Euro Disney S.C.A. Combined General Meeting March 17, 2010 Speech of Greg Richart, Senior Vice President and Chief Financial Officer Good morning ladies and gentlemen. I am pleased to be with you for this shareholders meeting. I will begin my presentation with the trends in our business. We have more visibility than last year for the rest of the year, but it is still limited. Then I will present you the results for fiscal year 2009 and the revenues for the first quarter of fiscal year 2010. Philippe told you how we had to adapt to the changes in consumer behavior. Those changes have intensified over the year through 2010 and they are significant. I am going to take some time to go through these changes before we talk about the results. As you can see, I still have some progress to make in French. For everybody s comfort, I will continue my presentation in English. You have earphones at your disposal for the translation. Thank you for your comprehension. As Philippe mentioned, 2009 was marked by the economic crisis. None of our key markets were spared, although Spain and the UK were the most severely affected. Overall, the Eurozone economies began growing again at the end of our fiscal year. However some markets continue to be in recession, such as Spain, while the UK has exited recession during this fiscal year, but still suffers from a weak pound to euro exchange rate. In all of our key markets, unemployment remains high and leads to fragile consumer confidence. This economic context played a pivotal role in changing the way consumers behave. The first major change is that consumers now delay making their holiday plans, and book trip reservations closer to the departure date. As a result, we lose a certain degree of visibility of future Resort visits, which is important in forecasting revenues, optimizing the yield from hotel rooms and planning our staffing at the Resort. Secondly, consumers are looking for deals. In particular, they are searching the Internet to compare offers to find the best deal, often at the last minute. This means that finding the right price to meet their expectations is increasingly critical. In response, we ve chosen to increase our promotional offers, although we have done so with a careful approach. Speech of Greg Richart 1/5
The last big change is the fact that consumers are traveling closer to home rather than long haul destinations. On the one hand, this change benefited us as visitors from our proximity markets, namely France and Belgium, came in record numbers to the Resort. On the other hand, visitation to the Resort from more distant markets declined. This has a greater impact on our revenues, as guests from distant markets tend to stay overnight, visit longer and spend more. We ve also been proactive in the face of this economic context, by continuing to focus on managing costs and capital spending. We were nevertheless cautious not to make short term decisions that would be damaging to our long term success, especially where they could impact the guest experience. As I go through the financial results of fiscal year 2009 in more detail, it will help put these changes in consumer behaviour, and our management responses, into perspective for you. Let s now go through the full year results for 2009. Consolidated group revenues for the full year decreased by 7% to 1.23 billion euros versus 1.32 billion last year. Parks revenue declined by 4% to 688 million euros, primarily as a result of a 5% reduction in average spending per guest and partially offset by a 1% increase in attendance to 15.4 million. Attendance from France and Belgium increased significantly in 2009, up 14% and 22% respectively. This increase in guests from France was particularly impressive, up more than 900 thousand from 2008. The increase in visits from these markets offset declines from others, most notably Spain and the UK. Attendance for these markets declined by 23% and 11%, respectively, compared with 2008. The average spending per guest in our Parks was 44 euros, a 5% reduction compared to the prior year. This decrease reflects the impact on admissions of additional promotional offers, and lower spending on merchandise. Hotels and Disney Village revenues decreased by 8% to 475 million euros, due to a decrease of average spending per hotel guest by 5% and a decline in occupancy of 3.6 percentage points. However, at 87%, our occupancy rate remained high by industry standards. The 5% decline to 201 euros in average spending per room is due to a higher number of rooms sold on promotional offer this year and lower merchandise spending. Real estate revenues decreased 23 million, to 18 million euros as a result of fewer transactions closed this year compared with last year. Remember, given the nature of our real estate development business, the number and size of our transactions vary one year to the next. Now let s move on to talk about costs and expenses, which decreased 2% to 1.2 billion euros from 1.23 billion last year. Speech of Greg Richart 2/5
Direct operating costs, which include royalties and management fees to The Walt Disney Company, decreased by 3% to 965 million euros. This decrease was due to lower real estate and hotel activity, and a focused management of costs. During this economic crisis, as unemployment was rising throughout Europe, we protected the employment of our cast members, while at the same time, identified means to optimize the way we work. Partially offsetting these cost reductions were labor rate inflation, as well as costs for the new content introduced in the Parks. General and administrative expenses decreased by 3% to 115 million euros, due to lower personnel costs. Marketing and sales expenses decreased slightly compared to the prior-year period, but at 124 million euros remained stable at 10% of Resort segment revenues. The reduction in revenues, partially offset by savings of costs and expenses, resulted in EBITDA at 187 million euros, down 25% versus 2008. This decline in EBITDA drove the Operating margin to 26 million euros, compared to 91 million in the prior year. Our net financial charges were stable year on year at 89 million euros. On the one hand, financial expenses decreased, primarily due to lower debt balances during the year. On the other hand, financial income earned from our cash also decreased by the same magnitude, due to lower interest rates.. The