Shares in Merlin Entertainments (MERL) fell by around a fifth after the group revealed that fears of terrorism and bad weather had made for a disappointing summer season. Group revenue growth is flat in the year to date, well behind the 3.2 per cent consensus growth forecasts.
This is a disappointing turn of events after the strong start to the year in the UK. High footfall from overseas tourists and more Brits opting for a 'staycation' (both a side-effect of weak sterling) were not to last. Chief executive Nick Varney said the recent terror attacks in the UK represented an “inflection point” for its London midway attractions (which include Madame Tussauds, Sea Life and the London Dungeons) and its UK theme parks (including Alton Towers and Thorpe Park). Costs for the domestic business have also risen rapidly now that Merlin must pay its workers the national living wage. In the US, Hurricane Irma forced Legoland Florida to close for three days and visitor numbers have yet to fully recover.
The picture looks brighter once favourable currency movements and recent acquisitions are factored in. The combined impact of overseas sales and recent theme park expansion lifted reported revenues by 12.4 per cent during the first three quarters.
More concerning is the fact that cost pressures and difficult markets have prompted Merlin to re-evaluate how it will spend its money. The budget for the existing estate has been slashed by £100m from next year until 2021. Midway attractions and resort theme parks will see the largest funding cuts, while spending on health and safety, and repairs and maintenance, will continue as usual. Around £30m will now be spent on making the business more productive, and management expects to see the benefits of this spending from late 2019. Merlin will also speed up the roll-out of accommodation, aiming for 2,000 new rooms between next year and 2021.
The company has partnered with TV star Bear Grylls to launch 'The Bear Grylls Adventure' attraction in Birmingham next year, and has reached an agreement with Entertainment One to open Peppa Pig-themed attractions and accommodation. The Peppa Pig deal will give Merlin exclusive rights to the licence in all areas except the UK and China.
