Hanwei announces 2009 first quarter financial results



    TSX: HE

    VANCOUVER, May 19 /CNW/ - Hanwei Energy Services Corp. ("Hanwei" or the
"Company") today announced its financial results for the three months ended
March 31, 2009. All currency amounts referred to in this news release are in
Canadian dollars unless stated otherwise.

    
    Summary Financial Highlights:

    -------------------------------------------------------------------------
    In thousands of Canadian dollars
     except per share data                        For the three months ended
    -------------------------------------------------------------------------

                                                        March 31,   March 31,
                                                            2009        2008
    -------------------------------------------------------------------------
    Sales                                                 $2,585      $5,941
    -------------------------------------------------------------------------
    Operating loss                                        (3,183)       (648)
    -------------------------------------------------------------------------
    EBITDA(1)                                             (2,088)       (330)
    -------------------------------------------------------------------------
    Net loss                                              (3,482)       (713)
    -------------------------------------------------------------------------
    Total Assets                                         237,693     115,438
    -------------------------------------------------------------------------
    Loss per share (basic and diluted)(2)                  (0.06)      (0.01)
    -------------------------------------------------------------------------
    Weighted average number of shares(2)              60,762,000  60,082,000
    -------------------------------------------------------------------------

    (1) Earnings before interest, taxes, depreciation, and amortization
        ("EBITDA") is a non-GAAP financial measure. Hanwei calculates EBITDA
        by adding (1) net income (loss), (2) interest expense (income)
        reported on the income statements, (3) depreciation expense reported
        as a line item on the income statements, (4) amortization expense,
        and (5) income tax expense(recovery) reported on the income
        statements. This might not be the same calculation used by other
        companies.

    (2) Earnings(loss) per share and weighted average number of shares do not
        take into account the 8,051,746 common shares of Hanwei issued in
        escrow as part of the earn-out provisions for the acquisition of
        Daqing Deta Electric Co., Ltd.
    

    Sales revenues decreased by 56 percent to $2.6 million for the three
months ended March 31, 2009, compared to the same period in 2008. The decrease
was driven primarily by reduced revenue from the wind power equipment segment
due to the delivery and installation schedule of the Company's wind power
customer. Revenues for the first quarter were in line with management
expectations and the historical seasonality of Hanwei's business lines. In
2008, the first quarter revenues were $5.9 million or 6.1 percent of 2008
annual revenues of $96.5 million, including $4.5 million in wind power
revenues. For 2009, the first quarter revenues are expected to account for
less than 2 percent of annual revenues due to the delivery schedule for wind
power turbines and blades.
    In the first quarter of 2009, Hanwei generated approximately 77 percent
of its revenues from the sale of FRP pipe, 20 percent of its revenues from
wind power equipment, and 3 percent of its revenues from FRP FGD pollution
control products, versus 24 percent, 75 percent, and 1 percent respectively in
the same period last year.
    For the three months ended March 31, 2009, negative earnings before
interest, taxes, depreciation and amortization ("EBITDA") was $2.1 million
compared to negative EBITDA of $0.33 million in the same period in 2008. Net
loss in the first quarter of 2009 was $3.5 million compared to a net loss of
$0.7 million in the first quarter of 2008. Loss per share was $0.06 for the
first quarter of 2009 versus a loss of $0.01 per share for the same period in
2008.
    During the three month period ended March 31, 2009 the Company increased
its inventory and prepayments by approximately $14.6 million to $53.3 million
primarily in FRP pipe and wind power equipment in preparation for deliveries
during 2009. For 2009, the Company expects to experience similar seasonality
of revenues as in 2008. In 2008, more than 50 percent of revenues were
generated in the fourth quarter.
    As at March 31, 2009, Hanwei had cash and short-term investments of $19
million and working capital totalling $52 million. The Company's 2009 growth
plan requires additional working capital and investments totalling
approximately RMB500 million ($100 million). This includes working capital to
support the growth in the pipe and wind power businesses, investments in a
manufacturing facility in Kazakhstan, the development of wind power
technology, remaining payment for the acquisition of Daqing Deta Electric Co.,
Ltd. ("Deta"), and the payment for the acquisition of China National Petroleum
Corporation's 9 percent minority interest in Harvest. Management plans to
finance these working capital and investment needs with cash on hand, cash
from operations and debt facilities with Chinese banks and third parties. As
at March 31, 2009, the Company had accessed additional loans of approximately
$16 million and is in the process of negotiating additional debt funding with
its existing lenders. Subsequent to the end of the first quarter, Hanwei
received confirmation of approval from the China Construction Bank for a
RMB560 million ($95.1 million) credit facility with a two year term, to fund
working capital and investment needs for its wind power equipment and FRP pipe
business lines. (See press release dated May 14, 2009.) Draw-downs from the
line of credit will have individual terms and are subject to individual
approvals to be secured with sales orders, accounts receivables, or
guarantees. With the China Construction Bank credit in place, management
believes it has access to sufficient capital to fund the Company's growth plan
for 2009.

