Melco China Resorts reports year-end 2009 financial and operational results
BEIJING, March 19 /CNW/ - Melco China Resorts (Holding) Limited (TSXV: MCG) ("MCR" or the "Company"), today reported its financial results for the fiscal year ending December 31, 2009. MCR reports its results in Canadian Dollars.
The 2009 fiscal year was a challenging year for MCR as the Company managed through the economic downturn that began in 2008 and which significantly constrained access to capital. As such the Company was required to tightly manage existing cash resources by negotiating deferred payment terms with vendors as well as limiting expenditures for both operating and real estate activities. The majority of the Company's cash resources were focused on the completion of the initial redevelopment works at its Yabuli resort that was required as an obligation for the World University Games held at this resort in February 2009. Throughout the remainder of the year the Company's cash position continued to reduce, limiting available funds for marketing in both operations and real estate activities. The weakening financial position towards the end of 2009 also placed significant burden on the Company's management and operating teams as hiring for winter season operations was substantially reduced and operating inventories were tightly managed.
"MCR faced severe constraints and numerous challenges on multiple fronts throughout 2009," stated Graham Kwan, CEO of Melco China Resorts. "Many difficult, prudent and necessary decisions were required to be made. We are very grateful to our management and operating teams that endured through the past year with their support and commitment to the Company. With several major corporate developments underway we anticipate positive results in 2010 as we now return to normal business operations."
Major Corporate Developments Subsequent to December 31, 2009
Subsequent to the December 31, 2009 fiscal year end, MCR announced a number of significant financial and operational developments, which are expected to enable the Company to resume positive operations at Sun Mountain Yabuli Resort and potentially expand its operations to complimentary resort properties when appropriate.
WHL Private Placement
On February 3rd, 2010 the Company announced that it had entered into definitive agreements with Wisecord Holdings Limited ("WHL") in which WHL will subscribe for 100,000,000 common shares in the capital of the Company ("Common Shares") at a subscription price of $0.15 per Common Share for a total subscription price of $15 million (the "WHL Private Placement"). WHL will subscribe for approximately 49.4% of the equity interest of the Company (on a fully diluted basis and assuming the conversion of MCR's outstanding Class B non-voting shares ("Class B Shares") and the conversion of part of the existing US$1.5 million loan from Melco Leisure and Entertainment Group Limited ("MLE"), a beneficial shareholder of MCR).
The WHL Private Placement is expected to be completed by early April 2010. Upon closing of the WHL Private Placement, the Company will procure (in consultation with WHL) that: there will be nine (9) Melco China Resorts board members in total, comprised of six (6) non-independent directors and three (3) independent directors; the resignation of two of the four current non-independent/executive directors of the Company to be replaced with 2 nominees of WHL; and the appointment of an additional two (2) persons to be nominated by WHL as the non-independent/executive directors of the Company.
Revised Terms to Existing Shareholder Loans
Pursuant to the terms of the WHL Private Placement, MLE, WHL and MCR are currently finalizing a binding supplemental agreement, which is expected to be executed prior to the closing of the WHL Private Placement, under which, MLE will agree to extend the maturity of its existing US$23 million ($24.15 million) aggregate principal amount in loans to MCR (the "Shareholder Loans") to March 31st, 2013 such that the Shareholder Loans will no longer be due on demand (except on an event of default) and shall accrue interest at the rate of 3 percent per annum.
As a condition of the revised terms of the Shareholder Loans at any time before March 31, 2013, if the Company's 30 consecutive day weighted average trading price exceeds $1.00 per share, WHL has the right to require MLE to convert all or part of the Shareholder Loans at a 50% discount plus accrued interest at a price (the "Conversion Price") equal to (a) 70% of the said weighted average trading price or (b) $1.00 whichever is greater; and WHL will have a call option to buy 1/3 (one-third) of the converted shares from MLE at the Conversion Price within 30 days of the conversion.
MLE, WHL and MCR are also currently finalizing a binding agreement in relation to the settlement of the US$1.5 million loan ("Melco Leisure US$1.5 million Loan") from MLE to the Company or its subsidiary, which shall provide that US$1 million of the loan to be converted into Common Shares of the Company at C$0.15 per common share simultaneously with the closing of the WHL Private Placement and US$0.5 million of the loan to be re-paid to Melco Leisure in cash.
