Mountain China Resorts (Holding) Limited (TSX VENTURE:MCG) ("MCR" or the
"Company"), recently reported its financial results for the quarter ended June
30, 2013 (the "Reporting Period"). MCR reports its results in Canadian Dollars.
Financial Results
Total revenue and the net results for the Reporting Period were from resort
operations with no real estate sales revenue. The Company's resort operations
business at its Sun Mountain Yabuli Resort is seasonal and there is typically
little or no revenue generated in the second quarter because winter operations
usually end in the first quarter and summer operations do not start until the
third quarter.
For the quarter ended June 30, 2013, the Company generated revenues from resort
operations of $0.08 million and a net loss of $5.51 million or $0.02 per share
compared to $0.025 million and a net loss of $3.7 million or $0.01 per share in
2012 Q2. Resort Operations EBITDA from continuing operations for the second
quarter of 2013 were ($0.85 million) compared to $1.4 million last year. The
lower EBITDA and net loss in the Reporting Period compared to the previous year
was because in the second quarter of 2012, the Company received a $2.2 million
insurance compensation for certain equipment damage and that was included as
other income for that period.
Resort operations expenses from continuing operations totaled $0.74 million for
the quarter ended June 30, 2013 compared to $0.68 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.
Other income for the Reporting Period totaled $0.09 million (2012: 2.3 million),
which mainly consisted of income recognized from the deposit by Club Med of
$0.08 million. As mentioned earlier, for the same period in 2012, a major
portion of other income included a $2.2 million insurance compensation received
for the damage to Gondola B as well as $0.08 million recognized from the deposit
by ClubMed.
Corporate general and administrative expenses ("G&A expenses") totaled $0.29
million for the Reporting Period compared to $0.31 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 $2.77
million for the quarter ended June 30, 2013 compared to $2.96 million in 2012.
The Company incurred financing cost of $1.58 million for the Reporting Period
from continuing operations compared to $1.85 million in 2012. Financing costs
were mainly related to the loan interests, and also included bank administrative
fees, and service charges.
Cash and cash equivalents totaled $9.97 million and the Company has a working
capital deficiency of $72.76 million as at June 30, 2013.
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 the time of this release, certain construction is still needed on
the exterior grounds to complete lighting, roads and utility connections. As of
June 30, 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 $4.70 million and has plans to commence construction in
the autumn 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 ski-in and ski-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 June 30, ended June 30,
except for per share data) 2013 2012
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Revenue 82 25
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Operating expenses (739) (675)
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Other income 90 2,324
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General and administrative expenses (287) (306)
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Depreciation and amortization (2,765) (2,958)
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Operating loss (3,619) (1,590)
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Total non-operating income and
expenses (1,986) (2,146)
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Deferred income tax recovery 99 33
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Results of discontinued operation - -
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Net loss (5,506) (3,703)
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Net loss per share (Basic and Diluted) (0.02) (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) June 30, 2013 December 31, 2012
Current Ratio(1) 0.34:1 0.40:1
Free Cash 9,967 9,080
Working Capital(2) (72,759) (60,661)
Total Assets 152,304 151,815
Total non-current liabilities 14,890 19,817
Total Debt(3) 125,166 120,511
Total Equity(4) 27,138 31,304
Total Debt to Total Equity Ratio 4.61:1 3.85:1
Notes:
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. 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 cast a 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.
Despite of the financial difficulty posed by the overdue debts and continued
loss, management is optimistic in the development of both the industry and the
Company in the near future. The government of Heilongjiang Province has
demonstrated welcomed signs of supporting the skiing industry and the Company by
increasing local infrastructure investment and potentially providing a bank loan
interest subsidy scheme. Recently in August the Company was advised by Harbin
Commercial Bank that they had approved to extend the repayment schedule of its
loan to the Company with an outstanding balance of $23,982 (RMB 140 million)
from 3 years to 10 years. As a result, the Company's current working capital
deficiency will be decreased by approximately 15% in the next quarter. Revenue
from ClubMed had been growing steadily, and the Company will be the official
partner and the venue to host the 2016 World Championships of Snowboarding.
Management are also working on various means to attract new investment into the
Company to complete the construction of villas and improve the capital structure
of the Company.
June 30, December 31,
2013 2012
(in thousands of Canadian dollars)
Accumulated deficit $ 300,255 $ 291,358
Working capital (deficiency) $ 72,759 $ 60,661
SUBSEQUENT EVENTS
Bank Loans - Harbin Commercial Bank
As mentioned earlier, in August of 2013, the Company was advised by Harbin
Commercial Bank that it had approved to extend the repayment schedule of its
loan with an outstanding balance of $23,982 (RMB 140 million) from 3 years to 10
years. The original bank loan was made on February 14 2012, and carried a three
year-term with a maturity date of February 15, 2015 and a fixed annual interest
rate of 7.315%.
According to the revised terms, the loan will now mature in December, 2022. The
first installment of $514 (RMB 3 million) is repayable in August 2013, and
thereafter the Company will need to repay $2,398 (RMB 14 million) each year for
eight consecutive years, and $4,283 (RMB 25 million) in the final year. The
Company made payment of the first installment of $514 (RMB 3 million) in August
of 2013.
