GUELPH, ONTARIO--(Marketwire - Oct. 26, 2011) - Hammond Power Solutions Inc. (TSX:HPS.A) -

(Dollar amounts are in thousands unless otherwise specified)

NOTE: ALL NUMBERS HAVE BEEN STATED UNDER IFRS

HIGHLIGHTS FROM THE QUARTER

• Revenue growth of $7,586 or 16%
• Earnings from operations increase of $575 or 28%
• Order bookings increase of 45%
• Order backlog increase of 39%
• Extreme copper price volatility

Hammond Power Solutions Inc. ("HPS") (TSX:HPS.A) a leading manufacturer of dry type transformers and magnetics, today announced its financial results for the third quarter of 2011.

"I am pleased to report that from an operational perspective HPS delivered a positive rebound in both sales volumes and earnings from operations compared to the same quarter last year. Sales were up 16% while earnings from operations were up 28% in relation to Quarter 3, 2010. This came during a time of unprecedented economic volatility and uncertainty." commented Bill Hammond, Chairman & Chief Executive Officer of Hammond Power Solutions Inc.

THIRD QUARTER RESULTS

Sales for the quarter-ended October 1, 2011, were $55,489 up $7,586 or 15.8% from the comparative quarter last year, and were higher by $17,600 or 12.3% year-to-date, finishing at $160,596 compared to $142,996 last year. Due to a solid quarter of new order booking activity, sales in the United States stated in U.S. dollars were $34,330 in Quarter 3, 2011, an increase of $4,563 or 15.3% from Quarter 3, 2010. Year-to-date sales in the U.S. were $96,978, an increase of $11,488 or 13.4%, when compared to $85,490 last year-to-date. The sales increase can be attributed to higher shipments in both the American and Canadian markets and additional European market sales attributed to the Company's recent acquisition.

Bill Hammond stated, "Our top line continues to be powered by our OEM markets as well as growth in our industrial distributor network. Bookings and backlog were strong coming into the quarter, which bodes positively for the remainder of the year."

Sales growth strategies combined with better market conditions produced a 45.4% increase in Quarter 3, 2011 bookings as compared to Quarter 3, 2010. Due to the increased level of bookings our order backlog increased by 24% from the Quarter 2, 2011 and increased 51% from Quarter 3, 2010.

The Company's gross margin rates in Quarter 3, 2011 were positively impacted by market specific selling price increases, higher manufacturing throughput and internal cost reductions. Quarter 3, 2011 gross margin rates finished at 23.9% versus 23.2% in Quarter 3, 2010 an increase of 0.7% of sales. These factors more than offset the detrimental impact that a 6% stronger Canadian dollar over the same quarter last year had on U.S. resale margins. On a year-to-date basis, gross margin rates were 23.9% compared to 25.1% in 2010, down 1.2%, which was mostly due to the negative impact of a weak U.S. dollar and lower selling prices.

"Gross margin rates did improve from market specific selling price increases as well as increased manufacturing throughput. At the same time, we did experience higher factory costs due to the inefficiencies of being overloaded in several plants and the higher overtime costs needed to meet customer delivery expectations under these conditions. The Company's focus on productivity improvement and cost reduction will have a favourable impact on our financial performance in future quarters." Bill Hammond commented.

Total selling and distribution expenses were $5,667 in Quarter 3, 2011 versus $4,969 in Quarter 3, 2010, an increase of $698 or 14.0%. Year-to-date, selling and distribution costs were $16,560 versus $14,394 in 2010, an increase of $2,166 or 15.0%. A significant portion of the increased selling and distribution expenses are attributed to additional general and administrative costs relating to its new Italian operation in both the quarter and year-to-date. Due to increased sales in Quarter 3, 2011, there were higher freight and commission expense in the quarter. Year-to-date selling and distribution expense increases resulted from costs related to freight and commission expense from increased sales and staff investment.

The general and administrative expenses for Quarter 3, 2011 totaled $4,924, an increase of $846 or 20.7% when compared to Quarter 3, 2010 costs of $4,078. The increase can be attributed to additional general and administrative costs related to EE, additional costs related to ongoing acquisition activities and additional engineering costs. Year-to-date, general and administrative costs are higher by $2,205 or 18.0%, totaling $14,435 when compared to $12,230 for 2010. On a year-to-date basis, the increase was a result of the additional costs related to the Italian acquisition, increases in stock option expenses, costs related to the company's ongoing acquisition activities, and R & D engineering costs.

