
increased salary expectations and elevating labour
costs. The need to choose a candidate quickly due to
multiple competing offers can lead to a misalignment in
terms of cultural fit. This misalignment has the potential
to compromise both the quality of our projects and the
cohesion of our teams, all while posing a challenge to
maintaining our organizational culture during periods
of rapid expansion. Our culture serves as a pivotal
component of our brand reputation within our market.
MANAGEMENT’S DISCUSSION AND ANALYSIS
31
Hammond Power Solutions Annual Report 2024
Given organizations are competing for limited
engineering resources, the risk of poaching or high
turnover remains a concern. Proactive and creative
recruitment strategies, competitive compensation
packages and intentional retention strategies to
preserve cultural fit are ways of ensuring these risks to
delivering our growth initiatives are mitigated.
We may not realize all of the anticipated benefits
of our acquisitions, divestitures, joint ventures or
strategic initiatives, or these benefits may take
longer to realize than expected.
In order to be profitable, the Company must successfully
execute upon its strategic initiatives and effectively
manage the resulting changes in its operations. The
Company’s assumptions underlying its strategic
initiatives may be subjective, the market may react
negatively to these plans and HPS may not be able to
successfully execute these plans. Even if successfully
executed, the initiatives may not be effective or may
not lead to the anticipated benefits within the expected
time frame.
HPS’ strategic initiatives can include acquisitions
and joint ventures. To be successful, management will
conduct due diligence to identify valuation issues and
potential loss contingencies, negotiate transaction
terms, complete complex transactions and manage
post-closing matters such as the integration of acquired
startup businesses. Management’s due diligence
reviews are subject to the completeness and accuracy
of disclosures made by third parties. The Company
may incur unanticipated costs or expenses following
a completed acquisition, including post-closing asset
impairment
charges,
expenses
associated
with
eliminating duplicate facilities, litigation or other liabilities.
Many of the factors that could have an adverse
impact will be outside of management’s control and
could result in increased costs and decreases in
the amount of expected revenues and diversion of
management’s time and attention. Failure to implement
an
acquisition
strategy,
including
successfully
integrating acquired businesses, could have an adverse
effect on our business, financial condition and result
of operations.
We sell to customers around the world and have
global operations and, therefore, are subject to
the risks of doing business in many countries.
HPS does business in a host of countries around
the world. Approximately 75% of our sales are to
customers outside of Canada. In addition, several of our
manufacturing operations, suppliers and employees
are located in many places around the world. The
future success of our business depends in large part
on growth in our sales in non-Canadian markets. Our
global operations are subject to numerous financial,
legal and operating risks, such as political and economic
instability; prevalence of corruption in certain countries;
enforcement of contract and intellectual property
rights; and compliance with existing and future laws,
regulations and policies, including those related to
tariffs, investments, taxation, trade controls, product
content and performance, employment and repatriation
of earnings.
Our global business translates into conducting
business in various currencies, all of which are
subject to fluctuations.
HPS’ global footprint exposes the Company to
currency fluctuations and volatility and, at times, has
had a significant impact on the financial results of the
Company. The Company’s functional currency is the
Canadian dollar with its operating results reported in
Canadian dollars. A significant portion of the Company’s
sales and material purchases are denominated in U.S.
dollars. There is a natural hedge, as sales denominated
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
32
MANAGEMENT’S DISCUSSION AND ANALYSIS
in U.S. dollars are largely offset by the cost of raw
materials purchased from the U.S. and commodities
tied to U.S. dollar pricing. A change in the value of
the Canadian dollar against the U.S. dollar will impact
earnings, significantly at times. Generally, a lower value
for the Canadian dollar compared to the U.S. dollar will
have a beneficial impact on the Company’s results, while
a higher value for the Canadian dollar compared to the
U.S. dollar will have a corresponding negative impact on
the Company’s profitability.
HPS has partially reduced the impact of foreign
exchange fluctuations by increasing our U.S. dollar
driven manufacturing output, periodically instituting
price increases to help offset negative changes and
entering into forward foreign exchange contracts.
Worldwide HPS is subject to, and required to
comply with, multiple income and other taxes,
regulations and is exposed to uncertain tax
liabilities risk.
The Company operates and is subject to income tax and
other forms of taxation in numerous tax jurisdictions.
Taxation laws and rates, which determine taxation
expenses, may vary significantly in different jurisdictions,
and legislation governing taxation laws and rates is also
subject to change. Therefore, the Company’s earnings
may be impacted by changes in the proportion of
earnings taxed in different jurisdictions, changes in
taxation rates, changes in estimates of liabilities and
changes in a number of other forms of taxation. Tax
structures are subject to review by both domestic and
foreign taxation authorities. Tax filings are subject to
audits, which could materially change the amount of
current and deferred income tax assets and liabilities.
We face the potential harms of natural disasters,
pandemics, acts of war, terrorism, international
conflicts or other disruptions to our operations.
Our business depends on the movement of goods
around the world. Natural disasters, pandemics,
acts or threats of war or terrorism, international
conflicts, political instability and the actions taken by
governments could cause damage to or disrupt our
business operations, our suppliers or our customers
and could create economic instability. Although it is not
possible to predict such events or their consequences,
these events could decrease demand for our products
make it difficult or impossible to deliver our products or
disrupt our global material sourcing.
Political uncertainty and potential for changes in
the business environment can lead to legislative
changes that could impact business.
Changing legislative mandates in the countries with
which we do business may result in several geopolitical
risks that could be challenging for the Company. The
impact of these political changes can be difficult to
predict and can have a pervasive impact on the global
business climate. Changes in political leaders can
impact trade relations as well as taxes and/or duties.
HPS’ current structure includes a significant amount of
business that crosses borders and any changes in the
current trade structure could have a material impact
for us. HPS’ global footprint will be critical to mitigating
any impact for political changes that would modify the
current trade relationships.
Our industry is highly competitive.
HPS faces competition in all of our market segments.
Current and potential competitors may have greater
brand name recognition, more established distribution
networks, access to larger customer bases and
substantially greater financial, distribution, technical,
sales and market, manufacturing and other resources
than HPS does. As a result, those competitors may
have advantages relative to HPS; including stronger
bargaining power with suppliers that may result in more
favourable pricing, the ability to secure supplies at time
33
Hammond Power Solutions Annual Report 2024
of shortages, economies of scale in production, the
ability to respond more quickly to changing customer
demands and the ability to devote greater resources to
the development, promotion and sales of their products
and services. If HPS is unable to compete effectively,
it may experience a loss of market share or reduced
profitability. We expect the level of competition to
remain high in the future.
Our business is highly sensitive to global and
regional economic conditions in the industries
we serve.
Current global economic conditions influence the
Company’s
focus,
direction,
strategic
initiatives
and financial performance. To address the current
uncertainty, we are focusing our efforts on projects
that will increase our market reach, advance our cost
competitiveness, expand capacity and improve our
manufacturing flexibility.
The Company believes that being an agile
organization will hold even greater importance in
its ability to respond quickly to both unexpected
opportunities and challenges. HPS’ management
believes that the key to expanding our market share is
growing our access to a variety of domestic and global
markets. This will be achieved through our current and
new OEM and distributor channels.
The disruption to businesses that can come from
unpredictable weather can have an impact on
sales volume as customer projects can be delayed
or cancelled.
Extreme weather conditions such as heavy rains,
flooding, snowfall, tornadoes and hurricanes can
potentially have a negative impact on the Company’s
sales trends and booking rates. When these conditions
are present, the Company may see short-term effects
of such occurrences due to their unpredictability. This
may impact delivery and capacity requirements.
The business practice of extending credit to
customers can lead to a risk of uncollectability.
A substantial portion of the Company’s accounts
receivable are with customers in manufacturing sectors
and are subject to credit risks normal to those industries.
The Company’s expansion into emerging markets
increases credit risk. This risk is partially mitigated by
management’s credit policy under which each new
customer is analysed individually for creditworthiness
before the Company’s standard payment and delivery
terms and conditions are offered. The Company’s
review includes external ratings, if they are available,
financial statements, credit agency information, industry
information and in some cases bank references. Sale
limits are established for each customer and reviewed
quarterly. Any sales exceeding those limits require
approval from Executive management. Although the
Company has historically incurred very low bad debt
expense, the current economic environment conditions
elevate this exposure and the Company’s future
collection rate may differ from its historical experience.
Off-balance sheet arrangements
The Company has no off-Balance Sheet arrangements,
other than capital commitments disclosed in note 15
in the Notes to the Consolidated Financial Statements
contained in our 2024 Annual Report.
Transactions with related parties
The Company had transactions with related parties
in 2024, as disclosed in note 23 in the Notes to the
Consolidated Financial Statements contained in our
2024 Annual Report.
Proposed transactions
The Company had no proposed transactions as at
December 31, 2024. The Company continues to evaluate
potential business expansion initiatives in accordance
with its long-term growth strategy.
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
34
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial instruments
The Company’s financial instruments consist of cash
and cash equivalents, accounts receivable, long-
term lease receivable, bank operating lines of credit,
accounts payable and accrued liabilities, contingent
consideration, convertible debentures and the following
derivative instruments:
As at December 31, 2024, the Company had
outstanding foreign exchange contracts in place for
14,500 Euros (“EUR”) and $11,000 USD – both of which
were implemented as a hedge against translation gains
and losses on inter-company loans as well as $90,000
USD to hedge the U.S. dollar denominated accounts
payable in Canadian HPS operations. The Company
also had outstanding foreign exchange contracts to sell
for $45,000 USD.
Further details regarding the Company’s financial
instruments and the associated risks are disclosed
in note 27 in the Notes to the Consolidated Financial
Statements contained in our 2024 Annual Report.
Critical accounting estimates
The preparation of the Company’s consolidated financial
statements requires Management to make estimates
and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities. These
estimates are based upon Management’s historical
experience and various other assumptions that are
believed by Management to be reasonable under the
circumstances.
Such assumptions and estimates are evaluated
on an ongoing basis and form the basis for making
judgments about the carrying values of assets and
liabilities that are not readily apparent from other
sources. Actual results could differ from these estimates.
The Company conducts its annual impairment
assessment of goodwill, intangible assets and property,
plant and equipment in the fourth quarter of each year,
which corresponds with its annual planning cycle, and
whenever events or changes in circumstances indicate
that the carrying amount of an asset or Cash Generating
Unit (“CGU”) may not be recoverable. The Company did
not identify any triggering events during the course of
2024 indicating that the carrying amount of its assets
and CGUs may not be recoverable, which would require
the performance of an impairment test for those CGUs
which did not contain goodwill.
Business
Combinations
require
acquirers
to
recognize the identifiable assets acquired and liabilities
assumed at fair value. The determination of fair value
requires Management to make estimates around the
value an independent third party, under no compulsion
to act, would pay for an asset acquired or liability
assumed on a standalone basis. Where possible,
Management engages third-party appraisers to assist
in the determination of the fair value of real property
acquired. The fair value of acquired intangible assets
are generally determined using discounted cash flow
models and involve the use of cash flow forecasts,
market-based discount rates, and/or market-based
royalty rates. The fair values of liabilities assumed is
generally based on discounted cash flow models which
involve the use of market-based discount rates. The
development of cash flow forecasts involve the use
of estimates, which may differ from actual cash flows
realized. Assumptions are involved in the determination
of discount rates and royalty rates.
The Company records a provision for warranties
based on historical warranty claim information and
anticipated warranty claims, based on a weighted
probability of possible outcomes.
The key assumptions made by management in
recording the provision are i) warranty cost, ii) probability
of claim, and iii) quantum of units which may be subject
to any warranty claim.
35
Hammond Power Solutions Annual Report 2024
Quantifying provisions inherently involves judgment,
and future events and conditions may impact these
assumptions. Differences in actual future experience
from the assumptions utilized may result in a greater or
lower warranty cost.
Outstanding share data
Details of the Company’s outstanding share data as of
December 31, 2024, are as follows:
9,126,624
Class A Shares
2,778,300
Class B Common Shares
11,904,924
Total Class A and B Shares
There have been no material changes to the outstanding
share data as of the date of this report.
New accounting pronouncements
The Group adopted the following amendments in its
financial statements for the annual period beginning
on January 1, 2024. The adoption of the amendments
did not have a material impact on the consolidated
financial statements.
• Classification of liabilities as current or non-current
(Amendments to IAS 1) and Non-current liabilities with
covenants (Amendments to IAS 1);
• Lease liability in a sale and leaseback (Amendments
to IFRS 16);
• Supplier finance arrangements (Amendments to IAS
7 and IFRS 7).
New accounting pronouncements to be adopted
The International Accounting Standards Board has
issued the following Standards, Interpretations and
Amendments to Standards that are not yet effective,
have not yet been adopted by the Group and, the
impact on the consolidated financial statements has not
yet been determined.
The following amendments are effective for the
annual period beginning on January 1:
• 2025: Lack of exchangeability (Amendments to IAS
21)
• 2026: Classification and Measurement of Financial
Instruments (Amendments to IFRS 9 and IFRS 7)
• 2026: Annual improvements to IFRS Accounting
Standards
• 2027: Presentation and Disclosure in Financial
Statements (IFRS 18)
Strategic direction and outlook
HPS experienced a successful 2024. The Company
has a rich and extensive history of growth, innovation
and resilience and 2024 saw significant growth and
progress. The Company has navigated through difficult
and fluctuating economic times, increased globalization,
adapted to changes in customers and markets and
has experienced significant advances in technology.
HPS has framed these challenges as opportunities and
developed strategies to address these rapid changes.
The Company is confronting these challenges
and continuously building our strategic advantage by
focusing on:
•
Developing our Customers and Markets by:
o
Driving organic growth through continuing
to
develop
our
National
Association
of
Equipment Distributors (“NAED”) channel;
o
Offering competitive products, including an
expanding product quality offering;
o
Providing unparalleled service to our customers;
and
o
Growing through strategic acquisitions.
•
Achieving Operational and Financial Excellence by:
o
Driving continuous improvement;
o
Improving efficiency by investing in equipment,
people and technology; and
o
Optimizing
the
efficiency
of
our
global
manufacturing footprint.
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
36
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
Developing our People and Culture by:
o
Building our leadership team for the future;
o
Developing our people to excel and thrive; and
o
Making HPS a preferred employer.
•
Building a Sustainability Program by
o
Designing energy efficient products;
o
Shrinking our ecological footprint; and
o
Energizing the world in a responsible way for
the generations to come.
The Company will continue to grow in its existing
channels by increasing its share of products by offering
solutions that cater to the customer’s specific needs.
This will involve broadening the breath of solutions that
HPS offers, including power quality solutions.
During 2024 HPS has made significant investments
in capital to continue to enhance our manufacturing
plants and build capacity. As we grow, we are investing
in equipment and machinery that will allow us to keep
up with future demand and allow us to optimize our
manufacturing capabilities at our various locations. We
are also investing in business technology that will help
us become more efficient and provide us with the data
that we need to improve our business.
With a focus on growth and advancement, HPS
intends to spend approximately $80,000 on capital
expansion projects over 2023 through 2025, of which
approximately $45,000 has been spent to date.
Included in this program was $20,000 announced
in August 2024 that will be focused on increasing
its planned capital program over two years to build
capacity to manufacture custom power transformers in
Mexico. These planned capital investments are focused
on areas targeted to increase capacity and reduce lead
times for low voltage distribution power, large power,
power quality and induction heating products. These
investments are also expected to support HPS’ supply
chain resilience initiatives.
During the first half of 2024, HPS took possession
of an approximately 110,000 square foot small products
facility in Mexico. The official opening of this location
occurred at the end of Quarter 2 and has now begun
production. The Company has also added equipment
to the existing Mexico facilities to increase capacity and
is expanding its facility in Guelph, Ontario, Canada. While
the capital investments coming online in 2024 will add
capacity for future years, the key capacity constraint
is for large low voltage and medium voltage power
products. Capacity expansions intended to address
these constraints are not expected to come online until
early 2025.
In March 2024, HPS signed a settlement agreement
for the sale and purchase of the Italian plant. The
Group exercised its put option, specifying the final
plant purchase price was equal to 1,850 EUR. The
final negotiations resulted in a net settlement amount
of 1,050 EUR ($1,535 CAD). This agreement settled
all outstanding disputed receivables and liabilities as
well as the need for significant repairs to the roof of
the building.
