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Message: Hanwei annual report
Personal Comment .: 2008 has been the year of dragon's growth for Hanwei , thank's to technological and product expension , to acquisition as well as one of further involvement in the very complex affair of both administrative and business partnership in China . Hanwei has accomplished in one year what most busnisses would take years to accomplish, from the business of building pipes it has gone into wind turbines and FGD polution control products at the speed of light , answering to the fast growing needs of China for such products as well as being involved in Kazakstan . Outlook for 2009 remains strong as China keeps growing in all of those areas and as Hanwei has built stronger relationship with Chinese banking system in order to avoid having to deal with north america voracious banking lending towards enterprises . China keeps expending it's energy generating capacity even through those hard econmic times , Hanwei seems to be in a good position to profit even more in years to come , considering what it has accomplished so far . Attention Business/Financial Editors Hanwei announces 2008 financial results <<
--Revenue increases 136 percent to $96.5 million--
--EBITDA grows by 55 percent-- TSX: HE VANCOUVER, April 1 /CNW/ - Hanwei Energy Services Corp. ("Hanwei" or the "Company") today reported its financial results for the year ended December 31, 2008. All currency amounts referred to in this news release are in Canadian dollars unless stated otherwise. << Summary 2008 Financial Results ------------------------------------... In thousands of Canadian dollars except per share data For the year ended ------------------------------------... 2008 2007 Change ------------------------------------... Sales $96,450 $40,810
136%
------------------------------------... Operating Income 10,825 7,132
52%
------------------------------------... EBITDA(1) 12,453 8,040
55%
------------------------------------... Net Income 8,112 6,260
30%
------------------------------------... Total Assets 212,264 110,251
93%
------------------------------------... EPS (basic)(2) $0.13 $0.13 - ------------------------------------... EPS (diluted)(2) $0.13 $0.13 - ------------------------------------... Weighted average number of shares(2) Basic 60,528 47,277 28% Diluted 61,756 49,075 26% ------------------------------------... (1) Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a non-GAAP financial measure. Hanwei calculates it by adding (1) net income, (2) interest expense reported on the income statements (or deducting interest income), (3) depreciation expense reported as a line item on the income statements, and (5) income tax expense reported on the income statements. This might not be the same definition used by other companies.
(2) Earnings 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 Deta acquisition. >> Revenues were $96.5 million, an increase of $55.6 million or approximately 136 percent compared to the year ended December 31, 2007.
growth was driven by an expansion of the high-pressure fiberglass reinforced plastic ("FRP") pipe business into international markets and the progress in the wind power equipment business.
On a segmented basis, revenues from the FRP
oil pipe business grew by 51 percent to $46.6 million;
the wind power business grew more than five-fold to $46.6 million,
and the FRP flue gas desulphurization ("FGD") pollution control products business more than doubled
to $3.2 million.
In 2008, Hanwei generated approximately 49 percent of its revenues from the sale of FRP pipes,
48 percent from wind power equipment,
and 3 percent of its revenues from FRP FGD pollution control products ,
as the Company continued to execute on its plan to diversify its revenue base. By comparison, in 2007
and 2006, 75 percent and 100 percent of revenue was generated by FRP oil pipe sales, respectively.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") grew 55 percent to $12.5 million for the year ended December 31, 2008, compared to EBITDA of $8.0 million in the same period in 2007.
Net income grew 30 percent to $8.1 million compared to the year ended December 31, 2007 driven
by the revenue growth in both the pipe and wind power equipment businesses.
Net income as a percentage of revenues for the year ended December 31, 2008 was 8 percent compared to 15 percent for the year ended December 31, 2007. The decline in the net income as a percentage of revenues was largely due to a lower gross margin for initial FRP pipe sales in Kazakhstan, an increased interest expense, and an increased income tax expense compared to 2007 due to
a higher tax rate of 25 percent on wind power revenues.
As a new business, the wind power segment did not qualify for preferential tax rates in 2008,
but the Company does expect to reduce its effective rate to 15 percent in 2009 if its "High-Tech" status is approved in China.
Earnings per share (EPS) was $0.13 for 2008 versus $0.13 in 2007, unchanged as
the increase in net income was offset by a 28 percent year-over-year increase in the weighted average number of shares outstanding.
Revenues for the fourth quarter of 2008 were $57.1 million, an increase of 138 percent or $33.1 million, compared to the fourth quarter of 2007.
The FRP pipe business grew by 47 percent compared to the fourth quarter of 2007,
while the wind power equipment business grew by 295 percent and the FGD segment grew by 116 percent.
