# Merlin Entertainments Performance year to date in line with expectations

- Link: https://www.directorstalkinterviews.com/merlin-entertainments-performance-year-to-date-in-line-with-expectations/412759972
- Published: 2018-10-16T07:54:21+01:00
- Author: Charlotte Edwards

**Merlin Entertainments** (LON:MERL) today reported its trading performance for 
the 40 weeks ended 6 October 2018, including the key summer trading period of July
and August.

Summary

· 4.7% Group organic(1) revenue growth year to date (2.6% growth at reported currency),
driven primarily by New Business Development, with like for like revenue growth 
of 1.4%;

· Resort Theme Parks organic revenue growth of 9.0% with particularly strong like
for like trading due to successful product investment and favourable weather;

· LEGOLAND Parks organic revenue growth of 6.4% driven by the full year contribution
of LEGOLAND Japan and the continued successful accommodation roll out, offset by
flat like for like growth;

· Midway Attractions organic revenue growth flat reflecting the expected decline
in like for like revenue, with the new openings schedule phased towards the end 
of the year;

· Accommodation revenue grew by 27.7% on a constant currency basis reflecting the
continued success of the resort positioning strategy;

· Launch of two new brands – Peppa Pig World of Play in Shanghai, and The Bear Grylls
Adventure in Birmingham, UK.

> **Nick Varney, Merlin Entertainments Chief Executive Officer, said:**
> “Group trading has been in line with expectations, with variances by Operating
> Group reflecting the diversified nature of the portfolio.
> We have opened a record 644 rooms, and six new Midway attractions which has resulted
> in organic revenue growth of 4.7%. Continued strong guest demand for our themed
> accommodation offering and the ongoing trend towards short breaks has driven 27.7%
> growth in accommodation revenue.
> The impact of terror attacks which adversely affected performance from early 2017
> has started to abate and we have seen early signs of recovery in the London tourism
> market over the summer.
> We are excited by the recent launch of our two new Midway brands – The Bear Grylls
> Adventure in Birmingham, UK, and Peppa Pig World of Play in Shanghai. It is too
> early to comment on their commercial success, which as for all new brands could
> take time to build, but the attractions look fantastic and we are pleased with
> early guest feedback.
> The cost environment remains challenging, with tighter labour markets in many 
> parts of the world adding to the pressures resulting from legislative changes 
> such as the National Living Wage in the UK. Our Productivity Agenda remains a 
> key area of focus, and it is testament to our teams that, despite these cost pressures,
> we have continued to deliver excellent levels of guest satisfaction overall.
> The underlying fundamentals of our markets are strong and we remain excited by
> the global opportunities that Merlin enjoys.”

**Operating Group performance**

Midway Attractions

Organic revenue growth was flat in Midway Attractions, with a 0.7% decline in like
for like revenue offset by a positive contribution from New Business Development.

Trading in the Midway Attractions Operating Group continues to be driven largely
by trends in London – Midway’s largest Division. As anticipated, London declined
in the first half of the year, reflecting the continued adverse impact of the terror
attacks which took place in 2017. However summer trading has shown early signs of
a recovery, with increasingly consistent, if modest, year on year growth reported
in recent weeks.

Elsewhere, as previously disclosed, after a strong start to the year our Midway 
Europe Division has seen more difficult trading due to the very warm weather.

Our New Business Development programme has been weighted towards the second half
of the year, with four of the six new attractions opened in the last two months.

**LEGOLAND Parks**

The LEGOLAND Parks Operating Group has delivered 6.4% organic revenue growth, driven
by the full year contribution of LEGOLAND Japan which opened in April 2017, and 
the continued successful roll out of accommodation, offsetting a 0.3% decline in
like for like revenue.

A lower like for like revenue performance had been anticipated in 2018 after several
years of very strong growth which were driven by both well-targeted product investments
and support from LEGO movie releases. The marketing challenges relating to one park,
as previously disclosed, continued throughout the summer and contributed to the 
Operating Group performance being overall lower than our earlier expectations.

A total of 644 rooms have been opened in 2018, comprising a 142 room Pirate Island
Hotel at LEGOLAND Deutschland, a 252 room hotel at LEGOLAND Japan and a 250 room
LEGOLAND California Castle Hotel.

**Resort Theme Parks**

Resort Theme Parks organic revenue growth of 9.0% reflects 8.3% like for like revenue
growth and the full period benefit of 76 accommodation rooms opened in 2017.

The strong trading experienced in the first half of the year has continued throughout
the summer. Weather in Northern Europe has remained favourable, particularly when
compared to 2017, and we have enjoyed the benefit of strong product investment, 
which included the ‘Wicker Man’ wooden roller coaster at Alton Towers, and ‘Peppa
Pig Lands’ at Gardaland and Heide Park.

**Group**

Cost pressures and Productivity Agenda

Merlin has successfully mitigated significant cost pressures in recent years, resulting
from legislative changes such as the UK National Living Wage and a significant increase
in business rates. This has been achieved through largely attraction-level savings
and efficiency improvements.

We remain focused upon maintaining this cost discipline across the Group, but are
mindful of increasing cost pressures as a result of the tighter labour markets in
a number of the regions in which we operate. Our Productivity Agenda is expected
to provide significant mitigation, although the full benefits of this are not expected
until beyond 2019.

**IFRS15**

Merlin’s reported 2018 results will 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. As previously guided, the impact of IFRS15 is expected
to represent an additional approximately £30 to £35 million to revenue in 2018.

**Outlook**

Trading to date has been in line with expectations, although there remain a number
of important trading weeks over the Halloween and Christmas periods.

Reflecting the trends experienced to date, Merlin anticipates reporting 2018 results
in line with market expectations.

**Delivering on the strategy**

Merlin Entertainment has made good progress against its strategic growth drivers
in 2018, notably in the following areas:

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.

**Exploiting strategic synergies**

· Continued progress against the Productivity Agenda across the three main categories:

o Back office systems – finance systems development

o Model evolution – ‘lean pilot’ theme park project and differentiated Midway operating
model projects underway

o Technology – continued roll out of self-service ticketing terminals.

**Transforming our theme parks into destination resorts**

· Total of 644 new rooms opened since the beginning of 2018, 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.

· 372 rooms scheduled to open in 2019, across both the LEGOLAND Parks and Resort
Theme Parks Operating Groups.

**Rolling out new Midway attractions**

· Total of six attractions opened since the beginning of 2018, including:

o A pilot of ‘The Bear Grylls Adventure’ in Birmingham, UK

o Second Little BIG City attraction, opened in Beijing in September

o Shanghai Dungeon opened in September representing the brand’s first attraction
in Asia.

· Pilot of Peppa Pig World of Play to open in late October

· Pipeline of attractions evolving towards new brands and new markets.

**New LEGOLAND park developments**

· Full period contribution of LEGOLAND Japan which opened in April 2017

· LEGOLAND New York remains on schedule to open in 2020

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

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