    FRP Pipe

    Sales revenues from the pipe business were $2 million for the three
months ended March 31, 2009, an increase of 40 percent compared to the same
period last year. The increase was primarily driven by a growth in the
Kazakhstan market and the effect of foreign exchange rate fluctuations. The
pipe business is highly seasonal with the first quarter of the year the lowest
and the fourth quarter the highest in revenues. Generally, China's oil field
operators' focus on oil field design and engineering and planning their
capital expenditures for the year in the previous year's fourth quarter and
the following first quarter and start placing orders and expressions of
interest with suppliers in late first quarter and the second quarter.

    Wind Power

    Sales revenue from the wind power business were $0.5 million for the
three months ended March 31, 2009, a decrease of $4 million compared to the
three months ended March 31, 2008. In the first quarter of 2009, 3 sets of
blades and no turbines were delivered compared to 4 turbines and no blades
were delivered in the three months ended March 31, 2008. The timing difference
in the delivery of wind power equipment products are driven by the customer's
wind farm development schedules and is not expected to impact the Company's
full year delivery targets.
    On April 22, 2009, Hanwei announced that it had signed a non-binding
letter of intent ("LOI") with the Baotou Development and Reform Commission and
with Beijing Kunding Xunlei New Energy Technology Ltd. to provide wind power
turbines and blades for a 400 MW wind farm located approximately 100
kilometres from Baotou, Inner Mongolia Autonomous Region, China. With this
LOI, Hanwei is in the early stages of securing its second major customer in
the wind power business; however, the Company has identified a number of
challenges to move the LOI to formal contracts and start delivering wind power
equipment, including the requirement for Hanwei to deliver 2 MW to 3 MW
turbines, a technology the Company currently does not posses. The Baotou
region is expected to host over 30 percent of China's wind power resource.

    FGD

    Sales revenue from the FGD business were $79,000 for the three months
ended March 31, 2009 which represents an increase of 30 percent compared to
the three months ended March 31, 2008. The Company's 50:50 joint venture with
Ershigs Inc. ("Hanwei Ershigs") started its operations during the first
quarter of 2009 at its facility in Yanjiao, Hebei Province and has commenced
marketing new FRP FGD products (to be produced using the Ershigs large
diameter winder and proprietary FRP technology) and Hanwei's FRP spray headers
and related accessories. Hanwei Ershigs is expected to expand its revenues in
the second half of 2009.
    "Our first quarter results were in line with management's expectations
and reflect the seasonality that currently exists in some of our core
business," said Mr. Fulai Lang, President and CEO of Hanwei. "As we continue
to diversify our customer base in FRP pipe and wind power equipment, and build
the FGD business and expand FRP pipe sales internationally, we expect to
reduce the impact of seasonality and provide a more even distribution of
revenues and earnings throughout the year. Our outlook for 2009 remains
positive as we expect the stimulus that the Chinese government has provided to
the Chinese economy will largely offset the effects of the downturn in the
global economy and lower oil prices."