The interest expense for Quarter 3, 2011 finished at $77 compared to $19 in Quarter 3, 2010 an increase of $58. Year-to-date interest cost was $184, an increase of $104 when compared to year-to-date 2010 expenses of $80.

The foreign exchange loss in Quarter 3, 2011 was $227 relating primarily to the transactional exchange loss pertaining to the Company's U.S. dollar trade accounts payable in Canada, compared to a foreign exchange gain of $963 in Quarter 3, 2010. The exchange loss was $709 year-to-date 2011 compared to a foreign exchange gain of $658 for the same period of 2010.

An area that has significant negative impact on the Company's net earnings was caused by the cyclical effects and unprecedented market cost fluctuations of copper commodity pricing in the global market. Due to this unpredictability, HPS utilizes a hedging strategy. The Company entered copper forwards for approximately 40% of its normal annual requirements in order to reduce the Company's exposure to changes in the price of copper. In Quarter 3, 2011 the company experienced a significant loss on copper forward contracts as the commodity future valuations significantly decreased at the end of the quarter due to speculation, concerns over the European debt crisis and a possible world recession. The un-realized loss on future copper contracts for Quarter3 2011 was $2,167, which was slightly offset by a gain on settled contracts of $109, resulting in a net loss for the quarter of $2,057. In Quarter 3, 2010 the company had a net copper hedging gain of $287 which was made up of unrealized gains of $307 offset by a small loss in settled contracts of $20. Year-to-date 2011, the hedging loss of $2,308 is made up of unrealized losses of $3,045 offset by gains on settled contracts of $737. For the first nine months of last year the copper hedging position was a net loss of $84; a loss on futures of $126 offset by a gain on settled contracts of $42.

Further demonstrating the incredibly volatile copper commodity pricing; as at October 26, 2011 market close, the company would have an unrealized copper forward contract gain of $540 for Quarter 4, 2011 to date, as the closing spot rate of copper at the end of Quarter 3, 2011 of $3.13 U.S. a pound has increased to $3.49 U.S. a pound or 11.5%.

Due to the large copper forward hedging loss, the net earnings for Quarter 3, 2011, were eroded by $2,079, finishing at $171 compared to net earnings of $2,250 in Quarter 3, 2010. On a year-to-date basis net earnings finished at $2,424, a decrease of $3,972 when compared to year-to-date 2010 net earnings of $6,396.

Net cash provided by operating activities for Quarter 3, 2011 was $4,923 versus cash provided of $7,099 in Quarter 3, 2010 a decrease of $2,176 as a result of lower reduction in non cash working capital and higher income tax payments. Year-to-date cash used from operations was $4,138 compared to 2010 cash provided of $10,718, a change of $14,856, as a result of lower profits, and higher working capital requirements to support the operations.

The Company's overall debt, net of cash was $3,344 in Quarter 3, 2011 compared to a net cash position of $16,241 in Quarter 3, 2010, a reduction in cash position of $19,585. This debt position change was a result of assumed debt relating to the purchase of Euroelettro S.p.A. for $7,786 plus the assumed debt of $6,573 and the change in non-cash working capital.

Mr. Hammond concluded, "With our largest backlog in history and a continuing positive momentum of growth, we are optimistic about our current trajectory. We are also engaged in a number of projects to expand our sales over the coming year in certain markets, while constantly working on a range of cost reductions to help improve our margins in this very competitive environment. These are indeed volatile times where we must be mindful of both the opportunities and risks that are in front of us and remain ready to respond to unexpected changes in our environment."

TELECONFERENCE

Hammond Power Solutions Inc. will hold a conference call on Thursday, October 27, 2011 at 10:00 a.m. EST, to discuss the Company's financial results for the third quarter 2011.

Listeners may attend the conference by dialing:

1-416-340-2216 or 1-866-226-1792

About Hammond Power Solutions Inc.

Hammond Power Solutions Inc., ("HPS" or the "Company") is the North American leader for the design of custom electrical engineered magnetic as well as the leading manufacturer of standard electrical dry type transformers. Advanced engineering capabilities, high quality products and fast responsive service to customers' needs has established the Company as a technical and innovative leader in the electrical and electronic industries. The Company has manufacturing facilities in Canada, the United States, Mexico and Italy.