Early in Quarter 2, 2024 HPS was Certified by Great
Place to WorkTM at all Canada, U.S. and India locations.
This accomplishment highlights the Company’s focus
on building talent and preserving our culture through
our significant growth. This certification can also be
a strong tool when recruiting future talent. HPS is
preparing to begin the recertification process in early
Quarter 2, 2025.
In September 2024, HPS was recognized as the
top-performing company in the 2024 TSX30 ranking,
highlighting the top-performing companies on the
Toronto Stock Exchange. Being named the top company
in the 2024 TSX30 underscores the commitment
from employees and customers to the company and
reinforces the focus on growth and profitability.
37
Hammond Power Solutions Annual Report 2024
During Quarter 4, 2024, HPS completed an
acquisition of assets and liabilities relating to the
operations of Micron Industries Corporation. The
acquisition was structured as a business combination
through the U.S entity. The combined expertise of our
teams is a significant step forward in our growth strategy
to offer an even broader array of innovative solutions
to our customers and strengthen our reputation for
high quality products and services, especially within
our OEM markets. Industrial control transformers are
essential for protecting sensitive equipment and align
with our focus on power quality solutions. With rising
demand for U.S.-made products in energy efficiency
and automation projects, integrating Micron Industries
into HPS is expected to enhance our ability to meet this
growing market. Micron’s U.S.-based manufacturing
strengthens our service to customers across the U.S.
and North America, supporting our domestic growth
and industrialization efforts. The integration of Micron
into HPS has begun and will continue into 2025.
The Company continues to have a strong reputation
for being an industry leader and is both operationally
and financially strong. HPS is well positioned to meet
the evolving needs of our traditional markets while
becoming a leading player in a growing number of
other market sectors. We continue to be focused on
escalation of market share, improved sales growth from
new product development, geographic diversification,
productivity gains, cost reduction and capacity flexibility.
The Company has provided shareholders with
strong earnings per share, solid cash generation
and quarterly dividends paid with an attractive
yield. To continue this trend HPS, is focused on sales
development, continued distributor channel expansion,
product development, and bringing quality and value to
all that we produce. Our strategic initiatives and focused
plans will continue to allow HPS to grow and expand.
DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED
38
Annual Information
2020
2021
2022
2023
2024
Sales
322,097
380,202
558,464
710,064
788,340
Earnings from operations
22,041
23,151
59,441
86,721
98,760
EBITDA
29,482
30,114
69,746
95,995
112,873
Net earnings
14,062
15,176
44,828
63,399
71,531
Total assets
189,394
235,099
302,673
408,343
493,141
Non-current liabilities
8,329
7,104
8,101
12,500
17,620
Total liabilities
75,478
109,097
125,779
177,965
185,104
Total shareholders’ equity attributable
to equity holders of the Company
113,916
126,002
176,894
230,378
308,037
Operating debt, net of cash
(1,278)
1,638
21,972
34,120
21,102
Cash provided by operations
19,683
20,447
37,013
44,108
64,751
Basic earnings per share
1.20
1.29
3.79
5.33
6.01
Diluted earnings per share
1.20
1.28
3.77
5.33
6.01
Dividends declared and paid
3,993
4,009
4,556
6,548
11,607
Average exchange rate (USD$=CAD$)
1.343
1.253
1.301
1.350
1.369
Book value per share
9.70
10.69
15.00
19.54
25.87
2023
2024
Quarterly Information
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Sales
171,134
172,451
179,521
186,958
190,680
197,212
191,972
208,476
Earnings from operations
22,623
18,957
20,480
24,661
10,299
35,090
23,665
29,706
EBITDA
24,145
21,444
23,657
26,749
14,999
36,711
27,229
33,934
Net earnings
15,726
13,333
14,437
19,903
7,952
23,590
16,311
23,678
Total assets
327,116
339,358
373,761
408,343
422,778
431,532
454,285
493,141
Non-current liabilities
9,413
9,800
8,373
12,500
11,893
11,066
15,226
17,620
Total liabilities
135,572
138,863
155,952
177,965
184,440
168,513
183,115
185,104
Total shareholders’ equity
attributable to equity
holders of the Company
191,594
200,495
217,809
230,378
238,338
263,019
271,170
308,037
Operating cash (debt, net of
cash)
7,127
11,717
22,130
34,120
30,893
34,871
32,913
21,102
Cash (used) provided by
operations
(10,466)
12,295
22,159
21,053
6,285
18,656
17,397
22,413
Basic earnings per share
1.32
1.12
1.21
1.68
0.67
1.98
1.37
1.99
Diluted earnings per share
1.32
1.12
1.21
1.68
0.67
1.98
1.37
1.99
Dividends declared and paid
1,488
1,488
1,787
1,785
1,786
3,276
3,271
3,274
Average exchange rate
(USD$=CAD$)
1.351
1.345
1.340
1.365
1.348
1,368
1.365
1.396
Book value per share
16.31
17.01
18.47
19.54
20.02
22.09
22.78
25.87
Selected Annual and Quarterly Information
(tabular amounts in thousands of dollars)
39
Hammond Power Solutions Annual Report 2024
Management’s Responsibility for Financial Statements
The Consolidated Financial Statements are the responsibility of the management of Hammond Power Solutions Inc. These statements
have been prepared in accordance with IFRS Accounting Standards (“IFRS”), using management’s best estimates and judgements where
appropriate.
Management is responsible for the reliability and integrity of the Consolidated Financial Statements, the Notes to Consolidated Financial
Statements and other financial information contained in the report. In the preparation of these statements, estimates were 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 judgement 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 assurances
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 through the Audit Committee of the Board,
which is composed of all of the directors, of whom six are 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.
March 20, 2025
Adrian Thomas
Chief Executive Officer
To the Shareholders of Hammond Power Solutions Inc.
Opinion
We have audited the consolidated financial statements of
Hammond Power Solutions Inc. (the Entity), which comprise:
• the consolidated statement of financial position as at
December 31, 2024 and December 31, 2023
• the consolidated statement of operations for the years then
ended
• the consolidated statement of comprehensive income for
the years then ended
• the consolidated statement 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 Entity as at December 31, 2024 and December 31, 2023, 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 Entity 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.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements for the year ended December 31, 2024. 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 carrying value of goodwill for the India
cash generating unit
Description of the matter
We draw attention to Notes 2(d)(i), 3(g) and 12 of the financial
statements. The goodwill balance is $16,004 thousand, of which,
$8,427 thousand relates to the Hammond Power Solutions Private
Limited (“India”) cash generating unit (“CGU”). The Entity conducts
its annual impairment assessment of goodwill on an annual basis
or whenever events or changes in circumstances indicate that the
carrying amount of a CGU may not be recoverable. Performing
impairment testing requires management to determine the
estimated recoverable amount of the relevant cash-generating
units on the basis of projected future cash flows. The determination
of the recoverable amount requires management to make
Independent Auditor’s Report
Richard C. Vollering
Corporate Secretary
& Chief Financial Officer
40
significant estimates and assumptions which include projected
revenue, projected gross margin rates, terminal growth rates,
and the discount rate.
Why the matter is a key audit matter
We identified the evaluation of the goodwill impairment analysis
for the India CGU as a key audit matter. There is a significant risk
of misstatement as changes to certain significant estimates and
assumptions could have a significant effect on the recoverable
amount of the India CGU. As a result, significant auditor judgment
was required in evaluating the results of the audit procedures.
How the matter was addressed in the audit
The following are the primary procedures we performed to
address this key audit matter:
• We compared the Entity’s historical projected revenue and
projected gross margin rates to actual results to assess the
Entity’s ability to accurately project revenue and gross margin
rates.
• We performed sensitivity analyses over the projected revenue
and gross margin rate assumptions by using average actual
growth rates realized in previous years to assess the impact
on the Entity’s determination that the estimated recoverable
amount of the CGU exceeded its carrying value.
• We involved valuation professionals with specialized skills and
knowledge, who assisted in evaluating the appropriateness
of the discount rate assumption used in the estimated
recoverable amount, by comparing it to a discount rate range
that was independently developed using publicly available
information and considering risks specific to the CGU.
Evaluation of the acquisition date fair values of intangible
assets related to the Micron Industries Corporation
business acquisition
Description of the matter
We draw attention to Notes 2(d)(i), 2(d)(ii), 3(g), 11, 12, 30 of the
financial statements. On October 7, 2024, the Entity completed the
acquisition of assets and liabilities of Micron Industries Corporation
(“Micron”) for total consideration of $21,223. The acquisition
date fair value of the customer relationships and brands were
determined to be $6,396 and $1,225, respectively. The Company
used the multi-period excess earnings method to value acquired
customer relationships. The Company used the relief from
royalty method to value acquired brands. The valuations involve
subjectivity and significant estimation uncertainty, including
assumptions related to forecasted revenues and forecasted
earnings before interest, tax, depreciation and amortization
(“EBITDA”) margins, estimated customer attrition rates, royalty
rate and discount rates.
Why the matter is a key audit matter
We identified the evaluation of the acquisition date fair values
of intangible assets related to the Micron business acquisition
as a key audit matter. This matter represented a significant risk
of material misstatement given the magnitude of the intangible
assets fair value, and high degree of estimation uncertainty and
subjectivity in determining the fair value of the intangible assets.
In addition, significant auditor judgment and specialized skills and
knowledge were required in evaluating the results of our audit
procedures due to the sensitivity of the fair value of the intangible
assets to changes in the assumptions noted above.
How the matter was addressed in the audit
The following are the primary procedures we performed to
address this key audit matter:
• We evaluated the appropriateness of the forecasted
revenues
and
EBITDA
margins
by
considering
past
performance and against publicly available market data
from comparable entities.
• We evaluated the appropriateness of the estimated
customer attrition rates by comparing to historical attrition
rates.
• We involved valuation professionals with specialized skills
and knowledge, who assisted with:
o Assessing the appropriateness of the discount rates.
The discount rates used were compared against a
range of discount rates that were independently
developed using publicly available market data for
comparable entities.
o Evaluating the appropriateness of the royalty rate by
comparing it against publicly available market data for
comparable entities.
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 2024”.
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.
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 2024 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.
41
Hammond Power Solutions Annual Report 2024
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 Entity’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 Entity or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing
the Entity’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.
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 from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• 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 Entity’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 Entity’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
Entity 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.
• Plan and perform the group audit to obtain sufficient
appropriate audit evidence regarding the financial information
of the entities or business units within the group as a basis for
forming an opinion on the group financial statements. We are
responsible for the direction, supervision and review of the
audit work performed for the purposes of the group audit. We
remain solely responsible for our audit opinion.
• 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 Andrew Watson.
March 20, 2025
Kitchener, ON, Canada
42
William G. Hammond
Chair of the Board
David Wood
Audit Chair
On behalf of the Board:
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Financial Position
(in thousands of dollars)
December 31, 2024
December 31, 2023
Assets
Current assets
Cash and cash equivalents (note 4)
$
34,085
$
52,591
Accounts receivable (note 5)
140,400
128,030
Inventories (note 6)
143,276
114,590
Income taxes receivable
5,274
4,278
Prepaid expenses and other assets (notes 7 and 8)
10,692
9,949
Total current assets
333,727
309,438
Non-current assets
Property, plant and equipment (note 9)
110,323
65,841
Investment in properties (note 10)
5,390
2,940
Deferred tax assets (note 16)
13,967
11,798
Intangible assets (note 11)
13,730
6,590
Goodwill (note 12)
16,004
11,736
Total non-current assets
159,414
98,905
Total assets
$
493,141
$
408,343
Liabilities
Current liabilities
Bank operating lines of credit (note 13)
$
12,983
$
18,471
Accounts payable and accrued liabilities (notes 17 and 27)
134,919
126,360
Deferred revenue (note 22)
4,277
5,721
Income taxes payable
6,054
4,602
Provisions (note 21)
3,168
3,923
Current portion of lease and other liabilities (notes 14 and 27)
6,083
6,388
Total current liabilities
$
167,484
$
165,465
Non-current liabilities
Provisions (note 21)
454
307
Deferred tax liabilities (note 16)
2
22
Long-term portion of lease and other liabilities (notes 14 and 27)
17,164
12,171
Total non-current liabilities
17,620
12,500
Total liabilities
$
185,104
$
177,965
Shareholders’ Equity
Share capital (note 17)
15,761
15,761
Contributed surplus
2,289
2,289
Accumulated other comprehensive income (note 18)
26,365
8,630
Retained earnings
263,622
203,698
Total shareholders’ equity
$
308,037
$
230,378
Commitments (note 15)
Subsequent events (note 31)
Total liabilities and shareholders’ equity
$
493,141
$
408,343
As at
43
Hammond Power Solutions Annual Report 2024
2024
2023
Sales (note 22)
$
788,340
$
710,064
Cost of sales (notes 6)
530,062
479,053
Gross margin
258,278
231,011
Selling and distribution (note 27)
83,412
76,283
General and administrative
59,014
48,053
Share based compensation
17,092
19,954
Total general and administrative
76,106
68,007
159,518
144,290
Earnings from operations
98,760
86,721
Finance and other costs
Interest expense
1,246
1,320
Foreign exchange loss
519
1,280
Other (note 27)
73
127
Net finance and other costs
1,838
2,727
Earnings before income taxes
96,922
83,994
Income tax expense (recovery) (note 16):
Current
27,914
23,961
Deferred
(2,523)
(3,366)
25,391
20,595
Net earnings
$
71,531
$
63,399
Earnings per share (note 19)
Basic earnings per share
$
6.01
$
5.33
Diluted earnings per share
$
6.01
$
5.33
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Operations
Years ended December 31, 2024 and 2023 (in thousands of dollars except for per share amounts)
44
Consolidated Statements of Comprehensive Income
Years ended December 31, 2024 and 2023 (in thousands of dollars)
2024
2023
Net earnings
$
71,531
$
63,399
Other comprehensive income
Items that will be recognized within profit and loss:
Foreign currency translation differences for foreign operations
17,735
(3,801)
Other comprehensive income (loss), net of income tax
17,735
(3,801)
Total comprehensive income
$
89,266
$
59,598
See accompanying Notes to Consolidated Financial Statements.
45
Hammond Power Solutions Annual Report 2024
Consolidated Statements of Changes in Equity
Years ended December 31, 2024 and 2023 (in thousands of dollars)
SHARE
CAPITAL
CONTRIBUTED
SURPLUS
AOCI*
RETAINED
EARNINGS
TOTAL
SHAREHOLDERS’
EQUITY
Balance at January 1, 2023
$
15,240
$
2,376
$
12,431
$ 146,847
$
176,894
Total comprehensive income for the period
Net income
–
–
–
63,399
63,399
Other comprehensive income
Foreign currency translation differences
–
–
(3,801)
–
(3,801)
Total other comprehensive income
–
–
(3,801)
–
(3,801)
Total comprehensive income for the period
–
–
(3,801)
63,399
59,598
Transactions with owners, recorded directly
in equity
Dividends to equity holders (note 17)
–
–
–
(6,548)
(6,548)
Stock options exercised (note 17)
521
(87)
–
–
434
Total transactions with owners
521
(87)
–
(6,548)
(6,114)
Balance at December 31, 2023
$
15,761
$
2,289
$
8,630
$ 203,698
$
230,378
Balance at January 1, 2024
$
15,761
$
2,289
$
8,630
$ 203,698
$
230,378
Total comprehensive income for the period
Net income
–
–
–
71,531
71,531
Other comprehensive income
Foreign currency translation differences
–
–
17,735
–
17,735
Total other comprehensive income
–
–
17,735
–
17,735
Total comprehensive income for the period
–
–
17,735
71,531
89,266
Transactions with owners, recorded directly
in equity
Dividends to equity holders (note 17)
–
–
–
(11,607)
(11,607)
Total transactions with owners
–
–
–
(11,607)
(11,607)
Balance at December 31, 2024
$
15,761
$
2,289
$ 26,365
$ 263,622
$
308,037
*AOCI – Accumulated other comprehensive income
See accompanying Notes to Consolidated Financial Statements.
