Hanwei announces 2006 financial results



    /NOT FOR DISTRIBUTION TO THE U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION
    IN THE UNITED STATES/

    TSX.V: HE

    VANCOUVER, April 13 /CNW/ - Hanwei Energy Services Corp. ("Hanwei" or the
"Company") today reported its financial results for the year ended
December 31, 2006. In addition, Hanwei has met the conditions for the release
from escrow of the gross proceeds of $30,000,025 raised from the brokered
private placement of 13,953,500 common shares in the capital of the Company
(the "Shares") at $2.15 per Share (the "Offering"), previously announced on
April 2, 2007.

    Summary

    As previously disclosed, in December of 2006, Hanwei acquired 82.15% of
Daqing Harvest Longwall High Pressure Pipe Co. Ltd. ("Harvest"). The remaining
17.85% equity interest in Harvest is owned by the Company's joint venture
partner, Changyuan Investment Co. Ltd. ("Changyuan"), an indirect subsidiary
of China National Petroleum Corp. ("CNPC"), a state-owned entity and the
parent company of the Company's 17.85% joint-venture partner and of Petrochina
Co., Ltd. a major Chinese oil and gas company listed on the New York Stock
Exchange (NYSE:   PTR).
    For the year ended December 31, 2006, Hanwei reported significant growth
in revenues and net income. Revenue increased by 47% to $23,753,662 as the
Company grew sales to over 1,600 km of high-pressure FRP pipe to existing and
new customers. Net income before non-controlling interest grew by 129% to
$4,647,267. EBITDA before non-controlling interest grew by almost 100% to
$6,171,132. Net income (after accounting for non-controlling interest)
increased by 127% to $4,608,963 due to the growth in sales combined with
increased gross margins, and economies of scale. Fully diluted earnings per
share increased by 40% to $0.14 due to the strong growth in net income,
partially offset by the increase in fully diluted shares.
    Hanwei has exceeded the estimates provided in the press release dated
February 27, 2007. The Company provided an estimate of net income (after
accounting for non-controlling interest) of over $3,500,000 based on deducting
the non-controlling interest for the entire year ended December 31, 2006;
however according to Canadian GAAP the non-controlling interest is deducted
from net income after the completion of the acquisition of Harvest in December
2006.

    Private Placement

    The private placement closed in escrow on April 2, 2007, with the gross
proceeds from the sale of Shares to be held in escrow and released to the
Company, together with accrued interest, concurrent with the issuance of the
Shares, provided that the audited financial statements of the Company for the
year ended December 31, 2006 to be made available on or before April 30, 2007,
show sales of not less than $22.5 million and net income of not less than
$3.25 million (after giving effect to the non-controlling interest in the
Company) (the "Financial Targets"). As set out above, Hanwei has exceeded the
Financial Targets and expects the gross proceeds to be released from escrow
later today, at which time a press release will be issued immediately
thereafter. The Offering was arranged by a syndicate of investment dealers led
by Canaccord Capital Corporation and included GMP Securities L.P. and Research
Capital Corporation.

    
    2006 Business Highlights:

    -   In December 2006, Hanwei acquired 82.15% of Harvest, the Company's
        operating subsidiary in China.

    -   Expanded production capacity of high-pressure FRP pipe at the
        Company's Daqing plant coupled with the development of new down-hole
        pipe products and improvements in the Company's proprietary
        production and testing equipment, led to strong sales growth and an
        increase in gross margins to 47% in 2006, up from 39% in 2005.

    -   Commenced implementation of strategy to diversify its customer base
        in the oil industry and increased the percentage of its sales to new
        customers, while still increasing sales to existing customers in the
        Daqing and Jilin oil fields.

    -   Market research was conducted with the goal of expanding to other
        regions of China and regions of Asia.

    -   Developed FRP spray headers used in pollution control systems for the
        coal industry and commenced commercial production of spray headers in
        November 2006.

    Highlights Subsequent to Year End:

    -   On January 5, 2007, completed a non-brokered private placement of
        3,000,000 shares at $0.75 per share to raise total gross proceeds of
        $2,250,000.

