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2014 Annual Report staying the course

CONTENTS 2014 in review 2015 the year ahead Markets Products Facts and the Figures Letter to shareholders review of operations Managements Discussion and analysis selected annual and Quarterly inform

Hammond Power SolutionS annual rePort 1 We cannot controL the WinD, But We can aDJust our saiLs For nearly a century, hammond Power solutions inc. has been an innovative global leader in the dryt

2 accomplishments turBuLance is oPPortunity. We eMBrace it anD use it For change.

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 3 2014 IN REVIEW 2014 was certainly a turbulent year for many. to us, turbulence gives us the opportunity to examine our business and a

4 2014 in review in 2014, three of our largest markets mining equipment, drive systems, and the canadian project business, experienced little growth from the significant declines which these market

Hammond Power SolutionS annual rePort 5 Due to our strong commitment to our industry, our employees and our shareholders, hPs continues to stay buoyant and stay the course. our unique approach ha

6 looking ahead aFter a storM, coMes a caLM.

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 7 2015 THE YEAR AHEAD there is a certain type of calm that happens directly after a storm a quiet time after a great upheaval. During

8 markets capital Projects DiVersity giVes us the conFiDence to Face neW chaLLenges When you make diversity a part of strategy, it gives you the ability and the strength to overcome the toughest ch

9 Wind and solar cast resin transformers supply canadian solar market applications. Drytype transformers utilized in a working medical environment. support for the growing u.s. oil and gas industr

10 products Cast resin Cast Coil transformers are engineered to handle unusually high impact and short circuit loads. Control Drive isolation ProDuct strength Distribution Distribution transform

11 Power HPs manufactures transformers to withstand some of the harshest outdoor environments. HPs power transformers can be found on one of the largest and deepest oildrilling platforms of its kind

12 FACTS AND FIGURES in dollars in dollars Book Value per Share 0.15 0.18 2011 2012 0.20 0.24 2013 2014 7.89 8.54 9.17 9.60 2011 2012 2013 2014 Dividend Per Share Book Va

13 270,000 250,000 230,000 210,000 190,000 170,000 150,000 130,000 110,000 90,000 70,000 76,170 2002 73,408 2003 81,349 2004 131,978 160,606 2005 2006 226,358 2007 221,323 2008

14 letter to shareholders William G. Hammond chairman of the board chief executive officer

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 15 Fellow Shareholder, There are those who suggest you should bypass the letter to shareholders as they tend to be nothing more than a

16 re v iew o f o perati o n s COMMITTED TO DELIVERING ESCALATING IMpROVEMENT IN OUR FINANCIAL RESULTS. Looking beyond 2015, i believe as a result of extensive engineering and manufacturing efforts

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 17 U.S. market and most applications in North America require that these transformers operate at higher temperature levels than the Int

18 re v iew o f o perati o n s Our Vision to be the leader in our industry by delivering v Lead times as defined by our customers v a broad range of competitive products v Quality and service excell

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 19 2014 MANAGEMENTS DISCUSSION AND ANALYSIS hammond Power solutions inc. hPs or the company is a north american leader in the design an

20 2 0 1 4 manag em en ts d is c uss i o n an d analys i s overview HPS is an industry leading, growth oriented, transformer Company offering customerfocused solutions through a broad product range,

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 21 These strategies will improve and build revenue and profitability trends. The future of the Company is not only focused on market sh

22 2 0 1 4 manag em en ts d is c uss i o n an d analys i s quotation activity continues to increase. This bodes favorably going forward, as the Company is now seeing a brighter booking picture. As w

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 23 were unfavourably impacted by decreased gross margin rates and an increase in selling, general and administrative expenses. Earnings

24 2 0 1 4 manag em en ts d is c uss i o n an d analys i s summary of quarterly financial information unaudited fiscal 2014 Quarters Sales Net earnings Net earnings per share basic Net earnings per

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 25 Sales for the quarter ended December 31, 2014 were 64,529, an increase of 1,725 or 2.7 from the comparative quarter last year, which

26 2 0 1 4 manag em en ts d is c uss i o n an d analys i s In addition there was normal maintenance capital invested at all facilities and manufacturing product mandate projects. The Company saw a d

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 27 Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with Internationa

