Melco China Resorts reports first quarter financial and operational results
BEIJING, May 14 /CNW/ - Melco China Resorts (Holding) Limited (TSXV: MCG) ("MCR" or the "Company"), today reported its financial results for the first quarter of fiscal 2010 ending March 31, 2010. MCR reports its results in Canadian Dollars.
"The significant corporate developments in the first few months of 2010 collectively mark a positive turning point in MCR's history," stated Graham Kwan, CEO of Melco China Resorts. "With the initial construction at the Sun Mountain Yabuli Resort completed, a new financial and operational partner on board, and our balance sheet strengthening, MCR can now begin to unlock the significant embedded value at Yabuli."
Business and Corporate Developments
MCR announced a number of significant financial and operational developments during and subsequent to the quarter ended March 31, 2010, 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.
Harbin Bank Loans
On February 16, 2010 MCR announced it had repaid the full principal amount of a RMB 120 million ($17.86 million) bank loan provided by the Harbin Bank due on or before February 15, 2010. MCR also arranged a new loan facility from Harbin Bank of RMB 150 million ($22.32 million), the proceeds of which will be used for construction payments and general corporate purposes. This new loan was facilitated by a short term bridge loan of RMB 74 million ($11.01 million) provided by Wisecord Holdings Limited ("WHL"). The bridge loan was fully repaid to WHL by April 6, 2010.
The Sun Mountain Yabuli Resort becomes first Club Med Resort in China
On February 17, 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 ($3.05 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 Relationship Agreement with China Entrepreneurs' 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 the resort vacation homes situated in the Sun Mountain Yabuli Resort for purchase by CEF members, as well as work with its 5,000 member companies to select Sun Mountain Yabuli Resort as the site for their corporate meetings and retreats.
Developments Subsequent to March 31, 2010
Completion of $15 million Private Placement with Wisecord Holdings Limited
Subsequent to the period end, on April 9th, 2010, the Company successfully completed its private placement with Wisecord Holdings Limited ("WHL") in which WHL has subscribed for 100,000,000 common shares at a subscription price of $0.15 per common share for a total subscription price of $15 million (the "Private Placement"). WHL now owns approximately 49.4 percent of the equity interest of the Company (on a fully diluted basis and after the conversion of MCR's outstanding Class B non-voting shares and the conversion of two-thirds of the existing US$1.5 million ($1.52 million) loan from Melco Leisure and Entertainment Group Limited ("MLE"), a beneficial shareholder of the Company).
Upon closing of the Private Placement, the Company procured (in consultation with WHL) that: the board of the Company be set at nine (9) MCR board members in total, comprising of six (6) non-independent directors and three (3) independent directors; the resignation of two of the four existing executive directors of the Company who have been replaced with 2 new directors nominated by WHL; and the appointment of an additional two (2) directors of the Company nominated by WHL.
Revised Terms of Shareholder Loans and Call Option with MLE
In connection with the completion of the Private Placement, MLE, WHL and MCR entered into a supplemental loan agreement (the "Shareholder Loans Agreement") under which MLE has extended the maturity of its existing US$23 million ($23.36 million) aggregate principal amount in loans to the Company (the "Shareholder Loans") to March 31, 2013 such that the Shareholder Loans are no longer due on demand and accrue interest at the rate of 3% per annum. Pursuant to the Shareholder Loans Agreement, at any time before March 31, 2013, if the Company's 30 consecutive day weighted average trading price exceeds $1.00 per common share, WHL has the right, subject to any applicable regulatory approvals, to require MLE to convert all or part of the Shareholder Loans into common shares (the "Converted Shares") 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. Further, WHL will have a call option to buy one-third of the Converted Shares from MLE at the Conversion Price within 30 days of the conversion.
Final Payment to Zhiye Completed
The Company completed all of its payment obligations for the acquisition of Heilongjiang Yabuluoni Zhiye Co., Ltd ("Zhiye") on April 12, 2010. Zhiye was acquired in August of 2008 for a total consideration of RMB 55 million ($8.18 million) wherein the acquisition included 144.6 hectares of development land at its Sun Mountain Yabuli Resort. An initial payment of RMB 20 million ($2.97 million) was made in March 2009. The second and final installment of RMB 35 million ($5.21 million) was required to be deferred as the Company managed its cash resources over the last twelve months to combat the worldwide economic downturn.
Mr Wang Lian Appointed as Company Secretary
MCR is pleased to announce that MCR's Board resolved on 13 May 2010 to appoint Mr. Wang Lian as Company Secretary of MCR and effective immediately following the Company's Annual General Meeting to be held on 1 June 2010. Mr. Wang Lian replaces Mr. Samuel Tsang, who previously resigned from the Company's board of directors in connection with the Private Placement. Mr. Lian Wang has held a number of senior positions in internationally renowned investment banks and securities companies over the past 10 years. These include Morgan Stanley Asia Limited, J.P. Morgan Securities (Asia Pacific) Limited, Deutsche Bank AG Hong Kong Branch and BOC International Holdings Limited. Mr. Wang holds a PhD in Statistics from Carnegie Mellon University and a Bachelor of Science in Mathematics from the Beijing University. MCR would like to recognize and thank Mr. Tsang for his contributions as Company Secretary, and wish him well in his future endeavours.