Net income in the fourth quarter of 2008 was $5.2 million ($0.08 per share) versus $4.4 million ($0.07 per share) in the same period in 2007.
"In 2008 Hanwei grew sales and advanced strategic goals in all three business segments.
We delivered our first 40 wind power turbines and commenced production of wind power blade sets using technology licensed from Aerodyn, we established a new market for FRP oil pipe in Kazakhstan and developed new FRP pipe products, and we established a joint venture with North America's leading provider of FRP FGD products to serve the China market for coal power pollution control products," stated Fulai Lang, President and CEO of Hanwei. "Although 2008 posed many challenges, both economic and operational, we were able to push forward and deliver very solid results. During 2008, we invested considerable time and capital in building up our manufacturing capabilities and human resources.
****** We were also very successful in building strong relationships with China-based lenders, which will enable us to fund our growth capital needs without relying on the North American equity markets. ******
Our efforts have positioned us to grow profitably in China's dynamic energy sector and expand our presence in selected international markets." Segment Highlights FRP Pipe The year-over-year increase in FRP pipe revenues was driven by growth from the domestic Chinese market and an expansion into certain international markets including Kazakhstan. In 2008, Hanwei reported approximately $13 million in sales of 10- and 12-inch large diameter pipe to the Kazakhstan market representing 27 percent of total pipe sales year to date ($1.9 million in 2007). However, gross margin on sales in Kazakhstan were lower compared to he Chinese market, due to high transportation costs and Hanwei's competitive pricing strategy, which offered the FRP pipe at lower initial prices in order to gain entry and establish a market for its products.
The Company has been able to improve its pricing in the Kazakhstan market with a second sales order of RMB32 million ($5.7 million) to be completed in the first and second quarter of 2009. Management expects this second order to generate a gross margin approximating levels achieved on China pipe sales.
To improve the gross margin on sales in Kazakhstan and build stronger customer relations, the Company is planning to construct a pipe facility in
the country. According to local regulations, domestic manufacturers benefit from an estimated 20 percent pricing premium in bidding for oil pipe projects. This facility is also expected to eliminate cross-border shipping costs and import duties.
In 2008, the Company increased capacity in its manufacturing facility in Daqing to 4,600 km per annum, compared with 3,200 km per annum at the end of 2007, to satisfy the growing demand for its FRP pipe, and to provide capacity for the development of new products, including, 2 7/8-inch down hole tubing used for water injection in oil wells and 10-inch water transmission pipe, used for water applications. In 2008, the Company made initial sales of these new products in China and to an international customer and was successful in reducing its percentage of FRP pipe sales to China National Petroleum Corp. ("CNPC") related companies to 75 percent, compared to 84 percent in 2007. On November 19, 2008, Hanwei completed the acquisition of the 8.925 percent equity interest in Daqing Harvest Longwall High Pressure Pipe Co. Ltd. ("Harvest") from Daqing Changyuan Investment Co. Ltd. ("Changyuan"), an indirect subsidiary of CNPC, the parent company of PetroChina Co., Ltd. for RMB25.7 million ($4.7 million).
With this acquisition, Hanwei now owns 100
percent of China's largest high pressure FRP oil pipe manufacturer with an estimated market share of 55 percent.
CNPC related companies remain as distributors of Hanwei's FRP pipe in export markets in Kazakhstan and other countries, and are expected to remain the Company's largest customer for FRP pipe.
