Registered Office:
Merlin Entertainments plc
3 Market Close
Poole
Dorset, BH15 1NQ
Registered number: 08700412
Registered in England & Wales
www.merlinentertainments.biz
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WELCOME TO MERLIN ENTERTAINMENTS
FINANCIAL HIGHLIGHTS AND KEY
PERFORMANCE INDICATORS
MERLIN ENTERTAINMENTS IS EUROPE’S LEADING AND THE WORLD’S SECOND- LARGEST
VISITOR ATTRACTION OPERATOR. AS AT THE END OF DECEMBER 2013, MERLIN OPERATED
99 ATTRACTIONS IN 22 COUNTRIES ACROSS FOUR CONTINENTS. OUR AIM IS TO DELIVER
UNIQUE, MEMORABLE AND REWARDING EXPERIENCES TO MILLIONS OF VISITORS ACROSS
OUR GROWING ESTATE.
Financial highlights and KPIs (1), (2)
Visitors
59.8m + 10.7%
Revenue
£1,192m + 10.9%
38.5
41.0
46.5
769
801
54.0
59.8
1,192
1,074
933
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Underlying EBITDA
£390m + 12.8%
Underlying operating profit (3)
£290m + 12.3%
390
346
236
256
296
290
258
177
198
222
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Like for like revenue growth +6.7%
Return on capital employed 10.2%
Basic EPS - 15.1p
Adjusted EPS - 16.9p
Non- financial KPIs
Customer satisfaction (4)
Staff engagement (5)
Health and safety (6)
2012
✔
✔
✔
2013
✔
✔
✔
Footnotes (see page 3 for further footnotes to the Annual Report):
(1) The KPIs shown above are Merlin’s key financial and non-financial performance indicators.
(2) Figures presented for 2011 are based on underlying trading figures compiled on a 52 week basis for ease of comparison. Statutory numbers for 2011 were prepared on a 53 week basis.
(3) Underlying operating profit is Merlin’s key profit measure. Group profit before tax for 2013 was £172 million (2012: £98 million).
(4) Source - customer satisfaction surveys; measure - 90%+ rating as ‘satisfied’ or ‘very satisfied’.
(5) Source - annual employee surveys; measure - 80%+ (see page 32 for further details).
(6) Source - internal health and safety reports; measure based on ‘Business Related Incidents’ per 100,000 visits.
2
147
Merlin Entertainments plc Annual Report and accounts 2013 CONTENTS
STRATEGIC REPORT
FINANCIAL STATEMENTS
TABLE OF CONTENTS
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE ACCOUNTS
MERLIN ENTERTAINMENTS PLC
COMPANY FINANCIAL STATEMENTS
NOTES TO THE MERLIN ENTERTAINMENTS PLC
COMPANY FINANCIAL STATEMENTS
84
85
86
87
88
89
90
139
140
ADDITIONAL INFORMATION
SHAREHOLDER INFORMATION
FINANCIAL RECORD
144
145
WELCOME TO MERLIN ENTERTAINMENTS
FINANCIAL HIGHLIGHTS AND KEY
PERFORMANCE INDICATORS
CONTENTS
OUR STRATEGY AND BUSINESS MODEL
MERLIN BRANDS
MERLIN MAP
CHAIRMAN’S STATEMENT
CHIEF EXECUTIVE’S REPORT
OPERATIONAL REVIEW - MIDWAY ATTRACTIONS
OPERATIONAL REVIEW - LEGOLAND PARKS
OPERATIONAL REVIEW - RESORT THEME PARKS
MERLIN MAGIC MAKING
MERLIN PEOPLE
RISKS AND UNCERTAINTIES
GROUP FINANCIAL REVIEW
CORPORATE SOCIAL RESPONSIBILITY
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE STATEMENT
BOARD OF DIRECTORS
EXECUTIVE COMMITTEE
CORPORATE GOVERNANCE REPORT
AUDIT COMMITTEE REPORT
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REPORT
DIRECTORS’ RESPONSIBILITY STATEMENT
INDEPENDENT AUDITOR’S REPORT
2
3
4
6
8
10
12
16
20
24
28
32
34
36
40
44
45
48
49
54
60
76
80
81
Footnotes to the Annual Report:
• Unless otherwise stated, the terms ‘Merlin’, ‘Merlin Entertainments’, ‘We’ and ‘Us’ refer to the Company (Merlin Entertainments plc) and, as applicable, its subsidiaries
and/or interests in joint ventures.
• Unless otherwise stated, references to ‘year’ or ‘2013’ mean the 52 week period ended 28 December 2013 and references to ‘2012’ or ‘previous year’ mean the 52 week period
ended 29 December 2012.
• References to visitors mean all visitors to Merlin owned or operated attractions.
• The terms ‘financial statements’, ‘consolidated financial statements’ and ‘accounts’ are used interchangeably.
• Like for like growth is based on the 2013 and 2012 figures and includes all businesses owned and opened before 2012, on a constant currency basis using 2013 exchange rates.
• EBITDA is defined as profit before finance income and costs, taxation, depreciation, amortisation and impairment and is after taking account of attributable profit after
tax of joint ventures.
• In order to show the underlying business performance of the Group; enhance comparability from period to period and with other companies; and to provide information
consistent with how it is measured internally, underlying information presented excludes certain exceptional and non-trading items that are classified separately within the
financial statements.
• Percentages are calculated based on figures before rounding and are then rounded to one decimal place.
3
OUR STRATEGY
AND BUSINESS MODEL
OUR STRATEGY IS TO CREATE A HIGH
GROWTH, HIGH RETURN, FAMILY
ENTERTAINMENT COMPANY BASED
ON STRONG BRANDS AND A GLOBAL
PORTFOLIO THAT IS NATURALLY
BALANCED AGAINST THE IMPACT
OF EXTERNAL FACTORS.
We believe that we achieve this objective largely thanks to the
commitment and passion of our team and the strength of our
brands, which we always want to be distinctive, challenging and
innovative. Together they deliver some of the best financial
returns in the sector and demonstrate an exceptional record of
growth in market share. In every respect and to every group of
stakeholders, Merlin will always be an exciting company.
Our passion
WE ARE FIRST AND FOREMOST AN
ENTERTAINMENT COMPANY.
We love what we do, namely delivering memorable experiences
that put smiles (or screams) on people’s faces. We aim to
immerse our visitors in our brands, constantly delighting them
and often enlightening them through fun learning.
OUR VISION IS TO BECOME THE
WORLDWIDE LEADER IN BRANDED,
LOCATION BASED ENTERTAINMENT.
Our history
Merlin’s business model has developed throughout our history.
¬ The Company’s origins date back to 1979 when the first
SEA LIFE Centre was opened in Oban, Scotland.
¬ Merlin Entertainments was then formed in 1999 as a
management buyout from Vardon plc.
¬ The acquisitions of LEGOLAND Parks (2005), Gardaland (2006)
and The Tussauds Group (2007) increased the scale of our
business more than tenfold in the three year period to 2007.
¬ 2010 saw the acquisition of Cypress Gardens Theme Park
and Botanical Gardens in Florida, which was subsequently
relaunched as LEGOLAND Florida in the following year.
¬ In 2011 and 2012 Merlin expanded in the Asia Pacific region
with the acquisitions of the Sydney Attractions Group
(2011) and Living and Leisure Australia (LLA, 2012).
¬ In 2013 LEGOLAND Malaysia completed its first full year of
trading as the first LEGOLAND park to be developed in Asia
Pacific; the LEGOLAND California hotel opened; Merlin
opened six new midway attractions and acquired a seventh. It
also completed an Initial Public Offering (IPO), becoming a
listed Company on the London Stock Exchange in November.
¬ Following the major acquisitions in the
years to 2007, from 2008 to 2012 the
Group delivered an average organic annual
growth of 10 per cent. in underlying EBITDA.
¬ With nearly 60 million visitors in 2013 Merlin
continues to be the clear market leader in
Europe and second only to Disney worldwide
in terms of visitor admissions.
Visitors by
Operating Group
Midway Attractions
LEGOLAND Parks
Resort Theme Parks
Total
2012
2013
Growth %
Sites by
Operating Group
December
2012
Change
2013
December
2013
33.0m
10.5m
10.5m
54.0m
37.1m
11.5m
11.2m
59.8m
12.3%
9.9%
6.5%
10.7%
Midway Attractions
LEGOLAND Parks
Resort Theme Parks
Total
81
6
7
94
5
-
-
5
86
6
7
99
4
OUR STRATEGY AND BUSINESS MODEL
Merlin Entertainments delivers two different types of visitor
experiences through its portfolio of midway attractions and
theme park resorts.
The Merlin business is driven forward by six highly
complementary growth drivers.
¬ Midway attractions are predominantly indoor
attractions located in city centres or resorts providing visits
of shorter duration (typically up to two hours).
¬ Theme park resorts are outdoor sites with rides
and shows as the main attractions, along with themed
accommodation offerings:
¬ Growing the existing estate through planned
capital investment cycles appropriate to each
Operating Group and broadly in line with depreciation overall.
¬ Exploiting strategic synergies, which leverage
Group marketing and buying strengths.
¬ Transforming our theme parks into
destination resorts via the addition of themed
• LEGOLAND Parks are aimed at families with
accommodation and additional attractions.
younger children and have the LEGO product as their
central theme.
