Merlin Entertainments says recovery from the Alton Towers crash is "well underway"

 
Rebecca Smith
BRITAIN-LEISURE-INCIDENT
Source: Getty

Leisure group Merlin Entertainments, which operates the London Eye and Alton Towers, saw a rise in visitor numbers, as it said recovery was "well underway" after a crash at Alton Towers in 2015.

However, it said headwinds from terrorism fears remain and analysts noted weak sterling has boosted profits and "masks the challenges" Merlin is facing. Shares dipped 2.49 per cent this morning to 484.90p.

Read more: Legoland owner Merlin Entertainments reports strong Halloween trading

The figures

Operating profits rose 3.6 per cent in the year to 24 December compared to 2015 at £320m, though that's a fall of 6.2 per cent at constant exchange rates.

Merlin reported earnings before interest, taxes, depreciation and amortisation (Ebitda) grew 7.7 per cent, though again a 1.8 per cent drop at constant exchange rates.

63.8m people visited its attractions for the year ending 24 December, up from 62.9m for 2015.

The leisure group reported revenue growth of 11.7 per cent for 2016, and 3.6 per cent at constant currency, which it said "reflected the diversified nature of the portfolio".

Why it's interesting

The firm noted profit decline at constant currency due to "challenging trading in a number of key markets" that wasn't entirely offset by cost mitigation measures taken throughout the year. And Merlin noted "headwinds in many markets", particularly from international terrorism and its impact on tourism.

While the crash on one of its Alton Towers' roller coasters happened back in 2015, 2016 was still a bumpy year off the back of that. Merlin was handed a £5m fine for the Smiler roller coaster crash that left five people with serious injuries.

But, the group said a recovery was "well underway" at Alton Towers, while there was 1.6 per cent like-for-like revenue growth in its Legoland Parks.

It has been making progress towards milestones for 2020, including the opening of Legoland Dubai on 31 October and Madame Tussauds Istanbul on 28 November. Legoland Japan is set to open in April.

Read more: Merlin builds on global growth with launch of Dubai Legoland

What the company said

Nick Varney, Merlin chief executive, said:

Our performance in 2016 is testament to the benefits of our strategy of portfolio and geographic diversification, with over 70 per cent of our profits coming from outside of the UK.

The external environment continued to present challenges in a number of our key markets although the impact of this was offset to some degree by cost control measures taken during the year.

As we move into 2017, with ongoing volatility in a number of our markets and continued cost pressures, we will increase our focus on cost efficiency and productivity, while continuing to invest in our product, marketing, and people to deliver safe and memorable experiences to our guests.

What the analysts said:

George Salmon, equity analyst at Hargreaves Lansdown, said: "With the majority of revenue earned overseas, a 7.7 per cent increase in reported group profits is significantly boosted by sterling’s weakness, and masks the challenges Merlin is facing.

"The group’s portfolio of theme parks is starting to recover after the Alton Towers disaster in 2015, but growth has slowed at its other two divisions, Legoland and Midway, which includes Sea Life and Madame Tussauds. These trends aren’t exactly what you would want to see for a group in the early stages of an ambitious global roll-out, especially since its high fixed cost base means there is little it can do to trim costs.”

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