GLOSS IS OFF AT EURO DISNEY AS PARK

PREDICTS A LOSS

by Roger Cohen

New York Times Service

Paris - Euro Disney SCA, acknowledging that its elaborate theme park had not performed as strongly as expected, announced Thursday that it would incur a net loss of unpredictable magnitude in its first financial year.

At the time of the April opening of the park, which stands on a 1,900-hectare (4,800 acre) site 30 kilometres (20 miles) east of Paris, Euro Disney officials said they expected to make a small profit for the financial year ending September 30. But since then the park has been hit by a number of problems.

“We were geared up for a very high level of operations”, the company’s chief financial officer, John Forsgren, said in a telephone interview. “It has been very strong, but not as strong as we geared up for”.

“While attendance is very strong”, he said, “our cost levels do require adjustment for the current revenue level”.

5 In Burbank, California, Walt Disney Co. said Thursday that its earning rose 33 percent in the quarter. But it warned investors against expecting profits soon from Euro Disney, of which it owns 49 percent.

Euro Disney said that although attendance levels had been high, “the company anticipates that it will incur a net loss for the fiscal year ending on September 30”.

It added that “the magnitude of the loss will depend on attendance and hotel-occupancy rates achieved during the remainder of the critical European summer vacation period”.

The announcement amounted to an extraordinary turnabout of Euro Disney, which opened amid immense fanfare and widespread predictions of immense success.

At the time of the opening, on April 12, the company’s shares were trading at $28.07, and had been as high as $33.96 earlier in the year. They dropped 2.75 percent Thursday to close at $19.37.

10 Mr. Forsgren said he thought the market had “overreacted a bit emotionally to preliminary information”. He added that “by all objective standards the park is very successful. The long-term acceptance is strong, the rest is just details”

The company said that 3.6 million people had visited the park from April till July 22, a performance it said was superior to that of comparable start-up periods at other Disney theme parks. But it cautioned that, given the likely strong seasonal fluctuations in attendance, no interference about future attendance or probability should be drawn.

Reacting to the announcement, Paribas Capital Markets Group issued a “sell” recommendation on Euro Disney stock, saying that attendance levels for the period were 15 percent below its expectations and spending on food and other merchandise was 10 percent below. It predicted that the company would lose $60 million in the current financial year and continue losing money for two more years.

The main problem confronting Euro Disney appears to be managing its costs and finding an appropriate price level for its over 5,000 hotel rooms. Clearly, costs have been geared to a revenue level that has not been achieved, and the company is beginning to drop hotel prices that have been widely described as exorbitant.

Mr. Forsgren said staffing, now at 17,000, would “come down significantly in the next two months, mainly through the attrition of seasonal employees”. Of the current staff, 5,000 were employed on the temporary basis, he said.

15 He also acknowledged that the lowest-priced rooms at the resort had been cut to $110 from $750 at the time of the opening, and that some rooms were being offered at $80 for the winter season. Analysts believe hotel occupancy has been running at about 68 percent, although it is currently over 90 percent.

“The key issue is costs”, said Paul Slattery, an analyst at Kleiwort Benson in London. “They have no idea what their winter attendance levels will be and they’re battling to get costs to an appropriate level. The stock’s still overpriced, but I think in the long term they’ll get it right”.

Still, huge uncertainty hangs over the company’s plans to keep the theme park open through the cold European winter - something no other theme park in Europe has ever attempted.

Last month, the company said it was having difficulty attracting people from the Paris region. Mr. Forsgren said that French attendance was improving and accounted for 1 million of the 3.6 million visitors, with most of the rest coming from Britain and Germany. Only 1 percent of visitors have been American.

For its third quarter ended June 30, the first in which the park has been operating, the company announced revenues of $492 million, but gave no loss or profit figures in line with French practice for quarterly results. In the first half, the company earned $15 million, mainly from financial income and sale of construction rights on the site.

I. Getting the Message: Follow-Up Article

After reading the follow-up article, put a mark in the correct column to indicate increases and decreases at Euro Disney.

II. Expanding Your Vocabulary

Getting Meaning from Context

Use context clues to determine the meaning of each word, found in the paragraph indicated in parentheses. Choose the right definition.

III. Making Sense of Sentences

In the follow-up article, many sentences contain words that contain contrasting ideas. Study some of these sentences in paragraphs 2 and 3 (but), paragraph 4 (while), paragraph 15 (although) and paragraph 17 (still).

Now write sentences using these four words to contrast the following ideas.

· Attendance at Euro Disney has been high.

· Euro Disney expects to lose money during its first year of operation.

IV. Talking and Writing

Discuss the following topics. Then choose one of them to write about.

1. If Disney wanted to open a theme park in your native country, do you think most people would welcome it or object to it? Do you think the attendance will be high?

2. What influence has American culture had upon your native country? Do you think the influence has been good or bad?

3. Do you think theme parks provide entertainment that is physically and mentally beneficial to people?*

Date: 2014-12-29; view: 1126