• Resort Theme Parks are standalone national brands
generally aimed at families, teenagers and young adults.
The management of the Merlin business is aligned directly to
these two attraction types and organised into three Operating
Groups, being Midway Attractions, LEGOLAND Parks and
Resort Theme Parks.
¬ Rolling out new midway attractions with an
increasing focus on establishing clusters of our brands in
the same city or resort location.
¬ Developing new LEGOLAND parks, for which
we hold the global, exclusive licence.
¬ Strategic acquisitions, where they advance our
strategic objectives in key regions and markets.
Alongside the three Operating Groups sits Merlin Magic Making,
the unique creative and production resource which sits at the
heart of everything Merlin does.
Merlin’s operations are currently divided into four regions being:
UK (where our business first began); Continental Europe; North
America; and Asia Pacific. Our long term vision is to see the
Group derive a third of its revenues from each of Europe,
the Americas and Asia Pacific.
2013 Revenue by Operating Group
2013 Revenue by Geography
Midway Attractions, 44%
LEGOLAND Parks, 30%
Resort Theme Parks, 26%
UK, 39%
Continental Europe, 26%
North America, 21%
Asia Pacific, 14%
5
Merlin Entertainments plc Annual Report and accounts 2013
MERLIN
BRANDS
MERLIN’S MIDWAY BRANDS
SEA LIFE is the world’s biggest aquarium brand. There are 44 centres across the UK, Continental Europe,
North America and the Asia Pacific region, all of which are built around the notion of Amazing Discoveries.
They are home to a variety of creatures from shrimps and starfish to seahorses, rays, sharks and seals. SEA LIFE
campaigns tirelessly on a variety of conservation issues prioritised around breeding, rescue and protection of
the marine environment. The SEA LIFE Marine Conservation Trust was established in 2013 and raises funding
to support these crucial projects.
®
Madame Tussauds operates 15 attractions around the globe with five in Europe, four in the USA, five in Asia
and one in Australia. In 2011 the brand celebrated 250 years since the birth of Madame Tussaud. Its authentic
history and fascinating heritage as well as the breathtaking artistry of the figures differentiate it from other wax
attractions. Today, the red ropes are gone and Famous Fun is the heart of the experience, where visitors are
encouraged to interact with all the figures from Napoleon to One Direction and everything in between.
There are currently ten LEGOLAND Discovery Centres (LDCs) across Europe, North America and Asia.
LDCs are the ultimate LEGO indoor playground, with over two million bricks under one roof. They create a
fun filled and interactive environment where children and parents are inspired to be creative and where
children can learn through purposeful play. As with the outdoor LEGOLAND resorts, Playful Learning is at
the heart of the experience.
The Dungeons are a unique mix of dark, historical horror and irreverent humour delivered through set piece
shows, rides, spine chillingly themed sets and professional actors. Scary Fun is the goal, delivered daily in eight
Dungeons across Europe to our market of families, teenagers and young adults. The first Dungeon outside
Europe will open in San Francisco in 2014.
There are currently three Eye attractions around the world: two in the UK being the iconic London Eye and
Blackpool Tower Eye and one in Australia - the Sydney Tower Eye. Each attraction offers the ultimate bird’s eye
view, unparalleled and different every time, giving an Inspiring Perspective of the location’s landscape and
iconic landmarks.
6
MERLIN BRANDS
MERLIN’S THEME PARK AND RESORT BRANDS
Six LEGOLAND resorts across Europe, the USA and Asia offer a unique LEGO themed experience for
families with children aged two to twelve years, based on interactivity, imagination, family fun and quality.
Playful Learning is at the heart of the experience with all family members playing their part for a whole
day or longer, with LEGO themed hotels and overnight accommodation at most sites.
Alton Towers Resort is the UK’s number one theme park. Set in 500 acres of beautiful Staffordshire
countryside and boasting two themed hotels and an indoor water park, it invites families, teenagers
and young adults alike into a world of Fantastical Escapism.
Wild Adventure is at the heart of Chessington World of Adventures, with exotic themed lands and rides
mixed with amazing creatures from around the world. Guests can stay in the heart of the adventure at
our African themed resort hotel.
Gardaland Resort is Italy’s leading theme park. Located on the edge of Lake Garda between Milan and
Venice, it boasts rides for all ages set in a beautifully landscaped and themed world. Big Fantasy Adventure
is all around, including at the Gardaland hotel and adjacent SEA LIFE.
Heide Park is Germany’s third biggest theme park with rides and attractions appealing to all ages, set in four
lands of Legendary Adventure. The resort attracts visitors from all over Germany and beyond, who can stay
in the Port Royale pirate themed hotel or adjacent Holiday Village.
Insane fun is on offer at Thorpe Park, the UK’s second biggest theme park and acknowledged thrill
capital for teenagers, young adults and older families.
Warwick is in every way the Ultimate Castle experience. Jousting, knights, princesses, the Merlin
Dragon Tower, falconry, ‘tableaux’ by Madame Tussauds and a Dungeon all combine to make this an
amazing day out for UK families and overseas tourists alike.
7
Merlin Entertainments plc Annual Report and accounts 2013 WORLD OF ATTRACTIONS
NORTH AMERICA ATTRACTIONS
TM
Arizona
California
Dallas
Kansas City
Minnesota
Hollywood
Las Vegas
New York
Washington DC
California
Florida
Atlanta
Chicago
Dallas
Kansas City
Toronto
Westchester
EUROPE ATTRACTIONS
TM
Benalmadena
Berlin
Blankenberge
Bray
Gardaland
Hannover
Helsinki
Jesolo
Königswinter
Konstanz
München
Oberhausen
Paris
Porto
Scheveningen
Speyer
Timmendorfer
Strand
Turkuazoo
Aquarium
Amsterdam
Berlin
Vienna
Soltau
Billund
Günzburg
Amsterdam
Berlin
Hamburg
Lake Garda
Berlin
Oberhausen
Milan
WORLD OF
ATTRACTIONS
AT DECEMBER 2013
WORLD OF ATTRACTIONS
UK ATTRACTIONS
TM
Birmingham
Blackpool
Brighton
Great Yarmouth
Hunstanton
Loch Lomond
London
Manchester
Scarborough
Weymouth
and Tower
TM
Gweek
Oban
Blackpool
Edinburgh
London
Warwick
York
Blackpool
London
Alton
Chessington
London
Blackpool
Warwick
Windsor
Manchester
Chertsey
ASIA ATTRACTIONS
TM
Bangkok
Busan
Shanghai
Bangkok
Hong Kong
Shanghai
Tokyo
Wuhan
Malaysia
Tokyo
AUSTRALIA / NEW ZEALAND
ATTRACTIONS
TM
TM
Manly
Auckland
Melbourne
Mooloolaba
Sydney
Sydney
Hamilton Island
Sydney
Sydney
Otway
Illawarra
Mount Hotham
Falls Creek
CHAIRMAN’S
STATEMENT
IT GIVES ME GREAT PLEASURE TO REPORT ON MERLIN’S PERFORMANCE FOR 2013. THIS WAS
A LANDMARK YEAR FOR THE COMPANY AS WE ACHIEVED OUR SUCCESSFUL LISTING ON
THE LONDON STOCK EXCHANGE, A REFLECTION OF THE GROUP’S CURRENT STATURE,
OUR PROSPECTS FOR FUTURE GROWTH, AND THE REGARD INVESTORS HAVE FOR OUR
MANAGEMENT TEAM. WE START THIS NEW JOURNEY WITH AN EXPERIENCED AND HIGH
CALIBRE BOARD WHICH WILL ASSIST ME IN THE STEWARDSHIP AND GOVERNANCE OF
THE COMPANY.
Trading performance
In terms of trading performance, this was another record breaking
year for Merlin Entertainments, with growth coming from both
new openings and our existing estate of attractions.
The major acquisitions of recent years arising from the Group’s
expansion into the Asia Pacific region are fully embedded and
delivering strong returns. This gives me considerable confidence in
our ability to manage future expansion into that region. In addition
to the substantial growth we are driving in Asia Pacific, we see
North America as the other major area of opportunity. It was
also reassuring to see that, despite persistent economic issues in
southern Europe in particular, our European businesses overall
performed better this year following the one-off challenges
of 2012.
Stock exchange listing
On 13 November 2013 Merlin Entertainments plc completed its
premium listing on the London Stock Exchange. The IPO was
met with significant demand and was oversubscribed amongst
both institutional and retail investors. Merlin was admitted to
the FTSE 250 index in December 2013 and the shares have
continued to perform well.
Governance and board
Part of my work this year has been to ensure that Merlin has a
Board of Directors with the experience and calibre appropriate
for a company with our ambitions. I am delighted that Charles
Gurassa joined the Board in 2013 as Senior Independent
Non-executive Director, Ken Hydon and Miguel Ko joined
as independent Non-executive Directors and I look forward
to welcoming Fru Hazlitt who will join as independent
Non-executive Director in April 2014. Alongside the Executive
Directors, they join three experienced colleagues Søren Thorup
Sørensen, Dr. Gerry Murphy and Rob Lucas. They bring a great
variety of strengths, skills and experience to the oversight
Sir John Sunderland
Non-executive Chairman
10
CHAIRMAN’S STATEMENT
This was another
record breaking year for
Merlin Entertainments
and governance of the Company.