Wind Power
In 2008, Hanwei successfully developed its wind power business. In addition to completing and delivering 40-1.5-megawatt ("MW") turbines and 15 wind power blade sets, the Company completed the acquisition of a 99 percent equity interest in Daqing Deta Electric Co. Ltd. ("Deta"). In addition to providing Hanwei with an anchor customer and an agreement to provide 1,200 MW of wind power equipment (of which a manufacturing agreement for the first 200 MW of wind power equipment has been signed), the acquisition also includes facilities and licenses for 1.5 MW turbine and blade manufacturing technology, which was utilized to produce the 40 turbines delivered in 2008. To date, a total of 16 Hanwei wind turbines have been installed at Ruihao Energy Technology Co., Ltd.'s ("Ruihao") wind farm in Heilongjiang Province, China. Eight of the turbines are currently operational and generating electricity into the grid. In 2008, Hanwei undertook numerous steps to improve its ability to produce wind power equipment including, recruiting senior management with experience and expertise in the wind power business, building relationships and negotiating agreements with turbine component suppliers, and developing improved blade manufacturing processes using licensed blade technologies from Aerodyn Energiesysteme GmbH, a leading international wind power-engineering firm. In 2008, Hanwei invested approximately $1 million to recruit a highly experienced R&D team to further enhance its competitive position in the wind
power space. Subsequent to year-end, Hanwei filed its Business Acquisition Report ("BAR") regarding the acquisition of Deta. The BAR was filed on February 9, 2009 and is available on the SEDAR website ww.sedar.com). The Company also announced that it had satisfied the RMB100 million (approximately $19 million) initial payment for the acquisition of Daqing Deta Electric Co., Ltd. ("Deta"), by way of a working capital adjustment. Hanwei filed a Material Change Report on March 17, 2009 in this regard (which is also available on the SEDAR website). The working capital adjustment amount effectively reduced the acquisition price by RMB129 million (approximately $24.4 million). After deducting this amount from the first cash payment of RMB100 million, a credit of RMB29 million remains and will be deducted from the second cash payment of RMB60 million when due. The earn-out provisions for the acquisition remain unchanged. FGD
In 2008, Hanwei entered into a 50:50 joint venture agreement with Ershigs, Inc. ("Ershigs") to expand its product offering for the FGD business including, but are not limited to, FRP duct and chimney liners. The addition of new products will position Hanwei as one of the few companies in China that can supply FRP ducts and FRP chimney liners in the Chinese market and is expected to significantly increase average sales per customer. Subsequent to the year-end, Hanwei announced that operations have commenced at the manufacturing facility of the Chinese wholly foreign-owned enterprise ("WFOE") owned by Hanwei and Ershigs ("Hanwei Ershigs") and located in Yanjiao, Hebei Province. Hanwei Ershigs has injected an initial RMB20 million ($3.7 million) of capital into the WFOE in cash and manufacturingequipment, including a large diameter winder that is being shipped from Ershigs in the U.S. to China. The WFOE has also 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, including preparations for a number of project tenders. Summary Results of Operations
Gross Profit Gross profit for the year ended December 31, 2008 was $25.2 million, an increase of $7.8 million or 45 percent, compared with the year ended December
31, 2007. Gross profit as a percentage of revenues for the year ended December 31, 2008 was 26 percent compared to 43 percent for the year ended December 31, 2007. This decrease was mainly caused by changes in the product and geographical mix. In 2008, the Company increased its pipe sales in Kazakhstan and its wind power equipment sales in China. Pipe sales to Kazakhstan had a significantly lower gross margin compared to the gross margin for China pipe ales due to competitive pricing as a market entry strategy and transportation costs. Gross margin on wind power equipment sales was 22 percent in 2008 as the business is in the process of being developed and production output was low compared to capacity. Expenses
Sales and marketing expenses for the year ended December 31, 2008 were $4.9 million, or 5 percent of revenue, compared to $4.7 million or 12 percent of revenue for the year ended December 31, 2007. The decrease of selling expenses as a percentage of sales revenue in 2008 compared to 2007 was driven by increased sales in the pipe business and the wind power business. The wind power business incurred minimal sales and marketing expenses as the Company was focused on its one customer. The Company expects sales and marketing expense will increase in 2009 as it diversifies its customer base. However,revenue growth is expected to offset increasing selling expense, such that sales and marketing expense as a percentage of revenues in 2009 is expected to be in line with that of 2008. General and administrative ("G&A") expenses for the year ended December 31, 2008 were $8.4 million, or 9 percent of sales compared to $5.4 million or 13 percent of sales for the year ended December 31, 2007.
The increase in G&A expenses compared to 2007 was mainly due to an increase in stock based compensation expense and in costs associated with new offices in Beijing where the operations of the Company are headquartered. The decrease of G&A expense as a percentage of revenue was driven by growth in revenues and economies of scale. Management expects G&A expenses as a percentage of revenues to decrease
in 2009 segments. Research and development ("R&D") expenses for the year ended December 31, 2008 were $1 million, or 1 percent of revenues compared with $0.01 million or less than 1 percent of sales for the year ended December 31, 2007. The increase in R&D expenses in 2008 compared to 2007 was due to increasedactivities in the pipe business for new large diameter products. 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.
