BEIJING, CHINA--(Marketwired - Nov. 29, 2013) - Mountain China Resorts (Holding) Limited (TSX VENTURE:MCG) ("MCR" or the "Company"), today reported its financial results for the quarter ended September 30, 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. Club Med carried out its second summer operations 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). For the quarter ended September 30, 2013, the Company generated revenues from resort operations of $0.73 million and a net loss of $5.31 million or $0.02 per share compared to $1.18 million and a net loss of $4.8 million or $0.02 per share in 2012 Q3. Resort Operations EBITDA from continuing operations for the third quarter of 2013 were negative $0.73 million compared to negative $0.5 million last year. The deterioration of EBITDA and net loss was mainly due to reduced revenue made in Club Med's second summer operations. Club Med opened its second resort in China (Club Med Guilin Resort) in September. As marketing activity for Club Med Guilin resort started to pick up, many guests were attracted to Guilin instead of Yabuli for summer actitivities. Also, since the new generation of national leaders in China took office in the 12nd People's Congress in March 2013, Chinese government has issued a series of policies aimed at tightening up spending on government and business entertainment and reception activities. As a result, consumptions in tourism and business receptions have decreased on a large scale, and operations of Club Med were negatively affected by this social environment.
Resort operations expenses from continuing operations totaled $1.36 million for the quarter ended September 30, 2013 compared to $1.61 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 $0.1 million (2012: 0.08 million), which mainly consists of income recognized from the deposit by Club Med of $0.08 million.
Corporate general and administrative expenses ("G&A expenses") totaled $0.2 million for the quarter ended September 30, 2013 compared to $0.16 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 $2.89 million for the quarter ended September 30, 2013 compared to $2.81 million in 2012.
The Group incurred financing cost of $1.6 million for the quarter ended September 30, 2013 from continuing operations compared to $2.02 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 $7.68 million and working capital was negative $65.52 million as at September 30, 2013.
Financial Highlights
Summary Financial Results
| (in thousands of Canadian dollars except for per share data) | For the quarter ended September 30, 2013 | For the quarter ended September 30, 2012 | ||||
| Revenue | 727 | 1,184 | ||||
| Operating expenses | (1,355 | ) | (1,606 | ) | ||
| Other income | 98 | 83 | ||||
| General and administrative expenses | (199 | ) | (160 | ) | ||
| Depreciation and amortization | (2,889 | ) | (2,813 | ) | ||
| Operating loss | (3,618 | ) | (3,312 | ) | ||
| Total non-operating income and expenses | (1,714 | ) | (1,518 | ) | ||
| Deferred income tax recovery | 21 | 33 | ||||
| Results of discontinued operation | - | - | ||||
| Net loss | (5,311 | ) | (4,797 | ) | ||
| Net loss per share (Basic and Diluted) | (0.02 | ) | (0.02 | ) | ||
| 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) | September 30, 2013 | December 31, 2012 | ||
| Current Ratio1 | 0.35:1 | 0.40:1 | ||
| Free Cash | 7,678 | 9,080 | ||
| Working Capital2 | (65,523 | ) | (60,661 | ) |
| Total Assets | 144,416 | 151,815 | ||
| Total non-current liabilities | 23,490 | 19,817 | ||
| Total Debt3 | 123,715 | 120,511 | ||
| Total Equity4 | 20,701 | 31,304 | ||
| Total Debt to Total Equity Ratio | 5.98:1 | 3.85:1 |
Notes:
- Current ratio is defined as total current assets divided by total current liabilities
- Working capital is defined as total current assets less total current liabilities
- Total debt is defined as total current liabilities plus total non-current liabilities
- 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. Recently in August 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 $23.56 million (RMB 140 million) from 3 years to 10 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 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.
| September 30, | December 31, | |||
| (in thousands of Canadian dollars) | 2013 | 2012 | ||
| Accumulated deficit | $ | 305,566 | $ | 291,358 |
| Working capital (deficiency) | $ | 65,523 | $ | 60,661 |
SUBSEQUENT EVENTS
Trading in the Company's securities was reinstated by the TSX Venture Exchange (the "Exchange") on October 16, 2013 as the Exchange is reviewing the Company's status with respect to its Tier 1 Continued Listing Requirements.
2013 THIRD QUARTER MAJOR CORPORATE DEVELOPMENTS
Maturity of Bank Loan from Harbin Commercial Bank Extended to 10 Years
On February 14, 2012, the Company secured a bank loan for the amount of $23,562 (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 and a fixed annual interest rate of 7.315%, with interest to be paid on a monthly basis commencing February 16, 2012. The principal of the Original HCB Loan is 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. The Company used the advance from the Original HCB Loan and $1,683 (RMB 10 million) of other available funds to repay the Bridge Loan.
In order to improve the capital structure, management of the Company had been negotiating 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 3 years to 10 years (the "Adjusted HCB Loan"). According to the new arrangement the loan will mature in December, 2022. The first installment of $505 (RMB 3 million) is repayable in August 2013, and thereafter the Company will need to repay $2,356 (RMB 14 million) each year for eight consecutive years (RMB 0.2 million in December and 13.8 million in February), and $4,208 (RMB 25 million) in the final year (RMB 0.4 million in December and 24.6 million in February). The Company had made the payment of the first installment of $514 (RMB 3 million) in August, 2013.
Updates on China Construction Bank Loan Defaults
On March 31, 2013 the Company defaulted on its third principal payment of $6.73 million (RMB 40 million) under its $42.08 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 September 30, 2013, the principal and interest owing was $44.26 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 $64.26 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 Interim 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 issued 20,600,000 common shares (the "Issuance I") and 19,444,444 common shares (the "Issuance II") to its subsidiary MCRI for the price of USD$0.18 on July 2, 2013 and July 23, 2013 respectively in preparation of fulfilling certain of its obligations under the Agreement. The 20,600,000 common shares issued in Issuance I will 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 discussion with MLE, the US$3.5m portion of the Principal would be settled by conversion into 19,444,444 common shares. Issuance II was made in preparation of this potential settlement. However, after a series of negotiations, it is probable that management of MLE will choose to take up to the maximum of five Chosen Villas on the basis of USD $0.7 million per villa for settlement of the US$3.5m portion of the Principal. Therefore, it is probable that the 19,444,444 common shares in the Issuance II may be canceled later accordingly. 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 that the government of Erdao district of Changchun City in the Jilin Province of the People's Republic of China (the "Erdao Government"), through Changchun Lianhua Mountain Agricultural Project Development Company Limited ("CCL Agricultural") excluded the Company from 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 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 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 September 30, 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.
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.
Contact Information:
Mr. Han Gang
Chief Executive Officer and Director
Tel: 0086-10-66420868
investor_relations@mountainchinaresorts.com
www.mountainchinaresorts.com