Answers to the Shareholders’ Written Questions from the March 2017 AGM


Euro Disney S.C.A. received ten written questions from two shareholders for this years Annual General Meeting.

The following are the questions received from M. Michel Bayard (individual shareholder): 

Question  1: M.  Michel  Bayard  would  like  to  understand  why  revenues  decreased  while  costs and expenses increased in Fiscal Year 2016? 

Fiscal  Year  2016  was  particularly  difficult  for  the  tourism  industry  in Île -de-France.  It  was  marked  by  an  accumulation  of  external  factors  that  had  a  negative  impact  which  include:  security concerns following the events in Paris, Brussels and Nice, as well as strikes in France  and  exceptionally  poor  weather conditions,  including flooding in Paris.  In addition, the Euro  Disney Group (the “Group”)  closed the parks for four  days to  respect the  national period of mourning.

Over  the  same  period,  costs  increased  driven  by  the  Group’s  continued  focus  on  its  long- term  strategy of investing in  the  guest  experience  and  entertainment.  These planned  cost  increases  were  necessary  in  executing  our  strategy  and  included  renovations  of  our  parks and hotels, and preparations for the 25th Anniversary.

In addition, following the events in Paris, Nice and Brussels,  the Group incurred  additional  costs related to  incremental security  measures,  as the safety of visitors and employees  is a  top priority at Disneyland Paris.

The  Group  remains  attentive  to  the  evolution  of  its  costs  and  will  continue  to  pursue  a  prudent approach in operating the business and executing its long-term strategy.

Question  2: M.  Michel  Bayard  expressed  being  perplexed  about  the  impairment  charge  recorded this year and he would like to know why the impairment was not anticipated in  the previous years? 

In   accordance   with  the   accounting   rules,   an   impairment   test   is   only   required  to   be  performed if there is an  indicator of impairment.  Due to the decline in revenue of the Group  in fiscal year 2016  resulting from the challenging economic environment in Europe (and in  particular  the  overall  tourism  industry  in  Paris)  it  was  determined  that  an  indicator  of  impairment existed.  Accordingly, the Group was required to perform an impairment test on  the Group’s asset in the current year.

Question 3: M. Michel Bayard would like to know how the Group intends to limit the risk  that its investments will not have a positive impact on its revenues .  

The  Group’s  strategy  is  a  long-term  strategy.  This  strategy  aims  to  enhance  the  guest  experience, and therefore,  increase guest satisfaction as well as average spending. If guests  are  satisfied  they  return  to  the  Park,  recommend  the  Park  to  family  and  friends,  and  consume more in the Disneyland Paris parks, hotels and boutiques.

Guest satisfaction  related to our recent investments (i.e., renovated hotels and Park assets)  is increasing.  The rehabilitation of the Newport Bay Club Hotel is a perfect example: since its  reopening,  guest  satisfaction  has  increased  by  30  points  and  we  have  seen  a  double-digit  increase in rates.

The Group monitors  its investments closely, including the ongoing assessment of the impact  from prior investments (i.e., financial, guest satisfaction, operational).

Question  4: M.  Michel Bayard  estimates/believes  that  the reference document  does  not  sufficiently detail the impairment charge. 

The  depreciation  of  our  long-term  assets  is  detailed  in  section  B.3  “Consolidated  financial  statements”,  note  3  “Property,  plant  and  equipment,  investment  property  and  intangible  assets”, section 3.3 “Impairment charge” (see page 83).

In this section, the Group provides robust disclosure on the  assumptions used in calculating  the value in use of the assets in determining the impairment charge.

Question 5: M. Michel Bayard asked for more information on royalties: 1) Is the 10% rate comparable with market rates? 2) Is it normal that a parent company with the amount of revenues as The Walt Disney Company charges its subsidiary for certain costs?

On average royalties represent 5% of total revenue, which is a lower level than some market practices.

These royalties are paid as compensation for the use of the intellectual property rights of TWDC. This intellectual property constitutes the “terroir” of Disneyland Paris that makes it unique and creates the Disney magic.

Royalties to be paid  by the Group for the  use of these  rights are equal to:

•    10% of gross  revenues  (net of taxes) from  rides, admissions and  related fees  (such as   parking, tour guides and similar service fees) at all Theme  Parks and attractions;

 •    5%  of gross  revenues  (net  of taxes) from  merchandise, food  and  beverage sales  in  or             adjacent  to  any  Theme  Park  or  other  attraction,  or  in  any  other  facility  (with  the             exception        of   the     Disneyland®         Hotel),   whose         overall      design      concept       is   based             predominantly on a  Disney theme;

  •    10%   of   all   fees   paid   by   participants   (net   of   taxes)   (see   section   A.4.2.   “Other   Significant Operating Agreements” for more details); and

•    5%  of gross  revenues  (net  of taxes) from the  exploitation  of  hotel  rooms  and  related     revenues  at  certain  Disney-themed  accommodations.  None  of  the  Group’s  currently   existing  Hotels  at the  Resort  are  considered  Disney-themed  as  defined  in the  License  Agreement, except the  Disneyland  Hotel which is specifically excluded.

In  November  2016, The Walt  Disney  Company  agreed to waive the  payment  of two years  of  royalties  and  management  fees,  commencing  with  payment  for  the  fourth  quarter  of  Fiscal  Year 2016.

