HANWEI ENERGY SERVICES REPORTS SECOND QUARTER FISCAL 2011 FINANCIAL AND
OPERATIONAL RESULTS
TSX: HE
VANCOUVER, Nov. 9 /CNW/ - Hanwei Energy Services Corp. (TSX: HE) ("Hanwei" or the "Company"), today reported its financial results for the three and six-month period ended September 30, 2010 (the "Reporting Period"). Hanwei reports in Canadian Dollars.
Financial Highlights
For the three and six months ended September 30, 2010, revenues from continuing operations were $8.1 million and $11.4 million respectively, a decline of 50% and 61% respectively as compared to the same periods of 2009. This decline was primarily caused by timing of deliveries for the FRP pipe business, the restructuring of the wind power business and the discontinued FGD business.
Gross profit was impacted by a write-down of FRP pipe inventory from cancelled orders ($1.8 million) and cost of revenues of $0.7 million and $2.0 million for the three and six months ended September 30, 2010 as a cost of certain wind power blades and accessories delivered to Hanwei's wind power customer. These deliveries by Hanwei are expected to assist the customer with its wind farm completion, which in Management's opinion supports the customer's funding and liquidity for the repayment of its outstanding accounts receivable. Excluding these aforementioned one-time costs, the gross profit was $3.2 million and $4.3 million, respectively, for the three and six months ended September 30, 2010, which were 39% and 38% of revenues.
For the FRP pipe business, timing of orders and revenues in the China market have been delayed as the major oil field producers implement new pipe specifications and testing of field applications. The Company, however, has secured and continues to pursue sales orders for both the Chinese and international markets with deliveries in the coming quarters as described below.
The Company had a net loss of $6.6 million and $11.8 million respectively for the three and six months ended September 30, 2010, as compared to net losses of $0.3 million and $0.1 million respectively for same periods of 2009. The increase in net losses was primarily driven by reduced revenues, one-time assets write-downs totaling $2.0 million related to the discontinued FGD business, and certain other one-time costs as mentioned above. The Company had basic and diluted loss per share of $0.09 and $0.17 respectively for the three and six months ended September 30, 2010 as compared to basic and diluted loss per share of nil and $0.01 for the three and six months ended September 30, 2009.
As at September 30, 2010 the Company's cash balance was $1.6 million and working capital was $2.2 million. Prepayments and inventory increased by $6.5 million primarily driven by increase of purchase in the pipe business unit in preparation for deliveries in the coming quarters.
Major Corporate Developments
International Expansion Targeting Sales Accounts in Middle East and Middle Asia Markets
As of October 31, 2010 the Company has shipped approximately $5.9 million of a $9.9 million order to a Kuwait customer with expected revenue to be realized in the third quarter of fiscal 2011. This initial Middle East order is the first of several projects the Company is pursuing in the region and allows the Company to adapt its production and supply logistics to meet customer requirements in this specific market. The Company has also shipped approximately $2.25 million to Kazakhstan regional customers with expected delivery and revenue recognition in the third quarter of fiscal 2011.
These results are an outcome of direct sales teams and agent relationships that are currently being expanded in key international markets of Middle Asia and the Middle East. The scale and size of orders in these regions are larger than that traditionally received by the Company from China domestic operations and potentially can be spread over a number of years.
Update on Outstanding Accounts Receivable of the Wind Power Business
The Company is vigorously maintaining its efforts to collect its outstanding accounts receivable in a net amount of $27 million from its customer. While this amount has been previously allowed for, management expects to collect this outstanding amount in staged payments although there is no certainty that the customer will obtain funding to support the repayment or that the Company can collect the amount in full or in part.
Update on Repositioning of Wind Power Business
The Company is continuing its discussions with a major Chinese, state-owned enterprise on a potential repositioning of its wind power business. While discussions are ongoing, and no agreement in principal has been reached, such an arrangement aims at leveraging the significant influence and market stature of a major local partner where Hanwei becomes a direct financial beneficiary, while minimizing its management resource requirements and maintaining focus on its core fiberglass reinforced plastic ("FRP") business. Such repositioning also reinforces the Company's efforts to collect on its outstanding receivable from its wind power customer.