    Results of Operations:

    Gross Profit

    Gross profit for the three months ended March 31, 2009 was $0.6 million,
a decrease of $1.3 million or 68 percent, compared with the three months ended
March 31, 2008. Gross profit as a percentage of revenues for the three months
ended March 31, 2009 was 24 percent compared to 32 percent for the three
months ended March 31, 2008. The decrease in gross profit was primarily due to
the aforementioned decrease in revenues. Gross margin as a percentage of
revenues was lower in the three months ended March 31, 2009 due to a change in
business mix. Most of the revenues in the first quarter of 2009 were from FRP
pipe sales to Kazakhstan whereas, in same period in 2008, most of the revenues
were from wind power equipment and FRP pipe sales in China, which generate
higher gross profit margins than sales to Kazakhstan. However, the gross
margin in Kazakhstan has improved significantly since 2008 due to the
Company's ability to increase prices after introducing FRP pipe products to
the Kazakhstan market in 2008.

    Expenses

    Sales and marketing expenses for the three months ended March 31, 2009
were $1.0 million, or 40 percent of revenues, compared to $0.7 million or 11
percent of revenue for the three months ended March 31, 2008. The increase of
selling expenses was driven by the expansion of an international sales team
for the pipe business and new sales personnel for the wind power business. The
increase of sales and marketing expenses as a percentage of revenues was
driven by both the increase of sales and marketing expenses and the decrease
in revenues. For the full year of 2009, sales and marketing expenses as a
percentage of revenues are expected to be lower or in line with that of 2008.
    Research and development ("R&D") expenses for the three months ended
March 31, 2009 were $0.2 million, or 8 percent of revenues compared to $0.1 or
2 percent of revenues for the three months ended March 31, 2008. The increase
in R&D expenses was driven by increased activities in the pipe business for
new large diameter products and the application of wind power technologies. In
2009, the Company will increase its investments in R&D to further expand its
product portfolio for large diameter pipes and to develop new technologies for
wind power turbines.
    General and administrative ("G&A") expenses for the three months ended
March 31, 2009 were $2.6 million, or 99 percent of revenues compared to $1.8
million or 30 percent of revenues for the three months ended March 31, 2008.
The increase in G&A expenses compared to 2008 was mainly due to new offices in
Beijing and the growth in the wind power business. On a full year basis,
management expects G&A expenses as a percentage of revenues to decrease in
2009 as the Company continues to expand revenues across its three business
segments.

    
    Operating loss (Earnings before Interest, Taxes, and Non-Controlling-
    Interest)
    

    The Company had an operating loss of $3.2 million for the three months
ended March 31, 2009, representing an increase of $2.5 million compared to an
operating loss of $0.7 million for the three months ended March 31, 2008. The
increase in operating loss was due to lower revenues and increased expenses,
including increased amortization. The operating loss in the first quarter
included $1.0 million in amortization, compared to $0.20 million in the same
period in 2008 due to the increase in depreciable fixed assets. On a full year
basis, management expects the operating income and operating income as a
percentage of revenues to increase in 2009 compared to 2008 due to the
expected growth in revenues.

    Interest Expense

    Interest expense was $0.8 million for the three months ended March 31,
2009 compared to $43,000 for the three months ended March 31, 2008. The
increase in interest expenses was due to an increased utilization of debt
facilities in 2009, which is consistent with the Company's funding strategies
for 2009. The Company expects interest costs to increase in 2009.

    Income Tax Recovery

    Income tax recovery was $0.4 million for the three months ended March 31,
2009 compared to income tax expenses of $0.2 million for the three months
ended March 31, 2008. The income tax recovery was primarily driven by the loss
generated in the three months ended March 31, 2009.

    Non-controlling Interest

    Non-controlling interest of 1 percent for Deta resulted in an immaterial
amount for the three months ended March 31, 2009 compared to $62,000 for the
three months ended March 31, 2008 which resulted from a 9 percent minority
interest of China National Petroleum Corporation ("CNPC") in Harvest. Hanwei
acquired the 9 percent minority interest in Harvest from CNPC in November
2008. The Company has received all the regulatory approvals for this
transaction and expects to make the payments for this acquisition in the
second and third quarters of 2009.

