Summary of the 2015 First Half Results presentation by ED92


Below is a summary of the presentation on the First Half Results for 2015 given by Mark Stead, Senior Vice President and Chief Financial officer of Euro Disney S.C.A. held on 7 May 2015 that was attended by a number of French Disneyland Paris fan sites and APPAED.

The below summary was originally published in English by ED92 and they have kindly given us permission to reproduce it here on Salon Mickey.

Presentation of the Results for the First Semester 2015 of Euro Disney SCA Thursday May 7, Team Disney Building, Serris.

In attendance:

  • Mark Stead, Senior Vice President and Chief Financial officer of Euro Disney
  • Yohan, Senior Manager Investor Relations of Euro Disney
  • Edith Zemirou, Present of APPAED
  •  Mouetto, Administrator of Disney Central Plaza
  • Simplet, Moderator of Disney Gazette
  • Mick77, Reporter of Disney Gazette
  • Stickys, External Correspondent of ED92

Mark Stead opens the meeting by summarizing that the results are encouraging, and show that they made the right choices.

He then explains that they have two possibilities:

1) Not reinforce the existing three seasons (Spring, Halloween, Christmas), have a rise in reservations and have that way a nice progression. This was the option recommended by the Audit Counsel, which allowed to spread the investments on the next few years and smooth the investments.

2) Try to increase the quality of the product, which result in a raise in expenses at the time then a stabilization later on.

It’s an effort over a short time which gives results not he long-term. But at the moment the rate of “re-visits” is raising: the time between two visits is going down. But Mark Stead does not give any numbers to validate this fact.

After a lot of debate it’s the second choice that was picked. They raised the number of shows and their quality and the return will be visible on the long-term. They are looking for a good ‘word of mouth’, while keeping the goal of not raising the costs beyond the generated income.

He also reminds that it is very difficult to predict the visit of clients from hotels other than Disneyland Paris’ and its partners. But these guests are high margin because they pay a full price.

Their goal is clear: keep the margin at a slow rise to invest now in the future.

First question: Why is there a drop in merchandise spending in the hotels?

Mark Stead answers that the drop is offset by a raise in purchases in the parks. Guests bought more in the parks than the hotels.

He adds that the bounce back will be seen mostly on the thirst and fourth trimester.

Another question: What are the effects of the Ratatouille area at Walt Disney Studios?

Mark Stead explains that Ratatouille had an effect on the local market this year with a good return rate. Additionally, he adds that they will capitalize this year on the Frozen season which will have a pan-european ad campaign.

The next question is about the opportunities related to the Star Wars license:

The Star Wars products, and all the strong Disney brands, will be more taken advantage of in the parks, to have real synergy. The Marketing division will now be able to leverage it now that they have more cash flow to make those ideas come to life.

They have already seen signs that things are working: before, they had to save the cash flow, did not have any forecast, but now that they do, things are different.

Now that they have a level of freedom to maneuver, they can finally start a new cycle: invest in the hotels and the various buildings, and also in the Cast Members living areas. Until now they could only ask them to stay strong, and say “things will get better”. Now they have the budget to make it happen.

In the past (2005-2008) they had received some money which allowed them to go forward, but the economic crisis happened.

Another question: You’re not learning from your mistakes! Today you are going to spend not for the present but for the future investments?

The only time when we did was for the development of Space Mountain. We also had this on a lesser degree with Tower of Terror. Ratatouille is a very, very heavy investment for an attraction but it is more the restaurant which will be profitable than the attraction.

We are therefore at the limits of the too expensive investment. For the restaurant, it is clear that at first there was a lack of table service restaurants at the Walt Disney Studios and this has not been done in 10 years. It is a big deal not to realize that earlier. now we have it, and it will be profitable. But the problem now, is that before it is profitable it will cost and take time.
Follow up question: Now you must prioritize the profitable investments and maintain the current. it wasn’t done for the hotels and now we pay the highest price. In my opinion the problem isn’t the economic crisis but multiple repeated errors in management We are hoping that the investments during the first semester were smart and will pay off.But you raised again the marketing expenses more than the income level. I worry about the global cost of marketing especially since you announced a european Frozen campaign

Mark Stead answers: We now limit our marketing expenses to 10% of the annual income. Last year during the first semester they were lower because the opening of Ratatouille was on the second semester and we decided to focus our efforts on it. We can still see that on the start of the first trimester of this year.

Next question is: Is the forecast for the stock good?

