Mountain China Resorts (Holding) Limited (TSX VENTURE:MCG) ("MCR" or the
"Company"), today reported its financial results for the year ended December 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 year ended December
31, 2013, the Company generated revenues from resort operations of $8.85 million
and a net loss of $44.07 million or $0.14 per share compared to revenue of $9.45
million and a net loss of $17.85 million or $0.06 per share in 2012. The
increase of the net loss was due to the impairment loss of $22.80 million on the
properties under construction (villas) that was recorded as of December 31, 2013
as the Company decided to temporarily cease investment in further construction
and finalization of the villas.
Resort Operations EBITDA for 2013 was negative $0.72 million compared to $2.54
million last year. The reduction of EBITDA was mainly due to a series of
unfavorable political policies issued by the Chinese central government in 2013
aimed at cutting budgets and tightening up spending on government and business
reception and entertainment activities.
Resort operations expenses totaled $9.29 million for the year ended December 31,
2013 compared to $8.08 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 totaled $0.61 million (2012: 2.68 million), which mainly consists
of income recognized from the deposit by Club Med of $0.33 million. For the same
period in 2012, a major component of other income included a $2.23 million
insurance compensation received for the damage of Gondola B, and $0.31 million
recognized from the deposit by Club Med.
Corporate general and administrative expenses ("G&A expenses") totaled $0.89
million for the year ended December 31, 2013 compared to $1.51 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 $11.60
million for the year ended December 31, 2013 compared to $11.18 million in 2012.
The Company incurred financing cost of $6.75 million during the year ended
December 31, 2013 compared to $8.00 million in 2012. Financing costs mainly
related to the loan interests, accretion expenses of convertible bonds, and also
included bank administrative fee and service charge. The decrease in interest
expense in 2013 was due to accretion costs of convertible bonds decreased as the
three convertible bonds matured during the year ended December 31, 2013 and
2012.
Cash and cash equivalents totaled $8.29 million and working capital deficiency
was $93.15 million as at December 31, 2013.
Operations Sun Mountain Yabuli
The Company's 2012-2013 Sun Mountain Yabuli Resort winter season operations
commenced on November 24, 2012 and closed on March 24, 2013. The 2013-2014
winter season operations commenced on November 29, 2013 and closed on March 23,
2014. 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.
The Company reported decreased revenue in fiscal year 2013 and the decrease in
the revenue was resulted from unfavorable political policies issued by Chinese
central government in 2013 aimed at cutting budgets and tightening up spending
on government and business reception and entertainment activities. However
management believes that the downturn of 2013 operations compared to 2012 was
only a temporary situation. As the general political environment gradually
loosens and social atmosphere becomes less tense, those industries affected by
these policies will recover and grow in the long run. Management provides a more
detailed analysis on revenue and future prospects in its 2013 Management
Discussion and Analysis.
Sun Mountain Yabuli - Real Estate Development
By 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. 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 estimated these additional
construction costs to be at least $4.50 million.
In 2013, general political environment further affected tourism related real
estate industry negatively. A few other similar projects in ski resort areas in
China started marketing and the outcome were quite frustrating. Those projects
include Qingyun Town in the Yabuli region, and real estate projects of Changbai
Mountain. As of December 31, 2013, management was of the opinion that, even with
additional costs to be invested to get the villas ready for sale, it is unlikely
that the benefit will exceed the cost at this time. Therefore no further
investment was made in 2013, and management did not expect any investment to be
made in the near future. Judging from the current economic situation,
management's opinion is that there is very limited net realizable value
associated with the villas at the moment, and a full impairment of $22.80
million was recorded as of December 31, 2013.
Despite of the current difficulty, 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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(in thousands of Canadian dollars For the year ended For the year ended
except for per share data) December 31, 2013 December 31, 2012
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Revenue 8,852 9,453
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Operating expenses (9,294) (8,084)
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Other income 614 2,680
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General and administrative
expenses (892) (1,508)
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Depreciation and amortization (11,604) (11,176)
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Operating loss (12,324) (8,635)
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Total non-operating income and
expenses (31,788) (9,350)
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Deferred income tax recovery 39 133
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Results of discontinued operation - -
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Net loss (44,073) (17,852)
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Net loss per share (Basic and
Diluted) (0.14) (0.06)
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Weighted average number of shares
outstanding(Basic and Diluted) 308,859,103 294,130,414
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Balance Sheet Key Indicators
(in thousands of Canadian dollars except for December 31, December 31,
ratios) 2013 2012
Current Ratio(1) 0.14:1 0.40:1
Free Cash 8,293 9,080
Working Capital(2) (93,154) (60,661)
Total Assets 126,907 151,815
Total non-current liabilities 24,500 19,817
Total Debt(3) 133,384 120,511
Total Equity(4) (6,477) 31,304
Total Debt to Total Equity Ratio (20.59):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 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.
Despite of the financial difficulty posed by the overdue debts and continued
loss, management is confident in the development of both the industry and the
Company in the near future. The government of Heilongjiang Province had
demonstrated strong incentive to support the skiing industry and the Company by
increasing local infrastructure investment and providing potential bank loan
interest subsidy scheme. In August 2013 the Company was notified by Harbin
Commercial Bank that they had approved to extend the repayment schedule of its
bank loan with an outstanding balance of $24.60 million (RMB 140 million) from
three years to ten years. Revenue from Club Med in winter season had been
growing steadily, and the Company will be the official partner and playing field
of 2016 World Championships of Snowboarding. Management is 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.