At the time of the IPO three colleagues who had previously
represented our pre-IPO major shareholders stood aside. Joe
Baratta, Thomas Lau Schleicher and Pev Hooper all helped guide
Merlin towards its IPO and I thank them for their significant
contribution over the years.
Subsequent to the IPO the composition of the Board does not
yet fully comply with the recommendation of the UK Corporate
Governance Code (2012) in that it stipulates that at least half the
Directors excluding the Chairman should be independent of the
Group. Merlin is committed to becoming fully compliant
during 2014.
Within our evolved governance structure, I chair the Nomination
Committee, Charles Gurassa now chairs the Remuneration
Committee and Ken Hydon the Audit Committee. Their reports
can be found in the Corporate Governance section of this report
on pages 60 to 75 and 54 to 59 respectively.
I continue to chair the Health, Safety and Security Committee
which ensures that these risk matters are managed properly
throughout the Group. Merlin’s number one priority is delivering
memorable, safe experiences to visitors and the Company puts
the health, safety and welfare of both its customers and
employees at the forefront of its operations. The Group’s
approach to safety management is based upon proactivity and
continuous improvement to mitigate this risk. All incidents are
recorded and reviewed to identify any trends or issues that need
addressing and relevant learning points are shared across
the business.
Corporate social responsibility
With my Board colleagues I also oversee Merlin’s contribution to
corporate social responsibility. SEA LIFE campaigns tirelessly on
conservation issues prioritised around breeding, rescue and the
protection of the marine environment. We launched the SEA LIFE
Marine Conservation Trust in 2013 as the focus for our future
conservation efforts, and a series of fundraising events and
campaigns is planned for 2014. Our own children’s charity, Merlin’s
Magic Wand, had its biggest year yet. We helped more ill, disabled
and disadvantaged children than ever to visit our attractions, and
continued our outreach programmes with new themed areas
installed at children’s homes and hospitals at a number of
new locations.
We also seek to continually reduce the environmental impact of
our business and will report more fully on this important area in
future years.
Our people
I would finally like to thank our management and employees
around the world for their leadership and dedication respectively
during 2013. During this time the Merlin team delivered a
significantly improved trading performance whilst simultaneously
enabling the Company’s Listing on the London Stock Exchange.
This is an exceptional achievement and one of which they can
all be justifiably proud.
2014 Outlook
With the peak trading season ahead of us, trading to date has
been in line with expectations. Merlin has a proven and
sustainable growth strategy and an experienced and committed
management team. While economic uncertainties remain,
particularly in southern Europe, we are confident about the
outlook for 2014 and beyond.
As we noted in our IPO Prospectus, Merlin intends to adopt a
progressive dividend policy for its shareholders and to pay our
first dividend later this year.
Sir John Sunderland
Non-executive Chairman
26 February 2014
11
Merlin Entertainments plc Annual Report and accounts 2013 CHIEF
EXECUTIVE’S
REPORT
2013 WAS A YEAR OF SUBSTANTIAL PROGRESS FOR MERLIN ENTERTAINMENTS WITH
STRONG GROWTH IN OUR EXISTING ESTATE, CONTINUED ROLL OUT OF OUR BRANDS
INTERNATIONALLY AND THE MAJOR MILESTONE OF A SUCCESSFUL LISTING ON THE
LONDON STOCK EXCHANGE. THE LATTER HAS BEEN A LONG STANDING OBJECTIVE FOR
THE COMPANY AND WE ARE NOW LOOKING FORWARD TO THE LONG TERM STABILITY
THAT PUBLIC OWNERSHIP CAN BRING.
Visitors (m)
Revenue (£m)
Underlying EBITDA (£m)
Like for like revenue growth
(constant currency basis)
2013
59.8
1,192
390
2012
54.0
1,074
346
Growth
+10.7%
+10.9%
+12.8%
+6.7%
Nick Varney
Chief Executive Officer
Trading performance
I am pleased with the revenue and EBITDA growth reported by
all three Operating Groups in 2013, which has come from both
our new business development (NBD) activities as well as from
the strength of our existing estate.
As expected, trading in 2013 saw a bounceback in our UK
businesses after the negative impact of record wet weather and
the London Olympics in 2012. Moreover, while we are not
anticipating immediate recovery from the Eurozone crisis in
southern Europe, it was encouraging to see Gardaland stabilise
and deliver against its targets as a result of successful season pass
and marketing initiatives. Elsewhere, our other European and
North American businesses delivered a satisfactory result with a
particularly strong performance from LEGOLAND California
as it continues to develop its resort positioning.
In Asia Pacific, our Australian attraction businesses performed well
as a number were relaunched following their acquisition in 2012.
However, it was a very difficult year for the two Australian ski fields
with very low snow fall significantly affecting business there.
Across Asia our businesses had a very good year with a
combination of market growth and the exploitation of
cross-selling synergies benefiting the attractions in Bangkok and
Shanghai in particular. We also saw the first twelve months of
trading in LEGOLAND Malaysia result in attendances well above
our original estimates. We see this as a very positive indication
of Asian demand for the LEGOLAND brand as we seek to
expand in these fast emerging markets.
NBD activity across the year saw us open new midway attractions
in Westchester, New York (LDC), Toronto (LDC), Manchester
(SEA LIFE Centre), Berlin (Dungeon), Wuhan, China
(Madame Tussauds - MT), and Tokyo (MT). In addition, we
relocated the LDC in Duisburg, Germany, to Oberhausen and the
London Dungeon from Tooley Street to County Hall, next to the
London Eye and the SEA LIFE London Aquarium. Both of these
moves have significantly enhanced cluster selling opportunities.
Towards the end of 2013 we also acquired the Turkuazoo
Aquarium in Istanbul, Turkey. This will be rebranded to SEA LIFE
for relaunch in 2015 and our intention is to develop a cluster
of our midway brands in this fast growing city.
12
CHIEF EXECUTIVE’S REPORT
One Direction - one of our most successful touring exhibits ever
Finally, we continued to add imaginative and highly appealing new
accommodation to our theme parks, including a new 250
bedroom hotel at LEGOLAND California and a Knight’s Castle
hotel at LEGOLAND Deutschland.
Taken together, the strong like for like performance and continuing
NBD expansion saw Group revenue rise 10.9 per cent. from
£1,074 million to £1,192 million. This in turn continued our long
track record of high single digit or double digit growth in
underlying EBITDA which totalled 12.8 per cent. with an
underlying operating profit growth of 12.3 per cent. It is also
pleasing that while welcoming a record 59.8 million visitors across
the Merlin Entertainments portfolio, our visitor satisfaction scores
remained well above our target of 90 per cent. satisfied or very
satisfied. Moreover, health and safety remain a top priority and
while this can never be taken for granted it was good to see
Business Related Incidents per 100,000 visits falling again in 2013.
Market trends
Merlin operates in an attractive and growing marketplace.
Globally, leisure spending is expected to grow by approximately
five per cent. per annum from 2011-2016, driven by rising
incomes and increasing leisure time. The Company considers
this to be a fundamental driver of its business.
A key focus for Merlin has been on developing its footprint in
emerging markets, where a growing middle class, enjoying
improving wealth and living standards, expands the market
opportunity. Not only can Merlin reap this benefit in these local
economies, but increasing wealth is driving international tourism,
particularly in key ‘gateway’ cities such as London, New York and
Hong Kong. Merlin currently operates in twelve of the cities listed
in the world’s top 30 cities by tourist arrivals.
The Company believes that there is a significant shift in demand
away from the typical two week family holiday, towards short
breaks or ‘staycations’. This has informed the strategy of
repositioning the theme park businesses as short break
resorts, which has the effect of increasing the catchment
area, and increasing visitor spend and satisfaction.
The marketplace remains highly fragmented with a significant
proportion of independent, or non-natural owners of assets.
The estimated global market share held between Merlin and
its largest competitor is less than five per cent.
We welcomed a record
59.8 million visitors
across the Merlin
Entertainments portfolio
The strength of the Merlin brands and the diversification of our
portfolio leaves the Company well placed to benefit from these
attractive market trends and opportunities.
Given our long term vision to ultimately derive a third of our
revenue from each of Europe, the Americas and Asia Pacific, the
predominant focus of our NBD will continue to be in North
America and increasingly Asia Pacific, currently representing
21 per cent. and 14 per cent. of revenue respectively.
Strategic developments
Merlin has six highly complementary strategic growth drivers and
we have exciting developments planned against each for 2014
and beyond.
Growing the existing estate through planned
investment cycles
Capital expenditure is a key driver of like for like growth and all of
our attractions have pre- set capital investment cycles comprising
three or four lower years followed by a high year. These cycles are
carefully managed so as to smooth capital expenditure across the
portfolio of attractions; to ensure the investments are funded out
of operating free cash flow; and to provide attractions with the
visibility and autonomy to plan effectively. In each case the
investment over the cycle is broadly in line with depreciation and
follows a pre- set ratio to revenue (typically 8- 10 per cent).
In 2014, high year investments in Heide Park and LEGOLAND
California will be key contributors of growth in the Resort Theme
Parks and LEGOLAND Parks Operating Groups respectively. In
addition, Alton Towers will launch a new CBeebies Land as a result
of a partnership with BBC Worldwide. All attractions, whether in
high or low years, will offer something new to see or experience
as this is a key component of driving repeat visitation.