    -   On January 24, 2007, signed an Exclusive Cooperation Agreement with
        China Petroleum Technology and Development Corporation ("CPTDC"),
        pursuant to which Harvest and CPTDC will cooperate to develop markets
        for FRP products in Kazakhstan and other countries for an initial
        two-year period. CPTDC is a subsidiary of CNPC.

    -   On April 2, 2007, completed a private placement of 13,953,500 shares
        at $2.15 per share to raise total gross proceeds of $30,000,025. The
        proceeds are held in escrow and are expected to be released from
        escrow later today as the Company has issued its financial statements
        for the year ended December 31, 2006.

    Summary 2006 Financial Results

                                               Years Ended December 31
                                              2006         2005       Change
    ---------------------------------- ------------ ------------ ------------
    Sales                              $23,753,662  $16,175,180          47%
    Operating Income (Loss)              5,341,434    2,267,735         135%
    Net Income (Loss)                    4,608,963    2,033,325         127%
    Total Assets                        39,830,041   28,100,248          42%
    Non-controlling Interest             3,672,820
    Cash Dividends Declared              1,130,799
    Earnings per share (basic)               $0.22        $0.10         120%
    Earnings per share (fully diluted)       $0.14        $0.10          40%
    

    Sales for the year ended December 31, 2006 were $23,753,662, an increase
of 47% over the same period in 2005, due to a 30% increase in sales in the its
two largest customers in Daqing and Jilin and a 93% increase in sales to new
customers in China. In 2006, approximately 67% of total sales were generated
from two major customers in the Daqing and Jilin that are directly or
indirectly owned by CNPC, compared with 75% in 2005. Although reliance on
these two major customers has declined in recent years, sales continued to be
concentrated in the northeastern region of China to customers that are
directly or indirectly owned by CNPC.
    Hanwei plans to diversify its customer base in the oil industry and
expand its FRP product line to other energy industries. To this end, in 2006
the Company conducted market research aimed at establishing a production plant
in another region of China and expanding international sales. Also in 2006,
the Company developed FRP spray headers used in pollution control systems for
the coal industry and commenced commercial production of spray headers in
November 2006. The Company received initial sales orders for spray headers in
late 2006, which are expected to be delivered in 2007. FRP pipe products for
the salt-water based heating systems and electrical cable housing used in
liquid natural gas terminals were also developed in 2006.
    Gross profit for the year ended December 31, 2006 was $11,101,431, an
increase of 76% over the same period in 2005, due to increases in both sales
volume and gross margin. The increase in sales volume was due to an increase
in production capacity, coupled with a successful sales and marketing program.
    Gross margin for the year ended December 31, 2006 increased to 47%
compared with 39% for the same period in 2005. The increase in gross margins
was due to the implementation of improved proprietary manufacturing processes
in the second half of 2006 and the introduction of some higher margin
products. Harvest was able to establish fixed prices for glass fibre, its main
raw material, by placing large orders for raw materials to match customer FRP
pipe orders, while negotiating flexible payment and delivery terms. The price
of epoxy, another key raw material, increased in 2006 due to the increase in
global oil prices.
    Selling expenses for the year ended December 31, 2006 were $2,213,890 or
9% of revenues compared with $1,181,943 or 7.3% of revenues for the year ended
December 31, 2005. The increase in selling expenses was due to the expansion
of the sales and marketing into new regions of China and Asia. Selling
expenses as a percentage of revenues are expected to decrease due to increased
repeat sales to current customers and increased market awareness of the
products due to marketing programs. The selling expenses consisted mainly of
salespersons' salaries and bonuses and marketing and promotion expenses.
Selling expenses also included transportation and related costs incurred for
delivery of goods and providing services to customers. The increase in selling
expenses as a percentage of sales was within management's expectations.
    General and administrative expenses for the year ended December 31, 2006
were $2,938,393 or 12% of revenues compared with $2,471,712 or 15% of revenues
for the year ended December 31, 2005. Total general and administrative costs
increased due to the expansion of operations and costs associated with
becoming a public company in Canada. However, general and administrative
expenses as a percentage of revenues decreased due to increased capacity
utilization and economies of scale. This trend is expected to continue as the
Company expands production capacity and revenues. General and administrative
