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2015 FORTITUDE THE STRENGTH TO PERSIST AND THE COURAGE TO ENDURE Annual Report

You can always take the easy way out and give up, but real strength comes when you decide to keep pushing forward no matter what the circumstances are. Who We Are And What We Do 2 Whats Ahead Busin

Invested In 8 Letter to Shareholders 11 Review of Operations Managements Discussion and Analysis Selected Annual and Quarterly Information Audit Report Consolidated Financial Statements Notes to Con

Capital Projects WhO We ARe AND WhAT We DO The economy has been one of great change and flux even crisis in the past years. Our annual reports during these years, have talked about how hPS focuses o

Control Sales Geographic Footprint 28 Canada Drive Isolation 60 United States Europe 6 Distribution 6 India Shovel Duty Financial Comparison in thousands of dollars, except earnings per shar

A TIMELINE OF FORTITUDE AND STRENGTH HPS expands Guelph, Ontario plant. 1M Acquired Delta Transformers, Granby, QC Canada Laid the groundwork for a future global acquisition in India and Italy. hPS

1M HPS expands Granby, Quebec plant. hPS products continue to service the needs of the U.S. energy business which had a direct impact on both OeM and distributor business in 2014 and a growth area f

future PrePAreD 6

WHATS AHEAD WeRe INVeSTeD IN New opportunities have presented themselves which offer continued growth and diversity a solid future for hPS based on a solid past. Business Development Joint Venture

INVESTED IN Equipment Capacity Acquisition Total 15,000 14,000 13,000 12000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2003 814 2004 574 2005 1,229 2006 2,428 20

280,000 270,000 250,000 230,000 210,000 190,000 170,000 150,000 130,000 110,000 90,000 70,000 73,408 2003 81,349 2004 131,978 160,606 2005 2006 226,358 2007 221,323 2008 195,437 2

STRENGTH IN ADVeRSITY U.S. Department of energy standards for energy efficiency became law on January 1, 2016. New legislation prompted U.S. customers to increase their inventory levels in 2015 for p

Fellow Shareholder, I am pleased to report that despite continuing volatility in many of our markets as well as the global economy, Hammond Power Solutions Inc. HPS delivered increased sales and profi

WE bELIEVE THAT REMAINING A FOcUSED AND INDEpENDENT cOMpANy GIVES US AN ADVANTAGE IN EMpLOyEE AND MANAGEMENT cULTURE AS WELL AS FASTER REAcTION TIME cOMpARED TO THE TypIcAL GLObAL cONGLOMERATE. 12

REVIEW OF OpERATIONS F or the last three years the central theme for running a business in the electrical industry has been how one can grow and improve profitability in a challenging global economy

As a management team two years ago, we resolved that we would not be willing victims to the global economy and things beyond our control. We will instead focus on what we have control over and where p

and profitable opportunity to build cores for transformer companies in Mexico and the U.S. that may not want to make the investment in equipment necessary to build costeffective cores to meet the new

HpS IS AN INDUSTRy LEADING, GROWTH ORIENTED, TRANSFORMER cOMpANy 2015 MANAGEMENTS DIScUSSION AND ANALySIS hammond Power Solutions Inc. hPS or the Company is a North American leader in the design and

Increase In Sales Increase in Gross Margin Increase in Assets Investment in Joint Venture 11 15 21 14M D O L L A R S I N T H O U S A N D S U N L E S S O T H E R W I S E S T AT E D Additional

are vital in delivering consistent strong financial performance. Globally, in the United States U.S., Canada, Europe and Asia, HPS is well situated for electrical industry market share growth and cont

Consolidated sales were positively impacted by the strengthening of the U.S. dollar relative to the Canadian dollar which is the Companys functional currency. The average U.S. to Canadian exchange rat

price and manufacturing capacity utilization perspective. To mitigate the impact, the Company has implemented a number of cost reduction activities, continues to advance its geographic footprint, cont

rate by 3.8 and a smaller proportion of earnings eligible for reduced rates together with other items decreased the effective rate by 1.4. The Companys deferred tax assets and liabilities are related

Quarter 4, 2015 financial results December 31, 2015 Sales Earnings from operations Exchange gain loss Net earnings Earnings per share basic Earnings per share diluted Cash provided by operations

in the investment in working capital utilized cash of 2,019 in 2015 versus a reduction in the investment in working capital of 7,484 in 2014, a negative change of 9,503 from 2014. The change in noncas

the exercise price of the call and put option are at fair value the fair value of the instruments are considered nominal. The Company has not recognized the present value of the redemption price of th

financial reporting. HPS does carry out ongoing improvements to its internal controls over financial reporting but nothing considered at a material level. Competition Credit risk and Global polit