Mark Stead doesn’t think so, at least directly on the stock. But they think there is a slight speculation on the stocks linked to the legal action of the CIMA fund, who is looking to raise the price of the OPO (Public Obligatory Offer in French). For me, it’s a mistake to want to try to reproduce what happened at Club Med, because here we are talking about an OPO and not an OPA (Public Offer of Purchase, in French).

It is then possible that some people are playing on this and we don’t have any forecast on this.
The question continues: But investors we know are staying stable ? No worries on this end ?
Stead answers: We have a lot of new institutional investors. We have an Australian investor who showed interest. We also have investors all over the world, important stock holders who want to meet with us. We went to London a few weeks ago to meet some of them.The returns are rather good. Now, are they going to follow-up and buy ? I don’t know but we are trying to attract as many as possible, because I think it’s important to have a good base of institutional investors.
We tried in the past to attract those investors, but the answer was always the same: the debt problem.
Follow up question: Institutional investors are needed, because the non identify share (the small stock holders) is dropping to 8.5% of the capital, which is very little. Do you take this in consideration when you say you can’t ask too much to shareholders who only represent 8.5% ?

Mark Stead asks to clarify the question.

Clarifying: You say you can’t ask too much to the small shareholders, but they are really a small minority.

Mark Stead agrees, but the reason why he says that, is because the shareholders lost money because the stock value dropped. So asking the shareholders to put more money in the pot is a particularly delicate operation, even difficult.

A person adds: Especially when we did it two or three times !

Mark Stead continues: It’s not something we can ask because the economic situation is not simple. I had to put in more money because we have to own at least 250 shares and I went to 2500. That is quite an amount. And I try to put myself in the shoes of a small shareholder, who is not necessarily someone with a lot of money, these are people who bought because they like the product and believe in its future.

Asking them to invest would have been too much.
But for an institutional investor, it’s not only because they have a big budget that they will agree to give us money. They also have investors who they need to be accountable to. It’s an entire chain. We are aware of this but also aware that we can’t ask for more debt because it would cost us too much.
We studied this possibility before the recapitalization, and the answer was a cost over 10-11%. That is why we chose the recapitalization.
The same person asks: And to finish on the topic of the stock: do you have any forecast because a lot of shareholders are stuck. They wanted to sell or wait to buy, and there is no date?
Mark Stead answers: Yes, it’s in the hands of the justice system, there has been a first hearing two days ago and we are waiting on the decision.
Someone adds: It’s at least 6 month of being stuck.

Mark Stead finishes by saying they hope to close the chapter by the end of the year.

Next question: Is this going to have an impact on future investments or do you think this won’t change anything?

Mark Stead explains that for them it doesn’t change anything, they already received the money. it is just for the shareholders who wanted to offer their stock that is it a problem.

Someone adds: or even buy some more!

Mark Stead continues and explains that they can keep buying sticks. The price will always be stuck around 1,25 Euros as long as the OPO is not finished.

Another question: Before you were talking about the choice to increase guest experience, with a better word of mouth. Knowing that there are currently a lot of rehabilitations and that this should continue in 2016, don’t you think this will have a negative impact in 2016?

Mark Stead answers: What we are trying to do, and we are thinking about this not he marketing and sales levels, is to not raise out attendance too much next year. You know we can limit it but reducing the promotional offers, but it has to be properly targets with the discounts, because we don’t want to have too many r too little people in the parks. If there are too many closed things, the experience is limited and the word of mouth becomes negative. It would then go against what we are trying to do. We will try to keep in mind the closing of attractions, start the works as fast as possible ad next year it will be a bit difficult because we will have a lot of closed things.

The person continues: But after, there will be the 25th anniversary which should have a positive effect?

Mark Stead answers: Especially with the updated attractions and the new technologies it will be a new experience.

Another question about the 25th anniversary: Will the anniversary start in April or, like in 1999, in January?

Mark Stead answers: this is not yet decided, but for now it’s towards a classic, so April, but this can still change, the marketing and sales teams are studying this.

Next question: On the cash flow you say you have received reimbursements from Villages Nature. Are there a lot left to come and what is the amount?

Mark Stead answers: yes that is the money we advanced last year. It was planned that we will be reimbursed not he profit of the sales and this will continue next year. We will add a small investment right before opening for the opening festivities that we will get back quickly. We in fact go back to neutral cash flow, to go negative and then neutral again. The whole project was structured to guarantee and limit the amount of cash that ED SCA had to invest.

Next question: How many financial charges are you expecting this year?  Because the first semester was impacted by the refinancing operations, which causes the results to be changed by those operations.

Mark Stead answers: I don’t have the numbers, but the prediction is between 39 and 44. We will be under 50, even under 45 but I will come back to you on the exact figure.