Operating Income The Company had operating income of $10.8 million for the year ended December 31, 2008, an increase of $3.7 million, or 52 percent compared to $7.1 million for the year ended December 31, 2007. Operating income as a percentage of revenues was 11 percent compared to 17 percent in 2007. The decline was due to lower gross profit margin for FRP pipe sales to Kazakhstan and wind power equipment, which made up a higher percentage of sales in 2008 compared to 2007. Interest and Income Tax Expense Interest expense was $1.7 million, an increase of 156 percent compared to $0.7 million for the year ended December 31, 2007. The increase of interest expenses was due to an increased utilization of loan facilities in 2008. As at December 31, 2008, the Company has short-term loans (one year or less) of $39 million compared to $1.9 million as at December 31, 2007. Income tax expense was $1.3 million for the year ended December 31, 2008, an increase of 131 percent compared to $0.6 million for the year ended December 31, 2007. This increase in income tax expense was driven by the income tax rate of 25 percent for the wind power business in 2008, compared to zero percent tax rate for the wind segment for the year ended December 31, 2007. The change in tax rate for the wind power business was due to the launch of a new income tax law in China in 2008, which voided a preferential tax status for the wind power business in 2007. However, the wind power business is expected to reduce its income tax rate to 15 percent for the year of 2009 if it is successful in an application for "High-Tech" status. Earnings and Earnings per Share Net income was $8.1 million for the year ended December 31, 2008, an increase of $1.9 million or 30 percent compared to $6.3 million for the year ended December 31, 2007. Net income as a percentage of sales revenue for the year ended December 31, 2008 was 8 percent compared to 15 percent for 2007. This decline in net income as a percentage of revenue was driven by the lower margin of pipe sales to Kazakhstan, increased interest expense and the increase of income tax expense for the wind power business. The wind power business incurred a 25 percent income tax rate for 2008 but it expects to pay a 15 percent income tax rate from 2009 onwards. The Company had basic and diluted earnings per share ("EPS") of $0.13 for the year ended December 31, 2008 compared to basic and diluted EPS of $0.13 for 2007. This excludes the 8,056,746 common shares issued into escrow as earn out provisions for the Deta acquisition due to their contingent nature. Growth in earnings was offset by an increase in the number of shares outstanding of 28 percent on a basic basis and 26 percent on a diluted basis.
Cash Position Cash totaled $11.9 million as at December 31, 2008, representing a decrease of $1.7 million from December 31, 2007.
Cash used in operating activities was $34 million due to the increase in working capital to support the new wind power business and the growth in the pipe business.
Cash used in investing activities was $6.5 million due to the addition of manufacturing equipment, such as blade moulds, for the wind power business and production capacity increased for the pipe business. Cash generated from financing activities was $34 million as the Company raised funds to support its growth through new debt financings. Working Capital
Working capital was $59 million as at December 31, 2008, a decrease of $24 million from $82.7 million as of December 31, 2007.
This decrease was largely due to decrease in cash and increase in accounts payable offset by an increase in accounts receivable. Current assets, excluding cash and short-term investments, increased by $60 million from the same period last year. Accounts receivable increased by $46 million and relates primarily to sales in pipe and wind power equipment. Inventory increased by $14 million due to expansion in both the pipe and the wind power businesses. Current liabilities increased by $63 million due to increases in accounts payable and short-term loans. Plant, Equipment and Construction in Progress
Plant and equipment, net of accumulated depreciation and amortization, was $49 million as at December 31, 2008, an increase of $36 million compared
with $13.5 million as at December 31, 2007. The increase was mostly due to the completion of the expansion of production capacity at the Daqing facility from 3,200 km per year as of December 31, 2007 to 4,600 km per year as of December 31, 2008, and to the investment in the blade manufacturing plant in Tianjin and in the manufacturing equipment for the wind power equipment business in Daqing. Outlook 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 with 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.
Netmargins are expected to improve due to improved gross margin, economies of scale and lower tax rates for wind power. EPS is expected to grow due to revenue growth, improved net margin, and Hanwei's acquisition of Changyuan's 8.925 percent minority interest in Harvest, 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 limiting the issuance of additional shares.
<<
Conference Call
Hanwei will be holding a conference call to discuss its financial results
for the year ended December 31, 2008.
Date: Wednesday, April 1, 2009
Time: 10:00 am Eastern Time
Dial in number: 1-888-298-3442 or 1-719-457-2601
Taped Replay: 1-888-203-1112 or 1-719-457-0820
(available for 14 days)
Taped Replay Pass Code: 1787174
Live Webcast Link: http://viavid.net/dce.aspx?sid=00006043
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 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
risks set out in the risk factors section of the Company's Annual Information
Form dated March 24, 2009 and the Company's MD&A for the year ended December
31, 2008, 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.
-30-
/For further information: Kim Oishi, SVP of Finance and Business
Development, (416) 804-9228, [email protected]; Kevin O'Connor, Investor
Relations, (416) 962-3300, [email protected]/
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