Euro Disney S.C.A. Combined General Meeting - February 21, 2008 Speech of Ignace Lahoud, Senior Vice President and Chief Financial Officer

Transcription

1 Euro Disney S.C.A. Combined General Meeting - February 21, 2008 Speech of Ignace Lahoud, Senior Vice President and Chief Financial Officer Good morning ladies and gentlemen, Before discussing the results for the fiscal year 2007 and those of the first quarter of 2008, let s have a brief look at the general environment within which we operated in was generally a good year for the tourism in France despite the relatively flat economy within France and Europe, when compared to the United States or Asia. The increase in oil prices and the weakness of the dollar against the euro didn't have a negative impact on tourist arrivals at our Resort, and in addition, the rugby world cup possibly helped to compensate for the relatively poor weather conditions over the summer. In 2007 within France, Leisure parks on average grew their revenues 8% while the hotel industry increased its revenues by 11%. At the same time, Disneyland Resort Paris increased its revenues by 12% which reached billion, with its parks and hotels revenues increasing by 14% and 17%, respectively. The fiscal year 2007 started strongly with both Halloween and Christmas performing well. Our first quarter revenues increased 6% when compared to the prior-year period. The second quarter built on this momentum ending 15% up. The third quarter, from April 1 through June 30, started with the kick-off of our 15 th Anniversary celebration. We also opened, during this period, Crush s Coaster and Cars Race Rally 1, two new Disney/Pixar inspired attractions in the Walt Disney Studios Park. Our third quarter revenues increased 12% when compared to the prior-year period. Finally, the strong activity in the summer drove our fourth quarter revenues up by 16%, when compared to the previous period. This growth in overall revenues can be further broken down as follows: Theme Parks revenues increased by 14% to 659 million. This was driven principally by increases in attendance, while maintaining a relatively stable average spending per guest. 1 Respectively inspired by Disney/Pixar s Finding Nemo and Cars Speech of Ignace Lahoud 1/6

2 Attendance in our theme parks reached a record level of 14.5 million visitors for 2007, an increase of 1.7 million when compared to the prior year, and more than 2 million when compared to Average guest spending in the parks increased slightly over the fiscal year, ending the year at 45. Let s look at where our visitors in 2007 came from. The French market now accounts for 44% of our total attendance, representing a 17% increase over the prior-year. 16% come from the UK, up 1%; 13% come from the Benelux, also up 1%; 11% come from Spain, up a significant 29%. Germany and Italy now account for 3% each and 10% of our guests come from the rest of the world. Hotels and Disney Village revenues increased 17% compared to the prior-year to 483 million. Our hotel occupancy rate increased by 5.8 percentage points to 89.3% when compared to Our average spending per room also increased by 10% for the year, to 198. We are very pleased with the evolution of these 2 indicators. Other Income, which primarily includes participant sponsorships, transportation and other travel services sold to guests, decreased by 8 million to 59 million, mainly due to a decline in certain sponsorship revenues. Our Real Estate operating segment generated 19 million of revenues for the fiscal year, a decline of 10 million. This decrease is primarily due to the number of our real estate transactions that we closed during the fiscal year. Specifically, we closed seven transactions in 2007 versus closing ten transactions in Given the nature of our real estate development business, the number and size of our transactions vary one year to the next and should not necessarily be taken as indicators of future results. Now let s look at what occurred with our costs and expenses in light of our increased revenues. While our revenues grew by 12%, our costs increased by 7% and ended the year at million compared to million in the prior-year. Direct operating costs, which include labor costs, depreciation, royalties and management fees amongst others, increased 7% to 937 million, compared to 874 million in the prioryear. This increase was driven by the increased Resort activity, combined with labor rate inflation. Speech of Ignace Lahoud 2/6

3 Marketing and sales expenses increased 14 million compared to the prior-year period largely due to increased media spending on advertising for the 15 th Anniversary celebration and increased costs related to sales. It is pertinent to note that as a percentage of revenues, marketing and sales expenses remained flat at slightly below 10% year over year, and was 9.9% in General and Administrative costs increased 3% to 112 million. Now, let s have a look at how these elements impacted our Operating Margin before depreciation and amortization, commonly known as EBITDA. As you know, we use this management indicator to measure operational performance. Operating Margin, before depreciation and amortization increased 39% to 206 million from 148 million in As a percentage of total revenues, this indicator substantially increased by 3 percentage points to 17%, from 14% in I would like to mention that in the past 2 years this margin improved more than 90 million. The Operating Margin increased significantly to 51 million, against a prior year loss of 2 million in This is a significant evolution. If we look now at the rest of our income statement, it's worth noting that: Net financial charges increased to 92 million, from 86 million last year. This increase primarily reflects incremental interest expense, partially offset by an increase in interest income generated on our cash and cash equivalent holdings. The consolidated net losses are down by 47 million, representing an improvement of 53% to 42 million. Finally, the net loss attributable to equity holders of the parent is 38 million, a 48% improvement or 35 million less than in Moving on to a discussion on cash flows: the Group generated 191 million in operating cash flows compared with 152 million generated in This 39 million increase was driven by the improved performance of the Group over the period, partially offset by changes in working capital. Cash flows used in investing activities remained relatively stable at 127 million, reflecting ongoing investments and most notably those related to our new attractions. Speech of Ignace Lahoud 3/6

