Mountain China Resorts (Holding) Limited (TSX VENTURE:MCG) ("MCR" or the
"Company"), today reported its financial results for the quarter ended March 31,
2013. MCR reports its results in Canadian Dollars.
Financial Results
Total revenue and the net results were from resort operations with no real
estate sales revenue during the Reporting Period. For the quarter ended March
31, 2013, the Company generated revenues from resort operations of $5.25 million
and a net loss of $3.39 million or $0.01 per share compared to $5.24 million and
a net loss of $3.65 million or $0.01 per share in 2012 Q1. Resort Operations
EBITDA from continuing operations for the first quarter of 2013 were $1.66
million compared to $1.45 million last year.
Resort operations expenses from continuing operations totaled $3.57 million for
the quarter ended March 31, 2013 compared to $3.25 million in 2012. Operations
expenses within the resorts are mainly attributable to snow making, grooming,
staffing, fuel and utilities, which also include the G&A expenses relating to
the resort's senior management, marketing and sales, information technology,
insurance and accounting.
Corporate general and administrative expenses ("G&A expenses") totaled $0.22
million for the quarter ended March 31, 2013 compared to $0.64 million in 2012.
This amount mainly comprised executive employee costs, public company costs, and
corporate information technology costs.
Depreciation and amortization expense from continuing operations totaled $2.81
million for the quarter ended March 31, 2013 compared to $3.08 million in 2012.
The Group incurred financing cost of $1.94 million for the quarter ended March
31, 2013 from continuing operations compared to $1.98 million in 2012. Financing
costs were mainly related to the loan interest, and also included bank
administrative fees, and service charges.
Cash and cash equivalents totaled $11.28 million and working capital was
negative $67.82 million as at March 31, 2013.
Operations Sun Mountain Yabuli
The 2012-2013 MCR's Sun Mountain Yabuli Resort winter season operations
commenced on November 24, 2012 and closed on March 24, 2013. The 2011-2012
winter season operations commenced on November 26, 2011 and closed on March 25,
2012. The revenue of Sun Mountain Yabuli Resort operation comprises mainly by
mountain operation, beverage, skiing-related services and hotel lodging.
Skiing-related services includes rental of ski equipment, goggles, lockers,
gloves, etc, sales of ski equipment and skiing training services offered in the
ski school. It also includes the mountain operation which is using the
facilities built in the mountain, such as sight-seeing trams, snow tubing and
alpine. Revenue from the Yabuli Resort for the quarter ended March 31, 2012 was
$5.25 million versus $5.24 million in 2012.
Sun Mountain Yabuli - Real Estate Development
At the end of Fiscal 2010, the Company had finished working on the exterior
decoration of the 55 villas of which three were completed with interior
finishing. At this time of the reporting date, certain construction is still
needed on the exterior grounds to complete lighting, roads and utility
connections. Management expected to be able to begin selling the villas and use
the proceeds to complete the construction. As of March 31, 2013 the Company had
not been successful in selling any of the villas. Management is of the opinion
that in order to complete sales it is necessary to first complete the exterior
construction. Management estimates these additional construction costs to be
$4.49 million and has plans to commence construction in the summer of 2013.
Since 2010, due to a combination of temporary Chinese government policies trying
to cool down the rapid growing housing price in mainland China, the property
investment demand have gone down significantly, which also impacted the Yabuli
area. At the same time, with a tight expense budget and shortage of working
capital, the Company had decided for the time being not to take the risk by
inputting its limited working capital into the villa's remaining public
infrastructure construction (for example: public lighting, roads, landscape
engineering) and a full scale marketing and advertising regime. However, the
Company does have confidence with its first of a kind skiing in and skiing out
villas in China. And the Company will be reasonably flexible with its pricing
when the market shows sign of a turn around. No other detail milestones for the
above matter are available from the Company as the related government policies
are set to be temporary but with durations undetermined.
