Merlin Entertainments plc traded in line with expectations

Merlin Entertainments plc (LON:MERL), Europe’s leading and the world’s second-largest visitor attraction operator, today reports results for the 26 weeks ended 30 June 2018.

Key trading highlights

Merlin’s reported 2018 results include the adoption of IFRS 15, the new accounting standard for revenue accounting which became effective this year, with no adjustment to previously reported 2017 numbers, and negligible impact on EBITDA. To aid comparability, growth rates within these results refer to movements excluding the impact of IFRS 15 unless otherwise stated.

Summary

• Group organic revenue, before the impact of IFRS 15, grew by 4.5% against a strong comparative period, with like for like revenue growth of 0.5%;

• Adverse movements in foreign exchange, predominantly the weakening of the US Dollar, impacted the reported result;

• First half of the year represents a seasonally quiet period, with approximately 70% of annual EBITDA typically generated in the balance of the year;

• Resort Theme Parks organic revenue grew by 9.7% with like for like growth driven by successful product investment, the continued recovery at Alton Towers and favourable weather;

• LEGOLAND Parks organic revenue increased by 7.8% against very strong trading in the period last year, reflecting the full period benefit of LEGOLAND Japan and the `opening of 644 accommodation rooms;

• Midway Attractions organic revenue decline of 1.1%, due to a challenging market in London, as anticipated, new openings weighted towards the second half of the year, and the adverse effect of warm weather in Europe;

• Accommodation revenue grew by 29.2% on a constant currency basis to now represent 21% of theme park revenue (2017: 18%);

• Decline in operating profit of £10 million (14.3%) due primarily to adverse foreign exchange movements and a higher depreciation charge due to New Business Development;

• Earnings per share decline of 10.5% due to the reduction in operating profit, partially mitigated through a lower effective tax rate and lower net finance costs;

• Strong cash generation, with operating free cash flow of £58 million, representing growth of 13.8%;

• Continued progress against long term opportunities, with LEGOLAND New York under construction, good development on new brands, and progress on the Productivity Agenda to address ongoing cost pressures.

Merlin Entertainment, Nick Varney, Chief Executive Officer, said:

“Organic revenue growth of 4.5% has been largely driven by our New Business Development with the early transition of LEGOLAND Japan into a resort through the addition of a SEA LIFE Centre and a 252 room hotel together with the expansion of on-site accommodation at our LEGOLAND resorts in California and Germany.

In the existing estate we have been pleased with trading in the Resort Theme Parks Operating Group which saw organic revenue growth of 9.7%. We have had strong customer reception to our product investments and we continue to see the anticipated recovery at Alton Towers. The business has also undoubtedly benefited from the recent warm weather in Northern Europe which due to the natural balance of our portfolio has conversely had an adverse impact on our indoor Midway attractions. Trading in Midway attractions more broadly has been satisfactory although it is too early to judge if there are definitive signs of a recovery in London. Trading in LEGOLAND Parks has been solid but year on year comparatives are challenging due to 2017’s strong Easter, two LEGO movies and momentum behind the ‘NINJAGO’ based capex investments rolled out across the estate over 2016 and 2017.

Having so far traded in line with expectations we are now entering our peak season where we generate the majority of our annual profit. With many exciting new initiatives and launches to come in the future, we remain confident in our long term prospects.”

Delivering on the strategy

The Group has made good progress against its strategic growth drivers so far in 2018, and has further expanded and diversified its portfolio:

Growing the existing estate through planned investment cycles

· Compelling new propositions opened across the estate, including:

o Midway Attractions – New ‘Justice League’ feature at Madame Tussauds Orlando and Sydney leveraging the enduring popularity of DC Comics superheroes

o LEGOLAND Parks – ‘LEGO City: Deep Sea Adventure’ opened at LEGOLAND California in July

o Resort Theme Parks – ‘Wicker Man’ at Alton Towers and ‘Peppa Pig Land’ at both Heide Park and Gardaland.

Transforming our theme parks into destination resorts

· Total of 644 new rooms planned for 2018 now open, comprising:

o 252 room hotel at LEGOLAND Japan, developing the park into a resort

o 250 room LEGOLAND California Castle Hotel, doubling the capacity of on-site accommodation

o 142 room Pirate Island Hotel at LEGOLAND Deutschland, complementing the existing 319 rooms.

Rolling out new Midway attractions

· Opening of SEA LIFE in LEGOLAND Japan, further supporting the resort development

· LEGOLAND Discovery Centre Birmingham opened in July

· Attractions scheduled for the second half of the year include ‘The Bear Grylls Adventure’ in Birmingham, UK, ‘Peppa Pig World of Play’ in Shanghai and ‘Little BIG City’ in Beijing.

New LEGOLAND park developments

· Full period benefit of LEGOLAND Japan, with investment to develop the park into a resort

· Good progress towards the targeted opening of LEGOLAND New York in 2020

· Study agreements in place regarding a number of opportunities in China.