Harbin Bank Loans
On February 16th, 2010 MCR announced it had repaid the full principal amount of a RMB 120 million ($18.47 million) bank loan provided by the Harbin Bank due on or before February 15th, 2010. MCR also arranged a new loan facility from Harbin Bank of RMB 150 million ($23.08 million), the proceeds of which will be used for construction payments and general corporate purposes. The new loan facility consists of three new bank loans with Harbin Bank of RMB 120 million ($18.47 million), RMB 16 million ($2.46 million) and RMB 14 million ($2.15 million), with each loan secured by certain assets and land use rights at the Sun Mountain Yabuli Resort. Each loan carries a two-year term with a maturity date of February 9th, 2012 and a fixed annual interest rate of 5.94 percent to be paid quarterly each year. The new Harbin Bank loans were facilitated by a short term bridge loan of RMB 74 million ($11.39 million) provided by WHL, the proceeds of which are in addition to the RMB 96 million ($15 million) on deposit with MCR as part of the WHL Private Placement proceeds mentioned above. The bridge loan has a term of 60 days. The Company is currently in discussions with WHL for the repayment of this bridge loan with an anticipated loan fee of RMB 6.8 million ($1.05M) to be paid.
The Sun Mountain Yabuli Resort becomes first Club Med Resort in China
On February 17th, 2010, MCR announced that it had entered into definitive management agreements (the "Agreements") with Club Med Asie S.A. ("Club Med") to operate and manage two hotels at the Sun Mountain Yabuli Resort. Club Med will provide marketing and sales services for the two hotels, which will be re-branded as the Club Med Yabuli Resort. MCR will retain all on mountain and real estate operations. The Agreements have renewable initial terms of ten years with performance management fees tied to gross operating profit. As well, Club Med will provide funding of up to US$3 million ($3.15 million) for additions to the Club Med Yabuli Resort so as to include facilities and refinements to meet Club Med's brand and operating standards.
Strategic Agreement with China Entrepreneur's Forum
On March 1, 2010, MCR announced that it had entered into a strategic relationship agreement with the China Entrepreneurs Forum ("CEF") under which the CEF has agreed to hold all of its future Annual Forums on a permanent basis at the Sun Mountain Yabuli Resort. In addition, both parties also agreed to establish a "CEF Founders Club" that actively promotes Sun Mountain Yabuli's resort vacation homes for purchase by CEF members, as well as work with its 5,000 member companies to select Yabuli as the site for their corporate meetings and retreats.
Financial Results
Total revenue and the net results from continuing operations were from resort operations for the twelve-month periods ended December 31, 2009 and 2008, with no real estate sales activities being undertaken during these periods. For the twelve-month period ended December 31, 2009, the Company generated revenue from continuing operations of $2.8 million versus $0.70 million during the same period in 2008. Operating EBITDA from continuing operations was negative $23.8 million for the twelve-month period ended December 31, 2009 compared to negative $13.7 million in the same period of 2008. Resort operations were severely limited in both 2008 and 2009 due to MCR's financial constraints caused by the global financial crisis. The Company dramatically reduced expenditures on marketing and promotion as part of a cash conservation strategy in order to continue the development of its premiere Sun Mountain Yabuli Resort and meet its obligations for the 2009 World University Games held at Yabuli. Net loss from continuing operations in the twelve-month period in 2009 was $64.3 million ($0.73 per share) versus $113.0 million ($1.95 per share) in 2008 and includes goodwill impairments of $22.7 million and $96.1 million in 2009 and 2008 respectively. The 2009 goodwill impairment reflects the current macro-economic environment as China and international economies recover from the financial crisis with MCR's recovery yet to be fully realized in 2010. Including the effect of discontinued operations, which primarily represents the impact of resort properties divested as part of the cash conservation efforts, net loss was $66.8 million ($0.76 per share) in 2009 versus $136.0 million ($2.34 per share) in 2008.
Capital expenditures totaled $24.2 million in 2009, which was within the Company's budget and mainly included progress payments for the construction and major improvement of the on-mountain resort center and hotel operations facilities at the Sun Mountain Yabuli Resort.