Financial Highlights
Summary Financial Results
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For the quarter For the quarter
(in thousands of Canadian dollars ended March 31, ended March 31,
except for per share data) 2013 2012
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Revenue $ 5,250 $ 5,236
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Operating expenses (3,567) (3,251)
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Other income 191 98
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General and administrative
expenses (216) (635)
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Depreciation and amortization (2,809) (3,082)
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Operating loss (1,151) (1,634)
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Total non-operating income and
expenses (2,256) (2,048)
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Deferred income tax recovery 16 33
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Results of discontinued operation - -
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Net loss $ (3,391) $ (3,649)
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Net loss per share (Basic and
Diluted) (0.01) (0.01)
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Weighted average number of shares
outstanding(Basic and Diluted) 308,859,103 308,859,103
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Balance Sheet Key Indicators
(in thousands of Canadian dollars
except for ratios) March 31, 2013 December 31, 2012
Current Ratio(1) 0.38:1 0.40:1
Free Cash 11,279 9,080
Working Capital (67,824) (60,661)
Total Assets 152,662 151,815
Total non-current liabilities 14,370 19,817
Total Debt 123,114 120,511
Total Equity(2) 29,548 31,304
Total Debt to Total Equity Ratio 4.17:1 3.85:1
1 Current ratio is defined as total Mountain China Resorts current assets
divided by total current liabilities
2 Working capital is defined as total current assets less total current
liabilities
3 Total debt is defined as total current liabilities plus total non-current
liabilities
4 Total equity is equal to the total shareholders' equity
The Company has an accumulated deficit, a working capital deficiency and has
defaulted on a bank loan, which casts substantial doubt on the Company's ability
to continue as a going concern. The Company's ability to meet its obligations as
they fall due and to continue to operate as a going concern is dependent on
further financing and ultimately, the attainment of profitable operations. These
consolidated financial statements do not include any adjustments to the amounts
and classifications of assets and liabilities that might be necessary should the
Company be unable to continue as a going concern. Management of the Company
plans to fund its future operation by obtaining additional financing through
loans and private placements and through the sale of the properties held for
sale. However, there is no assurance that the Company will be able to obtain
additional financing or sell the properties held for sale.
March 31, 2013 December 31, 2012
(in thousands of Canadian dollars)
Accumulated deficit $ 294,749 $ 291,358
Working capital (deficiency) $ 67,824 $ 60,661
SUBSEQUENT EVENTS
In April 2013 the Company was made aware by the bank with an outstanding balance
of $41,300, that they are taking legal actions to demand repayment. As of the
reporting date that Company has not received any formal claim.
2013 FIRST QUARTER MAJOR CORPORATE DEVELOPMENTS
Club Med Resorts management has further improved the revenue of Sun Mountain
Yabuli Resort
The 2012-2013 winter season operations commenced on November 24, 2012 and closed
on March 24, 2013. ClubMed management and brand effect had further improved the
publicity and service quality of Yabuli Resorts, and attracted guests from all
over the world to come to Yabuli to enjoy the beautiful scenery and various ski
facilities. Total revenue generated in 2012-2013 winter season reached $8.26
million (2012 Q4 plus 2013 Q1), representing a 6% increase compared to last year
($7.77 million).
Loan Defaults
On March 31, 2013 the Company defaulted on its third principal payment of 6.54
million (RMB 40 million) under its $40.85 million (RMB 250 million) loan
agreement with the China Construction Bank ("Construction Bank"). According to
the Loan Agreement between Yabuli and Construction Bank, Construction Bank has
the right to accelerate Yabuli's obligation to repay the entire unpaid principal
plus interest immediately and to take legal actions to enforce on the security.
The collaterals associated with the loan agreement are made up of the Company's
land use rights and property and equipment with a carrying value of
approximately $65.39 million as at March 31, 2013. During the Company's initial
negotiation with the bank, the bank required the Company to repay the interest.
However, the Company has stopped the interest payment starting from February
2012. As a result, negotiations have ceased and the bank has indicated their
intention to take possession of the pledged assets if the loan principal and
interest are not repaid in full. On March 31, 2013 the principal and interest
owing was $41,300. As of the reporting date that Company has not received any
formal claim.
Update on Debt Restructuring
On February 8, 2012, the Company entered into a Debt Settlement Agreement with
Melco Leisure and Entertainment Group Limited ("Melco" or "MLE") for the
settlement of a loan in the principal of US$12 million made by Melco to the
Company (the "MCR Loan") and a loan in the principal of US$11 million (the "MCRI
Loan", and together with the MCR Loan, the "Melco Loans" or "MLE Loan") made by
Melco to Mountain China Resorts Investment Limited ("MCRI"), the Company's
Cayman subsidiary, both in 2008. On May 29, 2012, the Company and Melco entered
into Amended and Restated Debt Settlement Agreement to clarify details of the
loan settlement mechanism and procedures to implement the settlement of the
Melco Loans. Detailed settlement arrangement can be found in Note 13 of 2013
interim consolidated financial statements. As of the reporting date, the Company
has received approval of TSX Venture Exchange for the debt restructuring
transaction announced on May 29, 2012. However, as of the reporting date, the
Company has not implemented the transactions contemplated under the Amended and
Restated Debt Settlement Agreement. The Melco Loans have matured on 31 March
2013, so that the entire Melco Loans now become immediately due and payable.