December 31, December 31,
2013 2012
(in thousands of Canadian dollars)
Accumulated deficit $ 335,431 $ 291,358
Working capital (deficiency) $ 93,154 $ 60,661
SUBSEQUENT EVENTS
In March 2014, Yabuli resorts defaulted on its fourth principal payment of $8.79
million (RMB 50 million) for the RMB 250 million bank loan with China
Construction Bank.
2013 MAJOR CORPORATE DEVELOPMENTS
Revenue from Club Med declined in 2013 Summer and Winter Operations
In 2013, Club Med started its second summer operation from July 5th to August
18th, 2013 (44 days in total). In 2012, summer operations started on July 14th
and ended on September 2nd (50 days in total). Revenue generated in the summer
operations was $0.7 million (2012 - $1.14 million). The decrease in revenue and
number of operation days was mainly attributable to Club Med opening its second
resort in China (Club Med Guilin Resort) in September. As marketing activity for
Club Med Guilin Resort started in advance, many guests were attracted to Guilin
instead of Yabuli. Also, Chinese government issued a series of policies since
March 2013 when the new generation of national leaders took office in the 12th
People's Congress, which policies aimed at cutting budgets and tightening up
spending on government and business reception and entertainment activities. As a
result, consumptions in tourism and business reception and entertainment have
dropped on a large scale, and operations of Club Med were negatively affected by
this general social environment.
The 2013-2014 winter season operations commenced on November 29, 2013 and closed
on March 23, 2014. Revenue from Club Med was reported to be declined in December
2013 compared to December 2012. With December being the traditional peak season
for overseas customers in Christmas vacations, number of foreign guests
decreased due to Club Med's shifted focus on more local customers and reducing
its marketing activities in overseas markets. In February, 2014, spring festival
vacations boosted sales in domestic market, and from the perspective of the
entire winter season which closed in March, 2014, revenue was actually $0.3
million (RMB 1.67 million) higher than 2012-2013 winter operations.
Maturity of Bank Loan from Harbin Commercial Bank Extended to ten years
On February 14, 2012, the Company secured a bank loan for the amount of $24,598
(RMB 140 million) from Harbin Commercial Bank (the "Original HCB Loan"). The
Original HCB Loan carries a three year-term with a maturity date of February 15,
2015. The interest rate is prime rate plus an additional 10% of the prime rate
and is payable on a monthly basis commencing February 16, 2012. The principal of
the Original HCB Loan was repayable in four installments starting with the first
installment repayment due on August 15, 2013 and each subsequent installment
repayment due every six months thereafter.
In order to improve the capital structure, management of the Company negotiated
with the bank to extend the repayment schedule. In August 2013, the Company was
notified by Harbin Commercial Bank that the bank had approved to extend the
repayment schedule from three years to ten years (the "Adjusted HCB Loan").
According to the new arrangement the loan will mature in December, 2022. The
first installment of $527 (RMB 3 million) is repayable in August 2013, and
thereafter the Company will need to repay $2,460 (RMB 14 million) each year for
eight consecutive years (RMB 0.2 million in December and 13.8 million in
February), and $4,393 (RMB 25 million) in the final year (RMB 0.4 million in
December and 24.6 million in February).
Updates on China Construction Bank Loan Defaults
On March 31, 2013 the Company defaulted on its third principal payment of $7.03
million (RMB 40 million) under its $43.93 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.
In August 2013 the Company was made aware that a formal prosecution has been
brought by the bank to demand repayment. As of on December 31, 2013, the
principal and interest owing was $46.86 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 $55.65 million.
The outcome of this lawsuit cannot be accurately estimated at the time. The
company has been negotiating with the bank to arrange for a debt restructuring
plan, and as of the reporting date, no consensus has been arrived yet. Although
the bank informally expressed their intention to maintain normal operations of
the Company, there is no assurance that they will not take further actions in
the future.
Updates 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 ("the Agreement") to clarify
details of the loan settlement mechanism and procedures to implement the
settlement of the Melco Loans. 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.
Detailed settlement arrangement can be found in Note 13 of 2013 Consolidated
Financial Statements. 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. The
Company also filed for issuance of 20,600,000 (the "Issuance I") and 19,444,444
(the "Issuance II") common shares to its subsidiary MCRI on July 2, 2013 and
July 23, 2013 respectively. Subject to the agreement of MLE, the 20,600,000
shares issued in Issuance I are proposed to be transferred to MLE for full
satisfaction of the MCRI Loan with the new principal amount of USD $14.9
million. According to the Company's initial contact with MLE, the US$3.5m
Principal would be settled by conversion into 19,444,444 shares. Issuance II was
then made for the purpose of settlement. However, after a series of negotiation,
it is probable that management of MLE will choose to take up to the maximum of
five villas on the basis of USD $0.7 million per villa for the settlement.
Therefore, it is probable that the Issuance II will be later canceled
accordingly. Furthermore, there is discrepancy in calculation of number of
shares in relation to the Issuance II. As of the reporting date, the Company is
still in negotiation with MLE on the details of the settlement.
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.
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 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 December 31, 2013, management had sent
several additional letters of notice, but no formal prosecution has been
started.
Senior Executive and Board Committee Change
On August 23, 2013, during the second quarter Board meeting, the Board resolved
that Mr. Han Gang would replace Mr. Mao Zhenhua as the Company's CEO, and Mr.
Shi Yang was appointed as the new CFO of the Company. Mr. Shi Yang is a
Certified Public Accountant in China, and is experienced in corporate finance.
It was also resolved that to improve the corporate governance structure of the
Company, Mr. Wang Lian would replace Mr. Philip Li as the chairman of the
Nomination Committee.
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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Mountain China Resorts (TSXV:MCG)
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から 6 2023 まで 6 2024