Cash and cash equivalents totaled $1.6 million and working capital was negative $57.8 million as at December 31, 2009. Working capital included amounts due to former related parties, construction and other contracts related primarily to the resort and hotel operations and the real estate business, and bank loans. Subsequent to year end the Company has taken steps to address these outstanding issues as well as its operating capital needs as detailed in the preceding sections.
Operations and Real Estate Development
Sun Mountain Yabuli
Revenue in Sun Mountain Yabuli Resort for the fiscal 2009 year was $1.46 million with operations EBITDA of negative $6.30 million. Operations expenses for the year consisted primarily of the resort's staff costs and related benefits of $2.49 million, cost of goods for food and beverage and retail products of $1.09 million and utility related expenses of $1.27 million.
Operational results were constrained in the fiscal 2009 year as the Company's financial position continued to worsen ahead of the WHL Private Placement announced subsequent to the 2009 year end. The Company was required to strictly manage all payments to vendors and suppliers in order to safeguard its remaining cash and ensure critical priority payments for bank interest and utilities were maintained. The constrained financial position affected marketing as well as operating supplies especially towards the end of 2009 as the Sun Mountain Yabuli Resort reopened for the winter 09/10 season.
The Sun Mountain Yabuli Resort successfully hosted two major events in early 2009. The China Entrepreneurs Forum ("CEF") was held from February 8th to 10th, 2009. This major conference was attended by over 350 of the country's most prominent business leaders and senior executives from industries ranging from banking, real estate, insurance and manufacturing. This was the 9th CEF that had been held at the Sun Mountain Yabuli Resort with the overall consensus from attendees being positive in regards to MCR's initial and completed improvements at the resort. In March of 2010, the Sun Mountain Yabuli Resort was again the host for the CEF and the relationship was further strengthened when MCR announced that it had entered into a strategic relationship agreement with the CEF to hold all of its future Annual Forums at the Sun Mountain Yabuli Resort. From February 18th to 28th, 2009 the Sun Mountain Yabuli Resort successfully hosted the 24th World Winter University Games, or "Universiade". The Universiade is an important international sporting and cultural festival, which is staged every two years in a different international location.
The Sun Mountain Yabuli Resort was closed after winter operations on April 6th, 2009 and re-opened for its winter 09/10 operations on November 18th, 2009. MCR expects that winter operations for the 09/10 season will close the first week of April, 2010.
During 2009, MCR continued to review and address defects and deficiencies for the initial redevelopment works with their contractors.
For real estate development, MCR reached an agreement to complete the construction of 75 homes with its existing general contractor that was also responsible for the construction of the resort hotels during 2009. The agreement includes a recommencement payment of RMB 50 million ($7.69 million) paid in three advances of RMB 25 million ($3.85 million), RMB 20 million ($3.08 million) and RMB 5 million ($0.76 million) subject to specific construction milestones being completed.
The recommencement payment of RMB 50 million ($7.69 million) was initially considered a partial amount of the total construction cost for the resort homes project. Following further negotiations with the general contractor this amount was re-allocated as a progress payment towards the hotel construction. Under this arrangement home construction proceeded throughout the latter half of 2009, financed by the builder for 55 home structures (of the 75 homes) to be constructed under the financing arrangement. These 55 home structures were completed by the end of 2009, of which three have been completed with interior finishing options and appliances as show homes for sales and marketing purposes. The Company is in discussions with a number of rental management companies in regards to the rental program for these homes which includes final selection of loose furniture, artwork and operating items (linens, kitchenware, etc). The Company aims to have these homes fully completed in 2010 once the rental management company is engaged and buyers have selected their home and finishing preferences.
Changchun
Changchun Resort closed after winter operations on March 15th, 2009 and re-opened for its winter 09/10 operations on November 21st, 2009. Revenue at the Changchun Resort for the 2009 Year was $1.30 million with operations EBITDA of negative $0.11 million. The main operations expenses for the year consisted of the resort's staff costs and related benefits of $0.59 million, cost of goods for food and beverage and retail products of $0.27 million and utility related expenses of $0.24 million.