Exploiting strategic synergies
As the Group expands and achieves critical mass in key markets, we
are able to leverage buying economies of scale and particularly
marketing activity through such things as third party promotions and
the Merlin Annual Pass loyalty programme. These secure both
incremental sales and market share. In 2014 we will continue to
focus on e- commerce initiatives, pushing more transactions
through our own websites to both improve the customer
purchase journey and provide longer term opportunities for
closer yield management. Over the last two years, our major
initiatives in this area have led to online bookings increasing
as a percentage of our admissions revenue, up from
twelve per cent. in 2011 to 19 per cent. in 2013.
13
Merlin Entertainments plc Annual Report and accounts 2013
CHIEF EXECUTIVE’S REPORT
Since 2004 we have
launched nearly 40
midway attractions
Transforming our theme parks into destination resorts
By moving our theme parks from day trip venues to two or three day
short break destinations we can expand market catchment and
revenue opportunities. The key driver of this is the presence of
on-site themed accommodation. To date, all recent investments
whether themed hotels or Holiday Villages have been highly
successful, comfortably delivering against our investment criteria
and driving multi-day stays.
In 2014 a second hotel product (the Azteca Hotel) will be
added to the Chessington World of Adventures Resort, while
LEGOLAND Deutschland will add a 68 bedroom extension
to the Knight’s Castle hotel. The LEGOLAND Billund Resort
continues to add further accommodation with a new wing to
the current hotel and standard rooms are being upgraded and
themed across the existing hotel estate. In addition, we will build
on the successful pilots of ‘Medieval Glamping’ at Warwick Castle
and of ‘Crash Pad’ at Thorpe Park. Going forward, we are seeking
to add an average 200 ‘keys’ to our estate each year across the
portfolio and are also actively developing additional ‘second gate’
attractions that are located next to the resort and give our
guests even more to do during their visit.
Rolling out new midway attractions
A key element of Merlin’s NBD programme is the roll out of our
midway brands. We are able to open new Madame Tussauds, SEA
LIFE Centres, Dungeons and LEGOLAND Discovery Centres,
typically for £5- 8 million each, always with a target of 20 per cent.
ROIC. Since 2004 we have launched nearly 40 midway attractions
and are planning to open six or seven a year from 2014.
Increasingly, our focus is on opening multiple attractions in the
same locations to form clusters from which we can derive
operating cost, marketing and cross- selling advantages.
2014 has already seen us open our 100th site, a SEA LIFE Centre
in Charlotte, USA. Later this year we will also open a Madame
Tussauds and our first North American Dungeon in San Francisco;
Madame Tussauds attractions in Beijing and Singapore; and an
LDC in Boston, USA. Beyond this the pipeline for 2015 is also
largely in place with the Orlando I-Drive cluster of the SEA LIFE
Centre, Madame Tussauds and Orlando Eye already under
construction in the USA and further projects secured in Asia.
In addition, the recent announcement of our agreement with
DreamWorks to launch a new midway brand, ‘Shrek’s Far Far
Away Adventure’ is a hugely exciting development and the start
of what we hope will become a wider strategic partnership.
Developing new LEGOLAND parks
We see significant potential for expansion of LEGOLAND parks due
to the LEGO brand’s worldwide popularity and the proven success of
the six parks open to date. Our aim is to open at least one new
park every three years under one of three ownership models:
operated and owned; operated and leased; and management
contracts. In the last three years we have opened both
LEGOLAND Florida (owned) and Malaysia (contract) and are
already engaged on a further park, Dubai (contract), with opening
targeted in 2016. Beyond this, our focus is again very much on Asia
and North America with projects currently under negotiation in
Japan and South Korea and further preliminary discussions
ongoing in China and the USA.
LEGOLAND Florida
14
Merlin Entertainments plc Annual Report and accounts 2013
CHIEF EXECUTIVE’S REPORT
Our central mission is
to deliver memorable
experiences to our
millions of visitors
Strategic acquisitions
Merlin Entertainments operates in a fragmented market and
has a highly successful track record of making and integrating
acquisitions. In 2011 and 2012 the acquisitions of Sydney
Attractions Group and Living and Leisure Australia accelerated
our expansion into Asia Pacific and have facilitated further new
openings in this region. Our primary focus going forward is on
midway-type operations in Asia and North America where the
assets can be rebranded to Merlin’s brands (or provide new
brand opportunities) and complement our expansion strategy.
Merlin’s future growth is not dependent on acquisitions but we
are in the favourable position of having the free cash flow to
make them should suitable opportunities arise.
Merlin Magic Making
Supporting our three Operating Groups and the six growth drivers
is our unique in- house creative and development resource: Merlin
Magic Making (MMM). This is the part of Merlin responsible for
finding new sites; creating new attractions; producing our core
product of wax figures, marine displays and LEGO models; and
project managing all major capital expenditure projects to bring
them in on time and on budget. What it gives Merlin, in a growing
market, is the ability to cost effectively and imaginatively exploit
opportunities on a global scale.
2013 was also the year that saw the introduction of our dedicated
creative research and development team whose sole focus is to
develop innovative concepts for extending the Merlin portfolio
with new midway opportunities and ‘second gates’ for our resorts.
Allied with our unrivalled brand portfolio MMM represents a clear
competitive advantage over other operators and is consequently
a resource we will nurture and build on over the coming years.
Memorable experiences and our teams
At the heart of Merlin Entertainments is our central mission to
deliver memorable experiences to our millions of visitors. We achieve
this through the high quality of our attractions, constant
innovation and most of all through the passion of our teams.
As ever, it is our people that are the driving force behind
Merlin’s success and as such we will continue to focus on their
recruitment, retention and training and development. At its most
fundamental level, happy and motivated staff mean happy and
satisfied customers and as such there is, I believe, a very high
correlation between the 95 per cent. of staff who say they ‘enjoy
working here’ and the consistent 90%+ customer
satisfaction scores the Group receives.
Delivering memorable experiences
Looking ahead
As we embark on another year, our first as a public company,
we regard the future with confidence. While external events,
particularly the weather, are always capable of surprises, our
continued diversification means that Merlin is increasingly resilient
to the impact of these. Our existing estate is well placed to
continue to deliver and our NBD programme extending out over
the next three to five years gives cause for optimism. We have
multiple levers to drive growth and a skilled management team
to exploit them.
Stand by for more Merlin magic ahead!
Nick Varney
Chief Executive Officer
26 February 2014
15
Merlin Entertainments plc Annual Report and accounts 2013 MIDWAY
ATTRACTIONS
16
OPERATIONAL REVIEW - MIDWAY ATTRACTIONS
Visitors (m)
Revenue (£m)
Underlying EBITDA (£m)
Like for like revenue growth (constant currency basis)
2013
37.1
524
212
2012
33.0
458
179
Growth
+12.3%
+14.3%
+18.7%
+9.3%
2013 WAS ANOTHER SUCCESSFUL YEAR FOR THE MIDWAY ATTRACTIONS OPERATING
GROUP, WITH STRONG GROWTH IN OUR LONDON AND ASIAN MARKETS; THE
CONTINUATION OF OUR MIDWAY ROLL OUT PLAN; THE SUCCESSFUL RE LAUNCH
OF PARTS OF LIVING AND LEISURE AUSTRALIA AND THE ACQUISITION OF TURKUAZOO
AQUARIUM IN ISTANBUL.
The existing estate saw good growth with strong performances
coming from Asia and London. The Eurozone crisis continues to
have an impact on our southern European businesses and a lower
than usual level of snow had a negative impact on our ski businesses
in Australia. Visitation to London post the Royal Wedding and
London Olympics continued to be very strong in 2013 which
benefited our central London attractions.
Our existing estate growth was underpinned by our strategy of
planned capital investment cycles across each brand. Each midway
attraction has a high investment once every five years, and those in
2013 included a significant expansion of Madame Tussauds Hong
Kong; the addition of a ride to the SEA LIFE Centre in Oberhausen,
Germany, a new Marvel 4D cinema at Madame Tussauds in
Las Vegas; a ‘Shark Mission’ attraction in the SEA LIFE Centre in
Munich and a new ‘Jurassic Seas’ area in the SEA LIFE Centre
in Königswinter, Germany.
In the intervening years, most attractions receive ‘mobile features’
which we move around the world to several different locations
maximising capital efficiency. During 2013, Madame Tussauds had
touring figure sets of The Beatles, Michael Jackson (three different
figures at different stages of his life), Bollywood, Abba, One Direction,
William and Kate, the Duke and Duchess of Cambridge, and four
Whitney Houston figures. SEA LIFE has five mobile features
(‘Octopus Hideout’, ‘Jellyfish Disco’, ‘Claws’, ‘Turtle Shelter’ and
‘Sea Stars’). LEGOLAND Discovery Centres have four Star Wars
themed mobile features. Typically these attractions stay for one year
and then move to a new location to refresh the experience.
In 2013 the rapid expansion of midway attractions continued
around the world with the launch of a further six new attractions,
although the planned SEA LIFE Centre in Rome remains delayed
due to external circumstances specific to that location. A new
Dungeon in Berlin was launched to join the strong Berlin cluster
which now consists of four attractions. We developed the cluster
in Tokyo with the launch of a full Madame Tussauds following the
successful trial of a temporary attraction in 2012. In Asia we
added a new Madame Tussauds to the emerging market of
Wuhan in central China. In North America a new cluster in New
York was created by adding a LEGOLAND Discovery Centre in
Westchester and we completed our first attraction opening in
Canada in Toronto with another LEGOLAND Discovery Centre.