net loss attributable to equity holders of the parent amounted to 55 million euros, compared to a net loss of 3 million in the prior-year. At the consolidated Group level, the net loss was 63 million euros, compared to a 2 million profit last year. Now let s move from the income statement and focus on cash flows. As you know, and even more important in the current economic context, cash and access to cash is critical for all businesses. During 2009, the Group generated positive free cash flow of 52 million euros. Free cash flow is the net of cash flows generated from operations, less those used in investing activities for a period, and improves our financial position as we repay our debt. Cash flows generated by operations decreased by 31% to 124 million euros. This reflects the decline in operating margin, partly offset by lower working capital requirements. Cash flows used in investing activities remained stable at 72 million euros. To be prudent in this economic environment, we held some investments during the year, while continuing to invest in projects that will support the Group s long term growth. These investments during the year included the completion of Playhouse Disney Live on Stage!, which Speech of Greg Richart 3/5
opened in March, and the development of Toy Story Playland 1, scheduled to open this August. And finally, cash flows used in financing activities increased by 24 million to 86 million euros, as we continue to repay our debt according to its scheduled maturities. As a result of this activity, the Group held 340 million of cash and cash equivalents at year end, which excludes a 100 million credit line that is also available from The Walt Disney Company. This level of treasury will be made even stronger by the conditional deferrals of royalties, management fees and interest into long term debt. I would like to spend a moment discussing these cash protection mechanisms, which have been available to the Group since 2005 for use during periods such as the current economic crisis. These protection measures are important and have real benefits for the business today. In 2009, the Group deferred 65 million euros of royalties, management fees and interest payments into long term debt. A further 5 million of interest was deferred in the first quarter of fiscal year 2010. Although these amounts were expensed in the respective periods, they will be paid in 2024 instead of in 2010. These payment deferrals, which were allowed by The Walt Disney Company and CDC, together carry a lower average interest rate than the debt we have repaid, and provide the Company greater flexibility to continue the investing activities needed to grow the business, at the same time as making its scheduled debt repayments. In fact, over the next four years we are scheduled to repay 500 million euros of debt, which generated 20 million euros of financial expense in 2009. We are on the right path to improving our financial profile. Let s now briefly review the first quarter revenues for the current fiscal year. This quarter started in October and ended in December 2009. The consumer behaviour changes affecting our business in 2009 carried forward into fiscal year 2010. In the first quarter of last year, activity from certain markets, most importantly the UK, did not fully reflect the impact of their weakened local economies. As well, our business was also impacted by the RER strike and Eurostar malfunctions, which constrained access to the Resort during the peak holiday period in December. As a result of these factors, consolidated group revenues for the first quarter decreased by 10% to 291 million euros, from 323.0 million euros in the prior-year period. Parks revenues decreased by 12% to 165 million euros, resulting from an 11% decrease in attendance, as average spending per guest remained stable with last year. The decrease in attendance was driven by fewer guests visiting from the UK and France. Interestingly, we did see an increase in visitation by guests from Spain, although volumes from this market during the first quarter are not as important as in the second semester. 1 Inspired by Disney/Pixar film Toy Story Speech of Greg Richart 4/5
At our Hotels and Disney Village, revenues for the first quarter of 2010 decreased by 10% to 112 million euros, due to a 10 percentage point decrease in hotel occupancy. Partly offsetting the decline in occupancy was a 3% increase in average spending per room. This increase represents a focus on optimizing our promotional offers, to secure guest visits with a lower effective discount than what we offered last year. So building from this difficult context, how do we see the rest of the year progressing? The economies in most of our key markets are improving, although growth and consumer confidence remain fragile. As well, the weak pound to euro exchange rate continues to make a visit for our UK guest more expensive than was historically the case. For our business, we have seen some encouraging signs from certain of our key markets. Spain is a good example of this, despite the fact that its economy is still in recession. After the growth during the first quarter, bookings from this market are being made further in advance of their visits. Overall, the average booking window period has stabilized, and in fact is slightly longer than the booking pattern at this time last year. This gives us better visibility for the business. We need to be cautious with this recent information, and monitor whether trends emerge, but these are positive signals for our business. We ve maintained financial discipline through the economic downturn and we plan to continue that focus going forward. However, we are not making any short term decisions, whether from a cost or development perspective, that would inhibit us from capturing the value from the growing latent demand, especially from our distant markets. As we navigate through this temporary context, we are not deviating from our long term strategy. In the short term and as the health of our key market economies improve, we are focused on improving operating profitability. In parallel, we continue to repay our debt according to its schedule, which will improve our financial profile and lower our financial expenses. These measures are designed to generate sustained profitability for the company. Thank you for your attention. Speech of Greg Richart 5/5