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Euro Disney admits losses, predicts more

The Euro Disney theme park was bathed in sunshine and red ink Thursday as the operating company added another chapter to a growing tale of woe, announcing losses for the third quarter (April 1 to June 30) of around 500 million francs ( $ 87 million).

And as the park prepares to open its new Indiana Jones and the Temple of Doom attraction, the high priests of entertainment at Euro Disney are prophesying more financial trouble to come.

In a break with widely held expectations, a Euro Disney statement said that the fourth quarter, which covers the peak summer vacation period, is also expected to show a loss. Analysts had predicted a small profit over the summer.

“My assessment is that Euro Disney will lose 1.9 billion francs ($ 333 million) in fiscal 1993,”Morgan Stanley’s media and entertainment analyst Rebecca Winnington-Ingram predicted.

Repeating a now familar refrain, Euro Disney management said the losses were due to lower than expected spending inside the park by the 3.1 million visitors, a disappointing 68.5% hotel occupancy, the high level of interest rates and depreciation charges resulting from the large initial investment in the park.

“Tourism in France has been adversely affected by the economic downturn in Western Europe and by the devaluations of the U.K., Italian and Spanish currencies. In addition, the real estate market in the Paris region has remained depressed, preventing the company from realizing anticipated revenues from real estate development,” said the Euro Disney statement.

The company was expected to sign the Second Detailed Program (the legal document that defines the second phase of the park) with the French authorities this month.

However, Euro Disney president Philippe Bourguignon said: “I regret that the current economic environment does not allow us to proceed to an immediate signing … It seems reasonable to us to be prudent for the short term even if we and the Walt Disney Co. remain confident in the long term.”

Without the ink on the contract, doubts are being raised as to whether the second phase, which centers around the Disney-MGM Studios Europe attraction, will proceed in 1996 as scheduled. A Euro Disney spokesperson said that “1996 is a target date. We’re not ruling out the possibility that it could be moved.”

In the meantime, every indication suggests that the Walt Disney Co. is going to be asked to dig deeper into its pockets to bankroll Euro Disney.

Disney is supposed to earn royalties for the use of rides and characters, and take a management fee of 3% of total revenue.

The Burbank H.Q. has deferred the management fee until fiscal 1994, and will only take payment then if Euro Disney is in profit. “Unless something radical happens, I don’t expect the park to make money for the next two or three years,” Winnington-Ingram noted.

Park and parent company exex are now huddled over a review of Euro Disney’s financial structure and development strategy. No conclusions are expected before next spring; in the meantime, the company has agreed to help finance the park’s capital expansion and working capital requirements.

“Practically the only way I can see things improving is if Walt Disney refinances Euro Disney so that the heavy interest payments and debt are drastically reduced,” Winnington-Ingram observed.

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