Hanwei Updates Wind Operations
- First four turbines to be installed in April 2008
- Establishes relationships with domestic suppliers to address supply chain issues
Vancouver, BC, March 31, 2008. Hanwei Energy Services Corp. ("Hanwei" or the "Company") is pleased to announce that it has completed and delivered the first four 1.5 megawatt ("MW") turbines to Daqing Deta Electric Co. Ltd ("Deta"), which will be installed by the end user, Heilongjiang Ruihao Energy Technology Co., Ltd. ("Ruihao"), in April 2008. The turbines will be installed using the three blade sets manufactured by Hanwei and delivered in December 2007 and an additional blade set to be delivered by Hanwei in early April 2008. The remaining 16 turbines (24 MW) and blade sets, which are part of the initial RMB 200 million ($29 million) order with Deta, are scheduled to be delivered in 2008 under a revised schedule that has been mutually agreed upon by Hanwei, Deta and Ruihao. All of the wind power equipment manufactured by Hanwei has been produced using Chinese developed technologies licensed by Deta and Ruihao.
The extended schedule for the delivery of turbines is a result of continued industry-wide supply chain issues. To that end, Hanwei has successfully established relationships with new Chinese suppliers for key turbine components, including gearboxes and bearings, that are to be manufactured to the specifications of the Chinese turbine technology licensed by Deta and Ruihao. Hanwei believes that it can source all of the required turbine components from Chinese suppliers for 2008 deliveries. To date, Hanwei has confirmed delivery schedules from component suppliers for approximately 135 MW of turbine components in 2008, representing more than 50% of its needs for the 2008, and is working with its suppliers to secure additional components for the current year. Hanwei is expecting 224 MW in orders for wind power equipment for 2008, including 24 MW from the initial order with Deta from 2007, and 200 MW in additional orders, subject to the acquisition of Deta as set out below.
The extended schedule for wind blade delivery is due to the implementation of new manufacturing processes and the need to field test the blade sets. Hanwei expects results from field testing to be available from Deta and Ruihao in May 2008. To enhance its wind turbine blade production capabilities and to accommodate the implementation of new manufacturing processes, Hanwei has entered into a licensing agreement with Aerodyn Energiesysteme GmbH ("Aerodyn"), a leading international wind power engineering firm, under which Hanwei has been granted a non-exclusive right to produce two versions of Aerodyn's aeroBlade 1.5 in China. The licensing agreement provides Hanwei with the moulds, technical know-how, specifications and support to produce the 37.5-metre and 40.3-metre versions of the 1.5 MW blades and to market and sell them in China under the Hanwei brand. The production moulds and training set out in the Aerodyn agreement is progressing on schedule such that Hanwei expects to be able to commence production in May 2008.
"Supply chain management is a key factor for our future success in the wind power industry. With China's requirement that all wind equipment have 70 percent domestic content, establishing strong relationships with qualified Chinese suppliers is vital, not only to satisfy government guidelines, but also for the cost effective and timely execution of our wind power contracts," stated Mr. Fulai Lang, President and CEO of Hanwei. "The new supplier relationships and wind blade manufacturing technology will help ensure that the schedule for the existing wind power equipment contract can be achieved, as well as support the significant component requirements for the pending contract for 1,200 MW of wind power equipment over five years with Ruihao."
In a press release dated January 24, 2008, Hanwei announced that it had entered into a Memorandum of Understanding ("MOU") to acquire 100 percent of Deta for RMB 600 million ($85.3 million). The MOU contemplates that Hanwei will pay the acquisition price as to 50 percent in cash and 50 percent in Hanwei common shares at $5.30 per share in a series of payments based on annual wind power equipment manufacturing contracts signed between Deta and Ruihao. Under the MOU, signed by Hanwei, Deta and Ruihao, Deta will enter into a contract (the "Wind Power Equipment Contract") with Ruihao to provide 1,200 MW of wind power turbines, blades, towers and control systems (together the "Wind Power Equipment") valued at approximately RMB 8.4 billion ($1.2 billion), and a right of first refusal to provide all future Wind Power Equipment for wind farms that Ruihao owns or controls. Under the Wind Power Equipment Contract, Deta is to be guaranteed a 15% net after tax profit. In return, Hanwei will grant Ruihao the right to purchase, at market prices, all additional Wind Power Equipment manufactured by Hanwei. Ruihao has also agreed to transfer to Deta all of its current wind power equipment technology and its rights to the land and building now being used by Hanwei to house its wind power equipment manufacturing plant. Hanwei is working with Deta and Ruihao to revise the MOU to satisfy Chinese and Canadian corporate, securities and tax issues, but expects the acquisition to close, subject to completion of due diligence and board approval, on terms comparable to those set out above. Hanwei will require additional working capital to support its growth plan, including for its wind power business. Hanwei intends to augment its cash in hand and cash from operations with new debt facilities (totaling approximately RMB $450 million ($68 million) that have been preliminarily arranged with a commercial bank and a related party of a customer, at prevailing market interest rates in China. About Hanwei Energy Services Corp.
