Mountain China Resorts (Holding) Limited
TSX VENTURE : MCG

Mountain China Resorts (Holding) Limited

May 01, 2017 19:51 ET

Mountain China Resorts Reports 2016 Financial and Operational Results

BEIJING, CHINA--(Marketwired - May 1, 2017) - Mountain China Resorts (Holding) Limited (TSX VENTURE:MCG) ("MCR" or the "Company") today reported its financial results for the year ended December 31, 2016. 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, 2016, the Company generated revenues from resort operations of $14.76 million and a net loss of $11.39 million or $0.04 per share compared to revenue of $13.61 million and a net loss of $14.15 million or $0.05 per share in 2015 from continuing operation. Resort Operations EBITDA from continuing operations for 2016 were $2.76 million compared to $2.26 million last year. The increase of EBITDA was mainly due to development of China's skiing industry as a whole and management's continuous effort in improving service qualities.

Resort operations expenses from continuing operations totaled $11.49 million for the year ended December 31, 2016 compared to $10.71 million in 2015. 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 $0.65 million (2015: $1.72 million), which mainly consists of $0.39 million (2015 - $0.40 million) recognized from the deposit paid by Club Med. In 2015, the company also recognized $0.71 million of income as a result of final settlement of certain lawsuits which the Company fully provided in other payable in previous years.

Corporate general and administrative expenses ("G&A expenses") totaled $1.40 million for the year ended December 31, 2016 compared to $2.37 million in 2015. This amount mainly comprised executive employee costs, public company costs, and corporate information technology costs. G&A Expenses decreased in the year ended December 31, 2016 primarily due to the Company expensed $1.32 million for the repairs of Gondola B in 2015.

Depreciation and amortization expense from continuing operations totaled $7.91 million for the year ended December 31, 2016 compared to $8.96 million in 2015. The decrease in depreciation and amortization was mainly caused by certain properties being fully depreciated in the fourth quarter of 2015 and first quarter of 2016. Those properties including furnishing constructions of hotels and some furniture bought in the fourth quarter of 2010 and first quarter of 2011 with an expected useful life of 5 years. No renewing work are required as those constructions and furniture are still in good condition and can be used in resort operations.

The Group incurred financing cost of $7.20 million for the year ended December 31, 2016 from continuing operations compared to $7.70 million in 2015. Financing costs mainly related to the loan interests, accretion expenses of a bank loan, and also included bank administrative fee, and service charge. The decrease in interest expense in 2016 was mainly due to the reducing bank loan balance and change in exchange rate.

Cash totaled $0.88 million (2015: $0.68 million) and working capital deficit was $139.24 million as at December 31, 2016 (2015: $140.20 million).

Operations Sun Mountain Yabuli

The 2015-2016 MCR's Sun Mountain Yabuli Resort winter season operations commenced on December 4th, 2015 and closed on March 20, 2016 (107 days in total). The 2016-2017 MCR's Sun Mountain Yabuli Resort winter season operations commenced on November 25th, 2016 and closed on April 2nd, 2017 (121 days in total). 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 clothes, goggles, lockers, gloves, etc., sales of ski equipment and skiing training services offered by snow 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 a revenue growth of 8.5% in fiscal year 2016. The increase in revenue mainly resulted from following reasons:

(i) The skiing industry in China has experienced a rapid growth since 2014, especially after Beijing announced its intention to apply for the 2022 Winter Olympic Games.

(ii) The Company has introduced many new features since 2014 for the first time. A connected local ski field's network was built under government coordination which allows customers from different hotels/ski fields to enter all the ski fields of local area by using a unified electronic entrance card.

(iii) Ski tracks facilities have been redesigned to be more professional and helpful in order to enhance the brand of the Company. Management also launched a number of new measures to improve service quality.

(iv) Local government has been leading the development and propaganda campaigns of Yabuli Skiing industry. Supporting from government has been intensified in 2014, including a RMB 7 million subsidy for loan interests granted to the Company during the year.

Sun Mountain Yabuli - Real Estate Development

At the end of Fiscal 2010, the Company 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 still needed on the exterior grounds to complete lighting, roads and utility connections. As of December 31, 2016 the Company had not been successful in selling any of the villas. Management was of the opinion that in order to complete sales it would necessary to first complete the exterior construction. Management estimates these additional constructions will cost to be at least $4.50 million.

In 2013, political environment had affected tourism related real estate industry negatively. As of December 31, 2013, management were of the opinion that with an additional cost to be invested to get the villas ready for sale, it was unlikely that the benefit will exceed the cost. Therefore no further investment was made since 2013. Judging from the economic environment, management's opinion was that there was very limited net realizable value associated with the villas and a full impairment thereof was provided as of December 31, 2013 bringing the net book value of these villas to a nominal value of $1. As of the December 31, 2016, the net book value of property under construction was still $1.