46
2024
2023
Cash flows from operating activities
Net earnings
$
71,531
$
63,399
Adjustments for:
Depreciation of property, plant and equipment,
right-of-use assets and investment properties
13,264
9,381
Amortization of intangible assets
1,441
1,300
Provisions
1,420
2,713
Interest expense
1,246
1,320
Income tax expense
25,391
20,595
Unrealized (gain) loss on derivatives
(1,447)
1,138
Share-based compensation expense
17,092
19,954
129,938
119,800
Change in non-cash working capital (note 25)
(38,090)
(51,708)
Cash generated from operating activities
91,848
68,092
Income tax paid
(27,097)
(23,984)
Cash provided from operating activities
64,751
44,108
Cash flows from investing activities
Repayment of note and lease receivable
1,545
1,193
Acquisition (note 30)
(21,223)
–
Purchase of investment (note 10)
(2,600)
–
Acquisition of property, plant and equipment
(40,633)
(20,169)
Acquisition of intangible assets
(71)
(384)
Cash used in investing activities
(62,982)
(19,360)
Cash flows from financing activities
Proceeds from issue of share capital (note 17)
–
434
Cash dividends paid (note 17)
(11,607)
(6,548)
Net (repayments) advances of bank operating lines of credit
(5,488)
12,317
Interest paid
(458)
(867)
Payment of lease liabilities (note 14)
(5,305)
(3,906)
Payment of contingent consideration
(1,350)
(675)
Cash (used in) provided by financing activities
(24,208)
755
Foreign exchange on cash and cash equivalents held in a
foreign currency
3,933
(1,038)
(Decrease) increase in cash and cash equivalents
(18,506)
24,465
Cash and cash equivalents at beginning of period
52,591
28,126
Cash and cash equivalents at end of period
$
34,085
$
52,591
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
Years ended December 31, 2024 and 2023 (in thousands of dollars)
47
Hammond Power Solutions Annual Report 2024
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
1.
Reporting entity
Hammond Power Solutions Inc. (“HPS” or “the Company”) is a company domiciled in Canada. The address of
the Company’s registered office is 595 Southgate Drive, Guelph, Ontario. The Company’s Class A subordinate
voting shares are listed on the Toronto Stock Exchange and trade under the symbol HPS.A.
The consolidated financial statements of the Company comprise the Company and its subsidiaries (together
referred to as the “Group” and individually as “Group entities”). The Group enables electrification through its
broad range of dry-type transformers, power quality products and related magnetics. HPS’ standard and
custom-designed products are essential and ubiquitous in electrical distribution networks through an extensive
range of end-user applications. The Company has manufacturing plants in Canada, the United States (“U.S.”),
Mexico and India and sells its products around the globe.
2.
Basis of preparation
a)
Statement of compliance
These consolidated financial statements have been prepared in accordance with IFRS Accounting Standards
(“IFRS”), and were approved by the Board of Directors on March 20, 2025.
b)
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for inventories
carried at net realizable value, derivative financial instruments, convertible debentures and share based
payments which are measured at fair value, and the initial present value of finance leases receivable which are
determined using cash flows implicit in the lease and a discount rate reflecting the interest rate implicit in the
lease. Assets acquired and liabilities assumed in connection with business combinations are recorded based
on their fair values at the date of acquisition, and contingent consideration granted concurrent with a business
combination is recognized initially at fair value, with subsequent measurement occurring at fair value. Changes
in the fair value of contingent consideration are recorded either through the statement of operations, or through
equity, depending on the characteristics of the consideration granted.
c)
Functional and presentation currency
The functional currency of the Group’s entities is the currency of their primary economic environment.
In individual companies, transactions in foreign currencies are recorded at the rate of exchange at the date
of the transaction. Monetary assets and liabilities in foreign currencies at the reporting date are re-measured to
the functional currency at the exchange rate at that date. Any resulting exchange differences are taken to the
statement of operations. Non-monetary items that are measured in terms of historical cost in a foreign currency
are translated using the exchange rate at the date of the transaction.
On consolidation, assets and liabilities of Group entities reported in their functional currencies are translated
into the Canadian dollar, being the presentation currency, at the exchange rate on the reporting date. The
income and expenses of foreign operations are translated to Canadian dollars using average exchange rates
for the month during which the transactions occurred. Foreign currency differences are recognized in other
comprehensive income in the cumulative translation account within accumulated other comprehensive income.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
48
The functional currency of the Company’s Canadian operations and its subsidiaries are as follows:
Canadian and Subsidiary Operations
Functional Currency
Hammond Power Solutions Inc.
Delta Transformers Inc.
Canadian dollar
($)
Hammond Power Solutions, Inc.
Mesta Electronics LLC
11020 Parker Drive LLC
Hammond Power Solutions Latin America S. de R.L. de C.V.
Micron Group, LLC
1801 Westwood Drive, LLC
U.S. dollar
($ USD)
Hammond Power Solutions S. A. de C.V.
Mexican Peso
(Pesos)
Hammond Power Solutions S.p.A.
Continental Transformers s.r.l.
Euro
(EU €)
Hammond Power Solutions Private Limited
Rupee
(INR)
d)
Use of estimates and judgements
The preparation of the consolidated financial statements in conformity with IFRS requires Management to make
judgements, estimates and assumptions that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimates are revised and in any future periods affected.
i)
Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that Management has made
in the process of applying the Group’s accounting policies and that have the most significant effects on the
amounts recognized in the consolidated financial statements.
Cash generating units
As indicated in note 3(g) and 3(j); the Group conducts its impairment tests at the individual asset level or, where
the recoverable amount cannot be determined for an individual asset, or for goodwill, at the cash generating unit
(“CGU”) level. The Group defines its CGUs based on the way it monitors and derives economic benefits from the
acquired goodwill and intangibles. A cash-generating unit is the smallest group of assets that generates cash
inflows that are largely independent of the cash inflows from other assets or groups of assets. The identification
of a cash-generating unit involves judgment.
The Company has defined its cash generating units primarily as each manufacturing and contract
manufacturing location, due to the fact that each location is managed separately and has its own dedicated
human resources and property, plant and equipment. Each manufacturing facility produces products largely
independent of the other facilities and is ultimately responsible for producing products that generate revenue.
Management monitors the performance of each manufacturing unit through the use of profitability analysis,
and also considers the profitability of each manufacturing unit relative to the Group’s business plan.
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
49
Hammond Power Solutions Annual Report 2024
Initial lease term
The Group leases certain manufacturing facilities, warehouse facilities, vehicles and other assets. In determining the
value of a right-of-use asset and lease liability, IFRS 16 requires the Group to determine the lease payments to be
made over the initial term of the lease, including renewal options which are reasonably certain to be exercised. Such
payments are then discounted based on the interest rate implicit in the lease or the Group’s incremental borrowing
rate. In determining the initial lease term, Management makes an assessment of the renewal periods available to the
Group within each lease and evaluates the likelihood and corresponding time horizon of available renewal options.
Such assessments involve judgment and ultimately may differ from the terms of leases actually experienced.
Operating segments
An operating segment is a component of an entity that engages in business activities from which it may earn
revenues and incur expenses, whose operating results are regularly reviewed by the entity’s chief operating
decision maker to make decisions about resources to be allocated to the segment and assess its performance,
and for which discrete financial information is available. The determination of operating segments involves
judgment. Management has determined that the Group operates as a single operating segment, being the design,
manufacture and sale of transformers.
Identification of acquired assets and liabilities
IFRS 3, Business Combinations, requires acquirers to recognize, separately from goodwill, the identifiable assets
acquired and liabilities assumed. The identification of acquired assets and liabilities involves judgment.
ii)
Key sources of estimation uncertainty
The following are the key sources of estimation uncertainty at the end of the reporting period that have a
significant risk of causing a material adjustment to the consolidated financial statements within the next
twelve months.
Recoverability of goodwill and intangible assets
The Group tests annually or more frequently if necessary, whether goodwill or other long-lived assets have suffered
any impairment in accordance with the accounting policies provided in note 3(g) and 3(j). Performing impairment
testing requires management to determine the estimated recoverable amount of the relevant cash-generating
units on the basis of projected future cash flows using internal business plans or forecasts, and discounting these
cash flows to appropriately reflect the time value of money.
The key assumptions made by management in deriving the recoverable amount are i) projected revenue, ii)
projected gross margin rates, iii) terminal growth rates, and iv) the discount rate.
Impairment assessments inherently involve judgment as to assumptions about expected future cash flows
and the impact of market conditions on those assumptions. Future events and changing market conditions may
impact the Company’s assumptions as to prices, costs or other factors that may result in changes in the Company’s
estimates of future cash flows. Failure to realize the assumed revenues at an appropriate gross margin or failure
to improve the financial results of a CGU could result in impairment losses in the CGU in future periods.
For assumptions relating to impairment testing, refer to note 12.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
50
Acquired long-lived assets, intangible assets, and assumed liabilities
IFRS 3, Business Combinations, requires acquirers to recognize the identifiable assets acquired and liabilities
assumed at fair value. The determination of fair value requires Management to make estimates around the value
an independent third party, under no compulsion to act, would pay for an asset acquired or liability assumed on
a standalone basis. Where possible, Management engages third-party appraisers to assist in the determination
of the fair value of real property acquired. The fair value of acquired intangible assets are generally determined
using discounted cash flow models and involve the use of forecasted revenues, forecasted earnings before
interest, tax, depreciation and amortization margins (“EBITDA”), market-based discount rates, estimated customer
attrition rates and/or market-based royalty rates. The fair values of liabilities assumed is generally based on
discounted cash flow models which involve the use of market-based discount rates. The development of cash
flow forecasts involve the use of estimates, which may differ from actual cash flows realized. Assumptions are
involved in the determination of forecasted revenue and EBITDA, discount rates, estimated customer attrition
rates and royalty rates.
Provisions for warranty claims
The Group records a provision for warranties based on historical warranty claim information and anticipated
warranty claims, based on a weighted probability of possible outcomes.
The key assumptions made by management in recording the provision are i) warranty cost, ii) probability of
claim, and iii) quantum of units which may be subject to any warranty claim.
Quantifying provisions inherently involves judgment, and future events and conditions may impact these
assumptions. Differences in actual future experience from the assumptions utilized may result in a greater or
lower warranty cost. For further information on the Group’s provisions, refer to note 21.
3.
Summary of material accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements and by all Group entities.
a)
Basis of consolidation
The consolidated financial statements include the accounts of Hammond Power Solutions Inc. and its wholly-
owned subsidiaries:
•
Hammond Power Solutions, Inc.
•
Hammond Power Solutions, S.A. de C.V.
•
Delta Transformers Inc.
•
Hammond Power Solutions Private Limited
•
Continental Transformers s.r.l.
•
Hammond Power Solutions S.p.A.
•
Mesta Electronics, LLC
•
11020 Parker Drive LLC
•
Hammond Power Solutions Latin America S. de R.L. de C.V.
•
Micron Group, LLC
•
1801 Westwood Drive, LLC
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
51
Hammond Power Solutions Annual Report 2024
Joint operations arise from an arrangement in which the interested parties are bound by a contract
which gives two or more parties joint control of the arrangement, and those parties have rights to the assets
and obligations for the liabilities relating to the arrangement. The Company has a 50% interest in Glen Ewing
Properties, an unincorporated co-tenancy. The consolidated financial statements include the Group’s share of the
entity’s assets, liabilities, revenue and expenses with items of a similar nature on a line-by-line basis.
All significant inter-company transactions and balances have been eliminated.
b)
Financial instruments
Financial assets and financial liabilities, including derivatives, are recognized on the consolidated statement of
financial position when the Group becomes a party to the financial instrument or derivative contract.
The Group classifies its financial assets and financial liabilities in the following measurement categories i)
those to be measured subsequently at fair value (either through other comprehensive income or through profit
or loss) and ii) those to be measured at amortized cost. The classification of financial assets depends on the
business model for managing the financial assets and the contractual terms of the cash flows. Financial liabilities
are classified as those to be measured at amortized cost unless they are designated as those to be measured
subsequently at fair value through profit or loss (irrevocable election at the time of recognition). For assets
and liabilities measured at fair value, gains and losses are either recorded in profit or loss or other
comprehensive income.
The Group reclassifies financial assets when and only when its business model for managing those assets
changes. Financial liabilities are not reclassified.
The Group has applied the following classifications:
•
Cash and cash equivalents, accounts receivable and lease receivable are classified as assets at amortized
cost and are measured using the effective interest rate method. Interest income is recorded in the
consolidated statement of operations, as applicable.
•
Accounts payable, accrued liabilities and bank operating lines of credit are classified as other financial
liabilities and are measured at amortized cost using the effective interest rate method. Interest expense is
recorded in the consolidated statement of operations, as applicable.
•
Convertible debentures are recognized at fair value on the date of the investment payment and is
subsequently re-measured at fair value at the end of each reporting period, which changes recognized
through the statement of operations. Interest income on this investment is recorded in the consolidated
statement of operations.
•
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are
subsequently re-measured to their fair value at the end of each reporting period. The accounting for
subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument,
and if so, the nature of the item being hedged and the type of hedge relationship designated. The Group
has not historically designated such items as hedging instruments and accordingly changes in fair value
are recorded through the statement of operations.
•
Contingent consideration issued in connection with a business combination that meets the definition of a
financial liability is initially recognized at fair value at the acquisition date and is subsequently re-measured
at fair value at the end of each reporting period, with changes recognized through the statement of operations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
52
All financial instruments are required to be measured at fair value on initial recognition, plus, in the case
of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly
attributable to the acquisition or issue of the financial asset or financial liability.
Transaction costs of financial assets and financial liabilities carried at fair value through profit or loss are
expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when
determining whether their cash flows are solely payment of principal and interest.
Financial assets that are held within a business model whose objective is to collect the contractual cash
flows, and that have contractual cash flows that are solely payments of principal and interest on the principal
outstanding are generally measured at amortized cost at the end of the subsequent accounting periods.
The Group assesses all information available, including, on a forward-looking basis, the expected credit
losses associated with its assets carried at amortized cost. The impairment methodology applied depends on
whether there has been a significant increase in credit risk. To assess whether there is a significant increase in
credit risk, the Group compares the risk of a default occurring on the asset as at the reporting date with the risk
of default as at the date of initial recognition based on all information available, and reasonable and supportive
forward-looking information. For trade receivables only, the Group applies the simplified approach as permitted
by IFRS 9 which requires expected lifetime losses to be recognized from initial recognition of receivables.
c)
Cash and cash equivalents
Cash and cash equivalents include cash and short-term deposits with maturities of three months or less.
d)
Property, plant and equipment
Property, plant and equipment are shown in the statement of financial position at their historical cost. Cost
includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed
assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets
to a working condition for their intended use, the costs of dismantling and removing the items and restoring the
site on which they are located, and borrowing costs on qualifying assets. Purchased software that is integral to
the functionality of the related equipment is capitalized as part of that equipment.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for
as separate items (major components) of property, plant and equipment.
Depreciation is provided on components that have homogenous useful lives by using the straight-line
method so as to depreciate the initial cost down to the residual value over the estimated useful lives.
The estimated useful lives for the current and comparative periods are as follows:
•
Buildings
14-30 years
•
Leaseholds and improvements
lesser of 5 years and lease term
•
Machinery and equipment
4-10 years
•
Office equipment
4-10 years
•
Land is not depreciated
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted
if appropriate.
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
53
Hammond Power Solutions Annual Report 2024
Assets included in construction-in-progress are not depreciated until the assets are available for use. Idle
assets that are available for use are depreciated.
e)
Intangible assets other than goodwill
Intangible assets that are acquired either separately or in a business combination are recognized when they are
identifiable and can be reliably measured. Intangible assets are considered to be identifiable if they arise from
contractual or other rights, or if they are separable (i.e. they can be disposed of either individually or together
with other assets). Intangible assets comprise finite life intangible assets.
Finite life intangible assets are those for which there is an expectation of obsolescence that limits their
useful economic life or where the useful life is limited by contractual or other terms. They are amortized over the
shorter of their contractual or useful economical lives.
The estimated useful lives for the current and comparative periods are as follows:
•
Customer lists and relationships
15 years
•
Technology and other patents
10-20 years
•
Software and other
4-14 years
•
Branding
5-15 years
Amortization methods, useful lives and residual values are reviewed at each year-end and adjusted
if appropriate.
f)
Research and development expenses
Research expenses are recognized as expenses in the financial period incurred.