    Earnings and Earnings per Share

    Net loss was $3.5 million for the three months ended March 31, 2009,
representing an increase of $2.8 million compared to a net loss of $0.7
million for the three months ended March 31, 2008. On a full year basis, the
Company expects net income to increase in 2009 compared to 2008 due to
expected increases in revenue and the positive effects of seasonality expected
later in the year. The Company had basic and diluted loss per share of $0.06
for the three months ended March 31, 2009 compared to basic and diluted loss
per share of $0.01 for the three months ended March 31, 2008. This excludes
the 8,051,746 common shares issued under the earn-out provisions for the Deta
acquisition.

    Outlook

    The Company's outlook is consistent with that disclosed in the 2008 year
end press release. As the Company's customers primarily operate in the energy
sector in China where strong growth is still expected, the Company expects
that the impact on the demand for its products from the current economic
downturn will be manageable. Hanwei expects revenue growth of between 40 and
60 percent in 2009 compared to 2008. The wind power and pipe businesses are
expected to account for more than 90 percent of revenues in 2009, with an
initial order for 100 MW of wind power equipment for delivery in 2009 and
early 2010. Net margins are expected to improve due to improved gross margin,
economies of scale and lower tax rates for the wind power equipment business.
EPS is expected to grow due to revenue growth, improved net margin, and
Hanwei's acquisition of CNPC's 9 percent minority interest in Harvest, which
operates Hanwei's FRP pipe business. In addition, the Company plans to fund
its growth in 2009 with cash on hand, cash flow from operations and debt, and
limit shareholder dilution by controlling the issuance of additional shares.
    Hanwei will be holding a conference call to discuss its financial results
for the three months ended March 31, 2009. Mr. Kim Oishi, Senior Vice
President of Finance and Business Development, and Mr. Yucai (Rick) Huang,
Chief Financial Officer, will host the call.

    
    Date:                    Tuesday, May 19, 2009

    Time:                    10:00 a.m., Eastern Time

    Dial in number:          1-888-461-2016 or 1-719-325-2291

    Taped Replay:            1-888-203-1112 or 1-719-457-0820
                             (available for 14 days)

    Taped Replay Pass Code:  7400398

    Live Webcast Link:       http://viavid.net/dce.aspx?sid=00006454

              FORWARD-LOOKING INFORMATION AND NON-GAAP MEASURES
    

    Certain information in this press 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 the arrangement of the credit
facility, the use of proceeds from the credit facility, 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.
Material factors or risks which could cause actual results or event to differ
materially from a conclusion in such forward-looking information include the
risk that the draw downs under the credit facility are subject to the
discretion of the lending bank, the credit lines under the credit facility may
not be available at the time required, the credit requirements at the time of
a draw down under the credit facility may not be met, the credit facility may
not provide all of the funding that the Company requires to achieve its growth
targets, as well as the risks set out in the risk factors section of the
Company's Annual Information Form dated March 31, 2009 for the year ended
December 31, 2008 and the Company's press releases issued subsequent thereto,
all filed with Canadian securities regulators and available on SEDAR at
www.sedar.com. Potential investors and other readers are urged to consider
these factors carefully in evaluating these forward-looking statements and
information and are cautioned not to place undue reliance on them.
    The Company has included in this press release figures based on EBITDA,
gross profit, gross margin, working capital and orders received, which are
non-GAAP measures. Readers are cautioned that such measures are not recognized
under Canadian GAAP and should not be construed to be an indicator of
performance or liquidity or cash flows. The Company's method of calculating
this measure may differ from the method used by other entities and accordingly
the Company's measure may not be comparable to the measure used by other
entities.
    THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS PRESS RELEASE PRESENTS
THE EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS PRESS RELEASE AND,
ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE
UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS
INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, THE COMPANY
DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME, EXCEPT
AS REQUIRED BY APPLICABLE SECURITIES LEGISLATION.





For further information:

For further information: Kim Oishi, SVP of Finance and Business
Development, (416) 804-9228, koishi@hanweienergy.com; Kevin O'Connor, Investor
Relations, (416) 962-3300, ko@spinnakercmi.com

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HANWEI ENERGY SERVICES CORP.

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