expenses included salaries as well as facilities expenses, supplies and
vehicle expenses other than depreciation.
    Research and development expenses for the year ended December 31, 2006
were $373,620 or 2% of revenues, compared with $192,971 or 1.2% of revenues
for the year ended December 31, 2005. The increase in research and development
expenses as a percentage of revenues was due to accelerated development of new
FRP pipe products and the initial costs regarding the development of
complementary products. Total research and development expenses are expected
to increase as the Company develops products for new energy sectors. However,
research and development expenses as a percentage of revenues are expected to
remain in the 2% range since revenues are expected to increase.
    Amortization expense for the year ended December 31, 2006 was $223,301 or
1% of revenues compared with $203,823 or 1.3% for the year ended December 31,
2005. The decrease in amortization as a percentage of revenues was due to an
increase in revenues.
    Stock-based compensation was $10,793 in for the year ended December 31,
2006, compared with nil for the same period in 2005. In 2006, 1,810,000 stock
options were issued to directors and employees, of which 400,000 vested in
2006. The balance of 1,410,000 options, and an additional 100,000 stock
options granted subsequent to the year ended December 31, 2006, will vest over
a three-year period. Stock-based compensation expense is recognized when stock
options are granted and vested and is expected to increase as additional
options vest over the next three years.
    Interest expense was $712,625 for the year ended December 31, 2006, an
increase of $397,650 compared with $314,975 for the year ended December 31,
2005, due to the increase in working capital needs to fund increased sales and
receivables.
    Operating income was $5,341,434 for the year ended December 31, 2006, an
increase of 136% compared with $2,267,735 for the year ended December 31,
2005. Operating income as a percentage of revenues was 23% for the year ended
December 31, 2006 compared with 14% for the year ended December 31, 2005.
These increases were due to increased revenues, increased gross margins,
increased capacity utilization and economies of scale.
    Net income for the year ended December 31, 2006 was $4,608,963 an
increase of 127% compared with net income of $2,033,325 for the year ended
December 31, 2005. Net income as a percentage of revenues was 19% for the year
ended December 31, 2006 compared with 13% for the year ended December 31,
2005. Total net income and net income as a percentage of revenues increased
due to the strong growth in revenues, increased gross margins, increased
capacity utilization and economies of scale. This trend is expected to
continue as the Company increases production capacity in China.
    Basic earnings per share (EPS) for the year ended December 31, 2006 was
$0.22 an increase of 120% compared with $0.10 for the same period in 2005, due
to the increase in earnings. Fully diluted EPS for the year ended December 31,
2006 was $0.14 an increase of 40% compared with $0.10 of fully diluted EPS for
the same period in 2005 due to the increase in earnings, partially offset by
the increase in fully diluted shares.
    Harvest pays income taxes based on a combination of local and federal tax
incentives. Harvest had been exempted from income tax under preferential state
tax treatment granted to high-tech enterprises and Sino-foreign joint ventures
from 2004 to 2005. Harvest is subject to preferential income tax rate of 7.5%
from 2006 to 2008. Harvest has applied for and received income tax waiver from
local tax bureau on 2006 earnings. There can be no guarantee that this
favorable tax treatment will continue following the applicable exemption
periods, or at all.
    In March 2007, the Chinese government passed the new Corporate Income Tax
Law that will become effective on January 1, 2008. This law is aimed to unify
corporate income tax rates for both domestic and foreign invested enterprises
at the same 25% rate. Notwithstanding the changes to preferential tax
treatment, the new law provides grandfathering provisions for existing foreign
invested enterprises. For foreign invested enterprises that are currently
enjoying a preferential tax rate, their applicable tax rate increase will
gradually be phased into the new 25% tax rate during a five-year transitional
period.
    On September 15, 2006, the Board of Directors of Harvest passed a
resolution to distribute a dividend equivalent to the retained earnings as at
December 31, 2005 under PRC GAAP, after appropriation of statutory reserve
funds, to the shareholders on record as at December 31, 2005 and 2004, equal
to $1,130,799. Dividends will be paid to the shareholders on or before
December 31, 2007 at the Company's discretion. A dividend of $143,269 was paid
to the Company's joint venture partner, Changyuan, in June 2006. The dividend
payable to Changyuan will be net of the amount paid. The dividend was declared
by the Board of Directors of Harvest prior the acquisition by Hanwei of its
82.15% interest in Harvest, as permitted by the Agreement under which Hanwei
acquired such interest.