4 At the end of the fiscal year 2007, the group had a cash and cash equivalent balance of 330 million, which represents an increase of 64 million compared to the beginning of the year. This amount does not take into account the 150 million credit line available from The Walt Disney Company, granted during Regarding our debt, the company is scheduled to begin repaying the principal of its debt during fiscal year 2008, in the amount of 61 million. Together with the fact that we did not need to utilize the interest or The Walt Disney Company royalty and management fee deferrals in fiscal year 2007, we can say that the company is making progress in reducing, and not furthering, its debt burden. This improvement will be notable in the 2008 balance sheet. Let us come back to the important points in our results for Revenue was up 12% in regard to We achieved an operating margin before depreciation and amortization of 206 million, increasing 39%. The positive operating margin is 51 million, versus the 2 million loss in Net loss attributable to equity holders of the parent decreased 48% to 38 million. This progress during fiscal year 2007, combined with the improvement of our results in 2006, gives us confidence in our strategic direction. Before I talk a bit about 2008, I d like to briefly update you on the recent reverse split we undertook on December 3 rd. Remember that we exchanged one new share for every 100 old shares held. Today, we have consolidated almost 99% of old shares into new shares. We can consider that this operation is largely complete and has been successful. I would like to thank our shareholders for their contribution to the success of this operation. This is an important step to removing the "penny stock" status, limiting the volatility of our share price and changing the perception of the investors in our shares. This reverse split did not change the Company s registered capital nor did it dilute the value of a shareholder s investment in the company. Speech of Ignace Lahoud 4/6

5 Recently, some shareholders have asked if the recent evolution of our share price was linked to the reverse split. We don't think so. If we look at the evolution of the financial markets over the past few weeks it seems that the mid-caps and the Leisure industry sector suffered from the capital movement out of equities and into the bond market. Following the release of our 2008 first quarter results, we have increased revenues for 7 consecutive quarters. It is through continuing along this path, while also increasing earnings, that we will be able to best position our company within the Leisure industry sector. Let s now look at the results of the 2008 first quarter, which ended in December. The good news is that the first quarter of 2008 continued where 2007 left off. This is one more step in the right direction. Once again attendance, guest spending and hotel occupancy have increased compared to the prior year period. Revenues increased 20% to 341 million reflecting these volume and spending increases. Resort revenues increased 14% to 316 million. This increase was driven by a 14% growth in Theme parks revenues to 175 million, reflecting attendance increases of 10% and an increase in average guest spending of 3%, compared to the prior-year period. We also benefited from a 17% growth in Hotels and Disney Village revenues to 127 million, driven by an 11% increase in average spending per room and a 6.8 percentage point increase in occupancy, compared to the prior-year period. The increase in occupancy resulted in an additional 36,000 room nights compared to the prior-year period. Real Estate development revenues increased 18 million to 24 million. This increase was primarily driven by the sale of a property in la Vallée Village Outlet Shopping mall in Val d Europe and which was previously owned as an investment property and subject to a longterm ground lease. This sale resulted in revenues of 13 million. The 2008 first quarter results are encouraging and we remain confident in our strategy. Nevertheless, we are aware of a predicted slow down in the US economy and we remain alert to its impact on the evolution of our principal markets. Without providing financial guidance for the rest of the year, I can tell you that in our limited visibility for the upcoming months, our operating indicators, such as room reservations on the books for the second quarter through Speech of Ignace Lahoud 5/6

6 the fourth quarter of this fiscal year are modestly ahead of where they were at this time last year. Before I conclude, I would like to briefly talk about a key component of our growth: our investment selection strategy. Our growth strategy is built on, amongst other things, the optimization of our investments, which aim to create value for the short, medium and long term. As Research & Development or new product development expenditures are essential within many industries, making continuous investments and upgrades to our Resort is integral to our success. We need to be prudent in our decisions to choose attractive investments that can provide sustainable growth, taking into account our financial condition. These opportunities include building new attractions or shows in our Theme parks, examples of which you would have seen these past 2 years: Buzz Lightyear Laser Blast, Crush s Coaster and Cars Race Rally 2, or the new Disney s Once Upon a Dream Parade or in 2008, with the Twilight Zone Tower of Terror 3 and Stitch Live!. These important investments build on our already unique set of Resort attractions, which should continually expand in the future. We also need to consider smaller and less visible investments that are essential to our business, such as opportunities to support new marketing and sales initiatives, refurbishments of our existing Resort assets or using technology to both wow our guests and streamline internal processes and systems. As you can imagine, we are already studying investment and development projects; our objective is to finance our investments with either our own cash or through strategic partnerships. To conclude, I would like to say that these strong financial results are the fruit of our efforts in implementing our growth strategy defined 3 years ago, but we still have progress to make. We remain focused and are working hard to achieve our principal goal: driving this business towards profitability, in the interest of you our shareholders, as well as our employees and other stakeholders. Ladies and gentlemen, I would like to thank you for your attention. 2 Respectively inspired by Disney/Pixar s Finding Nemo and Cars 3 Inspired by The Twilight Zone, a registered trademark of CBS, Inc. All Rights Reserved. Speech of Ignace Lahoud 6/6