Mountain China Resorts Reports 2018 Financial & Operational Results
Mountain China Resorts (Holding) Limited (TSXV:MCG) ("MCR" or the "Company"), today reported its financial results for the year ended December 31, 2018. MCR reports its results in Canadian Dollars.
Financial Results
Total revenue and the net results were from resort operations sales revenue during the Reporting Period. For the year ended December 31, 2018, the Company generated revenues from resort operations of $7.72 million and a net loss of $8.94 million or $0.03 per share compared to $11.56 million and a net profit of $52.29 million or $0.17 per share in 2017 from continuing operations. Resort Operations EBITDA from continuing operations for 2018 were negative $2.85 million compared to $2.73 million last year. Major reason for the decrease in revenue was that in the debt settlement carried out in the second quarter of 2017, the Company sold four subsidiaries to one of its creditors. After disposal of four subsidiaries, the Ski operation related assets and cash flow have been moved out from MCR, including ski equipment rent income, ski pass for using the lift, ski instructors services fee, slide income, and advertisement income. MCR only keeps two hotels and the cash flow from these hotels and MCR pays to Sun Village for using the lift and their ski instructors. In the second half of 2018, the Ski industry was adversely affected by the overall economic downturn of China as a result of the macro environment of trade war between China and the U.S, as well as a series of economic policies adopted by Chinese government to drop leverage rate. Both 2018 Club Med summer operations and 2018-2019 winter operations were under negative influence of those macroeconomic environment.
Resort operations expenses from continuing operations totaled $9.82 million for the year ended December 31, 2018 compared to $9.12 million in 2017. 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 $0.39 million (2017: 1.49 million), major components of other income include $0.39 million (2017 - $0.38 million) recognized from the deposit paid by Club Med. In 2017, the company also recorded advertisement income of $0.83 million.
Corporate general and administrative expenses ("G&A expenses") totaled $1.14 million for the year ended December 31, 2018 compared to $1.19 million in 2017. This amount mainly comprised executive employee costs, public company costs, and corporate information technology costs.
Depreciation and amortization expense totaled $3.33 million for the year ended December 31, 2018 compared to $5.30 million in 2017. The decrease in depreciation and amortization was mainly caused by the debt settlement in 2017 in which properties and equipment with a book value of $5.24 million was disposed.
The Group incurred interest expenses of $1.29 million for the year ended December 31, 2018 compared to $2.16 million in 2017. 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 was mainly caused by the debt settlement in 2017 in which bank loans balance was reduced to $nil.
Cash totaled $1.13 million (2017: 1.21 million) and working capital was negative $69.13 million as at December 31, 2018 (2017: 60.24 million).
Operations Sun Mountain Yabuli
The 2018-2019 MCR's Sun Mountain Yabuli Resort winter season operations commenced on November 1st, 2018 and closed on April 7th, 2019 (160 days in total). The revenue of Sun Mountain Yabuli Resort operation comprises mainly by mountain operation, beverage, skiing-related services and hotel lodging before the debt settlement carried out in May, 2017. After disposal of four subsidiaries, most of the Ski operations related assets and cash flow have been moved out from MCR, including ski equipment rent income, ski pass for using the lift, ski instructors services fee, slide income, and advertisement income. MCR only keeps two hotels and the cash flow from these hotels and MCR pays to Sun Village for using the lift and their ski instructors.
The Company reported a revenue decrease of 33% in 2018 compared to 2017. Major reasons for the decrease in revenue include:
(a) In the debt settlement carried out in the second quarter of 2017, the Company sold 4 subsidiaries to one of its creditors. Including Zhiye, SV, SAS and Three Mountains. After disposal of four subsidiaries, the Ski operation related assets and cash flow have been moved out from MCR, including ski equipment rent income, ski pass for using the lift, ski instructors services fee, slide income, and advertisement income. MCR only keeps two hotels and the cash flow from these hotels and MCR pays to Sun Village for using the lift and their ski instructors. In the first quarter of 2017, revenue from ski operations amounted to $2.99 million, and was still included in the revenue of the Company. Historically, revenue from hotels are mainly generated by Club Med operations. Revenue from Club Med increased slightly from 2017 to 2018. In 2017, revenue from Club Med was $7.03 million which takes 60.81% of the total revenue of 2017. In 2018, revenue from Club Med was $7.72 million which takes 100% of the total revenue of 2018.