Development expenses are recognized as an intangible asset if the Group can demonstrate the technical
feasibility of making the intangible asset ready for commissioning or sale; its intention to complete the intangible
asset and use or sell it; its ability to use or sell the intangible asset; how the intangible asset will generate future
economic benefits; the availability of the appropriate resources (technical, financial or other) to complete
development and use or sell the intangible asset; and its ability to provide a reliable estimate of expenses
attributable to the intangible asset during its development.
g)
Business Combinations and Goodwill
The Group accounts for business combinations using the acquisition method when the acquired set of activities
and assets meets the definition of a business and control is transferred to the Group. In determining whether a
particular set of activities and assets is a business, the Group assesses whether the set of assets and activities
acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability
to produce outputs.
For an acquisition achieved in stages, under which the Group did not previously control an investee but
subsequently obtains control, the carrying value of the Group’s investment is remeasured to fair value immediately
prior to the business combination, with any gain or loss reflected through the statement of operations.
The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable
net assets acquired. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction
costs are expensed as incurred, except if related to the issue of debt or equity securities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
54
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay
contingent consideration that meets the definition of a financial instrument is classified as equity, then it is
not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is
remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent
consideration are recognized in profit or loss.
Goodwill is the residual amount that results when the purchase price of an acquired business exceeds
the sum of the amount allocated to the identifiable assets acquired, less liabilities assumed, based on their
fair values.
Goodwill is allocated as of the date of the business combination to the Company’s cash generating units
that are expected to benefit from the synergies of the business combination, and is tested for impairment at
least annually and upon the occurrence of an indication of impairment.
The impairment tests are performed at the CGU level. The Group defines its CGUs based on the way it
monitors and derives economic benefits from the acquired goodwill and intangibles. The impairment tests are
performed by comparing the carrying value of the assets of these CGUs with the greater of its value in use
and its fair value, less costs to sell. 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 cash flows correspond to estimates made
by Group management in financial and strategic business plans covering a period of five years. They are then
projected beyond five years using a steady or declining terminal growth rate given that the Group businesses
are of a long-term nature. The Group assesses the uncertainty of these estimates by conducting sensitivity
analyses. The discount rate used approximates the CGUs weighted average cost of capital, with business risk
incorporated into the development of the cash flow projections.
An impairment loss in respect of goodwill is never subsequently reversed. The Group completed its annual
goodwill impairment tests at December 31, 2024.
h)
Investments
Investment in properties
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 properties, being the property held by Glen Ewing
Properties and the Italian Marnate properties, at historical cost.
Investment in convertible debentures
Investment convertible debentures are held to earn interest income. The Group measures its investment in
convertible debentures at fair value.
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
55
Hammond Power Solutions Annual Report 2024
i)
Inventories
Inventories are valued at the lower of cost and net realizable value.
The cost of inventories is based on the first-in first-out principle and includes 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, cost includes 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 which previously caused inventories to be written down to their net realizable value
no longer exist, the previous impairment is reversed.
j)
Impairment of property, plant and equipment and finite life intangible assets
The Group periodically reviews the useful lives and the carrying values of its long-lived assets for continued
appropriateness. Consideration is given at each reporting date to determine whether there is any indication
of impairment of the carrying amounts of the Group’s property, plant and equipment and finite life intangible
assets. The Group reviews for impairment of long-lived assets, or asset groups, held and used whenever events
or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
The recoverable amount is the greater of the fair value less cost of disposal and value in use. If the
recoverable amount cannot be determined for one individual asset, the Group conducts its impairment test at
the CGU level. In assessing value in use, the estimated future cash flows are discounted to their present value,
based on the time value of money and the risks specific to the country where the assets are located. Assets that
suffer impairment are assessed for possible reversal of the impairment at each reporting date.
k)
Share-based payment transactions
Stock option plan
The Group has a stock-based compensation plan, which is described in note 17. The Group accounts for all
stock-based payments using the fair value based method.
Under the fair value based method, compensation cost for stock options and direct awards of stock is
measured at fair value at the grant date. Compensation cost is recognized in earnings on a straight-line basis
over the relevant vesting period, with a corresponding amount recorded in contributed surplus. The amount
recognized as an expense, is adjusted to reflect the number of awards for which the related services are
expected to be met. Upon exercise of a stock option, share capital is recorded at the sum of the proceeds
received and the related amount of contributed surplus.
Deferred share unit plan
The Company maintains a deferred share unit plan (“DSU Plan”) for its senior-executive management and
Directors. Under the DSU Plan, participants may elect to defer compensation and receive DSUs equal to the
value of the deferred compensation. The number of DSUs issued to each holder are increased as dividends on
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
56
common shares are paid to compensate the holders for dividends paid on a quarterly basis, while the DSUs
are outstanding.
Under IFRS, DSUs are classified as cash-settled share-based payment transactions as the participants
shall receive cash following a Redemption Event, as defined in the DSU Plan. DSUs do not contain any vesting
conditions or forfeiture provisions, as they are issued in exchange for deferred compensation. As such, the
Company recognizes the expense and the liability to pay for eventual redemption when DSUs are issued.
Thereafter, the Company re-measures the fair-value of the liability at the end of each reporting date and the
date of settlement, with the difference recognized in income or expense for the period. The fair value of DSUs is
determined in accordance with the DSU Plan, which uses the average closing price for HPS shares for the five
trading days immediately preceding the relevant date. The DSU liability is included within accrued liabilities.
Long Term Incentive Plan
The Company maintains a long-term Incentive plan (“LTIP”) for the Executive Officers of the Company. This plan
replaces the Deferred Share Unit plan for executives. The LTIP consists of an annual grant made to the Chief
Executive Officer and other executive officers of Performance Share Units (“PSU”) and Restricted Share Units
(“RSU”). According to the plan, the PSUs constitute 60% of the total grant and will vest at the end of a three-year
period at a ratio of 0% - 150%, depending on whether management met pre-determined EPS and return on net
asset (“RONA”) targets. The RSUs constitute the remaining 40% of the grant and will vest at the end of a three-
year period at 100%. The increase or decrease in value of the vested PSU’s and RSU’s over the three-year period
will be determined by the increase or decrease of the share price.
The annual grant is determined by the Compensation Committee, and are currently set at 35% of the
executive’s salary and 100% (2023 - 50%) of CEO’s salary. The grant vests after a three-year performance period
and is dependent on continuous employment with the Company over that period, with exceptions for retirement
and involuntary terminations. After vesting, the value of the PSUs and RSUs will be determined based on the
PSU vesting factor and the share price. The value will be paid in cash to the participant, after which, the PSUs
and RSUs will be extinguished. Under IFRS, RSUs and PSUs are classified as cash-settled share-based payment
transactions as the participants shall receive cash following a Redemption Event, as defined in the LTIP Plan.
LTIP units contain vesting conditions, as they are issued in exchange for deferred compensation. As such, the
Company recognizes the expense and the liability to pay for eventual redemption when RSUs and PSUs are
issued. Thereafter, the Company re-measures the fair-value of the liability at the end of each reporting date
and the date of settlement, with the difference recognized in income or expense for the period. The fair value of
RSUs and PSUs is determined in accordance with the LTIP Plan, which uses the average closing price for HPS
shares for the five trading days immediately preceding the relevant date. The LTIP liability is included within
accrued liabilities.
l)
Provisions
Provisions comprise liabilities of uncertain timing or amounts that arise from restructuring plans, environmental,
litigation, commercial or other risks. Provisions are recognized when there exists a legal or constructive obligation
stemming from a past event and when the future cash outflows can be reliably estimated. A provision for
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
57
Hammond Power Solutions Annual Report 2024
warranties is recognized when the underlying products or services are sold. The provision is based on historical
warranty data and a weighting of all possible outcomes against their associated probabilities. A restructuring
provision relating to a sale or termination of a line of business, the closure of business locations in a country or
region, changes in management structure or fundamental reorganizations that have a material effect of the
nature or focus of the Group’s operations are recognized when the Group has a detailed, formal plan for the
restructuring that identifies:
•
The business or part of a business concerned;
•
The principal locations affected;
•
The location, function and approximate number of employees affected;
•
The expenditures that will be undertaken; and
•
When the plan will be implanted.
Notwithstanding the above, no provision is recorded until such time a valid expectation by those affected
by the plan has been raised.
m)
Revenue
The Group recognizes revenue using a 5-step approach:
•
Step 1: Identify the contract(s) with a customer.
•
Step 2: Identify the performance obligations in the contract.
•
Step 3: Determine the transaction price.
•
Step 4: Allocate the transaction price to the performance obligations in the contract.
•
Step 5: Recognize revenue when (or as) the Group satisfies a performance obligation.
The Group considers a performance obligation satisfied when “control” of the goods or services underlying
the particular performance obligation is transferred to the customer. A performance obligation represents a
good and service (or a bundle of goods or services) that is distinct or a series of distinct goods or services
that are substantially the same. The Group typically satisfies its performance obligation upon shipment of its
transformers. Any required testing or compliance requirements will have been satisfied prior to shipment of
the transformer. Payment is typically due within 30 days of shipment, with limited customers being granted
extended terms of up to 60 days. As a result, consideration is generally fixed and does not contain any significant
financing components. The Group has a return policy for credit on standard stocked items and no custom build
product can be returned. Historically, returns have been minimal and are expected to continue to remain low.
The Group’s product is purchased with a standard warranty and there is no option to purchase any additional
warranty coverage.
A contract asset represents the Group’s right to consideration in exchange for goods or services that
the Group has transferred to a customer that is not yet unconditional. In contrast, a receivable represents the
Group’s unconditional right to consideration in that only the passage of time is required before payment of that
consideration is due.
A contract liability represents the Group’s obligation to transfer goods or services to a customer for which
the Group has received consideration (or an amount of consideration is due) from the customer.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
58
Incremental costs to obtain a contract are typically short-term in nature and the Group applies the practical
expedient permitted under IFRS 15 to recognize such costs as an expense when incurred if the amortization of
the asset that the Group would have otherwise recognized is less than one year.
n)
Income taxes
Income tax expense comprises current and deferred tax. Current tax is the expected tax payable or receivable
on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting
date and any adjustment to tax payable in respect of previous years. Deferred tax is recognized in respect of
temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be
applied to temporary differences when they reverse, based on the laws that have been enacted or substantively
enacted at the reporting date.
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.
o)
Employee benefits
The Group maintains a defined contribution plan, which is described in note 20, and have short-term employee
benefits.
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 profit or
loss in the periods in which services are rendered by employees.
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.
p)
Finance income and finance costs
Finance income and finance costs comprise interest income, interest expense on borrowings, foreign currency
losses (including changes in fair value of derivative foreign currency financial instruments measured at fair value
through profit and loss).
Foreign currency gains and losses are reported on a net basis.
q)
Earnings per share
The Group presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is
calculated by dividing net earnings of the Group by the weighted average number of common shares outstanding
during the reporting period. Diluted EPS are computed similar to basic EPS except that the weighted average
shares outstanding are increased to include additional shares from the assumed exercise of stock options,
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
59
Hammond Power Solutions Annual Report 2024
if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were
exercised and that proceeds from such exercises along with any unamortized stock-based compensation were
used to acquire common shares at the average market price during the year.
r)
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, and subsequently at cost less any accumulated depreciation and
impairment losses, 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 applies a single discount rate to the portfolio of leases with reasonably similar
characteristics.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease
payments made. It is remeasured when there is a change in future lease payments arising from a change in an
index or rate, a change in the estimate or the amount expected to be payable under a residual value guarantee,
or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain
to be exercised or a termination option is reasonably certain not to be exercised.
The Group does not recognize right-of-use assets and lease liabilities for contracts that have a lease term
of 12 months or less or are low-value assets (under $5,000).
s)
New accounting pronouncements adopted during the period
The Group adopted the following amendments in its financial statements for the annual period beginning
on January 1, 2024. The adoption of the amendments did not have a material impact on the consolidated
financial statements.
•
Classification of liabilities as current or non-current (Amendments to IAS 1) and Non-current liabilities with
covenants (Amendments to IAS 1) ;
•
Lease liability in a sale and leaseback (Amendments to IFRS 16);
•
Supplier finance arrangements (Amendments to IAS 7 and IFRS 7).
t)
New accounting pronouncements
The International Accounting Standards Board has issued the following Standards, Interpretations and
Amendments to Standards that are not yet effective, have not yet been adopted by the Group and the impact
on the consolidated financial statements has not yet been determined.
The following amendments are effective for the annual period beginning on January 1:
•
2025: Lack of exchangeability (Amendments to IAS 21)
•
2026: Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7)
•
2026: Annual improvements to IFRS Accounting Standards
•
2027: Presentation and Disclosure in Financial Statements (IFRS 18)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
60
4.
Cash and cash equivalents
December 31, 2024
December 31, 2023
Cash
$
21,735
$
17,131
Cash equivalents
12,350
35,460
$
34,085
$
52,591
5.
Accounts receivable
December 31, 2024
December 31, 2023
Trade accounts receivable
$
123,573
$
110,938
Value added tax receivable
10,984
10,169
Other receivables
5,843
6,923
$
140,400
$
128,030
Trade accounts receivable is presented net of expected credit losses of $3,534,000 (December 31, 2023 –
$2,616,000).
A continuity of the Group’s allowance for doubtful accounts is as follows:
December 31, 2024
December 31, 2023
Opening balance
$
2,616
$
2,806
Additional allowances
1,446
611
Writeoffs
(603)
(31)
Adjustments
75
(770)
$
3,534
$
2,616
6. Inventories
December 31, 2024
December 31, 2023
Raw materials
$
68,974
$
59,786
Work in progress
4,612
5,332
Finished goods
69,690
49,472
$
143,276
$
114,590
Raw materials and changes in finished goods, and work in progress recognized as cost of sales during the year
amounted to $529,828,000 (2023 – $478,499,000). In addition, during the year, reversal of write-downs in the
amount of $32,000 were recognized (2023 – write-downs of $12,000). Inventories carried at net realisable value
as at December 31, 2024 were $202,000 (December 31, 2023 – $578,000).
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
61
Hammond Power Solutions Annual Report 2024
7.
Prepaid and other assets
December 31, 2024
December 31, 2023
Prepaid expenses
$
9,245
$
8,414
Current portion of long-term lease and note receivable (note 8)
–
1,535
Derivative asset (note 27)
1,447
–
$
10,692
$
9,949
8.
Lease receivable
Concurrent with the disposal of a product line in 2017, the Group entered into a lease agreement for one of its
manufacturing facilities in Italy, under which the purchaser had the use of the plant, which included both the land
and the building, until October 2023. Consideration was in the form of a lease receivable, which the Company
had determined meet the definition of a finance lease.
The lease receivable was calculated based on the present value of the future principal and interest cash flows,
discounted at the market rate of interest at the lease inception date, determined to be 1.15%.
On March 14, 2024 the Group and the purchaser signed a settlement agreement for the sale of one of its
buildings in Italy. The Group exercised its put option, specifying the final plant purchase price was equal to
1,850,000 EUR. The final negotiations resulted in a net settlement amount of 1,050,000 EUR ($1,535,000 CAD).
This agreement settled all outstanding disputed receivables and liabilities as well as the need for significant
repairs to the roof of the building. The transfer of ownership and title was executed on March 28, 2024.
Put and call option
The lease agreement included a put and call option related to the leased premises, exercisable within 60 days after
September 30, 2023. The call option granted the purchaser an option to purchase the premises for consideration
equal to 2,225,000 Euros (approximately $3,249,000). The put option granted HPS an option to sell the plant to
the purchaser for consideration equal to the initial plant purchase price of 2,225,000 Euros. Under both the call
and put option the plant purchase price was to be reduced by 50% of the monthly rent installments received, to
a maximum of 375,000 Euros (approximately $548,000). If the purchaser failed to complete the acquisition of the
leased premises upon the exercise of the put option by the Company and pay the required consideration, the
purchaser would pay 500,000 Euros (approximately $730,000) in liquidated damages.
On November 22, 2023, given that the expiry date to exercise its put option was approaching and that the parties
had not yet entered into any settlement agreement or a preliminary agreement for the sale and purchase of the
plant, the Group exercised its put option, specifying that the final plant purchase price, inclusive of any reduction
agreed in the lease agreement, was equal to Euro 1,885,000. The final negotiations resulted in a net settlement
amount of 1,050,000 EUR ($1,535,000 CAD). This agreement settled all outstanding disputed receivables and
liabilities as well as the need for significant repairs to the roof of the building. The transfer of ownership and title
was executed on March 28, 2024.
