27th Jul 2015 10:48
LONDON (Alliance News) - Merlin Entertainments PLC on Monday said it expects its full-year results to be below its previous forecasts due to the roller-coaster crash at its Alton Towers theme park in June, even as its half-year results showed a rise in profit and revenue along with a slight hike to its dividend.
Despite the half-year results sitting in line with expectations,the profit hit being taken in its theme parks business sent Merlin shares down 3.5% to 408.2 pence in mid-morning trade on Monday, the worst performer in the FTSE 100.
Merlin's Alton Towers theme park was shuttered back in June after a serious accident occurred on the Smiler ride. People on the Smiler ride were trapped 25 feet up at a 45 degree angle for up to four-and-a-half hours after two carriages collided, resulting in 16 people being injured, including four seriously.
Since the crash, Merlin has reviewed its safety and operating procedures, alongside the UK's Health & Safety Executive, and said shortly after the accident that the Smiler ride will remain closed for the foreseeable future.
Merlin said that while it still anticipates its results for the first half of 2015 will be in line with its previous expectations, its results for the full year in its theme parks business are set to take a hit from the temporary closure of the park, the suspension of UK theme park marketing, and temporary ride closures.
Merlin said its 2015 earnings before interest, taxation, depreciation and amortisation for its Resort Theme Parks division is now expected to be around GBP40 million to GBP50 million, down from the GBP57 million it posted a year earlier. The impact has been caused by the significant reduction in revenue the company suffered and the need to maintain investment in customer service and marketing during the peak season, it said.
Though tough to assess, Merlin added that the problems also could drag on its 2016 results.
Merlin said, however, that lower profit should be partially offset by a fall in costs for the theme parks business and said it does expect underlying pretax profit for the full year to be broadly in line with its previous forecasts.
In addition to the profit warning, Merlin provided a trading update for the first half, ahead of its first-half results announcement due on Thursday.
Merlin said it expects to post a pretax profit of GBP49 million for the 26 weeks to June 27, against GBP40 million for the comparable period in 2014, on revenue of GBP544 million, up from GBP513 million. It intends to pay a dividend of 2.1 pence per share for the half, up from 2.0 pence.
Visitor numbers in the half were flat at 27.5 million, with the company saying that trading in its Resort Theme Parks division has been and continues to be depressed by the Alton Towers crash. Like-for-like revenue in the half for the division were down 2% due to those issues.
LEGOLAND remains a bright spot for the company, with like-for-like revenue growing 6% in the first half on the back of the strength of its two parks in the US and the successful launch of new products and features. Trading for its Midway Attractions business also was good, with like-for-like revenue growth of 2.9%, as good performances in Asia and Europe offset weakness in its London attractions and a marked fall in Hong Kong visits due to travel restrictions from China.
Analysts, however, remained positive on the company despite the profit warning.
Ivor Jones, an analyst at Numis, said the broker sees the potential for Merlin to re-establish momentum going into 2016, adding that Merlin "is a business with good long-term growth prospects and a management team with an excellent track record."
Added Shore Capital analyst Martin Brown: "While any cut to forecasts is disappointing, in our opinion the market was expecting numbers to fall, the uncertainty was really around how long will the RTP division would suffer a sustained fall in visitor numbers."
Brown said the downgrade to guidance was larger than Shore Capital had expected, but the broker was encouraged by the better trading elsewhere "and while not trying to trivialise the tragic events, historically theme parks around the globe have recovered relatively quickly from such events."
Brown adds that "at this stage we think this remains a one-off event that should be treated as such."
Numis has upgraded Merlin to Hold from Reduce and has kept a 400 pence price target, while Shore has kept a Buy rating on the shares.
By Sam Unsted; [email protected]; @SamUAtAlliance
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