Mountain China Resorts Reports 2013 Financial and Operational
Results
BEIJING, CHINA--(Marketwired - Apr 30, 2014) - 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
(in thousands of Canadian dollars except for per share
data) |
For the year ended December 31, 2013 |
|
|
For the year ended December 31, 2012 |
|
Revenue |
8,852 |
|
|
9,453 |
|
Operating expenses |
(9,294 |
) |
|
(8,084 |
) |
|
|
|
|
|
|
Other income |
614 |
|
|
2,680 |
|
General and administrative expenses |
(892 |
) |
|
(1,508 |
) |
Depreciation and amortization |
(11,604 |
) |
|
(11,176 |
) |
Operating loss |
(12,324 |
) |
|
(8,635 |
) |
|
|
|
|
|
|
Total non-operating income and expenses |
(31,788 |
) |
|
(9,350 |
) |
Deferred income tax recovery |
39 |
|
|
133 |
|
Results of discontinued operation |
- |
|
|
- |
|
Net loss |
(44,073 |
) |
|
(17,852 |
) |
|
|
|
|
|
|
Net loss per share (Basic and Diluted) |
(0.14 |
) |
|
(0.06 |
) |
|
|
|
|
|
|
Weighted average number of shares outstanding(Basic and
Diluted) |
308,859,103 |
|
|
294,130,414 |
|
|
|
|
|
|
|
Balance Sheet Key
Indicators
(in thousands of Canadian
dollars except for ratios) |
December 31, 2013 |
|
December 31, 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:
- 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. 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, 2013 |
December 31, 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.
Mountain China Resorts (Holding) LimitedMr. Han GangChief
Financial Officer and
Director0086-10-66420868investor_relations@mountainchinaresorts.comwww.mountainchinaresorts.com
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