Shares in Merlin Entertainment slump as terrorist attacks and bad weather hit revenue

Courtney Goldsmith
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Merlin will roll out more Peppa Pig attractions and a new Bear Grylls site (Source: Getty)

The operator of Alton Towers and Legoland plans to reallocate capital away from its existing estates after a difficult summer of trading that is set to continue into next year.

In an update for the 40 weeks ended 7 October, Merlin Entertainments said like-for-like performance was flat on 2016 due to tough summer trading in London and European theme parks as a result of a series of terror attacks and unfavourable weather.

Shares in the company tumbled 18.3 per cent per cent to 367.4p.

Chief executive Nick Varney said:

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.

Merlin said it would reallocate capital investment to "address the ongoing volatile market environment and underlying cost pressures" by reducing existing estate spending by £100m over 2018 to 2021, and instead funding accelerated investment in hotels with 2,000 rooms rolled out over the same period.

As a result, the firm expects a stronger contribution from new business development to offset an assumption of low-single-digit like-for-like growth.

Tough trading conditions are set to continue, too. Merlin said current trading was mixed and like-for-like revenue growth for 2017 is expected to be flat.

"Whilst it is too early to predict the outlook for 2018, it is likely that the recent trends experienced in London will persist for the foreseeable future."

Steve Clayton, manager of Hargreaves Lansdown's Select UK Growth Shares fund, which holds Merlin, said: “Tourism businesses always have to contend with the weather, but terrorism is unfortunately becoming an increasing, additional headwind. Merlin have some issues of their own too, and their midway brands are underperforming more broadly.

"Next year’s outcome will depend a lot on the group’s cost control efforts. The worry is that the decision to reduce investment in standing assets risks hitting attendance levels in future years."

Varney added the company was helped by new business development and favourable currency movements.

He said there was "more magic to come" in new partnerships with Entertainment One to roll out more Peppa Pig attractions and with outdoor survivor personality Bear Grylls to create the Bear Grylls Adventure. It also plans to open a new Legoland in New York in 2020.

Read more: Legoland owner Merlin set to reveal slower growth over summer

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