As at December 31, consideration receivable was $nil (2023 - $1,535,000 (1,050,000 EUR) with monthly
payments of 13,000 EUR, bearing interest of 1.15% per annum).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
62
9.
Property, plant and equipment
Property, plant and equipment comprise owned and leased assets that do not meet the definition of investment
property. Carrying amounts of owned and right of use assets are as follows:
December 31, 2024 December 31, 2023
Property, plant and equipment owned
$
90,765
$
50,357
Right-of-use assets
19,558
15,484
$
110,323
$
65,841
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
63
Hammond Power Solutions Annual Report 2024
Land
Buildings
Leaseholds &
Improvements
Machinery &
Equipment
Office
Equipment
Construction
in Progress &
Deposits
Total
Cost
Balance at January 1, 2023
$
4,182
$ 19,651
$ 2,422
$ 69,551
$ 13,482
$ 3,036
$
112,324
Additions
181
2,190
238
4,561
1,696
13,072
21,938
Disposal
–
–
–
(95)
–
–
(95)
Effect of movements in
exchange rates
(14)
(60)
146
(1,069)
77
(69)
(989)
Balance at December 31, 2023
$ 4,349
$ 21,781
$ 2,806
$ 72,948
$ 15,255
$ 16,039
$
133,178
Balance at January 1, 2024
$ 4,349
$ 21,781
$ 2,806
$ 72,948
$ 15,255
$ 16,039
$
133,178
Acquisition (note 30)
191
1,953
–
3,380
67
32
5,623
Additions
–
4,200
6,612
26,895
3,885
121
41,713
Disposal
–
–
–
(2)
(13)
–
(15)
Effect of movements in
exchange rates
52
368
(464)
4,382
(29)
435
4,744
Balance at December 31, 2024
$ 4,592
$ 28,302
$ 8,954
$ 107,603
$ 19,165
$ 16,627
$ 185,243
Accumulated Depreciation
Balance at January 1, 2023
$
–
$ 13,725
$
1,564
$ 50,614
$ 11,632
$
–
$
77,535
Depreciation for the year
–
1,156
211
3,676
848
–
5,891
Disposal
–
–
–
(70)
–
–
(70)
Effect of movements in
exchange rates
–
(24)
152
(703)
40
–
(535)
Balance at December 31, 2023
$
–
$ 14,857
$
1,927
$
53,517
$ 12,520
$
–
$
82,821
Balance at January 1, 2024
$
–
$ 14,857
$
1,927
$ 53,517
$ 12,520
$
–
$
82,821
Depreciation for the year
–
1,303
780
5,418
1,333
–
8,834
Disposal
–
–
–
(2)
(11)
–
(13)
Effect of movements in
exchange rates
–
84
(122)
2,782
92
–
2,836
Balance at December 31, 2024
$
–
$ 16,244
$ 2,585
$ 61,715
$ 13,934
$
–
$
94,478
Carrying amounts
At December 31, 2023
$ 4,349
$ 6,924
$
879
$
19,431
$ 2,735
$ 16,039
$
50,357
At December 31, 2024
$ 4,592
$ 12,058
$ 6,369
$ 45,888
$
5,231
$ 16,627
$
90,765
Depreciation is recorded in the statement of earnings as follows: cost of sales $8,424,000 (2023 – $5,510,000),
selling and distribution $nil (2023 – $nil) and general and administrative $397,000 (2023 – $381,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
64
Right of use assets
The Group leases many assets including buildings, vehicles and office equipment. Information about leases for
which the Group is a lessee is presented below.
Buildings
Vehicles
Office
Equipment
Total
Balance at January 1, 2023
$
6,529
$
403
$
21
$
6,953
Additions
11,852
685
–
12,537
Disposal
(438)
–
–
(438)
Depreciation
(2,964)
(329)
(13)
(3,306)
Effect of movements in exchange rates
(272)
10
–
(262)
Carrying amount at December 31, 2023
$
14,707
$
769
$
8
$
15,484
Balance at January 1, 2024
$
14,707
$
769
$
8
$
15,484
Additions
8,510
378
–
8,888
Disposal
–
(30)
–
(30)
Depreciation
(3,861)
(377)
(6)
(4,244)
Effect of movements in exchange rates
(563)
25
(2)
(540)
Carrying amount at December 31, 2024
$
18,793
$
765
$
–
$
19,558
Certain building leases maintained by the Group contain renewal options. Where practicable, the Group seeks
to include extension options in new leases to provide operational flexibility. The majority of the Group’s lease
payments related to its production facilities located in Mexico.
• The first renewal option commenced in May 2020, with annual lease payments of $676,000, and is for a
five-year term. The Group retains rights to renew this lease for three successive five-year periods.
• There was additional space leased during 2023 as an extension of this plant which commenced on
March 15, 2023 with annual lease payments of $445,000 and is for a five-year term.
• The Group’s lease on its second Mexican production facility was renewed on March 31, 2023 and carries
annual lease payments of $690,500 and is for a four-year term.
• There was a third space leased at the end of 2023 with a lease commencement date of February 2024 with
annual lease payments of $1,495,000 and is for a seven year term. The Group retains rights to renew this lease
for two successive five-year terms. The Company had accessed this facility as of December 31, 2023 to begin
installing equipment and completing leasehold improvements.
• The extension options held are exercisable only by the Group and not by the lessors. The Group assesses at
lease commencement whether it is reasonably certain to exercise the options.
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
65
Hammond Power Solutions Annual Report 2024
10.
Investments
December 31, 2024
December 31, 2023
Glen Ewing Property
$
1,044
$
1,044
Marnate Property (net of accumulated
depreciation of $2,007 (2023 - $1,808))
1,746
1,896
Investment in convertible debentures
2,600
–
$
5,390
$
2,940
Glen Ewing Property
The Group has a 50% ownership interest in a property in Georgetown, Ontario, (referred to as the Glen Ewing
Property). It is a vacant plot of land currently under environmental remediation, and no revenue was derived
from it in 2024 or 2023. The property is carried at cost of $1,044,000. The estimated fair value of the property as
at December 31, 2024 is $1,150,000 (2023 – $1,150,000). The fair value was determined based on independent
available market evidence, with reference to comparable market transactions. The Group’s share of ongoing
legal, consulting and remediation costs during the year was $136,000 (2023 – $78,000).
Marnate Property
The Group owns a property in Marnate, Italy, (referred to as the Marnate Property). As part of the sale transaction
of certain of the assets and liabilities of the Italian company in 2019, the purchaser has leased the Marnate
Property for a period of five years at an annual rental amount of 100,400 EUR (approximately $149,000). The
operating expenses for this property were 182,000 EUR (approximately $270,000) in 2024 and 160,000 EUR
(approximately $234,000) in 2023. Depreciation on the facility was recorded in the statement of earnings as
general and administrative expenses in the amount of $135,000 (2023 - $124,000). The estimated fair value
of the property as at December 31, 2024 is 2,130,000 Euros (approximately $3,201,000). The fair value was
determined based on independent available market evidence, based on comparable property sales, by an
independent valuator.
Investment in convertible debentures
On March 22, 2024, HPS entered into a financing agreement with SmartD Technologies Inc. (“SmartD”). In the
agreement, the Corporation can invest up to $3,900,000 over three years in convertible debentures of SmartD.
SmartD Technologies produces advanced motor control products, most notably it’s Clean Power Variable
Frequency DriveTM. SmartD’s products combine motor drives with harmonic mitigating technology that help
businesses save energy, lower costs and minimize their carbon footprint.
During 2024 there was an investment of $2,600,000 and is included in Level 3 of the fair value hierarchy,
measured at fair value through profit and loss. To determine the fair value of the investment, Management
considered the progress of the development of the technology as well as the need to generate
additional funding.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
66
11.
Intangible assets
Intangible assets
Technology
and Patents
Customer lists,
relationships
and branding
Externally
acquired
software
Total
Cost
Balance at January 1, 2023
$
7,809
$
11,695
$
9,094
$
28,598
Additions
–
–
384
384
Effect of movements in exchange rates
(120)
(119)
–
(239)
Balance at December 31, 2023
$
7,689
$
11,576
$
9,478
$
28,743
Balance at January 1, 2024
$
7,689
$
11,576
$
9,478
$
28,743
Acquisition (note 30)
–
7,621
54
7,675
Additions
–
–
71
71
Effect of movements in exchange rates
298
819
11
1,128
Balance at December 31, 2024
$
7,987
$
20,016
$
9,614
$
37,617
Accumulated Amortization
Balance at January 1, 2023
$
5,090
$
8,367
$
7,491
$
20,948
Amortization for the year
309
328
663
1,300
Effect of movements in exchange rates
(55)
(42)
2
(95)
Balance at December 31, 2023
$
5,344
$
8,653
$
8,156
$
22,153
Balance at January 1, 2024
$
5,344
$
8,653
$
8,156
$
22,153
Amortization for the year
311
591
539
1,441
Effect of movements in exchange rates
135
152
6
293
Balance at December 31, 2024
$
5,790
$
9,396
$
8,701
$
23,887
Balance at
At December 31, 2023
$
2,345
$
2,923
$
1,322
$
6,590
At December 31, 2024
$
2,197
$
10,620
$
913
$
13,730
Amortization of $404,000 (2023 – $560,000) has been recognized in cost of sales, $119,000 (2023 – $119,000)
has been recognized in selling and distribution and $918,000 (2023 – $621,000) has been recognized in general
and administrative.
None of the intangible assets has been internally developed.
Research and development expenses of $202,000 (2023 – $566,000) have been recognized in cost of
sales in the consolidated statements of earnings. No research and development costs have been capitalized
(2023 – $nil).
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
67
Hammond Power Solutions Annual Report 2024
12.
Goodwill and impairment testing for cash-generating units
Goodwill
December 31, 2024
December 31, 2023
Opening balance
$
11,736
$
12,024
Acquisition (note 30)
3,472
–
Effect of movements of exchange rates
796
(288)
Ending balance
$
16,004
$
11,736
The Company conducts its annual impairment assessment of CGUs which contain goodwill, as well as any
corresponding acquired long-lived assets including intangible assets and property, plant and equipment in the
fourth quarter of each year, which corresponds with its annual planning cycle, and whenever events or changes
in circumstances indicate that the carrying amount of an asset or CGU may not be recoverable. The Company
did not identify any triggering events during the course of 2024 indicating that the carrying amount of its assets
and CGUs may not be recoverable, which would require the performance of an impairment test for those CGUs
which did not contain goodwill.
Impairment testing for cash-generating units containing goodwill
The Company has four subsidiaries identified as CGUs that contain goodwill. The CGUs and their respective
goodwill balances are as follows: Delta Transformers Inc. (“Delta”) $2,180,000 (2023 – $2,180,000), Hammond
Power Solutions Private Limited (“India”) $8,427,000 (2023 – $7,975,000), Mesta Electronics LLC (“Mesta”)
$1,720,000 (2023 – $1,581,000) and Micron Group, LLC $3,677,000.
For its 2024 annual impairment assessment of CGUs containing goodwill, the Company used cash flow
projections based primarily on its business plan for the following year, and projections for the ensuing four year
period. The Company’s business plan is primarily based on financial projections submitted by its subsidiaries in
the fourth quarter of each year, together with inputs from customer teams. This plan is subjected to reviews by
various levels of management as part of the Company’s annual planning cycle, and is approved by the Board
of Directors. The values used in the cash flow projections are based on historical sales, internal growth rate
assumptions, and available market data.
India
Based on the Company’s projections, a five year cash flow forecast was completed and discounted to
present-value using discount rate of 17.50% (2023 – 18.10%). Through the five year cash flow projections, the
Company’s model also incorporated year 1 sales growth rates of 28.0% (2023 – 40.60%). The annual sales
growth rates for year 2 to year 5 are in the range of 24.0% – 26.0% (2023 – year 2 to year 5 – 15.0% – 25.3%)
based on the CGUs operating history and strategic sales growth initiatives. Cash flows beyond the five year
period have been extrapolated using terminal growth rate of 8.0% (2023 – 8.0%).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
68
Delta
Based on the Company’s projections, a five year cash flow forecast was completed and discounted to present-
value using discount rate of 15.6% (2023 –17.1%). Through the five year cash flow projections, the Company’s
model also incorporated year 1 sales growth rates of 1.7% (2023 – 2.2%). The annual sales growth rates for
year 2 to year 5 are 3.0% (2023 – year 2 to year are 3.0%) based on the CGUs operating history and strategic
sales growth initiatives. Cash flows beyond the five year period have been extrapolated using terminal growth
rate of 3.0% (2023 – 3.0%).
Mesta
Based on the Company’s projections, a five year cash flow forecast was completed and discounted to
present-value using discount rate of 25.3% (2023 – 26.7%). Through the five year cash flow projections, the
Company’s model also incorporated year 1 sales growth rate of 80.8% (2023 – 24.9%). The annual sales
growth rates for year 2 to year 5 are 3.0% (2023 – 3.0%) based on the CGUs operating history and strategic
sales growth initiatives. Cash flows beyond the five year period have been extrapolated using terminal growth
rate of 3.0% (2023 – 3.0%).
Micron
Based on the Company’s projections, a five year cash flow forecast was completed and discounted to present-
value using discount rate of 20.0%. Through the five year cash flow projections, the Company’s model also
incorporated annualized year 1 sales growth rate of 10.8%. The annual sales growth rates for year 2 to year
5 are 3.0% - 6.0% based on the CGUs operating history and strategic sales growth initiatives. Cash flows
beyond the five year period have been extrapolated using terminal growth rate of 3.0%.
Management’s approach to determining projected revenue includes consideration of current bookings,
consultation with its salesforce and historical results. The Company’s process for determining projected gross
margin rates includes consideration of current pricing information from suppliers and historical gross margin
rates realized by the Company. The Company determines the terminal growth rate with reference to published
economic data pertaining to the applicable industry and country in which the cash generating unit operates.
The discount rate is determined with reference to the cash generating unit’s weighted average cost of capital.
For the Delta, Mesta, India and Micron CGUs, management believes that any reasonable possible change in
the key assumptions on which the recoverable amounts are based would not cause the carrying amount to
exceed the recoverable amount.
Upon completion of the annual impairment assessment it was determined that the recoverable amount of the
CGUs exceeded their respective carrying values and no impairment existed as at December 31, 2024.
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
69
Hammond Power Solutions Annual Report 2024
13.
Bank operating lines of credit
The Group’s North American current banking agreement, which expires in June 2026, consists of a $50,000,000
U.S. revolving credit facility. The revolving credit facility can be drawn in U.S. Prime borrowings, Canadian Prime
borrowings, Canadian Dollar Offered Rate (“CDOR”) borrowings or the London Inter-Bank Offered rate (“LIBOR”)
benchmark replacement rate borrowings. The facilities are unsecured.
Interest on the revolving credit lines is dependent on certain financial ratios and ranges from Canadian bank
prime rate plus 0.0% to Canadian bank prime rate plus 0.4% for the Canadian dollar denominated revolving
credit lines or, if designated, the bank’s CDOR rate plus 1.40% to 1.90% and the Canadian overdraft loans at
Canadian bank prime rate; and from U.S. base rate minus 1.00% to U.S. base rate minus 0.50% for the U.S. dollar
denominated revolving credit lines or, USD overdraft loan at USD prime minus 1.00%.
The Group also has a 4,000,000 EUR unsecured Euro facility that matures June 2026 and may be renewed in
writing each year to extend the maturity date for the facility for a further 365 days, subject to approval from the
lender. The facility is comprised of a 3,750,000 Euro revolver and 250,000 Euro overdraft facility. The revolver
facility bears interest at 2.25% plus the relevant Market Index, Euribor of 2.845% (2023 – plus margin of 2.25%,
Euribor on December 31, 2023 – 3.845%, Euribor).
Hammond Power Solutions Private Limited maintains an additional demand credit facility for an unsecured
working capital loan up to 515,000,000 Indian Rupee (INR) (2023 – 515,000,000 INR) consisting of the sub-
facilities of a 40,000,000 INR (2023 – 40,000,000 INR) short-term working capital demand loan, a 475,000,000
INR (2023 – 475,000,000 INR) facility for bank guarantees. The demand loan bears interest at the relevant Market
Index + 2.5% and the bank guarantees are at a rate of 1.0%. As at December 31, 2024, there was $nil Canadian
dollar equivalent of Rupees drawn against the working capital demand loan (2023 – $nil). As at December 31,
2024 there was 401,266,000 INR, Canadian equivalent $6,471,000 (2023 – 351,156,000 INR, Canadian equivalent
$5,583,000) drawings against the bank guarantees.