As previously announced in 2008, the Company is in discussions regarding the possible divestment of the Changchun Resort so as to limit its ongoing capital expenditures and reduce debt. Current debt attributed to this resort is $3.85 million and is repayable on demand.
Sky Mountain Beidahu
Sky Mountain Beidahu Resort closed for winter operations on March 22nd, 2009. In connection with the termination of the Acquisition Agreement by Jilin Beidahu Sports and Tourism Industry Development Company Limited ("Jilin"), the operation of the Beidahu Resort was handed over to Jilin in mid-August 2009, eliminating the outstanding debt and required future capital expenditures for the development of the resort. In addition, MCR received a payment from Jilin of approximately $4.2 million. Revenue at the Beidahu Resort for the 2009 Year was $1.79 million with operations EBITDA of negative $0.41 million.
Financial Highlights
Summary Financial Results
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(In thousands of Canadian dollars except Twelve month Period from
per share data and number of shares) period ended February 6,
December 31, 2008 (date of
2009 incorporation)
to December 31,
2008
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Operating revenue (from continuing
operations) $ 2,758 $ 704
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Loss from continuing operations $ (64,257) $ (113,046)
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Results of discontinued operations $ (2,580) $ (22,992)
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Net loss $ (66,837) $ (136,038)
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Loss per share from continuing operations
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Basic $ (0.73) $ (1.95)
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Diluted $ (0.73) $ (1.95)
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Net loss per share
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Basic $ (0.76) $ (2.34)
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Diluted $ (0.76) $ (2.34)
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Balance Sheet Key Indicators
(in thousands of Canadian dollars December 31, December 31,
except for ratios) 2009 2008
Current Ratio(1) 0.23:1 0.33:1
Free Cash 1,636 3,494
Working Capital(2) (57,773) (51,497)
Total Assets 193,308 311,276
Total Debt(3) 121,852 154,368
Total Equity(4) 71,456 156,908
Total Debt to Total Equity Ratio 1.71:1 0.98:1
(1) Current ratio is defined as total 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
Through the expected completion of the refinancing efforts of the WHL Private Placement, revised terms of the MLE shareholder loans, and the obtaining of new loans, subsequent to the 2009 year end, the Company will have significantly reduced and satisfied its immediate and current financial obligations. If the refinancing effort from the WHL Private Placement is unsuccessful or is not available on acceptable terms, the Company does not have sufficient funding to meet its current obligations or on-going operational and development requirements. In this situation, the Company would need to immediately suspend portions, if not all, of its operations and consider other alternatives.
Melco China Resorts will host a conference call to discuss its year end operational and financial results. Graham Kwan, CEO and Danny Liu, CFO of Melco China Resorts will host the call.
Management invites analysts and investors to participate on the conference call.
Date: Friday, March 19, 2010
Time: 10:00 am Eastern Standard Time
Dial In Number: 416-340-8018 or 1-866-223-7781
Taped Replay: 416-695-5800 or 1-800-408-3053
(Available for 7 days)
Taped Replay Pass code: 6850571
Live webcast link:
http://events.digitalmedia.telus.com/melcochina/031910/index.php
About Melco China Resorts
Melco China Resorts is the premier developer of four season destination ski resorts in China. Melco China Resorts 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 Yabuli Resort was awarded Best Resort Makeover in Asia by TIME Magazine. Melco China Resorts' leadership team boasts a proven record of resort development success both internationally and in China. www.melcochinaresorts.com
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts 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 Melco China Resorts at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of Melco China Resorts are subject to a number of risks and uncertainties, including general economic, market and business conditions, uncertainty relating to land use rights, adverse industry events for the ski and real estate industries, Melco China Resorts' ability to make and integrate acquisitions or complete the WHL Private Placement, 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 Melco China Resorts' ability to implement its business strategies, and to raise sufficient capital, 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. Melco China Resorts uses forward-looking statements because it believes such statements provide useful information with respect to the operation and financial performance of Melco China Resorts, 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 Melco China Resorts may elect to, it does not undertake to update this information at any particular time.
For further information: Melco China Resorts, Investor Relations, Kevin O'Connor, Tel: (416) 962-3300, Fax: (416) 962-3301, Email: [email protected]
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