Euro Disney rides from doom to first profit

JOHN SHEPHERD

Euro Disney's decision to slash admission prices by 22 per cent in April is already yielding financial gains at its theme park, Disneyland Paris. The company yesterday reported its first ever profit, albeit tiny at Ffr2m (pounds 262,000), a year ahead of schedule.

The price cuts, accompanied by an extensive television advertising campaign, helped boost attendance numbers by almost 22 per cent from last year's depressed 8.8 million to 10.7 million in the 12 months to the end of September. Attendance in the first year of operation in 1993 was 9.8 million.

Leisure analysts in the City, however, do not share the management's optimism about the future of the park which boasts rides such as Big Thunder Mountain and Indiana Jones and the Temple of Doom. In particular, the analysts continue to harbour negative views about the company's financial health, despite the recent refinancing that erased Ffr8.8bn of debts from the balance sheet.

The reaction among investors yesterday was equally negative. The shares dropped 21p to 194p, and the steepness of the fall triggered an automatic suspension of share dealings on the Paris bourse.

The profit announced yesterday was only achieved by courtesy of banks allowing the company a holiday on Ffr600m of interest payments on loans, and a separate waiver by the Walt Disney company on management fees and royalties.

Euro Disney's holiday on interest payments begins to wind down from next year. In 1996, its interest charges will rise by Ffr120m, by another Ffr230m in 1997, and a further Ffr120m the following year.

Walt Disney, which owns a 39 per cent share stake in the company, intends to start charging Euro Disney hundreds of millions of francs for management time and for copyright royalties in 1999.

Steve Burke, chief operating officer of Euro Disney, yesterday acknowledged the problem, but said he was confident that it could be overcome. Revenues, he said, only needed to be increased by 5 per cent each year to cover the additional payments to the banks and Disney. "Our bad times are behind us and talk of whether we have built the park in the right place or whether it will ever be profitable is in the past," he added.

However, analysts said the company would have to run fast to stand still given the adverse economic conditions across Europe and the strength of the French currency.

More people may be going to the theme park, but once inside they are reluctant to spend more money than the previous year's visitors. Only 25 per cent of revenue comes from admission charges, currently Ffr195 per adult in the high season, falling to Ffr150 in the winter.

New revenue streams are being developed through building additional leisure facilities for guests staying at its hotels such as a multi-screen cinema, and by targeting families.

Talks are being held with Eurostar to run charter trains direct from Waterloo.

Investment column, page 26