Following  are  the  questions  received  from  Charity  &  Investment  Merger  Arbitrage  Fund  (“CIMA”)   

Question 6: “How do you justify the significant increase in the  cost and  expense items of  the  consolidated  income statement for the fiscal year 2016?   In particular the distribution  of variable compensation while the company recorded a significant loss.” 

Costs and expenses were up 5% compared to the prior year. This increase reflects  the long- term strategy  of the Group  of investing in the guest experience, including the renovation of  theme parks and hotels  (notably in preparation of the 25th Anniversary), higher salaries,  and other operating expenses (such as technology initiatives and mobile applications). The Group  also  increased  its  security  costs  following  the  events  in  Paris,  Nice  and  Brussels.  These  increases were partially offset by lower costs associated with declining attendance.

The  wage  policies  implemented  by  the  Group  are  market-consistent  and  comparable  to  practices implemented by companies of similar size and / or operating in the same industry.

Question 7: “How do you justify the 40% increase in expenses over the years 2006 to 2016  while over the same period the revenues increased only by  17.5%?” 

From 2006 to 2016 our costs  have grown at a compounded annual rate of approximately 3%.   Over the same  period, the compounded annual growth  rate of inflation was  1.2%.

During  this  time,  the  Group’s  strategy  focused  on  investing  in  the  guest  experience  to  generate  long-term  revenue  growth.  This  strategy  is  proving  successful.  Disney’s  Newport  Bay Club and other renovations in the parks are good examples. The Group is also investing  in entertainment and shows that drive guest satisfaction, including the launch of the show  The Forest of Enchantment: A Disney Musical Adventure and Mickey and the Magician.

Additionally during this period, the Group invested in areas that are  less visible to our guests.   Examples  include  investments  in  the  Cast  Members  who  deliver  the  service  to  our  guests  and create the Magic, as well as  invests  in technology  that  makes  online tools and mobile  applications available to guests before and during their stay.

Regarding revenue performance, it is important to note that from 2006 to 2016, the Group  experienced economic crises, terrorist attacks, and political instability, all of which negatively  impacted  revenue  growth  during  the  period.    Had  the  Group  not  pursued  the  strategy  of  investing  to  improve  the  guest  experience,  the  impact  of  these  unfavorable  events  would  have likely been much more detrimental.

Question  8: “How  exactly  do  you  justify  the  2  massive  depreciation  charges  announced  respectively for €565 million for the assets of Euro Disney Associés S.C.A. and €953 million  for the shares of Euro Disney Associés S.C.A. held by Euro Disney S.C.A. ?” 

As  disclosed  in  our  2016  Reference  Document,  “as  a  result  of  the  adverse  economic  conditions  of  the  tourism  industry  in  Paris,  which  contributed  to  the  deterioration  of  the  operating results of the Group for Fiscal Year 2016, the Group performed an impairment test  of all its long-lived assets and determined its assets were impaired. Accordingly, the Group  recorded a  charge  of  €565  million  in  the  year.”   This impairment charge  was  calculated  in  accordance with International Financial Reporting Standards (“IFRS”).

Separately, the Company prepared stand-alone statutory financial statements under French  accounting principles (being different than IFRS principles) with the Company’s primary asset  being its investment in the equity of its subsidiary  Euro Disney Associés S.C.A. (“EDA”). The  Company   performed   an   impairment   test   of   its   investment   in   EDA   and   recorded   an impairment charge of €953 million.

These asset depreciation charges have no impact on the liquidity position of the Group  and  the Company or on their cash flows.

More  information  on  these  asset  impairment  charges  are  included  in  the  2016  Reference  Document  of  the  Group,  notably  notes  “Impairment  of  long-lived  assets”  and  3.3.  “Impairment charge” of the consolidated financial statements and notes 2.3. “Investments in  subsidiaries” and 3.1. “EDA” of the statutory financial statements of the Company.

Fiscal years 2014 and 2016 included  impairments charges which impacted overall accounting  losses in those years.

For  Fiscal  Year  2016,  the  Company  recorded  a  net  loss  of  953  million  euros  due  to  an  impairment  of  its  investment   in  the  equity  of   its  main  subsidiary,  EDA,  the  operating  company of  Disneyland® Paris.   In Fiscal Year 2014, the Company recorded a  net loss of 472  million  euros,  of which 471 million euros  related to an impairment charge of its investment  in the equity of  EDA.

Excluding the 2014 and 2016  impairments, the average statutory loss of Euro Disney S.C.A.  from 2014 to 2016 was €3 million.

Question 10: “How do you justify the impairment of the assets at the level of Euro Disney  Associés  S.C.A. and EDL Hôtels  S.C.A., while the first quarter shows an upward trend (up  3% in revenues) and you assume on page 83 of the reference document for 2016 that  ‘the  group  will  benefit  from  its  25th  anniversary  celebration,  the  economic  recover y  of  the  tourism industry in Paris and its long-term strategy of investing in the guest experience’?” 

As  detailed  on  page  83  of  the  2016 Reference Document,  the  calculation  of  value  in  use  takes into account  a  “revenue growth assumption higher than the historical average as the  calculation  assumes  the  Group  will  benefit  from  its  25th  anniversary  celebration,  the  economic recovery of the tourism industry in Paris and its long-term strategy of investing in  the guest experience.”

Finally, while performance in the first quarter was  positive, it was in comparison to the first  quarter  of  fiscal  year  2016,  which  was  significantly  impacted  by  the  events  in  Paris,  the  closure of our parks for four days, and the subsequent decline in bookings.

Source: Euro Disney S.C.A.


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