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MERLIN ENTERTAINMENTS Half Year Review to June 2011

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Chief Executive’s Review

Following the publication in June of our Annual Review for 2010, I am pleased to provide a half-yearly update on the performance of Merlin Entertainments for the six months to June 2011.

Strategy Update

I am delighted with the pace of progress that Merlin has made in the first half of 2011 in delivering against all six growth drivers that we outlined in our recent Annual Review. As the world’s second largest visitor attraction operator, we have focused relentlessly on our strategy over this period and have enjoyed much success as a result, in spite of the continuing economic uncertainty affecting consumer confidence in many of our markets.

Organic growth – The like-for-like performance of our established businesses in the first half of 2011 has been pleasing, with growth in visitor volumes, revenue and profit. Our planned capital expenditure cycles have enabled us to launch some fabulous, innovative new rides and attractions across the estate, whilst at the same time maintaining our capital efficiency. These, combined with effective marketing and pricing initiatives, mean that we continue to deliver memorable experiences to our visitors, strong customer satisfaction scores and organic growth of our business.

Continued roll out of Midway Attractions – The first half of 2011 has been a particularly exciting time for our Midway rollout strategy. We have introduced four new Midway attractions, double the number opened in the same period of 2010, and all going straight to the heart of our strategy, with three different brands, in four different countries, paving the way for two new ‘cluster’ locations. In March we opened SEA LIFE Jesolo, which is our second SEA LIFE in Italy and the first in the country outside our Gardaland Resort. Also in March we launched our fifth LEGOLAND Discovery Centre, in Dallas in the US. This has been extremely well received by the local market, and is particularly pleasing for us as we have identified Dallas as one of our cluster locations, with a further Midway – SEA LIFE – opening in the second half of the year. April also saw two new Madame Tussauds launches in Vienna and Blackpool. Vienna is our first attraction in Austria so has added a new country to our geographic footprint, whilst MT Blackpool represents another step on our journey with Blackpool Council and regional bodies in the North West of England to put the resort firmly back on the map as a top UK family holiday destination. In addition to these first-half developments, our Midway rollout plans have continued in the second-half of the year and our pipeline for further new openings is stronger than ever.

Transforming our Theme Parks into Destination Resorts – Our progress on resort positioning in the first half of this year has been focused on delivering Hotels and Holiday Villages. Visitors to LEGOLAND Windsor will have seen the excellent progress being made on the new LEGO-themed hotel there, due to open in early 2012. In addition, we have expanded our popular Holiday Village at LEGOLAND Germany, adding facilities in order to enhance the visitor experience and increase the amount of time our guests spend enjoying our attractions.

Exploiting Strategic Synergies – The clustering of new Midway Attractions referred to above is part of our drive to exploit strategic synergies across the Group, through up-selling, linked marketing, and generating operating cost savings. In addition, we continue to drive value through the expansion of the Merlin Annual Pass and group promotion initiatives in our main territories, as well as expanding our group procurement arrangements.

Developing new LEGOLAND Parks – Our stated aim of developing new LEGOLAND Parks is now coming to fruition. As a result of the work undertaken in the first half of this year, we are now opening LEGOLAND Florida, our fifth LEGOLAND Park and the first to be launched as part of this development strategy since Merlin acquired the original four parks from LEGO back in 2005. And we are keeping up the momentum, with building work also ongoing on LEGOLAND Malaysia and negotiations continuing for more LEGOLAND Parks in the future.

Strategic Acquisitions – Last, but by no means least, our acquisition activity in the first half of 2011 saw the completion of the previously announced acquisition of the Sydney Attractions Group based in Australia and New Zealand. This business joined the Merlin family at the start of 2011, adding six new Midway attractions in two new countries, playing directly to our geographic expansion aspirations in the Asia Pacific region and adding to our portfolio diversification in terms of weather and seasonality.

Trading Update

We are pleased with our performance in the first half of this year. Our businesses have performed in line with expectations, in spite of some mixed weather in many locations. Particularly pleasing are the performances of our worldwide Madame Tussauds attractions, as well as the new ride investments at
Gardaland in Italy and Heide Park in Germany, which have delivered growth there, against the tough economic backdrop.