Financial Highlights

Summary Financial Results

(in thousands of Canadian dollars except for per share data) For the year ended December 31, 2016 For the year ended December 31, 2015
Revenue 14,763 13,608
Operating expenses (11,485 ) (10,706 )
Other income 648 1,719
General and administrative expenses (1,401 ) (2,365 )
Depreciation and amortization (7,905 ) (8,960 )
Operating loss from continuing operations (5,380 ) (6,704 )
Total non-operating income and expenses (6,036 ) (7,474 )
Deferred income tax recovery 23 23
Loss from continuing operations (11,393 ) (14,155 )
Loss from discontinued operations - (9,200 )
Net loss (11,393 ) (23,355 )
Net loss per share from continuing operations (Basic and Diluted) (0.04 ) (0.05 )
Net loss per share from discontinuing operations (Basic and Diluted) - (0.03 )
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) 2016 2015
Current Ratio 0.06 0.07
Free Cash 876 677
Working Capital (139,236 ) (140,201 )
Total Assets 111,623 134,073
Total non-current liabilities 17,645 22,817
Total Debt 165,602 174,126
Total Equity (53,979 ) (40,053 )
Total Debt to Total Equity Ratio (3.07 ) (4.35 )
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 future. The government of Heilongjiang Province had demonstrated strong incentive to support the skiing industry and the Company by increasing local infrastructure investment. In June, 2014, the company received $1.31 million (RMB 7 million) government subsidy for loan interest. Revenue from ClubMed in winter season has been growing steadily, and the Company had hosted 2016 World Championships of Snowboarding in March 2016. 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,
2016 2015
(in thousands of Canadian dollars)
Accumulated deficit $ 384,213 $ 372,820
Working capital deficiency $ 139,236 $ 140,201

2016 MAJOR CORPORATE DEVELOPMENTS

MCR reported an 8.5% increase in revenue for financial year 2016

Club Med 2016-2017 winter season operations commenced on November 25th, 2016 and closed on April 2nd, 2017. Management is pleased to report that during financial year 2016, total revenue was increased by an 8.5% as compared with 2015. Major reasons for the growth in revenue includes: (i) development of China's skiing industry as a whole (ii) management's continuous effort in improving service qualities.

Updates on China Construction Bank Loan Defaults

In 2009, the Company obtained a bank loan of $48.25 million (RMB 250 million) with maturity dates from 2011 to 2016. The interest rate is bank prime rate plus an additional 5% increase. The Company stopped repaying the loan principal and accrued interest after the first principal repayment of $3.86 million (RMB 20 million) made in 2011, and the balance of the loan principal of $44.39 million (RMB 230 million) remains outstanding as of December 31, 2016. The CCB sold the entire loan and accrued interest, which was ultimately acquired by Beijing Sanren Investment Co., Ltd ("Sanren") in December 2015.

As at December 31, 2016 the principal and interest owing was $64.76 million (December 31, 2015 - $66.39 million). The pledged assets have a carrying value of $58.44 million (December 31, 2015 - $70.86 million) and are comprised of land use rights, property and equipment, used in the resorts operations. In April of 2017, the Company entered into a debt restructuring plan with Sanren. The outstanding principal of the CCB loan will be considered fully repaid by the Company upon the transfer by the Company to Sanren all of the share equities, assets and liabilities of certain subsidiaries, except for the real properties and land use rights attached to two hotels currently owned by Hotel Co. Sanren will continue to allow for the Company to operate the hotel and ski resorts and utilize all assets transferred under the agreement. The details of any consideration for the use of the assets has yet to be formalized in an agreement.

SUBSEQUENT EVENTS

In April 2017, The Company, along with the Company's subsidiaries, entered into a debt settlement agreement (the "Debt Settlement Agreement") with Beijing Sanren Investment Ltd. ("Sanren"), a Company related to the parent of the Group.

Pursuant to the Debt Settlement Agreement, the outstanding principal of the CCB loan in the amount of RMB 230,000,000, together with outstanding interest amount of RMB 83,842,874, and custodian fees of RMB 1,380,231 will be considered fully repaid by the Company upon the transfer by Company to Beijing Sanren all of the share equities, assets and liabilities of certain subsidiaries, except for the real properties and land use rights attached to two hotels currently owned by Hotel Co. The two hotels have a net value of approximately RMB 475,000,000 and will continue to be owned by the Company.

Sanren will continue to allow for the Company to operate the hotel and ski resorts and utilize all assets transferred under the agreement. The details of any consideration for the use of the assets has yet to be formalized in an agreement.

The Company is also pleased to announce that, further to the news release of April 5, 2017, the Company has received final approval for the Debt Settlement Agreement from TSX Venture Exchange. The Company will now be taking steps to complete the transactions contemplated under the Debt Settlement Agreement.

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.

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