William Hammond- Hammond Power Solutions Inc.

In this episode of the Canadian Equities podcast William Hammond, Chairman & CEO of Hammond Power Solutions Inc., joins Robert Cooper to discuss the dynamics of family-owned businesses, energy, supply chains, the transformer market and doing business internationally. For the full length version of the Canadian Equities podcast connect with us at acumencapital.com/podcast.  

Transcript

Moderator 0:00

Welcome to Canadian Equities, a short biweekly podcast series, where we speak with top business leaders and hear their perspectives on the industries in which they operate for the full length version. Find our link in the podcast notes or connect with us at acumencapital.com I am your host Robert Cooper. Today I'm joined by Hammond power solutions, chairman and CEO, bill Hammond. Hammond is the largest manufacturer of dry type transformers in north America. And one of the largest in the world, Hammond, engineers and manufacturers. A wide range of standard and custom transformers that are exported globally in electrical equipment and systems for diverse industries, such as energy mining steel waste, construction data centers, and wind power generation Hammond trades. Under the ticker hps.ai on the TSX today, we will be discussing the dynamics of family owned businesses, energy supply chains, the transformer market, and doing business internationally. Bill, thanks for spending time with Canadian Equities.

Hammond 0:57

My, my pleasure, Robert

Moderator 1:00

bill, for those who may not know the company, what does it do? And where does it operate?

Hammond 1:05

As you mentioned, we are the largest dry type transformer manufacturer in north America. Uh, our headquarters is in Gwelf Ontario, which is where the original company was founded back in 1917 by my grandfather. We have 11 plants across the world and about 1500 employees building the broadest range of a dry type transformers that we are aware of that exists from any one manufacturer, anywhere in the world.

Moderator 1:41

The so-called energy transition is the talk of the town these days. How has Hammond positioned to take advantage of this? Assuming it occurs as quickly as proponents suggest?

Hammond 1:52

Well, the wonderful thing about transformers is that, most things that use electricity required transformers to either step to voltage job or a step that day. And, um, so transformers are used in a very broad range of applications from energy generation, to all sorts of industrial and commercial applications. Outside of. Trans mission realm in terms of the transmission of power, a dry transformers are the dominant technology that are used. And again, we've been in this business of building transformers since 1927. So there aren't too many applications or designs that we haven't seen over the past 60 to 70 years. Uh, and again, it's an essential component that's used around the world in all sorts of applications.

Moderator 2:50

They'll supply chains are in the news and around the world they've been snarled for probably the past year and a half, maybe a little bit longer. And this has impacted your business, to a degree as well in your estimation, what are the main issues impacting the supply chain for Hammond? And what do you think the solution is to resolve the problem? If there is one?

Hammond 3:10

Maybe I'll start with what we are doing to try to minimize the issues that we have. And we like anyone else certainly have experienced issues with any components that have computer chips in them. Um, the main, the material that we are, suffering some allocation issues with his core steel material, which all comes from either Russia, China, Korea. Or Japan, but, the benefit that we have is that we're the largest user of materials and components in the dry transformer business. So our scale generally gives us a preferential or advantageous status with our suppliers. It hasn't caused or minimized. All issues or whatever, but I think we definitely have been in a better shape than any of our dry transformer competitors. And that's one of the reasons that we've actually been growing so fast this year is because, um, many of our smaller competitors have run out of steel and actually some of our larger global competitors. And, uh, we, because of our, a better supply. Of course steel in particular and because of our large inventory of finished good product, um, we've actually been, uh, taking market share from them because they haven't been able to supply. I'd also say that our supplier strategies help, uh, we focus on building long-term relationships. With normally no more than two suppliers with one of them dominant. So again, that helps in getting preferential treatment because we're building a long-term win-win preferential relationship, usually with a dominant supplier of one particular material or so, and I would say our ability to give our suppliers a forward looking forward. Based on demand or a sales forecast is a significant benefit. I believe that we spend a lot more time forecasting and planning. Then most of the electrical industry, and this has certainly helped secure scan supplies, particularly into, uh, a quarter or six months ahead. Also, I would say our multiple plants allow us to move many products around if we're running short, of course, steel, for example, in one plant. And that is. Uh, us, uh, with some semblance of control over things that are beyond our control and, uh, last but not least, we're in the process of setting up a manufacturing of some of our north American products in India. And this is also going to not only diversify our supply chain by tying into, uh, Indian and Asian suppliers, but also should reduce our costs for those supplies going forward. So we haven't missed a. All of the problems that, seem to be plaguing our industry, but I think we've done better than most up until now.

Moderator 6:12

What is the main difference in operating in Canada, serving Canadian customers and operating overseas

Hammond 6:17

Well, I would. Maybe change the question a bit and say, what's the difference of doing business in Europe, the middle east and India versus north America. And we did have operations in Europe until we closed them down. we found that, uh, Europe is not one place or thing is most people talk about it. It's really a collection of very different countries and cultures, 15 or more different, countries and markets. And although they have. Uh, their own local preferences, uh, for instance, uh, you know, a German company would certainly like to buy from a German manufacturer and have German levels of quality. they also want that level of quality with, uh, equivalent to the prices that you might get from manufacturers in the Czech Republic or from Romania. Or from Turkey or even China. So, uh, it's a lot more competitive. I would say the north America in that sense and the end result is, it's difficult to be profitable, as compared to north America and, in the middle east, it's important, to have local sponsorship. to, gain access to the marketplace, which may require incentives or at least setting up business with a local member of the Royal family, as it may be in the Arabian Arabian peninsula or a domestic company. certainly in Southern Asia in places like India. And countries around India, we find that, uh, the pace of doing business and making decisions is a lot different than here in north America. And I would say that the level of corruption is much greater than you would see, certainly in Canada. And the United States and even Mexico, which makes it difficult for a publicly traded company to do business in places like certainly the middle east and Asia and a lot of Canadian companies, I think. The perception that the United States is, uh, other than China, which has its own problems, um, is the largest market in the world. It has one currency, one set of laws, which, certainly tie into international laws and, and, also one set of electrical standards in our case. And I'm a much different pace of doing business. the end result is, uh, for Hammond, uh, between 60 and 65% of our businesses in the United States. And, uh, certainly, the north American market to particularly, with the kind of, tariff protection in the legislation and everything else that is happening. It's becoming more important to us as we sort of think of fortress north America.

Moderator 9:22

Hammond is a family controlled business it's been around for a hundred years, has been publicly traded, helped or hurt in the context of family dynamics.

Hammond 9:30

I would say that it has helped our company, because I believe. Uh, that my needs as the major shareholder in the company, uh, are no different than all other outside shareholders with the exception of not wanting to sell the company. It causes us, I believe to focus on being a better company, being more profitable and, uh, as. Company that is family controlled. We can be more patient and we can take the longer-term perspective of investing in, businesses and strategic opportunities. over the next year or two. That we believe will certainly pay dividends to the future of this company, as opposed to being focused on quarterly profitability. And we recognize that profitability is important, but we tend to focus more on a year over year basis. Then quarter over quarter, particularly when you look at how volatile and uncertain, uh, businesses can be not only year to year, but to quarter to quarter. I believe that it's made us a better.

Moderator 10:41

Bill Hammond. Thanks for joining us today.

Hammond 10:44

You are very welcome, Robert.

10:49

Note that this podcast is not making an investment recommendation on any companies discussed. We welcome your comments on today's episode or any other episode. Connect with us at Acumen Capital dot com.