Beijing Lianhua Mountain Skiing Field
In August the Company was awarded an arbitration decision from the China
International Economic and Trade Arbitration Commission ("CIETAC") in Beijing on
the dispute over the sale of shares in Beijing Lianhua Mountain Skiing Field
Co., Ltd. ("Beijing Lianhua"), which decision orders, among other things, that
100% of the shares in Beijing Lianhua be transferred back to the Company. The
Company is in the process of instructing its Chinese law firm to work on the
transfer of the ownership of Beijing Lianhua back to the Company.
On December 12, 2008, the Company entered into a Share Purchase Agreement
between Jilin Wahaha Drinking Water Co., Ltd. (the "Purchaser") and the Company
and a Guaranty Contract between Jilin Lianhua Mountain Group Co., Ltd. and the
Company for the sale of Beijing Lianhua to the Purchaser at the price RMB
28,320,000. The Purchaser defaulted in 2011 on its initial payment obligations.
As a result, the Company applied to CIETAC for an arbitration for the return of
the Beijing Lianhua shares due to the default of the Purchaser.
The Purchaser also defaulted on its payment obligations to the Company under a
separate purchase agreement for the sale of Panshi Lianhua Mountain Skiing Field
Co., Ltd. to the Purchaser. The Company intends to continue its demand for the
purchase price under this transaction.
2013 SECOND QUARTER MAJOR CORPORATE DEVELOPMENTS
Sun Mountain Yabuli Resort Preparing for its Second Summer Operations
As the 2012-2013 winter operations ended in March, there were no resorts
operations in the second quarter. The 2013 summer operations started on July
5th, and finished on August 17th. Preparation work such as staffing,
procurement, sanitation and equipment maintenance were undertaken in the second
quarter.
Updates on Loan Defaults
On March 31, 2013 the Company defaulted on its third principal payment of $6.85
million (RMB 40 million) under its $42.83 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.
Subsequently in August of 2013, the Company was made aware by the Higher
People's Court of Heilongjiang Province that Construction Bank had commenced
formal legal action against Yabuli to demand repayment. As of June 30, 2013, the
principal and interest owing under the Construction Bank loan was $44.2 million,
and 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 $67.38 million. The outcome of this lawsuit cannot be accurately
estimated at the time. The Company has been negotiating with Construction Bank
to arrange for a debt restructuring plan, and as of the date of this release, no
consensus has been arrived yet.
Updates on Melco 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 (the "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 the Company's Interim Consolidated Financial Statements for the
Reporting Period. On July 10, 2012, during the Company's Annual General Meeting,
the Company obtained Shareholder Approval on the Agreement. The transactions
contemplated under the Agreement have been approved by the TSX Venture Exchange.
Settlement procedures were started in the second quarter of 2013, and the
Company paid $3,01 million to MLE on May 31, 2013 as a partial fulfilment to its
cash repayment obligation specified in the Agreement. As of the date of this
news release, management are still in negotiation with MLE to proceed on the
remaining parts of the settlement.
Update on Changchun Resort
On November 17, 2010, the Company announced its updates with respect to certain
developments 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. However, because of CCL Agricultural's and the Erdao
Government's actions, the Company has been deprived of management of the
Changchun Resort.
As a result of the foregoing, the Company has lost control of the Changchun
Resort 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 named the Economic and Technological Cooperation Department of Jilin
Province for further handling. After a series of negotiations, no consensus was
reached. Management decided to commence a formal administrative proceeding
against the government. As at June 30, 2013, management had sent several formal
notice letters to the respective government offices, but no formal proceeding
had been started.
Update on Temporary Suspension of Trading
On April 30, 2013, the Company was late in filing its Annual Filings due to the
last minute requests for re-assessment of the fair value of certain assets
including the villas under construction and goodwill. As a result the Company
received a Cease Trade Order ("CTO") issued by BCSC dated May 8, 2013, and
accordingly TSX Venture Exchange (the "Exchange") suspended trading in the
Company's securities. Although the CTO was revoked by BCSC on May 16th, 2013 as
the requested Annual Filings were filed on May 14, 2013, trading in the
Company's securities has not been reinstated by the Exchange as the Exchange was
reviewing the Company's status with respect to its Tier 1 Continued Listing
Requirements and further clarification on status of Beijing Lianhua Mountain
litigation matter, status of bank loan default and status of the debt settlement
arrangement with Melco. The Company has been notified that an Exchange bulletin
will be issued on reinstatement to trading after the Exchange has satisfactorily
reviewed the Company for reinstatement.
Board Committee Member Change
The Company is pleased to announce that Mr. Wang Lian will replace Mr. Philip
Li's role as the Chairman of the Nomination Committee.
Appointment of Investor Relations Manager
Furthermore, the Company is pleased to announce that the Exchange has accepted
the Company's filing for Ms. Lili Tian as the Company's Investor Relations
Manager. Ms. Tian has worked for the Company as Investor Relations Manager since
April of 2013 and is based in Beijing China.
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
The TSX Venture Exchange nor its Regulation Services Provider has neither
approved nor disapproved the contents of this press release.
The TSX Venture Exchange nor its Regulation Services Provider does not accept
responsibility for the adequacy or accuracy of this release.
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.
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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