Based on exchange rates in effect at December 31, 2024, the combined Canadian dollar equivalent available
across all facilities, prior to any utilization of the facilities was $86,722,000 (2023 – $80,353,000).
As at December 31, 2024, the Canadian dollar equivalent outstanding under the U.S. dollar revolving credit
facility was $9,152,000 consisting of $6,299,000 Canadian dollars drawn and the Canadian equivalent of
$2,853,000 U.S. dollars drawn (2023 – $13,902,000 – consisting of $5,902,000 Canadian dollars drawn and the
Canadian equivalent of $8,000,000 U.S. dollars drawn). As well, $3,832,000 (2023 – $4,569,000) Canadian dollar
equivalent of Euros was outstanding under the Euro facility, and $nil (2023 – $nil) Canadian dollar equivalent of
Indian rupees under the Rupee facility. Amounts drawn on the facility have been recognized as current liabilities
based on the Company’s anticipated repayment plans.
The Company is required to comply with certain bank covenants and files certifications of compliance on a
quarterly basis. The bank operating lines of credit are subject to the following covenants:
• Debt service coverage covenant – impacted by EBITDA, cash flow available for debt service and total
debt service.
• Leverage covenant – calculated as net debt divided by EBITDA to determine leverage ratio.
There are no indicators that the Company may have difficulty complying with future covenants.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
70
14.
Lease and other long-term liabilities
December 31, 2024
December 31, 2023
Lease liabilities
$
22,402
$
16,421
Contingent consideration (note 27)
845
2,138
$
23,247
$
18,559
Current
$
6,083
$
6,388
Non-Current
$
17,164
$
12,171
Right of use liability maturity analysis –
contractual undiscounted cash flows
December 31, 2024
December 31, 2023
Less than one year
$
5,879
$
5,500
One to five years
16,295
11,838
More than five years
3,464
2,877
Total undiscounted lease liabilities
$
25,638
$
20,215
Less: effect of discounting and foreign exchange
$
(3,236)
$
(3,794)
Lease liabilities included in the statement of financial position
$
22,402
$
16,421
Current
$
5,238
$
4,250
Non-current
$
17,164
$
12,171
Amounts recognized in statement of operations
Year Ended
December 31, 2024
Year Ended
December 31, 2023
Interest on lease liabilities
$
788
$
395
Amounts recognized in statement of cash flows
Year Ended
December 31, 2024
Year Ended
December 31, 2023
Payment of lease liabilities
$
5,305
$
3,906
15.
Commitments
December 31, 2024
December 31, 2023
Capital expenditure commitments
$
15,771
$
12,252
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
71
Hammond Power Solutions Annual Report 2024
16.
Income taxes
Income tax expense
2024
2023
Current tax expense
Current period
$
27,914
$
23,961
Deferred tax recovery
Origination and reversal of temporary differences
(2,545)
(3,329)
Decrease (increase) in tax rate
22
(37)
(2,523)
(3,366)
Total income tax expense
$
25,391
$
20,595
Reconciliation of effective tax rate
2024
2024
2023
2023
Net earnings
$
71,531
$
63,399
Income tax expense
25,391
20,595
Earnings before income taxes
96,922
83,994
Income tax expense using the Company’s
domestic tax rate
39.50%
38,284
39.50%
33,178
Effect of tax rates in foreign jurisdictions
(8.15%)
(7,903)
(11.04%)
(9,268)
Decrease (increase) in tax rate
0.02%
22
(0.04%)
(37)
Non-deductible expenses/non-taxable
income
1.19%
1,151
(1.25%)
(1,052)
Reduced rate for active business and
manufacturing and processing
(6.52%)
(6,315)
(2.94%)
(2,468)
Losses for which no deferred tax asset was
recognized
0.21%
200
0.30%
252
Other
(0.05%)
(48)
(0.01%)
(10)
26.20%
$
25,391
24.52%
$
20,595
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
72
Unrecognized temporary differences
At December 31, 2024, pre-tax temporary differences of $241,286,000 (2023 – $179,057,000) 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. The tax liability in the event
the Company were to sell these investments would be $30,161,000 (2023 – $22,382,000) based on current
tax rates.
Deferred tax assets have not been recognized in respect of the following items:
December 31, 2024
December 31, 2023
Tax losses
$
10,642
$
9,848
Basis difference in subsidiary
33,423
31,643
Financial interests deductible in a future period
4,714
4,586
Provisions
870
883
Inventory
453
441
Property, plant and equipment
721
623
$
50,823
$
48,024
The tax losses, financial interests deductible, provisions, inventory and property, plant and equipment
deductions carry forward indefinitely and relate to HPS S.p.A and Continental Transformers s.r.l. The basis
difference in subsidiary, when realized, will provide the Company a capital loss that carries forward indefinitely.
The benefit of these items has not been reflected in the consolidated financial statements as it is uncertain as to
whether the Company will be able to utilize the deductions.
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
73
Hammond Power Solutions Annual Report 2024
Recognized deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
2024
2023
2024
2023
Property, plant and equipment
$
464
$
335
$
(8,032) $
(6,488)
Intangible assets
324
346
(332)
(378)
Scientific research and experimental
development and other tax credits
–
–
(29)
(41)
Inventories
1,360
712
–
–
Note receivable
–
–
(3,147)
(3,062)
Loans and borrowings
5,612
4,636
–
–
Employee benefits
8,041
5,445
(198)
(159)
Unrealized losses (gains) on
forward contracts and
foreign currency-denominated loans
payable/receivable
96
164
–
(38)
Provisions and tax reserves
3,662
2,882
–
(4)
Tax loss carry-forwards
4,399
5,631
–
–
Basis difference in subsidiary
1,745
1,795
–
–
Tax assets (liabilities)
25,703
21,946
(11,738)
(10,170)
Set off of tax
(11,736)
(10,148)
11,736
10,148
Net tax assets (liabilities)
$
13,967
$
11,798
$
(2)
$
(22)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
74
Movement in temporary differences during the year ended December 31, 2024:
Balance
December 31, 2023
Recognized in
retained earnings
Recognized in
profit or loss
Recognized
in other
comprehensive
income
Balance
December 31, 2024
Property, plant and equipment
$
6,153
$
–
$
1,415
$
–
$
7,568
Intangible assets
32
–
(24)
–
8
Scientific research and
experimental development and
other tax credits
41
–
(12)
–
29
Inventories
(712)
–
(648)
–
(1,360)
Note receivable
3,062
–
85
–
3,147
Loans and borrowings
(4,636)
–
(976)
–
(5,612)
Employee benefits
(5,286)
–
(2,557)
–
(7,843)
Unrealized gains on
forward contracts and
foreign-denominated loans
payable/receivable
(126)
–
30
–
(96)
Provisions and tax reserves
(2,878)
–
(784)
–
(3,662)
Tax loss carry-forwards
(5,631)
–
1,232
–
(4,399)
Basis difference in subsidiary
(1,795)
–
50
–
(1,745)
$
(11,776)
$
–
$
(2,189)
$
–
$
(13,965)
Foreign exchange
$
(334)
Income tax expense
$
(2,523)
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
75
Hammond Power Solutions Annual Report 2024
Movement in temporary differences during the year ended December 31, 2023:
Balance
December 31, 2022
Recognized in
retained earnings
Recognized in
profit or loss
Recognized
in other
comprehensive
income
Balance
December 31, 2023
Property, plant and equipment
$
2,373
$
–
$
3,780
$
–
$
6,153
Intangible assets
53
–
(21)
–
32
Scientific research and
experimental development
(27)
–
68
–
41
Inventories
(653)
–
(59)
–
(712)
Long-term lease and note
receivable
3,832
–
(770)
–
3,062
Loans and borrowings
(1,833)
–
(2,803)
–
(4,636)
Employee benefits
(1,284)
–
(4,002)
–
(5,286)
Unrealized gains on
forward contracts and
foreign-denominated loans
payable/receivable
(182)
–
56
–
(126)
Provisions and tax reserves
(3,299)
–
421
–
(2,878)
Tax loss carry-forwards
(5,140)
–
(491)
–
(5,631)
Basis difference in subsidiary
(1,736)
–
(59)
–
(1,795)
$
(7,896)
$
–
$
(3,880)
$
–
$
(11,776)
Foreign exchange
$
514
Income tax expense
$
(3,366)
Pillar Two Income Taxes
Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions in which the Company
operates. The legislation was effective for the Company’s financial year beginning on January 1, 2024. The
Company has performed an assessment of its potential exposure to Pillar Two income taxes. This assessment
is based on the most recent information available regarding the financial performance of the constituent entities
in the Company. Based on the assessment performed, the Pillar Two effective tax rates in all jurisdictions in
which the Company operates are above 15% and management is not aware of any circumstances under which
this might change. Therefore, the Company does not expect a potential exposure to Pillar Two top-up taxes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
76
17.
Share capital
a) Authorized:
Unlimited number of special shares, discretionary dividends, non-voting, redeemable and retractable.
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. Annual dividends on the Class B common shares may not exceed the
annual dividends on the Class A subordinate voting shares, no par value.
b) Issued:
December 31, 2024
December 31, 2023
9,126,624 Class A subordinate voting shares (2023 – 9,126,624)
$
15,754
$
15,754
2,778,300 Class B common shares (2023 – 2,778,300)
7
7
11,904,924 Total A and B shares (2023 – 11,904,924)
$
15,761
$
15,761
During the year ended December 31, 2024, nil Class A shares were issued upon exercise of stock options. During
the year ended December 31, 2023, 70,000 Class A shares were issued upon exercise of stock options, resulting
in cash proceeds of $434,000 and a transfer of $87,000 from contributed surplus.
The following dividends were declared and paid by the Company:
December 31, 2024
December 31, 2023
97.5 cents per Class A subordinate voting shares (2023 – 55 cents)
$
8,898
$
5,020
97.5 cents per Class B common shares (2023 – 55 cents)
2,709
1,528
$
11,607
$
6,548
c) Stock option plan
The Company uses a stock option plan to attract and retain key employees, officers and directors. Shareholders
have approved a maximum of 1,200,000 Class A shares for issuance under the Stock Option Plan, with
the maximum reserved for issuance to any one person at 5% of the Class A shares outstanding calculated
immediately prior to the time of the grant. As per the Stock Option Plan, the Board of Directors may, at its
sole discretion, determine the time during which the options shall vest and the method of vesting, or that no
vesting restriction shall exist. The stock option exercise price is the price of the Company’s common shares on
the Toronto Stock Exchange at closing for the day prior to the grant date on which the Class A shares traded.
The period during which an option will be outstanding shall be 7 years, or such other time fixed by the Board
of Directors, subject to earlier termination upon the option holder ceasing to be a director, officer or employee
of the Company. Options issued under the plan are non-transferable unless specifically provided in the Stock
Option Plan. Any option granted, which is cancelled or terminated for any reason prior to exercise, shall become
available for future stock option grants. All options are to be settled by physical delivery of shares.
There were no options granted for the year ended December 31, 2024, or the year ended December 31, 2023.
During 2023, there were 70,000 options exercised at a weighted average price of $6.20. There were no options
outstanding and exercisable as at December 31, 2024.
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
77
Hammond Power Solutions Annual Report 2024
d) Deferred Share Units
The Company maintains a deferred share unit plan in order to issue deferred share units (“DSUs”) to non-
employee directors and senior executives of HPS. Under the Company’s DSU Plan, participants may elect to
defer compensation and receive DSUs equal to the value of the deferred compensation. The first DSUs were
issued in March 2017. The number of DSUs was determined by dividing the amount of deferred compensation
by the fair market value (“FMV”) of DSUs, defined in the DSU Plan as the weighted average closing price of
HPS shares for the five business days immediately preceding the relevant date. Upon the occurrence of the
redemption event, which could include ceasing to hold any position in the Company and/or any subsidiary or
upon death of the participant, the affected participant will be entitled to receive a lump sum cash payment, net
of applicable withholding taxes, equal to the product of number of DSUs held by that participant and the FMV
on the date of the redemption event. The DSUs do not contain any vesting conditions or forfeiture provisions,
as they are issued in exchange for deferred compensation, nor are they performance based. Under the DSU
Plan, outstanding DSUs as at the record date are increased by the dividend rate whenever dividends are paid
to shareholders.
The movement in DSUs for the years ended December 31, 2023 and 2024 is as follows:
Number of
DSUs
Closing Share
Price
Balance at January 1, 2023
213,975
$
20.12
DSUs issued
18,677
27.84
DSUs redeemed
(64,517)
8.36
Balance at December 31, 2023
168,135
$
81.70
Number of
DSUs
Closing Share
Price
Balance at January 1, 2024
168,135
$
81.70
DSUs issued
6,382
94.51
DSUs redeemed
–
–
Balance at December 31, 2024
174,517
$
128.04
An expense of $8,609,000 (2023 – $13,587,000) was recorded in general and administrative expenses.
The liability of $22,345,000 (2023 - $13,737,000) related to these DSUs is included in accounts payable and
accrued liabilities.
e) Long Term Incentive Plan
In February 2022, the Board of Directors approved a new Long Term Incentive plan (“LTIP”) for the Executive
Officers of the Company. This plan replaces the Deferred Share Unit plan described above for executives. The
LTIP consists of an annual grant made to the Chief Executive officer and other executive officers of Performance
Share Units (“PSU”) and Restricted Share Units (“RSU”). According to the plan, the PSUs constitute 60% of
the total grant and will vest at the end of a three-year period at a ratio of 0% - 150%, depending on whether
management met pre-determined EPS and RONA targets. The RSUs constitute the remaining 40% of the grant
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
78
and will vest at the end of a three-year period at 100%. The increase or decrease in value of the vested PSU’s
and RSU’s over the three-year period will be determined by the increase or decrease of the share price.
The annual grant is determined by the Compensation Committee, and are currently set at 35% of the
executive’s salary and 100% (2023 - 50%) of CEO’s salary. The grant vests after a three-year performance period
and is dependent on continuous employment with the Company over that period, with exceptions for retirement
and involuntary terminations. After vesting, the value of the PSUs and RSUs will be determined based on the
PSU vesting factor and the share price. The value will be paid in cash to the participant, after which, the PSUs
and RSUs will be extinguished.
Number of
PSUs
Number of
RSUs
Total Number
of Units
Closing Share
Price
Issued Balance at January 1, 2023
35,716
23,811
59,527
Units issued
31,523
21,014
52,537
Issued Balance at December 31, 2023
67,239
44,825
112,064
$
30.98
Number of
PSUs
Number of
RSUs
Total Number
of Units
Closing Share
Price
Vested Balance at January 1, 2023
11,941
7,937
19,878
Units vested
54,402
22,602
77,004
Vested Balance at December 31, 2023
66,343
30,539
96,882
$
81.70
Number of
PSUs
Number of
RSUs
Total Number
of Units
Closing Share
Price
Issued Balance at January 1, 2024
67,239
44,825
112,064
Units issued
6,232
4,156
10,388
Units settled
(26,574)
(17,716)
(44,290)
Issued Balance at December 31, 2024
46,897
31,265
78,162
$
115.80
Number of
PSUs
Number of
RSUs
Total Number
of Units
Closing Share
Price
Vested Balance at January 1, 2024
66,343
30,539
96,882
Units vested
22,980
9,621
32,601
Units settled
(39,862)
(17,716)
(57,578)
Vested Balance at December 31, 2024
49,461
22,444
71,905
$
128.04
An expense of $8,483,000 (2023 – $6,367,000) was recorded in general and administrative expenses.
The liability of $9,785,000 (2023 - $7,969,000) related to these PSUs and RSUs is included in accounts payable
and accrued liabilities.
The market value of the granted PSUs and RSUs is $19,985,000 as of December 31, 2024. The difference
between the market value and the accrual value is due to units granted but not yet vested.
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
79
Hammond Power Solutions Annual Report 2024
For accounting purposes, the grants vest evenly over a three year period. It is assumed that the 2022 and
2023 PSU grants will vest at 150% and the 2024 PSU grant will vest at 100%.
18.