Update on Changchun Resort
On November 17, 2010, the Company announced its updates with respect to certain
developments that have taken place with respect to its Changchun Resort. The
government of Erdao district of Changchun city in the Jilin province of the
People's Republic of China (the "Erdao Government") holds the view that the
Changchun Resort, is still owned by the government and it may, through Changchun
Lianhua Mountain Agricultural Project Development Company Limited ("CCL
Agricultural"), manage the same to the Company's exclusion. The Company
disagrees with the Erdao Government's position. The Company had engaged Global
Law Office, a reputable law firm in PRC, to do legal due diligence on the assets
before they were acquired by the Company. Global Law Office had advised the
Company that the assets acquired are not state-owned assets and the same may be
validly transferred to the Company. Because of CCL Agricultural's and the Erdao
Government's action, the Company has been deprived of management of the
Changchun Resort. The Company has engaged in discussions with the Erdao
Government, Changchun Lianhua Mountain Sports & Travel Development Company
Changchun Sports and CCL Agricultural with an aim of resolving this matter. If
the current situation cannot be resolved through negotiations, the Company may
have to resort to legal means to protect its rights in relation to Changchun
Resort.
As a result of the foregoing, the Company has lost control of the company itself
and has therefore written off the full value of the assets and liabilities of
Changchun Resort and reported it as a loss from discontinued operations as of
December 31, 2010. In 2011, the Company commenced legal actions against the
Erdao Government in an effort to regain control and ownership of the assets and
operations.
The Company's legal department has sent three letters of formal complaint to the
Ministry of Commerce of the People's Republic of China in June 2012, the Erdao
Government, and Jilin Lianhua Tourist Committee. Recently, the Ministry of
Commerce of the People's Republic of China has assigned the case to the relevant
authority called the Economic and Technological Cooperation Department of Jilin
Province for handling. After a series of negotiations made and no consensus
arrived, management had decided to start formal administrative prosecution
process against the government. As at March 31, 2013, management had sent
several letters of notice, but no formal prosecution has been started.
About MCR
MCR is the premier developer of four season destination ski resorts in China.
MCR is transforming existing China ski properties into world-class, four seasons
luxury mountain resorts with excellent real estate investment opportunities for
discerning buyers. In February 2009, the Company's Sun Mountain Yabuli Resort
was awarded Best Resort Makeover in Asia by TIME Magazine. Yabuli is also the
permanent home of the China Entrepreneur's Forum the leading and most
influential community of China's most distinguished and successful entrepreneurs
and business leaders with over 5,000 members from across a variety of key
industries.
www.mountainchinaresorts.com
FORWARD LOOKING INFORMATION
Information in this press release that is not current or historical factual
information may constitute forward-looking information within the meaning of
securities laws, and actual results may vary from the forward-looking
information. Implicit in this information are assumptions regarding future
operations, plans, expectations, anticipations, estimates and intentions, such
as the plans to develop the ski resorts in China. These assumptions, although
considered reasonable by MCR at the time of preparation, may prove to be
incorrect. Readers are cautioned that actual future operating results and
economic performance of MCR are subject to a number of risks and uncertainties,
including general economic, market and business conditions, uncertainty relating
to land use rights in China, adverse industry events for the ski and real estate
industries, real estate prices in general in China, MCR's ability to make and
integrate acquisitions, the requirements of recent Chinese regulations relating
to cross-border mergers and acquisitions, the inability to obtain required
approvals or approvals may be subject to conditions that are unacceptable to the
parties, changing industry and government regulation, as well as MCR's ability
to implement its business strategies, dispose of assets or raise sufficient
capital, MCR's ability to obtain additional financial resources and sufficient
working capital, MCR's ability to complete the announced non-brokered private
placement, seasonality, weather conditions, competition, currency fluctuations
and other risks, and could differ materially from what is currently expected as
set out above.
Forward-looking information contained in this press release is based on current
estimates, expectations and projections, which MCR believes are reasonable as of
the date of this press release. MCR uses forward-looking statements because it
believes such statements provide useful information with respect to the
operation and financial performance of MCR, and cautions readers that the
information may not be appropriate for other purposes. Readers should not place
undue importance on forward-looking information and should not rely upon this
information as of any other date. While MCR may elect to, it does not undertake
to update this information at any particular time except as required by
applicable law.
NON-IFRS MEASURES
Throughout this news release we use certain non-IFRS measures such as the term
"EBIDTA" to analyze operating performance. We define EBITDA as operating
revenues less operating expenses from continuing operations and therefore
reflect earnings before interest, income tax, depreciation and amortization,
non-controlling interest and any non-operating and non-recurring items. These
non-IFRS measures do not have a standardized meaning prescribed by IFRS and may
not be comparable to similarly titled measures presented by other companies.
These non-IFRS measures are referred to in this news release because we believe
they are indicative measures of a company's performance and are generally used
by investors to evaluate companies in the resort operations and resort
development industries. Figures used in calculation of EBITDA are in compliance
with IFRS, therefore no reconciliation is needed.
(1) Current ratio is defined as total current assets divided by total current
liabilities
(2) Total debt is defined as total current liabilities plus total non-current
liabilities
FOR FURTHER INFORMATION PLEASE CONTACT:
Mountain China Resorts (Holding) Limited
Mr. Han Gang
Chief Financial Officer and Director
0086-10-66420868
investor_relations@mountainchinaresorts.com
www.mountainchinaresorts.com
Mountain China Resorts (TSXV:MCG)
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