Merlin says 'too early to judge' London tourist recovery

Merlin Entertainments, the theme park and tourist attraction operator, increased sales in the first half of the year but profit fell 14% due to currency swings.

With visitor numbers up 0.8% to 30m in the 26 weeks to 30 June, the FTSE 250 group reported revenue up 3.5% to £709m, or just 1.3% higher under IFRS accounting standards to £694m.

Resort Theme Parks saw organic revenue grow 10%, helped by the continued recovery at Alton Towers and favourable weather, while Legoland Parks increased sales 8% against a very strong period last year, thanks to a full period from a new Japan opening and the addition of 644 hotel rooms. Legoland Japan is being transferred into a resort through the addition of a Sea Life centre and a 252 room hotel, while the new strategy to add on-site accommodation began at the Legoland resorts in California and Germany.

While warm weather helped overall, it was a hindrance for 'Midway' attractions, such as Sea Life Centres, city Dungeon and Madame Tussauds waxworks museums, where sales decline 1%, also reflecting a "challenging market" in London and with openings weighted towards the second half of the year.

Group earnings before interest, tax, depreciation and amortisation of £143m was down from £144m a year before, though up 4% on an organic constant-currency basis. Profit before tax fell to £43m from £50m, with earnings per share falling 10.5% to 3.3p due to a lower effective tax rate.

Chief executive Nick Varney said organic revenue growth had been largely driven by new business development, with "strong customer reception" to product investments.

"Trading in Midway attractions more broadly has been satisfactory although it is too early to judge if there are definitive signs of a recovery in London. Trading in Legoland Parks has been solid but year on year comparatives are challenging due to 2017's strong Easter, two Lego movies and momentum behind the 'Ninjago' based capex investments rolled out across the estate over 2016 and 2017."

Board pledged to pay an interim dividend of 2.5p per share, up 4.2% year on year.

Varney concluded: "Having so far traded in line with expectations we are now entering our peak season where we generate the majority of our annual profit. With many exciting new initiatives and launches to come in the future, we remain confident in our long term prospects."

Merlin shares were down almost 3% to 379.2p by midday on Thursday.

Market analyst Lee Wild at broker Interactive Investor said the company’s recovery from last October’s profits warning was "well underway", but investor nerves heading into these interim results have proved to be justified as the Europe-wide heatwave is a double-edged sword and that it was "taking time" for revenues in London to make a full recovery from last year’s terror attacks.

On the fall in profits he said: "Much of that is due to a sharp decline in margin at manly indoor attractions like Madame Tussauds where there is a large fixed cost base, so lower sales drop straight through to the bottom line.

"The first half is typically Merlin’s weakest, so the next six months when it makes 70% of annual cash profit are crucial to the full-year outcome. "