Stead asks why there are no questions about the new president. One of the guests says that they have not seen any big changes so far. another person says that they see him less than Mr Gas.

Mark Stead says that the president is operations orientated and he is at the parks a lot. With Gas, things were more about institutional relations. Mark stead continues by saying: Like me, Philippe comes from Corporate. With Tom Wobler, we see his operational side, on the functions and costs. he is focused on details and that is a great thing because the operational team does things more efficiently. Tom is going to be doing something different then Philippe, thanks to his knowledge of the operational side of the theme parks. Even if Philippe had a good knowledge, we find with Tom the experience of this operations background, he does things differently, he is very well liked but the teams.

Someone asks: On the results, there is no results regarding the the work with the Flo Group. Aren’t they on the semester results?

Mark Stead answers: it is always complicated, because that it cycle based and the first semester always has less volume. The deal always brings profit that are shown int he annual results of the company.

Next question: You have a raise of the products that is set in advance, do that mean that reservations were already taken?

Mark Stead says: That’s exactly it, that the effect of Spain.

A guests adds: Why did the company sell its DPS?  Because mechanically, its share will drop and to stimulate the market you may need to buy some back?

Mark Stead explains that he took this decision and there was two choices:

1) Take our DPS, sell them and get some cash flow.

2) Use them by putting money in the offer and either add our shred to the OPO or keep them and bring them to our liquidity contract to stabilize the share price.

This second solution looked more useful than cash flow, and I thought having a larger floating base would allow us to not need as much money in our liquidity contract.

The person adds: But aren’t you going to need even more because the floating will be reduced?

Mark Stead says: Non because the floating before was 130 million and now it will be less. Let’s say TWDC ends up with 80%, the Prince stays at 10%, we would still have about 100 million floating, so I think it’s better to have a large liquidity contract if we have a lot of investment funds interested. It’s a question mark.

So for me, we didn’t need a larger liquidity contract so let’s sell the DPS, keep the money in the liquidity contract, if needed we can always put money back and if we don’t need it we re-invest in the parks.

Next question: In the debt transformed into shares, wouldn’t it have been smart to convert the Newport Bay Club loan which has the highest interest rate, even if the amount of the loan is not the highest?

Mark Stead answers: Yes we thought about it, we discussed, it’s a company owned by TWDC, it will show in our results because we run it. Now this entity has 15 million in cash flow debt wise we have a loan with this company. This company has more cash flow than debt and we are looking into using this cash flow to pay back the loan. Then a canceling or buy-back of the loan, or we will leave it and wait for the end of the loan in two years.

Another questions asked: Do you have any forecast for the second semester?

Mark Stead answers: We are in a pleasant time, with a rise in reservations. I can’t give you too many numbers, but we think summer will be busy in our hotels. It’s a nice raise compared to last year, and we will be close to maximum occupancy. We will not have the same raise as the first semester in the hotels but they will be full. We are therefore confident but careful because if we have less rain, this will impact the Ile De France visitors market.

In any case, it’s the first time since 2008 that at this time of year we are above predictions, and our budget. I see this as a positive sign.
Next question: Are you afraid the new shows like Frozen or Jedi Academy will impact charges ?

Mark Stead says: Yes, Frozen and a few other things will have an impact on staffing and more (but I can’t say more). Otherwise, again, the goal is to link this with the raise in income and have a result in progression.
We have levers to lower the spending if we see the income lowers. The budget was thought out that way to have at various times of year projects that we can continue or stop depending on results. Right now it’s more “let’s go let’s go”.
A guests says: Nothing surprising in the results, the only problem is that the charges increased.
Mark Stead says: Yes but we knew this. We think it’s the best decision and this will increase the quality of the guest experience. The Spring season is a success and I recommend you visit us this summer.

Another person asks: Do you think you will pay back the use of the TWDC credit line ?

Mark Stead explains: The 100 million were paid back at the end of the first semester which explains the low cash flow. But it should go back up at the end of the second semester because it is usually bringing cash influx. The problem that we have today is the way to make out money prosper because the investments rates are low. But the cash flow is still a bit low.

I will give you one last example: we couldn’t get through to the market of people coming to visit Paris. Our rate was very low, we unlocked funds for a study and realized that a lot of Europeans coming to Paris were couples with no children. We then changed out communication style and focused on Young Adults (if you come as a couple, you will go on great attractions, have a bottle of wine, eat well, things that speak more to adults than children).

There was an internal resistance against talking to adults more than children and families.
We did tests and the first results are good. We are therefore looking into which other markets we will try the experiment on. We are looking into focused campaigns on select European countries, without spending additional funds.