In addition, the LEGO-themed Water Park at LEGOLAND California has performed particularly well, both in its own right and in driving visitors to the wider LEGOLAND California resort. As previously announced, we intend to add an hotel there in the near future, and detailed preparation for that is well
underway.

Merlin Magic Making

Much of my time during the first half of this year has been spent on the development of the business and on raising the bar in terms of innovation and creativity, so as to keep Merlin well ahead of the competition. As part of this strategy, we have put in place a Chief Development Officer to head up our
Property and Development Group, now renamed “Merlin Magic Making”. This team has responsibility for: finding the magic (new site search); producing the magic (wax figures, LEGO models, Displays Development and theming); delivering the magic through Project Development; and creating the magic
through innovation and creativity.

Our People

Merlin’s success is achieved through a fantastic team of highly talented, motivated and well-trained individuals. And the more we expand, the more dedicated we are to developing and nurturing the talent pipeline we need for the future. We have re-focused our training and development plans more towards strategic thinking, creativity and innovation, whilst at the same time increasing the number of programmes available and the geographic spread. And we have introduced new internal reward and recognition schemes to celebrate outstanding performance and recognise our star employees, wherever
they may be within our organisation. We have also greatly expanded our Graduate programme, in order to support our expansion plans and to deliver the Merlin leaders of the future.

Corporate Responsibility

Merlin’s passionate approach to providing memorable experiences to our visitors is matched by our commitment to our corporate responsibilities, as expressed through our own Charity, Merlin’s Magic Wand, as well as the care we take of the animals we look after and our concerns for the environmental
impact of our business.

Merlin’s Magic Wand Children’s Charity

Merlin’s Magic Wand enables children who are disadvantaged through ill health, disability, abuse, neglect or other circumstances outside of their control, to have a great experience at one of our many attractions. So far in 2011 more than 31, 000 children, their families and carers have been given these memorable days out. This is more than we achieved in the whole of 2008 and 2009 combined and we will certainly exceed the 2010 figure this year. We also work with local good causes to provide “Merlinfeatured” installations in hospices and other locations, in order to provide memorable experiences for
children who are unable to travel to our attractions.

Animal and Marine Conservation

We have continued to expand our conservation work in 2011:

  • Our partnership with the Whale & Dolphin Conservation Society has been especially successful with our SEA LIFE Centres supporting the campaign to end whaling activities in Iceland
  • Our project to finance a much needed turtle rescue facility on the Greek island of Zakynthos has gathered momentum, and we anticipate reaching the required target by Easter 2012 if not before
  • SEA LIFE has entered into partnership with the Seahorse Trust to help secure this organisation’s valuable work on identifying and protecting seahorse populations around the UK coastline
  • Chessington World of Adventures initiated a Park-wide Conservation Fund to support three major conservation charities and is making contributions from many areas of the park as well as raising funds from animal talks and presentations  
  • On a local level, many SEA LIFE Centres continue to support a variety of conservation schemes and activities 
  • Breeding triumphs in SEA LIFE have included the first successful rearing of baby mud octopuses, more than 50 in total, many already helping stock educational displays across the estate
  • Chessington has continued its very successful breeding programmes with Binturong, Scimitar Horned Oryx (previously extinct in the wild until reintroduced), Gentle Lemurs, Squirrel Monkeys and Thornback rays.  

Environmental Impact of the Business

During the first half of 2011, we have undertaken a number of pilot energy reduction investments in a variety of locations to test the viability of implementing these more widely. Examples include the use of solar energy for external attraction signage, further applications of LED lighting, and testing of power
factor correction equipment.

We have also now completed the installation of Automatic Meter Readers at all UK sites in preparation for the Carbon Reduction Commitment Energy Efficiency Scheme, and completed our first Carbon Footprint report under the Scheme, ahead of the deadline.

Outlook

Merlin remains focused on its successful strategy and determined to continue to deliver. Alongside our wider strategic focus and the continued delivery of memorable visitor experiences, our new focus on Merlin Magic Making gives me confidence for the remainder of 2011 and beyond.


Nick Varney
Chief Executive
Merlin Entertainments
September 2011

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