28 2 0 1 4 manag em en ts d is c uss i o n an d analys i s Persistent global economic decline or recession Fluctuations of interest rates Unpredictable weather trends and conditions Governme

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 29 Global economic conditions Current global economic conditions, particularly in Europe and North America, influence the Companys focu

30 2 0 1 4 manag em en ts d is c uss i o n an d analys i s interests in joint operations On May 6, 2014, the International Accounting Standards Board IASB issued amendments to IFRS 11, Accounting fo

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 31 Disclosure initiative On December 18, 2014 the IASB issued amendments to IAS 1 Presentation of Financial Statements as part of its m

32 selected annual and quarterly information selected annual and Quarterly information tabular amounts in thousands of dollars annual information 2010 Sales Earnings from operations EBITDA Net earn

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 33 Managements responsibility for financial statements The Consolidated Financial Statements are the responsibility of the management o

34 CON SO LIDAT ED FINAN C IAL STAT E M E N T S Consolidated statements of financial Position in thousands of dollars As at December 31, 2014 December 31, 2013 assets Current assets Cash and cash

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 35 Consolidated statements of earnings Years ended December 31, 2014 and 2013 in thousands of dollars, except for per share amounts 20

36 CON SO LIDAT ED FINAN C IAL STAT E M E N T S Consolidated statements of Comprehensive income Years ended December 31, 2014 and 2013 in thousands of dollars 2014 Net earnings Other comprehensive

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 37 Consolidated statements of Changes in equity Years ended December 31, 2014 and 2013 in thousands of dollars SHARE CAPITAL CONTRIBU

38 CON SO LIDAT ED FINAN C IAL STAT E M E N T S Consolidated statements of Cash flows Years ended December 31, 2014 and 2013 in thousands of dollars 2014 Cash flows from operating activities Net ea

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 39 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars, except for per share amounts 1. reporting

40 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars d use of estimates and judgments The preparati

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 41 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars entitys assets, liabilities, revenue and exp

42 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars d Cash and cash equivalents Cash and cash equi

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 43 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars h Goodwill Acquisitions occurring on or aft

44 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars l sharebased payment transactions The Group ha

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 45 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars r earnings per share The Group presents bas

46 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars t new accounting pronouncements The Internatio

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 47 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars annual improvements to ifrs 2012 2014 cycle

48 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 6. Property, plant and equipment Cost Balance

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 49 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 8. intangible assets and goodwill Intangibl

50 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 9. impairment testing for cashgenerating units

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 51 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 11. longterm debt Term loans denominated in

52 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 12. Commitments and contingencies Commitments

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 53 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars unrecognized deferred tax liabilities At Dec

54 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars Movement in temporary differences during the ye

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 55 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 14. a share capital authorized Unlimited nu

56 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars Exercise price 13.64 5.91 10.55 11.70 9.74 10.

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 57 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 15. earnings per share The computations for

58 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 2013 1,242,000. During the year, the expense r

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 59 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 19. related party transactions related part

60 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 20. Personal expenses 2014 Wages and salaries

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 61 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars Investment in properties Canada 2014 1,044

62 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars Derivative instruments The Group has entered in

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 63 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars Credit risk Credit risk arises from the poss

64 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars Commodity price risk A large component of the G

65 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 25. business combination Marnate trasformatori

H am m o n d P ow e r S o l u t i o n S an n ual r e P or t 66 For the years ended December 31, 2014 and 2013 tabular amounts in thousands of dollars 26. Determination of fair values A number o

67 not es to C o n s o LIDAt eD FInAn C I AL s tAt e M e n t s If a market for a financial instrument is not active, then the Plan establishes fair value using a valuation technique. Valuation techn

68 Gl o bal lo cati o n s hammond Power solutions inc. canada corporate head office 595 Southgate Drive Guelph, Ontario N1G 3W6 15 Industrial Road Walkerton, Ontario N0G 2V0 10 Tawse Place Guelph, O

69 corporate officers and Directors William g. hammond Chairman of the Board and Chief Executive Officer stock exchange Listing Toronto Stock Exchange TSX Trading Symbol HPS.A Legal representation

T H E F U T U R E I S B R I G H T. HAMMONDPOWERSOLUTIONS.COM

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