BEIJING, CHINA--(Marketwired - May 31, 2013) - 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 | ||||||||
| (in thousands of Canadian dollars except for per share data) | For the quarter ended March 31, 2013 | For the quarter ended March 31, 2012 | ||||||
| Revenue | $ | 5,250 | $ | 5,236 | ||||
| Operating expenses | (3,567 | ) | (3,251 | ) | ||||
| Other income | 191 | 98 | ||||||
| General and administrative expenses | (216 | ) | (635 | ) | ||||
| Depreciation and amortization | (2,809 | ) | (3,082 | ) | ||||
| Operating loss | (1,151 | ) | (1,634 | ) | ||||
| Total non-operating income and expenses | (2,256 |
) | (2,048 |
) | ||||
| Deferred income tax recovery | 16 |
33 |
||||||
| Results of discontinued operation | - | - | ||||||
| Net loss | $ | (3,391 | ) | $ | (3,649 | ) | ||
| Net loss per share (Basic and Diluted) | (0.01 | ) | (0.01 | ) | ||||
| Weighted average number of shares outstanding(Basic and Diluted) | 308,859,103 | 308,859,103 | ||||||
| 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.
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
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.
Contact Information:
Mr. Han Gang
Chief Financial Officer and Director
0086-10-66420868
investor_relations@mountainchinaresorts.com
www.mountainchinaresorts.com