    
    Liquidity and Capital Resources

                                       December 31, 2006   December 31, 2005
                                      ---------------------------------------
    Current ratio(1)                            1.64 : 1            1.47 : 1
    Cash                                     $ 2,366,844         $ 1,884,119
    Working capital                          $11,255,979         $ 5,620,829
    Debt(2)                                  $17,602,788         $12,020,017
    Equity                                   $18,554,433         $16,080,232
    Debt to equity(3)                                95%                 75%

    (1) Current ratio is current assets divided by current liabilities.
    (2) Debt amount does not include operating lease obligations.
    (3) Debt to equity is total debt divided by equity.
    

    Cash and cash equivalents totalled $2,366,844 as of December 31, 2006,
representing an increase of $482,725 from December 31, 2005. This increase was
largely due to increased earnings and $5,336,619 of cash provided through debt
equity funding partially offset by $3,813,112 of cash used in operations and
$274,804 used for the acquisition of property, plant and equipment.
    Working capital was $11,255,979 as of December 31, 2006, an increase of
$5,635,150 from $5,620,829 as of December 31, 2005. The increase in working
capital was largely due to an increase of $9,446,886 in accounts receivable
and an increase of $1,329,325 in inventories resulting from increased sales
partially offset by an increase of $3,141,402 in short-term debt and an
increase of $1,624,236 in accounts payable.
    The Company plans to reduce the average age of its accounts receivable,
that is a result of a concentration of sales to major Chinese oil and gas
companies, by diversifying its customer base in the oil industry and by
offering products in other energy sectors. To this end, the Company developed
FRP products for the coal and gas industries in 2006. In 2006, initial sales
orders for delivery in 2007 were received for the Company's FRP spray headers
for pollution control systems for the coal industry. Commercial production of
the Company's gas and coal FRP products is expected to commence in 2007. In
addition, the Company conducted market research into the oil industry in the
Asia region, and in early 2007 signed an exclusive cooperation agreement to
develop markets for its FRP products in Kazakhstan and other Commonwealth of
Independent States (including: Azerbaijan, Armenia, Belarus, Georgia,
Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and
Ukraine), also Indonesia, India, Saudi Arabia, Amman, and Peru, all for an
initial period of two years with CPTDC (a major Chinese oil and gas company).

    Outlook & Growth Strategy

    In 2006 the Company produced and sold approximately 1,600 km of high
pressure FRP pipe to oil industry customers in China. In 2007, Hanwei expects
continued strong growth in its high pressure FRP pipe business to the oil
industry, and subject to implementation of its expansion plans, the Company
expects to generate revenues and profits from new FRP products for other
energy sectors. These growth plans will require new equity and debt funding
for capital expenditures and working capital to be provided by the $30,000,025
private placement, which the Company expects to have released from escrow
today.
    The Company's growth strategy is comprised of three major initiatives: 1)
Expand the high pressure fiberglass reinforced plastic ("FRP") pipe business
in the oil sector by penetrating other regions of China and Asia and by
increasing production capacity to between 2,900 km and 3,200 km per annum, an
increase of between 45% to 60% over production capacity as of the end of 2006;
2) Develop FRP products for expansion into other energy sectors targeting
pollution control systems for the coal industry, FRP blades (propellers) for
the wind power industry and FRP pipes for LNG terminals; and, 3) Develop,
license and acquire technology to expand energy products and services beyond
FRP.
    Hanwei will be holding a conference call to discuss its fiscal 2006
financial results. Mr. Kim Oishi, Chief Financial Officer will host the call.

    
    DATE:                    Monday, April 16, 2007

    TIME:                    2:00 p.m., Eastern Time

    DIAL IN NUMBER:          1-866-215-0058 or 416-915-9616

    TAPED REPLAY:            1-866-244-4494 or 416-915-1028

    TAPED REPLAY PASS CODE:  374279

    LIVE WEBCAST LINK:
    http://events.onlinebroadcasting.com/hanwei/041607/index.php
    

    THE TSX VENTURE EXCHANGE HAS NEITHER APPROVED NOR DISAPPROVED THE
    CONTENTS OF THIS NEWS RELEASE.