Revisions to Black Out Trading Policy for Insiders
On 13 May 2010, the Board resolved to amend the existing "Black-Out Period" set out in the Company's Internal Policy of the "Policy Respecting Confidentiality, Disclosure and Insider Trading" such that trading by directors, officers and other employees of MCR and its subsidiaries who are regularly in possession of confidential information ("Restricted Persons") is prohibited from 31st December up to and including the date of the release of the annual results. Previously, trading of MCR securities by Restricted Persons was prohibited from the first day of the month following the end of each fiscal quarter up to and including the date that the financial results in respect of that fiscal quarter have been publicly disseminated. In addition, at all times, Restricted Persons are prohibited from trading in MCR securities while in possession of undisclosed material information about MCR.
Financial Results
Total revenue and net results from continuing operations were driven by resort operations for the three-month period ended March 31, 2010 and 2009 with no real estate sales activities undertaken during these periods. Revenue from continuing operations totaled $2.31 million for the three-month period ended March 31, 2010 ("2010 Period") versus $1.59 million for the same period in 2009 ("2009 Period"). Resort operations were severely limited in both 2009 and 2010 Periods 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. Operating EBITDA from continuing operations for the 2010 Period improved significantly to negative $0.64 million compared to negative $6.62 million for the 2009 Period and was attributable to company-wide cost reduction efforts and a $2.72 million one-time charge in the comparative period in 2009. Net loss in the three-month period in 2010 was $4.41 million ($0.05 per share) versus $11.63 million ($0.13 per share) in 2009.
Cash and cash equivalents totaled $25.11 million and working capital was negative $0.42 million as at March 31, 2010. Capital expenditures were minimal in the quarter.
Operations and Real Estate Development
Sun Mountain Yabuli-Operations
MCR's Sun Mountain Yabuli Resort opened for winter operations on November 18, 2009 and closed for operations on April 4, 2010 for a 138 day operating season. Revenue from the Yabuli Resort for the 2010 Period was $1.76 million with EBITDA of negative $0.10 million. As previously noted, revenue at Yabuli was constrained as the Company was required to maintain cash reserves and limit all expenditures prior to the completion of the Private Placement. As such the Company did not implement any major marketing campaigns and limited all advertising expenses with the exception of corporate sales and functions and season pass sales to major ski clubs in Harbin, Changchun and Beijing.
Such corporate functions included the 10th China Entrepreneurs' Forum held at the resort from February 26 to 28, 2010. This extremely successful, major conference was attended by over 500 of the country's most prominent business leaders and senior executives from industries ranging from banking, real estate, insurance and manufacturing. As noted above, MCR signed a strategic agreement with the CEF on March 1, 2010.
As before noted the Company has entered into definitive management agreements with Club Med to operate and manage two hotels at the Sun Mountain Yabuli Resort. From March 20 to 21, 2010 Club Med held a major international media event at the resort launching the marketing of Club Med Yabuli Resort for the 2010/11 winter season. The event was attended by leading international travel and leisure media representatives from Europe, Asia, Australia, and China and included a taste of what the new Club Med Yabuli Resort will include when operational for the coming winter season.
With the completion of the Private Placement subsequent to the first quarter of 2010, the Company can now focus on implementing enhanced marketing and sales programs to drive revenue while maintaining discipline over its operating cost base.
Sun Mountain Yabuli-Real Estate
Prior to the first quarter of 2010, the Company completed the construction of 55 home structures (of a total of 75 homes) of which three were completed with interior finishing options and appliances as show homes for sales and marketing purposes. The homes are located on a prominent ski in ski out location adjacent the resort center. No home construction was undertaken during the winter.
These homes were originally intended for sale for the personal use by their owners and were not considered to be placed into a rental pool. However, customer response and location of the homes indicate the majority of buyers now wish to place their homes into a rental pool arrangement. As such the Company is in discussions with a number of rental management companies in regards to the rental program for these homes. The Company expects 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
MCR's Changchun resort ("Changchun Resort") opened for winter operations on November 21, 2009 and closed for operations on March 7, 2010 for a 108 day operating season. Revenue at the Changchun Resort for the three month period in 2010 was $0.55 million with operations EBITDA of $0.12 million. The resort primarily serves a regional market from the city of Changchun and was originally purchased as a feeder resort to drive traffic to the Company's larger destination resort of Yabuli Resort. As previously announced, 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 $3.72 million (RMB 25 million) and is repayable on demand.
No real estate development, construction or sales activities were undertaken at the Changchun Resort for the 2010 Period.
Financial Highlights
Summary Financial Results
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(In thousands of Canadian dollars except per For the three month
share data and number of shares) period ended March 31
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2010 2009
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Operating revenue (from continuing operations) $2,309 $1,592
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Loss from continuing operations $(4,413) $(11,158)
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Results of discontinued operations $ - $(470)
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Net loss $(4,413) $(11,628)
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Loss per share from continuing operations
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Basic $(0.05) $(0.12)
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Diluted $(0.05) $(0.12)
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Net loss per share
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Basic $(0.05) $(0.13)
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Diluted $(0.05) $(0.13)
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Balance Sheet Key Indicators
(in thousands of Canadian dollars except for March 31, December 31,
ratios) 2010 2009
Current Ratio(1) 0.99:1 0.23:1
Free Cash 25,112 1,636
Working Capital(2) (417) (57,773)
Total Assets 210,447 193,308
Total Debt(3) 145,655 121,852
Total Equity(4) 64,792 71,456
Total Debt to Total Equity Ratio 2.25:1 1.71:1
(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
MCR will host a conference call to discuss its 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, May 14, 2010
Time: 11:00 am Eastern Standard Time
Dial In Number: 416-340-2216 or 1-866-226-1792
Taped Replay: 416-695-5800 or 1-800-408-3053
(Available for 14 days)
Taped Replay Pass code: 6850571
Live webcast link: http://www.gowebcasting.com/1707
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 obtain additional financing, 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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