Euro Disney loses 60m pounds in quarter: Second theme park to encourage hotel occupation put on hold as strategy and structure are reviewed

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EURO DISNEY yesterday revealed mounting losses and the shelving of plans to build a second theme park while it undertakes a broad ranging review of the strategy and funding of the Paris-based resort.

Philippe Bourguignon, Euro Disney's chairman, said that the company had lost about Fr500m ( pounds 60m) in the three months from the beginning of April to the end of June, one of its busiest periods. The company also expects to make losses in its peak season from July to September.

These come on top of losses of Fr1.081bn ( pounds 130m) in the period from October to March, the first half of its financial year. But the company has repeatedly blamed the seasonality of its income and profits for its problems, and the unexpectedly bad news of equally high third- and fourth- quarter losses sent the share price crashing 108p to 675p.

Mr Bourguignon said that as a result the company and Walt Disney, its American parent which has about 49 per cent of the group, were engaged in a thorough review of the group's financial structure and development strategy.

This is not expected to be finished before the spring of next year and a decision on the second theme park will have to await its conclusions.

The Euro Disney management had set considerable store by a second theme park, the centrepiece of which would be an 85,000 square metre theme park modelled on MGM's studios. It argued it would give the resort 'critical mass' by ensuring that visitors had sufficient attractions so that they would want to stay overnight at the development's hotels.

These have experienced dismally low occupancy rates. Despite considerable efforts to promote the hotels they were only just over two-thirds full during the third quarter and, for the year as a whole, analysts estimate occupancy levels of barely 45 per cent.

But Walt Disney, which would have had to guarantee the estimated Fr5bn of borrowings necessary to fund the Fr9bn MGM park, conference centre and headquarters development, appears to have balked at giving the go-ahead for expansion until it had completed its review of all the assumptions underlying the Euro Disney development as a whole.

Mr Bourguignon said he regretted that the 'current economic environment' would not allow the company to proceed with the second stage of its expansion plans. But, he said: 'It seems reasonable to us to be prudent for the short term even if we and the Walt Disney Company remain confident in the long term.'

The company blamed many of its problems on the downturn in the European economies and the devaluation of the pound, lira and peseta against the franc, which has made France a much more expensive holiday destination.

Euro Disney, which has had an annual target of about 11 million visitors, said that the number of attendances at the theme park had been in line with expectations, at around 3.1 million during the quarter.

But the amount of money they had spent on food, merchandise and at the hotels had been 'significantly below' expectations.

The company had also been faced with the depressed Paris property market, which had prevented it from realising any property profits, it said, adding that it also faced continuing high levels of interest leasing and depreciation charges.

The second phase of its development programme had already been scaled down from the original Fr17bn expansion envisaged at the time of the company's flotation, since the collapse in the Paris property market had ruled out the extensive commercial and residential developments that were originally designed to help fund the park's growth.

Paul Slattery, an analyst with the stockbroker Kleinwort Benson, said the project needed to be completely rethought. Although it had been hit by the economic downturn, unrealistic assumptions had been made about the amount of money European consumers would be prepared to pay at the resort.

The number of hotel rooms built was probably over-optimistic but 'they are now a fact of life'. The company would therefore have to re-invent markets for its hotels and other merchandise, re-pricing them at a level that would attract demand.

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