Hanwei Energy Services Corp. provides high value products and services for the energy sector in China and the Asia region. Hanwei serves its major energy customers through manufacturing facilities in China, producing products for the oil, coal power and wind power industries. Hanwei is focusing on providing products and services that address the growing need for improved energy efficiency and environmental protection in China and the Asia region. Please visit our website at: www.hanweienergy.com.
For more information please contact:
Kim Oishi, Senior Vice President of Finance and Business Development
416-804-9228
koishi@hanweienergy.com
Or
Kevin O'Connor, Investor Relations
416-962-3300
koconnor@genoa.ca
FORWARD LOOKING INFORMATION
This news release contains forward-looking statements and information that are based on the beliefs of management and reflect Hanwei's current expectations. When used in this news release, the words "estimate", "project", "belief", "anticipate", "intend", "expect", "plan", "predict", "may" or "should" and the negative of these words or such variations thereon or comparable terminology, are intended to identify forward-looking statements and information. Such statements and information reflect the current views of Hanwei with respect to risks and uncertainties that may cause actual results to differ materially from those contemplated in those forward-looking statements and information.
There are a number of important factors that could cause Hanwei's actual results to differ materially from those indicated or implied by forward-looking statements and information, including Hanwei's growth strategy may fail, Hanwei is currently dependent on the oil and gas industry and the wind power industry for the majority of its sales, Hanwei may not be able to develop its proposed new products and services, risks related to expanding operations, Hanwei is dependent on a few major customers, a robust market for wind power products in China is still in the process of developing, Hanwei's wind power products have not been tested through actual operations, Hanwei may not be able to meet the delivery schedule of its wind power equipment (including wind turbines), Hanwei may not secure debt financing that is needed for its growth plans, Hanwei faces risks with respect to supply chain management, particularly with respect to its wind power business, changes in technology or product requirements may affect Hanwei's ability to compete in the wind power equipment industry, there is significant uncertainty surrounding wind power regulation in China, Hanwei must meet Chinese governmental localization requirements in producing its wind power products, in connection with improvements to its wind power blade product offerings, Hanwei may be dependent on the license granted by Aerodyn, the proposed acquisition of Deta may not complete on the terms negotiated or may fail, Hanwei is dependent on key personnel, Hanwei depends on its intellectual property and the failure to protect that intellectual property may adversely affect Hanwei's future growth and success, Hanwei currently faces and will continue to face significant competition, Hanwei's pipe business currently faces seasonal fluctuations in revenues, Hanwei may not have adequate insurance for all potential claims, changes in raw material or energy costs may adversely affect Hanwei's operating margins, Hanwei's operations are subject to environmental risks and hazards, Hanwei faces specific risks associated with doing business in China (including risks relating to state ownership, government intervention, foreign investment, repatriation of profit and currency conversion, shareholders' rights and enforcement of judgments, developing legal system, recent Chinese regulations relating to cross-border mergers and acquisitions, protection of intellectual property rights, permits and business licenses, appropriation, tax, infrastructure and interest rate fluctuations), Hanwei faces specific risks associated with doing business in Kazakhstan, Hanwei faces risks associated with licensing FRP technology to Concept in India, the proposed joint venture for its coal business may fail, Hanwei is subject to exchange rate fluctuations, a significant percentage of Hanwei's common shares are owned, in the aggregate, by its directors and officers and Hanwei may be affected by actions of its joint venture partner.
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For additional information with respect to certain of these and other factors, refer to the risk factors section of Hanwei's Annual Information Form dated July 10, 2007 filed with Canadian securities regulators, which is available on SEDAR at www.sedar.com.
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