Dissolution of China Joint Venture with Ershigs
As previously announced, Hanwei has elected to dissolve its China joint venture with Ershigs. As at September 30, 2010, assets of this business segment have been classified as held-for-sale and written down to their estimated fair value. The Company does not expect any further impairment charges to this business as it completes the dissolution of the joint venture company.
Financial Results
Summary Financial Results:
For the For the For the For the
three- three- six- six-
month month month month
(in thousands of period period period period
Canadian dollars ended ended ended ended
except for per September September September September
share data) 30, 2010 30, 2009 30, 2010 30, 2009
------------------------- -------------------------
Revenue $ 8,119 $ 16,346 $ 11,386 $ 28,979
Operating expenses 4,075 4,772 7,182 9,052
Operating income
(loss) (3,370) 2,541 (6,675) 3,382
Total non-operating
expenses (549) (2,027) (1,465) (2,951)
Recovery of/(provision
for) future income
taxes 200 (755) 214 (782)
Loss from continuing
operations (3,719) (241) (7,926) (351)
Net income (loss) from
discontinued
operations (2,913) (17) (3,905) 250
------------------------- -------------------------
Net loss $ (6,632) $ (258) $ (11,831) $ (101)
------------------------- -------------------------
Net loss per share
(Basic and Diluted) (0.09) (0.00) (0.17) (0.00)
Weighted average
number of shares
outstanding
(Basic and Diluted) 71,056 60,786 69,018 60,773
Balance Sheet Key Indicators:
(in thousands of Canadian September 30, March 31,
dollars except for ratios) 2010 2010
------------------------------------------------------------ ------------
Current Ratio(1) 1.0: 1 1.1: 1
Free Cash $1,596 $2,820
Working Capital(2) $2,249 $5,839
Total Assets $132,717 $135,037
Total Debt(3) $52,628 $52,787
Total Equity(4) $40,595 $46,944
Total Debt to Total Equity Ratio 1.3 1.12
(1) Current ratio is defined as total current assets divided by total
current liabilities
(2) Working capital is defined as total current assets less total current
liabilities
(3) Debt is defined as short-term loans and amounts due to related
parties
(4) Total equity is equal to the total shareholders' equity
Hanwei will host a conference call to discuss its second quarter fiscal 2011 operational and financial results. Graham Kwan, Executive Vice President and Rick Huang, Chief Financial Officer of Hanwei will host the call.
Management invites analysts and investors to participate on the conference call:
Date: Wednesday, November 10th, 2010
Time: 10:30 am Eastern Standard Time
Dial in number: 1-877-340-7912 or 1-719-325-4840
Taped Replay: 1-877-870-5176 or 1-858-384-5517
(available for 14 days)
Taped Replay Pass Code: 3064810
Live Webcast Link: http://viavid.net/dce.aspx?sid=00007953
About Hanwei Energy Services Corp.
Hanwei Energy Services Corp. is the leading Chinese manufacturer of high pressure, fiberglass reinforced plastic ("FRP") pipe products and associated technologies and services for the international oil and gas sector. Hanwei serves major energy customers in the Chinese and global energy markets.
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.
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 warranty repairs for product defects, the sales of FRP pipe products, deliveries of FRP pipe products in Kazakhstan and the Middle East, the recovery of the industries in which the Company operates, the growth prospects of the Company's business segments in the near future, the demand of the Company's products in each of the geographic markets, the potential repositioning and downsizing of the Company's wind power business, the collection of outstanding accounts receivable, the arrangement of debt facilities or other financing to fund cash 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 events to differ materially from a conclusion in such forward-looking information have been set out in the Company's Management Discussion and Analysis for the three and six months ended September 30, 2010 and Annual Information Form dated June 29, 2010 filed with Canadian securities regulators and available on SEDAR at www.sedar.com.
The Company has included in this press release figures based on, gross profit, working capital, sales orders and expressions of interest, 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: Graham Kwan, Executive Vice President, Strategic Development and Corporate Affairs, 604-685-2239, [email protected]; Yucai (Rick) Huang, Chief Financial Officer, 604-685-2239, [email protected]; Kevin O'Connor, Investor Relations, 416-962-3300, [email protected]
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