(b) In the second half of 2018, the Ski industry was adversely affected by the overall economic downturn of China as a result of the macro environment of trade dispute between China and the U.S, as well as a series of economic policies adopted by Chinese government to drop leverage rate. Both 2018 Club Med summer operations and 2018-2019 winter operations were under negative influence of those macroeconomic environment.
Financial Highlights
Summary Financial Results
| (in thousands of Canadian dollars except for per share data) |
For the year ended December 31, 2018 |
For the year ended December 31, 2017 |
||||
| Revenue | 7,717 | 11,555 | ||||
| Operating expenses | (9,815 | ) | (9,116 | ) | ||
| Other income | 388 | 1,487 | ||||
| General and administrative expenses | (1,142 | ) | (1,194 | ) | ||
| Depreciation and amortization | (3,334 | ) | (5,295 | ) | ||
| Operating loss from continuing operations | (6,186 | ) | (2,563 | ) | ||
| Total non-operating income and expenses | (2,756 | ) | 54,839 | |||
| Deferred income tax recovery | - | 9 | ||||
| Profit/(Loss) from continuing operations | (8,942 | ) | 52,285 | |||
| Profit/(Loss) from discontinued operations | - | - | ||||
| Net Profit/(loss) | (8,942 | ) | 52,285 | |||
| Earnings (loss) per share from continuing operations (Basic and Diluted) |
(0.03 | ) | 0.17 | |||
| 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) | 2018 | 2017 | ||
| Current Ratio | 0.05 | 0.07 | ||
| Free Cash | 1,133 | 1,211 | ||
| Working Capital | (69,134) | (60,235) | ||
| Total Assets | 62,292 | 64,364 | ||
| Total non-current liabilities | 771 | 1,125 | ||
| Total Debt | 73,519 | 66,058 | ||
| Total Equity | (11,227) | (1,694) | ||
| Total Debt to Total Equity Ratio | (6.55) | (39.02) |
Note:
Current ratio is defined as total current assets divided by total current liabilities
Total debt is defined as total current liabilities plus total non-current liabilities
The Company has an accumulated deficit and a working capital deficiency which cast a 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 has taken a series of actions to improve the Company's capital structure. The debt settlement in 2017 reduced the balance of bank loans to $nil and moved the majority part of construction payables out of the Company, and the Company still own the hotels free from pledge which generates majority of the total revenue in the past. Management of the Company plans to fund its future operation by obtaining additional financing through loans or private placements. However, there is no assurance that the Company will be able to obtain additional financing.
| December 31, 2018 |
December 31, 2017 |
|||
| (in thousands of Canadian dollars) | ||||
| Accumulated deficit | $ 341,863 | $ 332,921 | ||
| Working capital (deficiency) | $ 69,134 | $ 60,235 |
SUBSEQUENT EVENTS
There has been no substantial subsequent event up to the reporting date.
2018 MAJOR CORPORATE DEVELOPMENTS
Club Med carried out 2018 summer operations
Club Med carried out 2018 summer operations from July 1st, to August 26th, 2018 (57 days in total). Historically the Company had carried out Club Med summer operations around August to September from 2012 to 2014. The resort provided outdoor activities in summer including: archery, cross country mountain bike/hiking, mountain top afternoon tea parties and so on. In 2015, based on the historical data of unsatisfactory performance in summer and also as a result of unfavorable environment of competition among summer resort destinations, the Company had decided not to carry out Club Med summer operations to cut loss. In 2018, management and Club Med decided to re-launch the summer operations. Total revenue generated in 2018 summer operations amounted to $0.5 million (2014 summer operations - $0.7 million). The decrease was probably caused by the overall economic downturn of China in the second half of 2018 as a result of the macro environment of trade war between China and the U.S, as well as a series of economic policies adopted by Chinese government to drop leverage rate.
The cooperation contract with Club Med will expire after 2019-2020 winter operations, management had started negotiation with Club Med on the renewal of the contract.
About MCR
MCR is a developer of four-season destination ski resorts in China. MCR's goal is to transform existing China ski properties into world-class, four seasons luxury mountain resorts. 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.