In the UK, we created another cluster with the launch of a new
SEA LIFE Centre in Manchester adjacent to the existing
LEGOLAND Discovery Centre. In addition, the London
Dungeon was relocated from Tooley Street, near London Bridge
to County Hall next to the London Eye and SEA LIFE London
Aquarium. This move was instigated by Network Rail due to the
expansion of London Bridge station; however, it has strengthened
the London cluster with three attractions now adjacent to each
other in the popular South Bank area. We also relocated the
LEGOLAND Discovery Centre from Duisburg in Germany to
Oberhausen to enable us to form a strong cluster alongside the
existing SEA LIFE Centre. During 2013, cluster attractions have
continued to represent more growth than standalone midway
attractions due to cross-selling and shared costs in support
functions. Clustering will continue to be central to our midway
roll out strategy.
The relaunch of the LLA attractions which we acquired during
2012 also commenced in 2013. We successfully relaunched
Melbourne Aquarium and Mooloolaba Underwater World in
Australia as SEA LIFE Centres in September and December
respectively. We exited the management contract in Dubai which
we acquired as part of the Living and Leisure acquisition to enable
us to focus on our core assets. We will continue to relaunch the
Living and Leisure assets in Asia and Australia over the next three
years. In September we acquired Turkuazoo Aquarium in Istanbul
which has great potential to be relaunched as a SEA LIFE Centre
and we hope will form a platform for a strong new cluster city.
Midway sites
UK
Continental Europe
North America
Asia Pacific
Total
December
2012
Change*
2013
December
2013
22
25
13
21
81
1
1
2
1
5
23
26
15
22
86
*The 2013 change in the table above reflects the addition of six new midway attractions launched in
2013 and the acquisition of the Turkuazoo aquarium, offset by the terminated Dubai management
contract referred to above and the disposal of a small non-core attraction in Belgium. The other
relaunches and site moves had no effect on the site numbers or the geographical analysis.
17
Merlin Entertainments plc Annual Report and accounts 2013 OPERATIONAL REVIEW - MIDWAY ATTRACTIONS
BERLIN DUNGEON
WHAT DID WE DO?
We opened a new attraction in central Berlin in March
2013, approximately 200 metres from the SEA LIFE
Centre. This expanded the Berlin cluster to four
attractions: Madame Tussauds; LEGOLAND Discovery
Centre; SEA LIFE Centre; and the Berlin Dungeon.
HOW DID WE DO IT?
We developed the attraction with our in- house team
with Merlin Magic Making responsible for finding the
site, creating the experience and project managing
the on- site teams to build the attraction.
We integrated the marketing, finance and HR
functions with the existing cluster teams thereby
enabling us to launch the attraction with much
lower operating costs than if we had launched a
standalone Dungeon.
We introduced significant cross- selling between the
new Dungeon and all the other Merlin attractions in
the cluster. This provided discounts to those
customers wanting to visit more than one.
WHAT WAS THE RESULT?
The Berlin Dungeon has had an excellent first year and
is on course to achieve our 20 per cent. ROIC target.
Efficient development by our in- house creative and
project management teams have helped keep capital
costs relatively low.
Operating costs are also relatively low as many of
the functions are fulfilled by our existing Berlin
cluster team.
We have achieved a higher level of cross- sales in
Berlin as a consequence of the Dungeon’s launch.
Total cross- sales in 2013 accounted for 14 per
cent. of all revenue in Berlin.
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The Berlin Dungeon Boat Ride
Merlin Entertainments plc Annual Report and accounts 2013
19
LEGOLAND
PARKS
20
OPERATIONAL REVIEW - LEGOLAND PARKS
Visitors (m)
Revenue (£m)
Underlying EBITDA (£m)
Like for like revenue growth (constant currency basis)
2013 WAS AGAIN A VERY GOOD YEAR FOR
THE LEGOLAND PARKS OPERATING GROUP.
THREE OF THE FOUR ORIGINAL PARKS
DELIVERED RECORD REVENUE AND EBITDA;
LEGOLAND MALAYSIA, WHICH OPENED IN
SEPTEMBER 2012, HAD A FANTASTIC FIRST
FULL YEAR OF TRADING - THE HIGHEST
ATTENDANCE FOR ANY LEGOLAND PARK
DURING ITS FIRST TWELVE MONTHS; AND THE
LEGOLAND CALIFORNIA HOTEL OPENED IN
APRIL AND HAS PROVED VERY POPULAR.
The repositioning of the parks as short break destinations took a
major step forward during 2013, led by the opening in April of
our 250 bedroom LEGOLAND hotel on the doorstep of
LEGOLAND California. This generated the most PR coverage
since the park opened 14 years ago and has increased our
penetration outside the local market. In April, we also opened a
34 bedroom LEGO Castle in the LEGOLAND Deutschland
Holiday Village, which exceeded 90 per cent. occupancy during its
first season. The first season of the LEGOLAND Billund Holiday
Village also went well and we completed the year with a
December opening of the 249 bedroom LEGOLAND Malaysia
hotel. This hotel is owned by our Malaysian partners, Themed
Attractions and Resorts, and is managed by Merlin. The resort
focus will continue in the years to come. In 2014 we will open a
68 bedroom Castle Hotel in LEGOLAND Deutschland and in
Billund a new wing of 24 bedrooms will be added to our hotel,
where we will also re-theme the Holiday Village.
At the heart of our existing estate strategy is our capital
investment cycle, allied with innovative product development. In
2013, the highlight of this was the investment in a new ‘Land of
Chima’ in LEGOLAND Florida and the addition of ‘Land of
Adventure’ to LEGOLAND Deutschland. With a warm summer in
Windsor the timing was perfect for the addition of ‘DUPLO
Valley’, a water play area for younger children.
Both new LEGOLAND parks in Florida and Malaysia continue to
trade well, although the exceptionally strong opening year for
LEGOLAND Florida in 2012 provided a slight drag on the
Operating Group’s like for like performance in 2013.
We added a new Chima 4D show to all LEGOLAND parks and
Discovery Centres in line with the newest IP from the LEGO
Company, underlining our strong continued cooperation with them.
2013
11.5
352
127
2012
10.5
308
113
Growth
+9.9%
+14.2%
+12.8%
+5.3%
The new DUPLO Valley at LEGOLAND Windsor
Alongside the commercial performance and resort expansion it is
also particularly pleasing to report that the parks were able to
maintain their high customer satisfaction scores.
We have three alternative strategies to enable us to achieve our
goal of adding a new LEGOLAND park approximately every
third year:
¬ Operated and owned. We have five parks operating under
this model and expect to identify more locations
where this model can be applied.
¬ Operated and leased. This is where Merlin has an operating
company that undertakes a portion of total park investment,
with the majority of park investment made by a local
third party.
¬ Management contracts. We have developed LEGOLAND
Malaysia under this model and expect, with our local partners,
to open LEGOLAND Dubai in 2016.
Further developments are being progressed in Asia and the
USA where we see opportunities in the medium to long term.
We expect to announce more details on our LEGOLAND
development plans during 2014.
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Merlin Entertainments plc Annual Report and accounts 2013 OPERATIONAL REVIEW - LEGOLAND PARKS
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LEGOLAND
CALIFORNIA HOTEL
WHAT DID WE DO?
In April we continued our programme of transforming our theme parks into
destination resorts when we opened our first LEGOLAND hotel in America, at the
entrance to LEGOLAND California. The 250 bedroom hotel is the third LEGOLAND
hotel, after LEGOLAND Billund and LEGOLAND Windsor. The hotel represented an
investment of approximately $45 million and has been financed entirely from
Merlin’s cash flow.
HOW DID WE DO IT?
Merlin’s expert hotel team, combined with local architects and project
management experts, was responsible for building on the plans and experiences
from the LEGOLAND Windsor hotel, which opened a year earlier. We supplemented
the team with strong local hotel expertise and integrated the hotel operation
into the LEGOLAND California Resort. This has secured the optimal leverage of
the hotel for sales and marketing of the resort; created a seamless guest
experience; ensured the cost effective use of operating facilities; and
enabled us to deploy our combined team in an efficient way.
WHAT WAS THE RESULT?
The project was delivered two months ahead of schedule and within budget. The
excitement for the LEGOLAND hotel led to its becoming the biggest PR story since
the opening of the park in 1999. Financial performance has been stronger than
expected, outperforming the business case for developing the hotel. Guest
satisfaction scores have been very high and, in line with our experience in other
resorts, even higher than for visitors not using the hotel, thus underlining the
logic of continuing to reposition the parks as short break destinations.
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Pirate themed room at the LEGOLAND hotel
Merlin Entertainments plc Annual Report and accounts 2013
23
RESORT
THEME PARKS
24
OPERATIONAL REVIEW - RESORT THEME PARKS
Visitors (m)
Revenue (£m)
Underlying EBITDA (£m)
Like for like revenue growth (constant currency basis)
2013
11.2
314
81
2012
10.5
290
73
Growth
+6.5%
+8.4%
+11.2%
+5.2%
RESORT THEME PARKS OPERATING GROUP DELIVERED A BOUNCEBACK ACROSS THE
PORTFOLIO IN 2013 FOLLOWING THE MARKET CHALLENGES FACED DURING 2012. SOLID
GROWTH WAS ACHIEVED THROUGH THE SUCCESSFUL DELIVERY OF MAJOR CAPITAL
PROJECT LAUNCHES IN THE UK, IMPROVED WEATHER CONDITIONS DURING THE KEY
SUMMER TRADING PERIOD AND ACTIONS TAKEN TO MITIGATE DIFFICULT TRADING
CONDITIONS IN THE ITALIAN MARKET.
with the removal of the Holiday Inn brand, and the addition of a
new 69 bed highly themed ‘Azteca’ hotel including a unique 284
cover themed restaurant and indoor kids’ water play area.
