Restructuring helps EuroDisney, but can't solve their problems

[Sarangel]

From Reuters:

UPDATE 3-Euro Disney net loss narrows after restructuring
Wednesday 16 November 2005, 7:05am EST

By Caroline Brothers

PARIS, Nov 16 (Reuters) - French theme park operator Euro Disney reported a smaller annual net loss on Wednesday, helped by financial restructuring, but heavy charges and flat visitor numbers widened its operating loss.

The operator of Disneyland Paris, Europe's most visited tourist attraction, said it had registered 12.3 million visitors to its twin theme parks over the full fiscal year, slightly fewer than the 12.4 million tallied the year before.

And it said it was in negotiations with its labour unions to help control its operating costs after labour rates, up 7 percent, grew twice as fast as revenues over the same period.

Those costs were pushed up by a rise in France's minimum wage and reduced subsidies linked to the introduction of France's 35-hour working week.

"The objective is to reduce the growth of labour costs while maintaining or even enhancing the guest experience," Chairman Karl Holz said.

The labour-intensive firm employs some 12,295 full-time workers to act as "cast members" impersonating Mickey Mouse and other characters at the Magic Kingdom and Walt Disney Studios parks, and to staff its hotels, rides, restaurants and shops.

Jeff Speed, Euro Disney's finance director, told Reuters in an interview that the priority was to improve both visitor numbers and the amount they spend, while keeping costs down.

"We are looking at ways to optimise our labour force, which is about 45 percent of our total operating cost," he said, adding it wished to match staff levels to fluctuations in attendance and occupancy rates, to make efficiency gains.

"With topline revenue growth both on volume and spending, and continuing to control our operating costs, we are looking to grow our EBITDA by meaningful amounts as well as further reduce our loss," he added. But he declined to comment on when the loss-making firm would finally break even.

"This is going to be an evolutionary process and we are going to make progress every year," Speed said. "We are certainly targeting a continual reduction in our net losses and ultimately, sustained profitability."

Euro Disney's operating margin -- earnings before interest, tax, depreciation and amortisation (EBITDA) as a percentage of sales -- slipped to 11 percent from 12 percent before. The group had been aiming to stabilise its margin and increase EBITDA -- which slipped nearly 5 percent to 117.1 million euros.

OPERATING LOSS WIDENS

The European outpost of the Disney empire posted a net loss for the year to Sept. 30 of 94.9 million euros ($110.6 million), after a loss of 145.2 million euros a year earlier.

That was in line with forecasts from two analysts surveyed by Reuters Estimates for a net loss of 94.03 million.

Analysts who declined to comment on the record said the figures contained no surprises. "There were calendar effects in the third quarter, a lag in the Easter break and delayed holidays in France and other countries," said one.

The company said it had managed to reduce its net loss by about a third, thanks largely to the financial restructuring that hauled it back from the brink of bankruptcy in February.

However, its operating loss widened 12.5 percent to 26.9 million euros as labour costs increased. Reuters Estimates had forecast an operating loss of 18 million euros.

That was achieved on a 3 percent rise in turnover to 1.076 billion euros, helped by its real estate activities. The firm sells and leases nearby property.

Euro Disney, 39 percent owned by the Walt Disney Co (DIS.N: Quote, Profile, Research), had initially forecast sales up 5 percent, but rowed back in July after a tough third quarter.

Though its debt rescheduling has staved off bankruptcy, and it has carried out a capital increase of 253 million euros to finance investment in what it hopes are crowd-pulling new attractions, it still has to service a 1.93 billion euro debt -- six times its shareholder capital of 295.7 million.

Euro Disney has announced a multi-year investment plan to revamp its rides and is opening its "Buzz Lightyear Laser Blast" attraction in April. Speed said it was focusing promotional spending -- some 10 percent of sales -- on core markets like France, Britain, Germany, Benelux and Spain.

However its financial agreements limit its investments while its covenants, concerning capital expenditure and its debt service coverage ratio, require it to lift revenues as of 2006.

"Assuming growth in turnover generated among other things by the impact of its multi-year investment plan, the group estimates that its operating profit will be sufficient to respect its undertakings," it said.

Euro Disney will switch to IFRS international accounting standards in 2006 but said the impact should not be significant.

It's volatile shares have lost half their value this year and underperformed travel sector peers by 56 percent. By 1129 GMT the stock traded down 8.3 percent at 0.11 euro, after rising nearly 10 percent on Tuesday.

 

[mark&sue]

They need to do something with these parks. We just came back a few weeks ago and there seemed to loads of english speaking people wandering about looking for ways to spend money!!! The parks were packed and I felt there needed to be something else at the resort to do.

It was UK school holidays and there was at least 50% english speaking at the parks with not one of the films at the 15 screen cinema in their original language (english). The promised ice skating outside New York was not open even though the hotel information said it would be. It was too windy for the balloon to go up.

This is our third trip and as we are DVC members get to stay with our points but it just seemed to lack magic and starting to look like the Disney village could do with a rehab especially nearer to the hotels. I doubt if we will go back until DD leaves school, or perhaps a flying visit if driving through france to get to spain!

I wonder if the recent riots in Paris will make matters worse?

Susan

 

[disneyholic family]

too bad they put it in france....can't be helpful to the bottom line...

as for the riots, i'm sure they had an effect....we cancelled our trip and went somewhere else for vacation instead...