Merlin Entertainments, the company that owns Alton Towers, has admitted it will report a drop in profit in its theme park division of as much as £47m this year, after a "horror movie" crash earlier in the summer that hit trading across its attractions.
In an update published this morning ahead of half-year results later this week, the company said full-year underlying earnings will be between £40m and £50m for 2015 as a whole, down from £87m last year. It added that there would be a continued "adverse impact" in 2016 as it struggles to "rebuild momentum and re-engage with our customers".
The crash on Alton Towers' Smiler rollercoaster in June resulted in serious injuries for four teenagers, including 17-year-old Leah Washington, who needed to have one leg amputated above the knee. A multi-million pound legal settlement with the family is expected after Merlin bosses pledged compensation.
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After the accident Alton Towers was closed for five days, while rides across its other sites, including Thorpe Park, were closed and marketing activity was put on hold. The Smiler rollercoaster remains out of action while investigations into the accident continue.
Despite the hit to its theme park profits, private equity-backed Merlin said visitor numbers across its range of attractions, which include the London Eye, were up one per cent to 27.7 million people. This, combined with lower financing costs and "central cost savings" would hold overall earnings at around £249m, in line with 2014.
The Daily Telegraph reports this guidance failed to prevent shares opening eight per cent lower, although the company has pared losses and was around 4 per cent lower in morning trading.
Alton Towers crash casts shadow over Merlin
by Emily Perryman, Shares magazine
23 July
Alton Towers-owner Merlin Entertainments faces a tough task of improving its image and reputation following the high-profile crash of its Smiler rollercoaster in June. It is the leisure group's first major setback since its eagerly-awaited flotation on the stock market in November 2013.
Headquartered in Poole, Merlin is one of the world's biggest tourist attraction operators with 124 attractions, 16 hotels and three holiday villages in 25 countries. As well as Alton Towers, it also operates Thorpe Park, Chessington World of Adventures and Legoland. Its Midway division includes the London Eye, Madame Tussauds and Sea Life.
Following the Smiler crash Merlin closed Alton Towers for five days and also shut some rides at Thorpe Park and Chessington. Analysts at Barclays believe the accident at Alton Towers, which accounts for 5 per cent of Merlin's total profits, will reduce the group's full-year profit by 2 per cent.
Merlin has also voiced concerns about the weakening of the euro, which could reduce the number of Eurozone visitors to the UK and have an impact on its London-based attractions. Chief executive Nick Varney has said he is "a little nervous" about the strength of the pound against the euro.
"So far a decline in visitors from the Eurozone appears to have been offset by increases from other regions," says Ivor Jones, analyst at stockbroker Numis. "It will also have a greater drag on profits on translation as the Europe-based parks will be open."
Times are tough, but Merlin's growth plans and operational track record are otherwise sound. Last year's Lego Movie gave a big boost to Merlin's Legoland division but it still managed to grow group like-for-like revenue by 3.3 per cent in the first 18 weeks of 2015.
Merlin recently created a 'new openings group' through which it is expected to accelerate its expansion plans. It is opening seven new attractions in its Midway division this year and next and wants eight per year from 2017. Three new Legoland Parks will open in the next three years. The group is also turning its 12 theme parks into resorts to increase the catchment area of their visitors.
The recent opening of the long-awaited Shrek's Adventure on London's South Bank is expected to boost the group's fortunes and analysts have already suggested it could be rolled out elsewhere.
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