Longer term plans are also well advanced for a new unique
accommodation concept at Alton Towers and a second hotel at
Gardaland. In addition to new accommodation offerings, the
marketing of our resorts as short break destinations plays an
important role in raising awareness and encouraging advanced
booking. During 2013 Alton Towers and Chessington trialled TV
advertising for short breaks during January, the key industry
period. Both trials proved successful and will be extended into
2014 including an extension of the trial to include Heide Park.
The strategic focus of the Resort Theme Parks Operating
Group (RTP) is to create a portfolio of differentiated short break
destinations that are centred around unique and compelling
theme park propositions.
2013 saw the continued implementation of our planned capital
investment cycle to deliver new experiences at each of our
attractions. Major launches such as ‘The Smiler’ at Alton Towers
and ‘Zufari: Ride into Africa!’ at Chessington World of Adventures
delivered significant volume and revenue growth. At the same
time the cost effective introduction of attractions leveraging third
party Intellectual Property such as ‘Madagascar Live: Prepare to
Party’ at Gardaland and Heide Park, and ‘Horrible Histories Foul
Fayres’ at Warwick Castle, enabled strong marketing messages in a
low capital investment year. Thorpe Park continued to broaden its
customer base and focus on digital technology with the
introduction of a new mobile ticketing platform and social media/
digital marketing initiatives. Thorpe Park also continued its strategy
of extending its trading day with successful ‘Ministry of Sound’ club
nights and evening only park events during the summer.
Trading conditions in Italy remained difficult during 2013, however
actions taken by management enabled Gardaland to deliver year
on year EBITDA growth. A continued focus on targeting
international tourists to visit Gardaland for a short break, as well
as capturing tourists visiting the Lake Garda area both proved
successful. The introduction of a value season pass offer also
delivered a significant increase in season pass sales during the year,
supporting our strategy to grow pre-booked and repeat visitation.
During 2013 each of the six RTP resorts had accommodation on
site. Alongside existing accommodation offers, Thorpe Park, with
on-site ‘Crash Pad’, and Warwick Castle, with ‘Medieval Glamping’,
completed accommodation trials. Both of these were invaluable
test-beds for these innovative concepts, with the Thorpe Park
Crash Pad trial in particular providing insight into the marketing,
operating and financials of running this type of accommodation,
with these learnings being built into the planned expansion of
both concepts for 2014. Plans have also been completed for the
relaunch of the Chessington World of Adventures hotel in 2014
The Smiler – the World’s first 14 looping roller coaster
25
Merlin Entertainments plc Annual Report and accounts 2013
OPERATIONAL REVIEW - RESORT THEME PARKS
SHORT BREAK POTENTIAL
AT WARWICK CASTLE
WHAT DID WE DO?
In order to establish the potential for Warwick Castle as a short break
destination we carried out a six week trial of a unique ‘Medieval Glamping’
village adjacent to the castle.
HOW DID WE DO IT?
Based on customer research indicating the appeal of staying overnight in the
grounds of the castle, our attraction team worked with Merlin Magic Making to
create a magical medieval village in the grounds of the castle comprising 35
themed tents. The offering also included medieval activities and food for
children and adults as well as a two day ticket to visit the castle.
WHAT WAS THE RESULT?
During the six week trial, the overall occupancy reached 98 per cent. and
received extremely strong customer satisfaction and value for money scores.
As a result, plans are under way to enhance the offering and extend the
trading period. We are exploring further accommodation options to provide
a more permanent and year round resort offering.
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Warwick Castle Medieval Glamping
Merlin Entertainments plc Annual Report and accounts 2013
27
MERLIN MAGIC MAKING IS THE
UNIQUE RESOURCE THAT SITS
AT THE HEART OF EVERYTHING
MERLIN DOES. EMPLOYING OVER
300 PEOPLE, THIS SPECIALIST
IN- HOUSE BUSINESS DEVELOPMENT;
CREATIVE; PRODUCTION; AND
PROJECT MANAGEMENT GROUP
CONSTANTLY RAISES THE BAR
IN INNOVATIVE THINKING.
MERLIN MAGIC MAKING
• Finds new business opportunities all over the planet.
• Creates the highest class visitor attractions and
compelling propositions.
• Takes those creative ideas and produces amazing
content for our attractions.
• Delivers them at market leading speed and value!
FINDING THE MAGIC
‘ANOTHER SUCCESSFUL YEAR
SECURING THE PIPELINE’
Another successful year within the Business
Development team has seen us secure the pipeline in
2013/2014 and things are looking positive into 2015.
Asia, and China in particular, remain a priority, with the
opening of Madame Tussauds Wuhan and attraction
agreements already in place for Madame Tussauds
attractions in Singapore and Beijing. We also recently
saw the successful opening of Madame Tussauds in
Tokyo, creating our first Japanese cluster alongside the
existing LEGOLAND Discovery Centre.
Our North American roll out also continues to
progress well. LEGOLAND Discovery Centre Toronto
sees our first venture into Canada and we have
continued our success in securing new attractions in the
USA with confirmed locations in Orlando, Charlotte,
Boston and San Francisco all progressing well for
openings in 2014/15.
28
CREATING THE MAGIC
‘WE HAVE INTRODUCED A
DEDICATED CREATIVE RESEARCH
AND DEVELOPMENT TEAM’
2013 has been busier than ever in the existing
portfolio, with the teams creating and designing hotels;
new midway concepts; mobile features; new shows;
and stunning roller coasters. Particular attention
should be drawn to the new concepts in SEA LIFE
Manchester, with a ground breaking projection mapping
introduction show and the UK’s first underwater
walking experience, ‘SeaTrek’, as well as the
phenomenal ‘marmalising’ roller coaster,
‘The Smiler’, at Alton Towers.
Intellectual Property relationships continue to
strengthen with two ‘DreamWorks’ shows in Heide
Park and Gardaland opening during the year, as well as
a further strengthening of our relationship with the
LEGO Company through Star Wars and Ninjago.
This was also the year that saw the introduction of our
dedicated creative research and development function.
Made up of a small group of in-house creative
directors, they are complemented by a roster of
external specialists from many different disciplines.
This allows us to develop some free thinking as we
seek to extend the Merlin portfolio with new midway
opportunities and ‘second gates’ for our resorts.
PRODUCING THE MAGIC
‘OUR BUSIEST EVER YEAR…NEW
TECHNIQUES…ENHANCED
QUALITY AND AMAZING LIKENESS’
We have had our most active ever year in the
production of wax figures for our Madame Tussauds
business. We are now able to create over 200 figures
per year, with the same quality and amazing likeness.
New techniques in the use of materials and digital
scanning have allowed us to create more dynamic
poses for our figures and ensure that quality is
enhanced even further.
As well as launching two new Madame Tussauds
attractions in Tokyo and Wuhan and supporting the
other 13 existing Madame Tussauds attractions, we also
produced one of our most successful touring exhibits ever,
with the world number one boy band ‘One Direction’.
29
Merlin Entertainments plc Annual Report and accounts 2013
DELIVERING THE MAGIC
‘WELL PLACED TO MEET THE NEXT
SET OF CHALLENGES’
Another record breaking year in project management has seen us
involved in 35 major projects, in ten countries, with the projects in total
representing a capital investment of over £190 million.
Projects have been as diverse as hotels (LEGOLAND California) and
Holiday Villages (LEGOLAND Deutschland), supporting our resort
strategy; six midway roll outs; continuing our organic growth; an animal
Zufari; a mind bending roller coaster; and a fantastic ‘Land of Chima’.
Oh and in our spare time we moved the London Dungeon!
Innovative thinking across the whole of Merlin Magic Making, remains
our number one philosophy. This, along with delivering compelling
propositions that our customers just can’t wait to come and visit, and our
ability to drive great value from everything we produce, means that we
are well placed to meet the next set of challenges…bring on the fun!
‘AN ACTIVE ROLE IN
CONSERVATION’
Husbandry and the care of creatures remains the
number one priority for our aquarium displays
development team which works across all of our
44 worldwide SEA LIFE attractions.
Research and development in this area has seen us
increase our capacity to breed a wider variety and
greater numbers of creatures in-house across the
globe. Notable successes have included our first ever
squid breeding programme and a continuation of our
worldwide seahorse breeding programme.
The team have played an active role out in the
wider world of marine aquariums and conservation,
championing a number of outside ‘think groups’
and conferences. The most noteworthy was the
organisation and hosting of the 40th EUAC
(European Union of Aquarium Curators) congress
in LEGOLAND Billund, where SEA LIFE
presentations were strong and numerous.