Accumulated other comprehensive income
Changes to the accumulated other comprehensive income (“AOCI”) balance include foreign currency translation
differences relating to the net assets of foreign operations which have been determined to have functional
currencies under IFRS that are their respective domestic currencies. Total other comprehensive income for
the year ended December 31, 2024 was $17,735,000 (2023 – loss of $3,801,000), of which $17,735,000 (2023 –
loss of $3,801,000) relates to the translation of wholly-owned subsidiaries, resulting in an ending balance as at
December 31, 2024 of accumulated other comprehensive income of $26,365,000 (2023 – $8,630,000).
19.
Earnings per share
The computations for basic and diluted earnings per share from net earnings are as follows:
(earnings in thousands of dollars)
2024
2023
Basic earnings per share
$
6.01
$
5.33
Calculated as:
Net earnings attributable to the equity holders of the Company
$
71,531
$
63,399
Weighted average number of shares outstanding
11,904,924
11,904,924
Fully diluted earnings per share
$
6.01
$
5.33
Calculated as:
Net earnings attributable to the equity holders of the Company
$
71,531
$
63,399
Weighted average number of shares outstanding including effects of
dilutive potential ordinary shares
11,904,924
11,904,924
Reconciliation of weighted average number of shares outstanding:
Weighted average number of shares outstanding used to calculate
basic earnings per share
11,904,924
11,904,924
Adjustment for dilutive effect of stock option plan
–
–
Weighted average number of shares outstanding used to calculate
diluted earnings per share
11,904,924
11,904,924
As at December 31, 2024, nil options (2023 – nil) are excluded from the diluted average number of shares
calculation as their effect would have been anti-dilutive.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
80
20.
Pension plans
Defined contribution plan
The Group has defined contribution pension plans that are available to virtually all of its Canadian employees
with eligible employee contributions based on 2.0% – 7.0% (2023 – 2.0% - 7.0%)of annual earnings. The
Group’s contributions of $2,244,000 (2023 – of $1,964,000) matches the employee contributions. The Group’s
contributions related to its defined contribution pension plans are recorded as follows: $1,662,000 (2023 –
$1,460,000) in cost of sales, $283,000 (2023 – $246,000) in selling and distribution, and $300,000 (2023 -
$258,000) in general and administrative.
21.
Provisions
Warranties
Site
restoration
Benefits and
incentives
Total
Balance at January 1, 2023
$
1,676
$
197
$
946
$
2,819
Provisions made during the period
1,904
130
679
2,713
Provisions used during the period
(418)
(102)
(782)
(1,302)
Balance at December 31, 2023
$
3,162
$
225
$
843
$
4,230
Balance at January 1, 2024
$
3,162
$
225
$
843
$
4,230
Provisions made during the period
825
132
463
1,420
Provisions used during the period
(957)
(132)
(675)
(1,764)
Recovery during the period
(264)
–
–
(264)
Balance at December 31, 2024
$
2,766
$
225
$
631
$
3,622
Current portion
$
2,766
$
80
$
322
$
3,168
Non-current portion
$
–
$
145
$
309
$
454
Warranties
The provision for warranties relates mainly to transformers sold during the years ended December 31, 2024 and
December 31, 2023. The provision is based on estimates made from historical warranty data associated with
similar products and claims experience. The Group expects to incur most of the liability over the next year.
Site restoration
The Group has committed to undertaking a joint remediation plan for the Glen Ewing property with the owner
of an adjoining industrial property and the co-owner of the property. The Group has recorded a liability for its
estimated portion of the joint remediation.
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
81
Hammond Power Solutions Annual Report 2024
Benefits and incentives
The benefit provision relates to statutory pension and leave benefits related to the India facility. Substantially all
of this benefit is long-term. An incentive agreement dependent on revenue achievements was entered into in
2022 given Mesta’s strong performance, was paid in February 2024.
22.
Sales and deferred revenue
a)
Sales
Sales have been captured based on the geography of where the product was sold, as follows:
2024
2023
Canada
$
215,394
$
175,619
United States and Mexico
534,888
489,579
India
38,058
44,866
$
788,340
$
710,064
b)
Deferred revenue
Movements in the Group’s contract liabilities (deferred revenue) was as follows:
2024
2023
Opening balance
$
5,721
$
10,607
Revenue recognized
(5,721)
(6,766)
Increase in contract liabilities
4,277
1,880
Ending balance
$
4,277
$
5,721
From time to time, the Company will require certain customers to advance payment prior to the satisfaction
of performance obligations, which generally occurs at a point in time, upon the assumption of ownership of the
transformer ordered by the customer.
23.
Related party transactions
Related parties
William G. Hammond, Chair of the Board, directly and indirectly, through Arathorn Investments Inc., beneficially
owns 2,778,300 (2023 – 2,778,300) Class B common shares of the Company, representing 100% of the issued
and outstanding Class B common shares of the Company and 424,636 (2023 – 923,802) Class A subordinate
voting shares of the Company, representing approximately 4.7% (2023 – 10.1%) of the issued and outstanding
Class A subordinate voting shares of the Company and as a result controls the Company. William G. Hammond
owns all of the issued and outstanding shares of Arathorn Investments Inc. Total dividends paid during the year,
directly and indirectly to William G. Hammond were $3,335,000 (2023 – $2,040,000).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
82
During the year there were professional fees of $351,000 paid by the Company to facilitate the sale of 500,000
Class A Subordinate Voting Shares owned by Arathorn Investments Inc. These expenses were recorded in
general and administrative expenses.
Key management personnel compensation
Key management personnel include the Company’s directors and members of the executive management
team. Compensation awarded to key management is as follows:
2024
2023
Salaries and benefits
$
4,494
$
7,554
Share-based awards
17,092
9,028
$
21,586
$
16,582
24.
Personnel expenses
2024
2023
Wages and salaries
$
116,994
$
105,808
Group portion of government pension and employment pension
and employment benefits
28,096
23,472
Contributions to defined contribution plans
2,274
1,962
$
147,364
$
131,242
25.
Change in operating working capital
The table below depicts the receipt of (use of) cash for working capital purposes by the Group:
2024
2023
Accounts receivable
$
(9,028) $
(41,330)
Inventories
(25,738)
(8,237)
Prepaid expenses and other assets
(661)
(4,305)
Accounts payable and accrued liabilities
(10,481)
11,475
Deferred revenue
(1,444)
(4,886)
Provisions
(2,028)
(1,302)
Settlement of derivatives
(1,138)
(276)
Foreign exchange
12,428
(2,847)
$
(38,090)
$
(51,708)
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
83
Hammond Power Solutions Annual Report 2024
26.
Segment disclosures
The Company operates in a single operating segment, being a manufacturer of transformers. The Company and
its subsidiaries operate in Canada, the United States, Mexico and India.
Geographic Segments
2024
2023
Sales
Canada
$
215,394 $
175,619
United States and Mexico
534,888
489,579
India
38,058
44,866
$
788,340
$
710,064
Property, plant and equipment and right-of-use
assets – net
Canada
$
26,169
$
20,153
United States
35,424
16,945
Mexico
42,977
23,813
India
5,753
4,930
$
110,323 $
65,841
Investment in properties
Canada
$
3,644 $
1,044
Italy
1,746
1,896
$
5,390
$
2,940
Intangibles, net
Canada
$
815
$
1,271
United States
11,689
3,913
India
1,226
1,406
$
13,730 $
6,590
Goodwill
Canada
$
2,180 $
2,180
United States
5,397
1,581
India
8,427
7,975
$
16,004 $
11,736
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
84
27.
Financial instruments
Fair value
The fair value of the Group’s financial instruments measured at fair value has been segregated into three levels.
Fair value of assets and liabilities included in Level 1 are determined by reference to quoted prices in active
markets for identical assets and liabilities. Fair value of assets and liabilities included in Level 2 include valuations
using inputs other than quoted prices for which all significant inputs are observable, either directly or indirectly.
Fair value of assets and liabilities included in Level 3 valuations are based on inputs that are unobservable and
significant to the overall fair value measurement.
The Group’s financial instruments measured at fair value consist of foreign exchange forward contracts,
convertible debentures and contingent consideration issued in conjunction with a business combination. The
forward foreign exchange contracts have a fair value of an asset of $1,447,000 as at December 31, 2024 (2023
– a liability of $1,138,000) and are included in Level 2 in the fair value hierarchy. To determine the fair value of
the forward foreign exchange contracts, Management used a valuation technique in which all significant inputs
were based on observable market data. The gains and losses from these contracts are grouped with foreign
exchange gain on the statement of operations. The convertible debenture investment is valued at $2,600,000
as at December 31, 2024 (2023 - $nil) and is included in Level 3 of the fair value hierarchy. The contingent
consideration liability is valued at $845,000 as at December 31, 2024 (2023 - $2,138,000) and is included in Level
3 of the fair value hierarchy. There have been no transfers between levels in 2024 or 2023.
The contingent consideration is comprised of three components:
Revenue
achievement
Deferred
tax losses
Total
Current
$
1,320
$
818
$
2,138
Balance at December 31, 2023
$
1,320
$
818
$
2,138
Current
$
–
$
845
$
845
Balance at December 31, 2024
$
–
$
845
$
845
• Revenue achievement
To determine the fair value of the contingent consideration, Management calculated the fair value of the
liability based on the present value of the expected payment and a probability weighted formula, discounted
using a risk-adjusted discount rate of 2.5%. Management considers the risk of non-payment to be low.
The estimated fair value would increase (decrease) if:
°
the risk-adjusted discount rate were lower (higher)
• Deferred tax asset – unused tax losses
To determine the fair value of the contingent consideration, Management assessed the probability of realization
of future tax losses based on the current year profitability of the entity and expected future forecasted
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
85
Hammond Power Solutions Annual Report 2024
earnings. It was determined that all available losses will be expected to be realized for which the benefit
component for National’s 45% realization of certain tax losses. As of December 31, 2024 it was determined to
be probable that sufficient future taxable profit will be available against which the unused tax losses can be
recovered and utilized. The future tax asset value related to these losses was $1,861,000 and a corresponding
liability to National of $845,000.
The carrying values of cash and cash equivalents, accounts receivable, bank operating lines of credit, and
accounts payable and accrued liabilities and other liabilities approximate their fair value due to the relatively
short period to maturity of the instruments.
Derivative instruments
The Group has entered into forward foreign exchange contracts in order to reduce the Company’s exposure
to changes in the exchange rate of the U.S. dollar, Euro, Mexican Peso and Indian Rupee as compared to the
Canadian dollar. At December 31, 2024, the Company had outstanding forward foreign exchange contracts to
buy and sell the following contracts, all with maturity dates in January 2025.
Buy/Sell
Buy Currency
Selling Currency
Amount of
Buy Currency
Traded
Rate
BUY
USD
CAD
90,000
1.40 – 1.44
BUY
EUR
CAD
14,500
1.49
BUY
USD
MXN
11,000
20.68
Buy/Sell
Sell Currency
Buying Currency
Amount of
Sell Currency
Traded
Rate
SELL
EUR
CAD
29,000
1.46 – 1.49
SELL
USD
CAD
45,000
1.44
At December 31, 2023, the Company has outstanding forward foreign exchange contracts to buy and sell the
following contracts, all with maturity dates in January 2024.
Buy/Sell
Buy Currency
Selling Currency
Amount of Buy
Currency
Traded
Rate
BUY
USD
CAD
45,000
1.4485
BUY
USD
INR
6,044
83.26 – 83.48
BUY
USD
MXN
6,614
16.97
Buy/Sell
Sell Currency
Buying Currency
Amount of Sell
Currency
Traded
Rate
SELL
USD
MXN
13,000
17.03 – 17.268
SELL
EUR
CAD
14,500
1.493
SELL
USD
INR
3,656
83.15
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
86
As at December 31, 2024 the Group has recognized a net unrealized recovery of $1,447,000 representing
the fair value of these forward foreign exchange contracts, comprised of an asset of $1,447,000 included within
prepaid expenses and other assets. As at December 31, 2023 the Group recognized a net unrealized expense
of $1,138,000, comprised of a liability of $1,138,000 included within accounts payable and accrued liabilities. The
income statement impact for both years has been recorded in foreign exchange gains and losses.
Financial risk management:
The Group is exposed to a variety of financial risks by virtue of its activities: market risk (including currency risk,
interest rate risk and commodity price risk) credit risk and liquidity risk. The overall risk management program
focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on financial
performance. There were no changes to types of risk arising from the Group’s financial instruments from the
previous period.
Risk management is carried out by the finance department under the guidance of the Board of Directors.
This department identifies and evaluates financial risks in close cooperation with management. The finance
department is charged with the responsibility of establishing controls and procedures to ensure that financial
risks are mitigated.
Currency risk:
The Group operates internationally and is exposed to foreign exchange risk from various currencies, primarily
U.S. dollars, Mexican Pesos, the Euro and the Indian Rupee. Foreign exchange risk arises mainly from U.S.
dollar denominated purchases in Canada and Canadian sales to the U.S. as well as recognized financial assets
and liabilities denominated in foreign currencies. The Company manages its foreign exchange risk by having
geographically diverse manufacturing facilities and purchasing U.S. dollar raw materials in Canada. The Company
also monitors forecasted cash flows in foreign currencies and attempts to mitigate the risk by entering into
forward foreign exchange contracts. Forward foreign exchange contracts are only entered into for the purposes
of managing foreign exchange risk and not for speculative purposes.
The following table represents the Group’s balance sheet exposure to currency risk as at December 31, 2024:
U.S. Dollars
Mexican Pesos
Euros
Indian Rupees
2024
2023
2024
2023
2024
2023
2024
2023
Cash
$
15,172
$
29,113
5,684
777
€
1,317
€
895
465,555
310,754
Accounts receivable
55,107
53,188
89,538
35,275
172
-
379,154
552,742
Long-term lease
receivable
–
–
–
–
–
1,050
–
–
Bank operating lines
of credit
–
–
–
–
(2,555)
(3,112)
–
–
Accounts payable
(19,864)
(18,139)
(22,858)
(26,513)
(160)
(331)
(366,159)
(473,545)
Lease obligation
(15,654)
(12,902)
–
–
–
–
–
–
Contingent
consideration
(618)
(1,614)
–
–
–
–
–
–
Net exposure
$
34,143 $
49,646
72,364
9,539
€
(1,226)
€
(1,498)
478,550
389,951
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
87
Hammond Power Solutions Annual Report 2024
A one cent ($0.01) decline in the Canadian dollar against the U.S dollar as at December 31, 2024 would have
decreased net earnings by $639,000 and increased equity by $467,000. This analysis assumes that all other
variables, in particular interest rates, remained constant. Inversely, a one cent ($0.01) increase in the Canadian
dollar against the U.S. dollar as at December 31, 2024 would have had an equal but opposite effect.
A one cent ($0.01) decline in the Canadian dollar against the Euro as at December 31, 2024 would have
decreased net earnings by $20,000 and decreased equity by $18,000. Inversely, a one cent ($0.01) increase in
the Canadian dollar against the Euro as at December 31, 2024 would have had an equal but opposite effect.
A one cent ($0.01) decline in the Canadian dollar against the Indian Rupee as at December 31, 2024 would
have increased net earnings and equity by $78,000. Inversely, a one cent ($0.01) increase in the Canadian dollar
against the Indian Rupee as at December 31, 2024 would have had an equal but opposite effect.
A one cent ($0.01) decline in the Canadian dollar against the Peso as at December 31, 2024 would have
decreased net earnings by $57,000 and increased equity by $54,000. Inversely, a one cent ($0.01) increase in
the Canadian dollar against the Peso as at December 31, 2024 would have had an equal but opposite effect.
Credit risk:
Credit risk arises from the possibility that the Group’s customers and counter parties may experience difficulty
and be unable to fulfill their contractual obligations. The Group manages this risk by applying credit procedures
whereby analyses are performed to control the granting of credit to its customer and counter parties based
on their credit rating. As at December 31, 2024, the Group’s accounts receivable are not subject to significant
concentrations of credit risk. The long-term lease receivable is subject to credit risk, which is mitigated by the
security of the related plant. The Company’s maximum exposure to credit risk associated with the Group’s
financial instruments is limited to their carrying amount.
The Group’s exposure to customer credit risk is influenced mainly by the individual characteristics of each
customer. However, management also considers the factors that may influence the credit risk of its customer
base, including the default risk associated with the industry and country in which customers operate.
