Merlin Entertainments performance impacted by terror fears

Global attractions operator Merlin Entertainments’ just released trading performance for the 40 weeks to 7th October 2017 show that its portfolio has been hit hard by the perceived terrorist threat in major cities like London.

As a result, the group's shares have fallen significantly despite a 12.4% rise in year on year revenue.

Based in the UK, Merlin operates attractions around the world, and reports that attraction hubs in non-gateway cities have performed better as visitors choose to go to what are perceived as less risky locations.

Merlin, which opened LEGOLAND Japan in April this year, is currently diversify its brand portfolio (to appeal to families, city centre tourists, teens and young adults, pre schoolers and adventurers) and geography (a third each for Americas, APAC and Europe).

As well as continuing to invest in existing LEGOLAND parks, Merlin is to continue with new openings with 2020 expected to see the opening of LEGOLAND New York and LEGOLAND Korea.

Beyond 2020 there are study agreements in place for four parks in China and Merlin continue to believe that there is a market for 20 LEGOLAND parks worldwide.

Merlin also announced two new IP driven attractions with the Peppa Pig and Bear Grylls brands.

At less than US$6.5 million per attraction for a Peppa Pig and over US$26 million for a Bear Grylls Adventure, the new developments offer diversification in cost as well as target market (pre school vs adventure experience).

The Peppa Pig attractions will include standalone location-based entertainment (LBE) attractions as well as themed areas in resorts and themed accommodation.

The first Bear Grylls Adventure will open at the NEC in the English city of Birmingham next year.

Commenting on the results, Merlin Entertainments Chief Executive Nick Varney stated “Merlin has delivered another period of good total revenue growth reflecting the contribution from new business development as well as more favourable currency movements, with over 70% of profits being derived from outside the UK.

“Another busy year has seen us open five new Midway attractions to date, nearly 400 accommodation rooms across four of our theme parks, and a new LEGOLAND park in Japan.

“The exciting new partnerships with eOne and Bear Grylls, as well as the planned opening of LEGOLAND New York in 2020, show there is plenty more magic to come.

“In the existing estate, trading to date has been more mixed. After strong early season momentum across most of our businesses, we have experienced difficult trading over the (northern hemisphere) summer period, as the spate of terror attacks witnessed in the UK marked an inflection point in Midway London and UK theme park trading.

“Poor weather in Northern Europe and extreme weather in Italy and Florida also impacted peak season trading.

“Despite the diversity of our business - by geography, brand and visitor mix - our markets continue to be impacted by certain external shocks, not least terrorism which is currently at record levels of intensity in Europe.

“We also continue to face significant cost pressures, largely brought about by employment legislation, particularly in the UK.

“Going forward therefore, whilst our long-standing six strategic growth drivers remain unchanged, reflecting the longer term structural attractiveness of the markets in which we operate, we will be reallocating capital to adjust to the current environment and to maintain our capital discipline.

“Over the period of 2018 to 2021, we will reduce existing estate capex by approximately £100 million, reallocating this into accelerating our highly successful accommodation roll out programme, as well as increasing our investment in our Productivity Agenda.

“As a result, we expect a stronger contribution from New Business Development to offset an assumption of low single digit like for like growth, based upon similar aggregate levels of capital investment.

“Merlin has experienced unprecedented levels of demand volatility in recent periods and it is testament to the diversity of the portfolio, the strength of our brands, and the commitment of our team, that we have continued to deliver revenue and profit growth during these times.

“Our business model allows us to ‘adjust the tiller’ given the difficult market conditions and we are doing so. I and Merlin’s management team therefore remain confident in the longer term prospects.”

Images: WILD Life Sydney Zoo (top), LEGOLAND Japan (middle) and Nick Varney (below)

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