‘OUR FIVE MODEL SHOPS GO FROM
STRENGTH TO STRENGTH’
We have continued to invest in our five LEGO model
building facilities (model shops). This enables them to
continue to grow and to produce ever more intricate
and detailed designs and LEGO models to entertain
our visitors. During the year most demand has been
driven by the expansion of our LEGOLAND hotels
and Holiday Villages, as well as two new LEGOLAND
Discovery Centres and Water Parks, alongside our
existing estate attractions.
30
Merlin Entertainments plc Annual Report and accounts 2013 Y
D
U
T
S
E
S
A
C
MADAME TUSSAUDS WUHAN
WHAT DID WE DO?
We teamed up with one of the biggest companies in China, the Wanda Corporation,
to deliver this important project as we continue our Chinese roll out programme.
We secured a prime space in their flagship mixed use development. Forming close
partnerships with both the main developer and the local authority helped to
enable a successful fast track of the licences and approvals. We were
particularly pleased that we matched the capital cost to the market opportunity,
continuing our core skill of delivering excellent value, whilst maintaining our
compelling reasons to visit.
HOW DID WE DO IT?
We worked closely with all partners to ensure a smooth build and launch, in
an impressive time scale. The attraction had a great mix of local and national
Chinese figures, as well as the cornerstone international ‘A list’ stars that
make up every Madame Tussauds. We recruited a local project management team,
providing support through our national Chinese management team and our
international experts, to develop something that we are all proud of.
WHAT WAS THE RESULT?
A magnificent addition to our Madame Tussauds portfolio, opened ahead of time for
the very important Chinese Golden Week. Initial customer reaction and
satisfaction have been hugely encouraging, underlining our ability to deliver
the right attraction, at the right cost, with the right quality.
31
Merlin Entertainments plc Annual Report and accounts 2013
MERLIN PEOPLEMERLIN
MERLIN
PEOPLE
PEOPLE
WE DESCRIBE OUR COMPANY’S CULTURE AND VALUES AS THE MERLIN WAY. IT CAPTURES
THE ESSENCE OF HOW OUR EMPLOYEES ARE ALIGNED WITH THE ONE ULTIMATE GOAL OF
DELIVERING MEMORABLE EXPERIENCES TO OUR GUESTS. OUR PEOPLE STRATEGY IS
SUPPORTED BY THREE PILLARS: EMPLOYEE ENGAGEMENT; TALENT AND DEVELOPMENT;
AND COMPENSATION AND BENEFITS. IT ENABLES US TO ACHIEVE OUR AMBITIONS TO BE
THE BEST COMPANY TO WORK FOR IN OUR INDUSTRY, NURTURE OUR GLOBAL LEADERS
AND REWARD PERFORMANCE. THE MEASURE OF OUR SUCCESS IS SHOWN IN OUR
OUTSTANDING EMPLOYEE ENGAGEMENT SCORE FROM OUR ANNUAL EMPLOYEE SURVEY.
Employee engagement
The Wizard Wants to Know, our annual online employee survey,
is distributed to more than 20,000 global employees. It is our
opportunity to measure engagement and receive feedback on
what it’s like to work for this unique company. An amazing 97 per
cent. of our employees completed the survey and 95 per cent.
told us that they enjoy working here. Our overall engagement
increased once again and was way above our 80 per cent. target,
a score we are all proud of. The results are a key mechanism to
continually drive improvements.
Delivering memorable experiences to our LEGOLAND guests
We care about our people and this year we asked over 200
employees around the world what they wanted from their staff
areas. We developed guidelines ‘The Magic Touch’ to help
managers create the inspirational space our people deserve.
We provided guidance on safety, cleanliness, creating a relaxing
environment and providing a place for sharing all Merlin news.
In order to gain staff commitment it is essential that we inform
our teams of Merlin’s goals and objectives so all our employees
understand their importance. The intranet provides an effective
platform where attraction newsfeeds are published.
32
The traditional methods of newsletters, team briefs and
noticeboards are still vitally important to ensure the messages
are received by all our front line employees.
STAR is our online global recognition scheme. It enables
employees to celebrate success by nominating colleagues with a
‘Star’ for outstanding contribution or a ‘Thank You’ to recognise
the little things they do. With over 87,000 Stars sent to
employees worldwide this year, and over 200,000 since the launch
in April 2011, this great initiative has been really embraced by our
global employee population.
Spark an Idea is our online initiative that allows employees the
opportunity to share their ideas, however big or small. Employees
can view the ideas on the website; search; ‘like’ ideas; or simply
look for inspiration. ‘Spark an Idea’ also allows us to give feedback,
thanking staff for their contribution and letting them know how it
will be taken forward. Local Creativity and Innovation Forums
review ideas and can escalate the truly outstanding ones. These
are shared with other attractions and passed to Merlin’s Creativity
Board, who can support and fund exceptional ideas. More than
2,500 ideas have been submitted since we launched the initiative
in 2012, with many being implemented within our attractions.
Recruitment
Our aim is to attract the best talent and our recruitment strategy
sets out our approach to technology, candidate experience and
diversity. The introduction of our online recruitment system has
seen an increase in the usage of social media platforms, giving a
more structured and positive candidate experience and a
consistent selection process to reflect The Merlin Way. Fairness
and equality remain key priorities and we ensure our approach to
recruitment is transparent to all our applicants. Where they need
support we will do as much as we can to give everyone the
opportunity to demonstrate their skills and capabilities.
MERLIN PEOPLE
Diversity
We constantly strive to make a positive difference to life at Merlin
and are promoting gender diversity with a number of initiatives to
support our female employees in achieving their ambitions and
career progression. Our strategy is designed to ensure we have
the best people for the right roles, with equality of opportunity
for both men and women. Research shows that companies with a
more gender diverse workforce perform better. Our objective is
to achieve a more inclusive working environment, particularly with
respect to gender balance, whilst promoting females on merit.
With the appointment of Fru Hazlitt to the Board in 2014,
females will then be represented at all levels of the business.
Of our entire permanent workforce, approximately 4,000
(48 per cent.) are female and ten women leaders occupy
20 per cent. of senior leadership roles within the Company.
Talent and development
The opportunity for our employees to learn and develop is
paramount. In the past year we have introduced several new
concepts to enhance our virtual training and to complement our
existing face to face learning.
We launched Merlin’s School of Magic, our new online collection
of learning materials, provided by the renowned Ashridge Business
School. Wherever they are located, our employees are able to
access resources designed to enhance their personal and
professional development. These include learning guides,
pocketbooks, audios, videos, books and knowledge maps. We have
also rolled out webinars to focus on a variety of leadership topics.
Growing our leadership pipeline is a priority, so we can provide
the right people with the right experience at the right time. 2013
initiatives to further strengthen this pipeline included:
¬ Launching virtual training through Merlin’s School of
Magic and subject specific webinars.
¬ Delivering leadership training locally within Asia, USA, Australia
and across Europe, enabling different languages and cultures to
be taken into consideration.
¬ Driving a global succession planning programme for all senior
managers, and revitalising induction programmes for new
senior managers.
¬ Reviewing our global mobility policy to better support
country to country moves.
¬ Delivering high potential training and development
programmes for individuals identified as future leaders.
XLR8 is our graduate programme tailored to fast track high
academic achievers to marketing and general management
positions. Now in its eighth year, its success continues to grow,
with graduates from top universities around the world being
recruited in the UK, USA, Germany, Australia and China.
We are committed to the long term career development of our
XLR8 graduates, supporting their tailored career path from entry
into Merlin, up through the business and on to senior leadership
positions. Over the last three years we have climbed the Guardian
Top 300 graduate employers list, coming second for our
industry in 2013.
Compensation and benefits
We are committed to providing competitive compensation and
benefit programmes which reflect the diverse needs of our global
employees and support the culture and business needs.
Share plans
The CEO Award Plan was aimed at extending equity participation
to employees as recognition for long service and/or outstanding
contribution and was extended to more than 1,700 employees.
With the flotation of Merlin on the London Stock Exchange this
plan came to an end but the essence of the scheme, wanting all
employees to own a part of Merlin, is represented in our new
share plans.
As described elsewhere in this report, a number of long term
incentive plans have been introduced to align share incentives to
long term goals and performance. These include an All Employee
Sharesave Plan which provides all permanent employees with the
opportunity to make savings over a three year period and buy
shares in Merlin. This is a key step to further enhance the
engagement of our employees with the success of the Group.
Benefits
We continue to harmonise local benefit programmes on a
territory by territory basis. Within the UK we held benefits fairs
at all of our attractions to increase awareness and understanding
of our benefit offering, resulting in a considerable uptake in the
voluntary benefit schemes. It was also an ideal opportunity to
start communicating about the implementation of workplace
pensions to our UK workforce. Our objective is to develop the
benefits fair package and make this globally available over the
coming years.
Mobility
We have made significant advances in refining our international
mobility programme which allows us to continue to support both
the global expansion of our attractions as well as succession,
through the ability of our people to gain international experience.