    This news release does not constitute an offer to sell or a solicitation
of an offer to buy any securities of Hanwei Energy Services Corp. in the
United States. The securities have not been and will not be registered under
the United States Securities Act of 1933, as amended, or any state securities
laws and may not be offered or sold within the United States or to U.S.
persons unless registered under the United States Securities Act of 1933 and
applicable state securities laws, or an exemption from such registration is
available. Any public offering of securities in the United States must be made
by means of a prospectus that contains detailed information about the Company
and its management, as well as financial statements.

    FORWARD LOOKING INFORMATION AND NON-GAAP MEASURES

    Certain information in this news release is forward-looking within the
meaning of certain securities laws, and is subject to important risks,
uncertainties and assumptions. This forward-looking information includes,
among other things, information with respect to management's estimates of
capital requirements, as well as information with respect to the Company's
beliefs, plans, expectations, anticipations, estimates and intentions. The
words "may", "could", "should", "would", "suspect", "outlook", "believe",
"anticipate", "estimate", "expect", "intend", "plan", "target" and similar
words and expressions are used to identify forward-looking information. The
forward-looking information in this news release describes the Company's
expectations as of April 13, 2007.
    The results or events anticipated or predicted in such forward-looking
information may differ materially from actual results or events. Material
factors which could cause actual results or events to differ materially from a
conclusion, forecast or projection in such forward-looking information
include, among others: general economic factors, adverse industry events, its
ability to make and integrate acquisitions, industry and government
regulation, risks associated with integrating new production lines, risks
associated with entering new product lines and markets, risks associated with
establishing new production facilities and the potential for costs over-runs
or delays associated with construction, risk that the Company may be unable to
procure needed capital for its growth plans, risk that the Company may not be
able to obtain licenses for technology needed for its expansion plans on terms
that are acceptable to the Company and risk that the gross proceeds of its
recent private placement financing will not be released from escrow.

    The Company cautions that the foregoing list of material factors is not
exhaustive. When relying on the Company's forward-looking information to make
decisions, investors and others should carefully consider the foregoing
factors and other uncertainties and potential events. The Company has assumed
a certain progression, which may not be realized. It has also assumed that the
material factors referred to in the previous paragraph will not cause such
forward-looking information to differ materially from actual results or
events. However, the list of these factors is not exhaustive and is subject to
change and there can be no assurance that such assumptions will reflect the
actual outcome of such items or factors. For additional information with
respect to certain of these and other factors, refer to the risks and
uncertainties section of the Company's Filing Statement dated November 23,
2006 and its Material Change Report dated March 7, 2007, both filed with
Canadian securities regulators, which is available on SEDAR at www.sedar.com.
    The Company has included EBITDA figures in this news release. EBDITA, a
non-GAAP earnings measure, means earnings before minority interest, interest
expense, depreciation expense and amortization expense. EBITDA is derived from
the consolidated statement of income and consolidated statement of cash flows.
Readers are cautioned that these definitions are not recognized measures under
Canadian GAAP, and do not have standardized meanings prescribed by GAAP, and
should not be construed to be alternatives to net income determined in
accordance with GAAP or as an indicator of performance or liquidity or cash
flows. The Company's method of calculating these measures may differ from
methods used by other entities and accordingly our measures may not be
comparable to similarly titled measures used by other entities. The Company
uses this earnings measure because it believes it provides useful information
to both management and investors with respect to the operation and financial
performance of the Company.

    THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS
 THE EXPECTATIONS OF THE COMPANY AS OF APRIL 13, 2007 AND, ACCORDINGLY, IS 
SUBJECT TO CHANGE AFTER SUCH DATE. HOWEVER, THE COMPANY EXPRESSLY DISCLAIMS
ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING
INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR
OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE LAW.





For further information:

For further information: Kim Oishi, Chief Financial Officer, (416)
804-9228, koishi@hanweienergy.com

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HANWEI ENERGY SERVICES CORP.

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