Current global economic conditions influence the Companys focus, direction and financial results. To address the current uncertainty we are concentrating our efforts on projects that will increase our

based upon Managements 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

Transfer of assets On September 11, 2014 the IASB issued Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Amendments to IFRS 10 and IAS 28. The amendments apply pr

HPS is proud of these accomplishments and the strategic direction of the Company. While we had a successful year, the poor global economic climate has had a pervasive effect on HPS. The negative impac

Selected Annual and Quarterly Information tabular amounts in thousands of dollars Annual Information 2011 Sales Earnings from operations EBITDA Net earnings Total assets Noncurrent liabilities Total

Managements Responsibility for Financial Statements The Consolidated Financial Statements are the responsibility of the management of Hammond Power Solutions Inc. These statements have been prepared i

Consolidated Statements of Financial Position in thousands of dollars As at December 31, 2015 December 31, 2014 Assets Current assets Cash and cash equivalents Accounts receivable note 4 Inventories

Consolidated Statements of Earnings Years ended December 31, 2015 and 2014 in thousands of dollars, except for per share amounts 2015 Sales Cost of sales note 5 Gross margin Selling and distribution

Consolidated Statements of Comprehensive Income Years ended December 31, 2015 and 2014 in thousands of dollars 2015 Net earnings Other comprehensive income Item that will be recognized within profit

Consolidated Statements of Changes in Equity Years ended December 31, 2015 and 2014 in thousands of dollars SHARE CAPITAL CONTRIBUTED SURPLUS AOCI RETAINED EARNINGS NONCONTROLLING INTEREST TOTAL

Consolidated Statements of Cash Flows Years ended December 31, 2015 and 2014 in thousands of dollars 2015 Cash flows from operating activities Net earnings Adjustments for Share of loss of investment

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 1. Reporting entity Hammond Power Solutions Inc. HPS or the Company is a corporat

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts d Use of estimates and judgments The preparation of the consolidated financial st

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts a 50 interest in Glen Ewing Properties, an unincorporated cotenancy. The consolida

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts v Fair value The fair value of a financial instrument is the amount of considerati

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts g Research and development expenses Research expenses are recognized as expenses

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts k Inventories Inventories are valued at the lower of cost and net realizable valu

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts q Employee benefits The Company maintains a defined contribution and defined bene

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts Revenue from contracts with customers On May 28, 2014 the IASB issued IFRS 15, Rev

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts Disclosure initiative On December 18, 2014 the IASB issued amendments to IAS 1 Pre

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 6. Prepaid and other assets December 31, 2015 Prepaid expenses Derivative assets

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 8. Investment in properties The Group has a 50 ownership interest in a property i

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 10. Intangible assets and goodwill Intangible assets Technology Cost Balance at J

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 11. Impairment testing for cashgenerating units The Company has defined its cash

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 13. Longterm debt Term loans denominated in Euros, apart from the note payable fo

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts Contingent liability In December 2013, the Corporation received notice of an envir

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts Recognized deferred tax assets and liabilities Deferred tax assets and liabilities

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts Movement in temporary differences during the year Balance December 31, 2013 Recogn

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts c Stock option plan The Company uses a stock option plan to attract and retain ke

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts Terms and conditions of the stock option plan Options grants detailed below vest a

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 17. Earnings per share The computations for basic and diluted earnings per share

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts was 1,291,000 2014 1,120,000. During the year, the expense recognized related to

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 21. Related party transactions Related parties Arathorn Investments Inc. benefici

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 22. Personal expenses 2015 Wages and salaries Group portion of government pension

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 24. Segment disclosures The Company operates in a single operating segment, being

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 25. Financial instruments Fair value The fair value of the Groups financial instr

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts Currency risk The Company operates internationally and is exposed to foreign excha

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts Credit risk Credit risk arises from the possibility that the Companys customers an

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts Interest rate risk Interest rate risk is the risk that the future cash flows of a

For the years ended December 31, 2015 and 2014 tabular amounts in thousands of dollars, except for per share amounts 26. Capital risk management The Groups objective is to maintain a strong capital

If a market for a financial instrument is not active, then the Plan establishes fair value using a valuation technique. Valuation techniques include using recent arms length transactions between knowl

HPS is a company rich in history and achievement an industry leader, focused on growth, engineered to order solutions, a broad product offering, multiple sales channel access, high quality standard p

Canada hammond Power Solutions Inc. Corporate head Office 595 Southgate Drive Guelph, Ontario N1G 3W6 15 Industrial Road Walkerton, Ontario N0G 2V0 10 Tawse Place Guelph, Ontario N1H 6H9 Italy hammon

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 Bor

WELL POSITIONED FOR THE FUTURE HAMMONDPOWERSOLUTIONS.COM

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