Management has a credit policy under which each new customer is analysed individually for creditworthiness
before the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes
external ratings, if they are available, financial statements, credit agency information, industry information and
in some cases bank references. Sale limits are established for each customer and reviewed quarterly. Any sales
exceeding those limits require approval from Executive management.
The Group limits its exposure to credit risk from trade receivables by establishing a reasonable payment
period. Many of the Group’s customers have been transacting with the Group for a number of years, and none
of these customers’ balances have been written off or are credit-impaired at the reporting date.
In monitoring customer credit risk, customers are grouped according to their credit characteristics, including
their geographic location, industry, trading history with the Group and existence of previous financial difficulties.
An allowance account for accounts receivable is used to record impairment losses unless the Group is
satisfied that no recovery of the amount owing is possible; at which point the amounts are considered to be
uncollectible and are written off against the specific accounts receivable amount attributable to a customer. The
number of days outstanding of an individual receivable balance is the key indicator for determining whether an
account is at risk of being impaired.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
88
Expected credit losses are required to be measured through a loss allowance at an amount equal to the
12-month expected credit losses or full lifetime expected credit losses. The Group has used past due information
to determine that there have been no significant increases in credit risk since initial recognition. There are
balances in excess of 30 days past due but the Group does not presume that credit risk has increased given
the characteristics of the Group’s customers, the industries in which they operate, the customer payment track
records and the nature of the products the Group sells.
During the year, the expected credit losses for trade accounts receivables increased $918,000 (2023 –
decreased $190,000), for which an expense (2023 – recovery) was recognized in general and administrative
expenses. The aging of accounts receivable and the related allowance is as follows:
December 31, 2024
December 31, 2023
Gross
Allowance
Gross
Allowance
Not past due
$
100,479
$
–
$
95,888
$
–
Past due 0-30 days
32,648
–
25,809
–
Past due 31-120 days
7,976
703
5,819
–
Past due more than 120 days
2,831
2,831
3,130
2,616
$
143,934
$
3,534
$
130,646
$
2,616
Credit risk:
The carrying amount of financial assets representing the maximum exposure to credit risk at the reporting
date was:
Carrying Amount
December 31, 2024
December 31, 2023
Cash and cash equivalents
$
34,085 $
52,591
Accounts receivable
140,400
128,030
Lease receivable
–
1,535
$
174,485
$
182,156
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
89
Hammond Power Solutions Annual Report 2024
The maximum exposure to credit risk for accounts receivable at the reporting date by geographic region was:
Carrying Amount
December 31, 2024
December 31, 2023
Canada
$
37,879 $
31,463
United States
82,269
70,052
Mexico
11,881
13,659
Italy
11
689
India
8,360
12,167
$
140,400
$
128,030
Interest rate risk:
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes
in market interest rates. Financial assets and financial liabilities with variable interest rates expose the Group to
cash flow interest rate risk. Changes in market interest rates also directly affect cash flows associated with the
Group’s bank operating lines of credit that bear interest at floating interest rates.
The Group manages its interest rate risk by minimizing the bank operating lines of credit balances by applying
excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis as well as
actively monitoring interest rates. A 1% increase or decrease in interest rates as at December 31, 2024 would
increase or decrease net earnings by approximately $211,000 (2023 – $340,000) respectively.
Commodity price risk:
A large component of the Group’s cost of sales is comprised of copper and steel, the costs of which can vary
significantly with movements in demand for these resources and other macroeconomic factors. To manage its
exposure to changes in commodity prices, the Group will enter into supply contracts with certain suppliers, and
from time to time will enter into forward commodity purchase contracts. As at December 31, 2024, no forward
commodity purchase contracts were outstanding (2023 – none).
Liquidity risk:
Liquidity risk is the risk that the Group will not be able to meet its obligations as they become due.
The Group manages its liquidity risk by forecasting cash flows from operations and anticipated investing
and financing activities. Senior Management is also actively involved in the review and approval of
planned expenditures.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
90
The following are the carrying amounts and related anticipated contractual maturities of the Group’s
financial liabilities:
December 31, 2024
Carrying
amount
1 year or less
1-2 years
2-5 years
Bank operating lines of credit
$
12,983
$
12,983
$
–
$
–
Accounts payable and
accrued liabilities
134,919
134,919
–
–
Contingent consideration
845
845
–
–
$
148,747
$
148,747
$
–
$
–
December 31, 2023
Carrying
amount
1 year or less
1-2 years
2-5 years
Bank operating lines of credit
$
18,471
$
18,471
$
–
$
–
Accounts payable and
accrued liabilities
126,360
126,360
–
–
Contingent consideration
2,138
2,138
–
–
Derivative liabilities
1,138
1,138
–
–
$
148,107
$
148,107
$
–
$
–
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
91
Hammond Power Solutions Annual Report 2024
Reconciliation of movements of liabilities to cash flows arising from financing activities:
The following is a reconciliation between the opening and closing balances for liabilities arising from financing
activities:
LIABILITIES
EQUITY
Bank
Operating
Lines of Credit
Lease
Liabilities
Contingent
Consideration
Share
Capital
Retained
Earnings
Total
Balance January 1, 2024
$
18,471
$
16,421
$
2,138
$
15,761
$ 203,698
$
256,489
Advances of bank operating
lines of credit, net
(5,488)
–
–
–
–
(5,488)
Payment of contingent
consideration
–
–
(1,350)
–
–
(1,350)
Interest payments
(1,246)
788
–
–
–
(458)
Cash dividends paid
–
–
–
–
(11,607)
(11,607)
Repayment of lease liability
–
(5,305)
–
–
–
(5,305)
Total changes from
financing cash flows
$
(6,734)
$
(4,517)
$
(1,350)
$
–
$
(11,607)
$
(24,208)
Other changes
Liability-related
Interest expense
1,246
–
–
–
–
1,246
Foreign exchange
–
1,640
57
–
–
1,697
Non-cash disposals to lease
liabilities
–
(30)
–
–
–
(30)
Non-cash additions to lease
liabilities
–
8,888
–
–
–
8,888
Total liability-related other
changes
$
1,246
$
10,498
$
57
$
–
$
–
$
11,801
Equity-related
Net income
–
–
–
–
71,531
71,531
Total equity-related other
changes
$
–
$
–
$
–
$
–
$
71,531
$
71,531
Balance December 31, 2024
$
12,983
$
22,402
$
845
$
15,761
$
263,622
$
315,613
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
92
LIABILITIES
EQUITY
Bank
Operating
Lines of Credit
Lease
Liabilities
Contingent
Consideration
Share
Capital
Retained
Earnings
Total
Balance January 1, 2023
$
6,154
$
8,593
$
2,846
$
15,240
$
146,847
$
179,680
Advances of bank operating
lines of credit, net
12,317
–
–
–
–
12,317
Payment of contingent
consideration
–
–
(675)
–
–
(675)
Interest payments
(1,320)
434
19
–
–
(867)
Exercise of stock options
–
–
–
434
–
434
Cash dividends paid
–
–
–
–
(6,548)
(6,548)
Repayment of lease liability
–
(3,906)
–
–
–
(3,906)
Total changes from
financing cash flows
$
10,997
$
(3,472)
$
(656)
$
434
$
(6,548)
$
755
Other changes
Liability-related
Interest expense
1,320
–
–
–
–
1,320
Foreign exchange
–
(800)
(52)
–
–
(852)
Non-cash disposals to lease
liabilities
–
(437)
–
–
–
(437)
Non-cash additions to lease
liabilities
–
12,537
–
–
–
12,537
Total liability-related other
changes
$
1,320
$
11,300
$
(52)
$
–
$
–
$
12,568
Equity-related
Exercise of stock options
–
–
–
87
–
87
Net income
–
–
–
–
63,399
63,399
Total equity-related other
changes
$
–
$
–
$
–
$
87
$
63,399
$
63,486
Balance December 31, 2023
$
18,471
$
16,421
$
2,138
$
15,761
$
203,698
$
256,489
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
93
Hammond Power Solutions Annual Report 2024
28.
Capital risk management
The Group’s objective is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future business development. The Group includes cash, bank operating lines, long-
term debt and equity, comprising of share capital, contributed surplus and retained earnings in the definition of
capital. The Group is not subject to externally imposed capital requirements and there has been no change with
respect to the overall capital risk management strategy during the year ended December 31, 2024.
The following table sets out the Group’s capital quantitatively at the following reporting dates:
December 31, 2024
December 31, 2023
Cash and cash equivalents
$
34,085
$
52,591
Bank operating lines of credit
(12,983)
(18,471)
Lease liabilities
(22,402)
(16,936)
Contingent consideration
(845)
(2,138)
Share capital
15,761
15,761
Contributed surplus
2,289
2,289
Retained earnings
263,622
203,698
$
279,527
$
236,794
29.
Determination of fair values:
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both
financial and non-financial assets and liabilities. Fair values have been determined for measurement and/
or disclosure purposes based on the following methods. When applicable, further information about the
assumptions made in determining fair values is disclosed in the Notes specific to that asset or liability.
a)
Derivatives
The fair value of forward exchange contracts is based on valuations obtained from third parties, based on
observable market inputs.
Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk
of the Group entity and counterparty when appropriate.
b)
Non-derivative financial assets
The fair value of the lease receivable is calculated based on the present value of future principal and interest
cash flows, discounted at the market rate of interest at the reporting date.
c)
Share-based payment transactions
The fair value of DSUs is determined in accordance with the DSU Plan, which uses the average closing price for
HPS shares for the five trading days immediately preceding the relevant date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
94
d)
Investment properties
The fair values of the investment properties are based on available market evidence as determined by third
party valuators using comparable property sale transactions and is considered to be valued at Level 3 of the
fair value hierarchy.
e)
Investment convertible debentures
The fair values of the convertible debentures are based on specific milestones being achieved as determined by
internal financial information related to the investment and the proximity of the second payment being prior to
year-end. This investment is considered to be valued at Level 3 of the fair value hierarchy.
30.
Acquisition:
On October 7, 2024, the Company completed the acquisition of assets and liabilities of Micron Industries
Corporation (“Micron”) in the U.S. The acquisition is structured as a business combination through the U.S entity.
Micron is involved in the design and manufacture of control transformers as well as low voltage transformers
and DC power supplies.
Micron’s annual revenues for 2022 and 2023 have ranged from approximately $26,655,000 - $30,644,000.
The Company will operate as Micron Group, LLC, a subsidiary of HPS.
The purchase price has been allocated as follows:
Accounts receivable
3,342
Inventories and other assets
3,118
Property, plant and equipment
5,623
Software
54
Customer relationships
6,396
Brands
1,225
Goodwill
3,472
Assets
$
23,230
Current liabilities
$
(2,007)
Total purchase consideration
$
21,223
Satisfied as follows (in thousands of dollars):
Cash
$
21,223
The acquisition was accounted for using the purchase method whereby identified assets acquired and liabilities
assumed were recorded at their estimated fair values as of the date of acquisition. The excess of the purchase
price over such fair value was recorded as goodwill, which represents the expected synergies to be realized
from Micron’s complementary products. The goodwill recognized is anticipated to be fully deductible for income
tax purposes.
For the years ended December 31, 2024 and 2023 (tabular amounts in thousands of dollars, except share and per share amounts)
95
Hammond Power Solutions Annual Report 2024
The fair values of customer relationships and brands acquired in the business acquisition were determined
using an income approach. The Company used the multi-period excess earnings approach to value acquired
customer relationships. This method calculated the estimated fair value based on the forecasted cash flows
that the asset can be expected to generate over its remaining useful life, and isolates the cash flows attributable
to the existing customer relationships alone. The valuation involves subjectivity and significant estimation
uncertainty, including assumptions relating to forecasted revenues and forecasted earnings before interest, tax,
depreciation and amortization margins attributable to the customer relationships, estimated customer attrition
rates and discount rate.
The Company used the relief from royalty method to value acquired brands. This method calculates the
cost savings associated with owning rather than licensing the trade name. The valuation involves subjectivity
and significant estimation uncertainty, including assumptions related to forecasted revenues, royalty rate and
discount rate.
The acquisition costs incurred related to this transaction during the year were $288,000 which were included
in general and administrative expense.
Included in the Group’s consolidated results for the twelve months ended December 31, 2024, is revenue of
$4,859,000 and net losses of $158,000 recognized by Micron from the date of acquisition to December 31, 2024.
If the Company had acquired Micron effective January 1, 2024, the revenue would have been approximately
$26,623,000 and there would have been net loss of approximately $92,000. The revenue of the consolidated
group would have been approximately $810,104,000 and net income of the consolidated group would have
been $71,597,000.
31.
Subsequent events
Dividends
On March 5, 2025, the Company declared a dividend of twenty-seven and a half cents ($0.275) per Class A
subordinate voting shares of HPS and a quarterly cash dividend of twenty-seven and a half cents ($0.275) per
Class B common shares of HPS payable on March 28, 2025 to shareholders of record at the close of business
on March 21, 2025. The ex-dividend date is March 21, 2025.
Tariffs
On February 1, 2025, executive orders were signed and filed in the federal register that would apply up to a
25% ad valorem duty to goods of Canadian and Mexican origin. Implementation of the tariffs was subsequently
postponed to became effective on March 4, 2025 and then further delayed until April 2, 2025. The Company
has a substantial manufacturing presence in Canada and Mexico, and as the importer of record in the U.S. will
be responsible for remitting the tariffs. In February, the Company established a team to evaluate the impact
of tariffs and to consider the Company’s response. While the Company’s goal is to maintain margins, it is not
possible at this time to evaluate the impact and/or the broader economic effects on the electro-industry.
96
Canada
Hammond Power Solutions Inc.
Corporate Head Office
595 Southgate Drive
Guelph, Ontario N1G 3W6
Delta Transformers Inc.
795 Industriel Boul.
Granby, Quebec J2G 9A1
India
Hammond Power Solutions
Private Limited
Plot No.6A, Phase-1, IDA Pashamylaram, Patancheru
Mandal, Sangreddy District, Telangana, India
502307
Italy
Hammond Power Solutions S.p.A.
Via Amedeo Avogadro 26
10121 Torino, Italy
at R & P Legal
Mexico
Hammond Power Solutions S.A.
de C.V.
Ave. Avante #810
Parque Industrial Guadalupe
Guadalupe, Nuevo León, C.P. 67190
Monterrey, México
Hammond Power Solutions Latin America
S. de R.L. de C.V.
Ave. Avante #840
Parque Industrial Guadalupe
Guadalupe, Nuevo León, C.P. 67190
Monterrey, México
United States
Hammond Power Solutions, Inc.
1100 Lake Street
Baraboo, Wisconsin 53913
Mesta Electronics LLC
11020 Parker Drive,
North Huntington, Pennsylvania 15642
Micron Group, LLC
1801 Westwood Drive
Sterling, IL 61081
Auditors
KPMG LLP
120 Victoria Street South,
Kitchener, ON N2G 0E1
Transfer Agent and Registrar
Computershare Investor Share Services Inc.
100 University Avenue
Toronto, Ontario Canada M5J 2Y1
Investor Relations
Contact: David Feick, Investor Relations
Phone:
519.822.2441 x453
Email:
ir@hammondpowersolutions.com
Stock Exchange Listing
Toronto Stock Exchange (TSX)
Trading Symbol: HPS.A
Corporate Information
HPS Global Offices
97
Hammond Power Solutions Annual Report 2024
Grant C. Robinson
Lead Director
Audit Member
Officers
Directors
Corporate Officers and Directors
John Bailey
Chief Operations Officer
Paul Gaynor
Chief Information Officer
David Kinsella
Chief Commercial Officer
Catherine McKeown
Chief People Officer
Adrian Thomas
Chief Executive Officer
& Director
Richard C. Vollering
Chief Financial Officer
& Corporate Secretary
Dahra Granovsky
Human Resources &
Compensation Member
William G. Hammond
Chair of the Board
Christopher R. Huether
Governance Member
Frederick M. Jaques
Governance Chair
Anne Marie Turnbull
Human Resources &
Compensation Chair
David Wood
Audit Chair
H A M M O N D P O W E R S O L U T I O N S . C O M
T H O S E W H O L O O K O N LY T O T H E PA S T O R T H E P R E S E N T
A R E C E R TA I N T O M I S S T H E F U T U R E .