33
Merlin Entertainments plc Annual Report and accounts 2013 corRISKS
AND UNCERTAINTIES
MERLIN HAS A PROACTIVE APPROACH TO THE MANAGEMENT OF POTENTIAL RISKS AND
UNCERTAINTIES WHICH COULD HAVE A MATERIAL IMPACT ON THE GROUP’S BUSINESS
PERFORMANCE AND DELIVERY OF ITS STRATEGY AND INVOLVES MANAGEMENT ACROSS
THE GROUP. THIS IS AN INTEGRATED ‘BOTTOM UP’ AND ‘TOP DOWN’ APPROACH, WITH
BUSINESS RISKS IDENTIFIED, EVALUATED AND MONITORED BY THE OPERATING, CENTRAL
SUPPORT AND CORPORATE MANAGEMENT TEAMS. THE PROCESS IS OVERSEEN BY THE
GROUP’S EXECUTIVE BOARD MEMBERS VIA THE GROUP’S CORPORATE RISK MANAGEMENT
COMMITTEE, WHICH MEETS FOUR TIMES A YEAR. CORPORATE RISK MANAGEMENT REPORTS
ARE CIRCULATED FOR ALL EXECUTIVE COMMITTEE AND MAIN BOARD MEETINGS. THE
HEALTH, SAFETY AND SECURITY COMMITTEE, CHAIRED BY OUR NON- EXECUTIVE
CHAIRMAN, MEETS QUARTERLY AND FOCUSES SPECIFICALLY ON SAFETY RELATED
RISKS AND PERFORMANCE.
The Board believes that appropriate processes are in place
to monitor and mitigate risks and their potential adverse
consequences to Merlin. Such risks are categorised under three
headings; health, safety and security risks; operational and
strategic risks; and financial risks.
Health, safety and security risks
Merlin’s number one priority is delivering memorable, safe
experiences to visitors and the Company puts the health, safety
and welfare of both its customers and employees at the forefront
of its operations. The Group’s approach to safety management is
based upon proactivity and continuous improvement to mitigate
this risk. All incidents are recorded and reviewed to identify any
trends or issues that might need to be addressed and relevant
learning points are shared across the business.
Operational and strategic risks
¬ Brands and offerings
Merlin’s brand offerings have been built upon a reputation for
innovation, consistency in quality and excellence in delivery.
Revenues may be adversely affected by serious incident,
accident or an occurrence such as a food- borne illness at the
Group’s restaurants or a problem with an item sold in its retail
outlets. Merlin mitigates these risks by maintaining industry
leading standards of operating procedures and training, safety
and security systems, safety audits and supplier auditing
and intelligence.
¬ Competition
Merlin competes for consumer time and expenditure with
other offers in the attractions sector and also with other leisure
and recreational activities. The strength of the Group’s brands
and the Group’s significant marketing leverage help to mitigate
this risk. The Group’s thorough market and competitor
research programmes provide insight and understanding of its
relative competitive position and its customers’ expectations
and whether their needs are being met.
¬ General economic environment
The disposable income of customers and their leisure activity
preferences are affected by changes in the general economic
environment. The Group regularly engages with its customers
through research and visitor feedback and acts upon the
findings in reviewing its product and service offering to ensure
that it provides reasons to visit, compelling and memorable
experiences and value for money. The Group’s spread of
businesses across different locations and economies reduces its
exposure to the economic variability of any one country.
¬ Information technology
IT systems are integral to the Group’s operations and secure,
reliable and resilient IT systems performance is critical to
Merlin’s operational delivery and to our financial
reporting processes.
For example, the Group relies significantly on credit and debit
card transactions by customers in many locations and
particularly for online bookings. Our strategy of driving
pre-booking transactions via the internet depends upon 24/7
accessibility and guest friendly functionality. Failure to deliver
34
RISKS AND UNCERTAINTIES
and maintain appropriate systems availability, or to apply strict
‘Payment Card Industry’ controls to card transactions, would
hamper the Group’s ability to trade and to report on
performance. The Group has business continuity procedures,
systems security measures, and procedural controls and
processes in place to mitigate these risks.
¬ Key personnel
Merlin is a ‘people business’ and the Group’s performance
depends largely on recruiting and retaining its employees and
senior managers. Merlin mitigates the risk of losing key
personnel through innovative recruitment, training and
personal development programmes, proactively managed
succession planning and through incentive schemes, including
share ownership, to attract, develop, motivate and retain
employees and senior managers.
¬ Legal and regulatory
Merlin operates in many different jurisdictions and must
comply with a variety of international, national, regional and
local laws and regulations. The risk of non-compliance with
material laws and regulations is mitigated through the
appointment of specialist legal advisers in every jurisdiction in
which the Group operates or is in the process of developing
attractions. Together with the Group Legal Director, these
resources ensure that the Board, Executive Committee, other
committees and operational management are kept updated on
material legal developments and risks and legal and regulatory
compliance across the Group.
¬ New site and attraction developments
The Group’s ability to grow its business is dependent on
securing new sites in the right locations and on the right terms
as well as on obtaining the necessary planning permissions
both for existing sites and new developments. Merlin’s business
development and site search teams are continuously identifying
and evaluating options for new site locations, working closely
with developers and planners in key cities and other locations
around the world. They are building a pipeline of potential
locations to mitigate this risk, whilst existing locations have
developed site master plans to assist the securing of the
necessary planning approvals. Through Merlin Magic Making,
the Group’s centre of excellence for innovation, creativity and
product development, the Group is continually seeking out
new and innovative products and means of delivering
memorable experiences to its customers, including
through new IP partnerships.
¬ Property and the environment
With the increased focus on environmental laws and
regulations in many jurisdictions around the world, the Group’s
ability to operate is subject to meeting local environmental
laws and regulations. There is a clear focus on meeting legal
requirements, in order to mitigate this risk.
The Group’s ability to maintain its operations at its leasehold sites is
dependent on securing periodic lease renewals. Merlin’s Property
Director works proactively with site management and legal advisors
in order to anticipate and manage such risks. The Group’s spread of
businesses across different locations and jurisdictions also reduces its
exposure to any one site or jurisdiction.
¬ Seasonality and weather
Many of Merlin’s businesses are seasonal and extreme weather
conditions at peak trading times could have an impact on
business performance. Merlin seeks to maintain a balance in its
portfolio between activities which are broadly indoor and
outdoor. The Group’s strategy of increasing its geographical
spread of businesses, particularly across North America and
the Asia Pacific region, further reduces the potential impact
of this risk.
Additionally, Merlin continues to grow its annual pass revenues
and encourages pre-booked business through online dynamic
pricing and targeted promotions. Each of these strategies
protects the business from the impact of adverse weather
that can influence impulse visits.
Financial risks
The Group’s finance teams manage Merlin’s financial risks in
accordance with documented and communicated internal control
procedures. All significant financing transactions are authorised by
either the Executive Committee or the Board according to the
scale of commitment. The four key financial risks affecting the
Group are:
¬ Credit risk
Counterparty credit ratings are regularly monitored, and
there is no significant concentration of credit risk with
any single counterparty.
¬ Foreign currency risk
Merlin’s borrowings are predominantly denominated in
Sterling, Euros, US Dollars and Australian Dollars to broadly
match the currencies of the underlying business revenues.
Merlin keeps its currency exposure under review and mitigates
this with hedging where it considers this to be appropriate.
¬ Interest rate risk
Merlin finances its operations through a combination of debt
and equity. Merlin’s debt currently comprises floating rate bank
debt. The resulting exposure to changing interest rates is
managed by fixing an appropriate proportion of its bank debt
through the use of interest rate swaps, transacted with its
bank counterparties.
¬ Liquidity risk
Cash forecasts identifying the liquidity requirements of the
Group are produced frequently and are regularly reviewed to
ensure that sufficient financial headroom exists for at least a
twelve month period. Financial covenants relating to the
Group’s lending facilities include a requirement to maintain
certain ratios of EBITDA to both net interest payable and net
debt, and these are monitored regularly, with certificates of
compliance provided to lenders on a quarterly basis. In
addition, this review process includes reviewing the forecast
liquidity position of the Group for at least the next three years.
35
Merlin Entertainments plc Annual Report and accounts 2013
GROUP
FINANCIAL REVIEW
2013 WAS ANOTHER SUCCESSFUL YEAR FOR MERLIN. THE COMPANY GREW REVENUES BY
10.9 PER CENT. DRIVING AN INCREASE IN UNDERLYING EBITDA OF 12.8 PER CENT. AND
GENERATED OPERATING CASH FLOW OF £365 MILLION. THE GROUP CONTINUED TO
DE-LEVER THROUGH BOTH STRONG CASH FLOW GENERATION AND £200 MILLION OF
PRIMARY EQUITY ISSUANCE RAISED AS PART OF THE SUCCESSFUL IPO IN NOVEMBER 2013.
Trading summary
Revenue
EBITDA (1)
Operating profit (1), (2)
2013
£m
2012
£m
Growth
+/- £m
Change
%
1,192
1,074
118
+10.9%
390
290
346
258
44
32
+12.8%
+12.3%
Net finance costs (1)
(104)
(118)
14
+12.0%
Profit before tax (1)
186
140
46
+33.0%
Taxation (1)
(24)
(20)
(4)
-18.1%
Net income (1)
162
120
42
+35.6%
Post-tax exceptional and
non-trading items
(17)
(44)
27
+60.9%
(1) References to EBITDA, net finance costs, taxation and all other profit
measures in the table above and the following commentary are stated
on an underlying basis, before exceptional and non-trading items
unless otherwise stated.
(2) Operating profit is defined as EBITDA less depreciation
and amortisation.
Details of the Group’s accounting policies are contained within
the financial statements on pages 84 to 143 and those areas
requiring significant judgement in the preparation of the financial
statements are summarised on page 91.
Further information regarding the Group’s segmental analysis;
geographical revenues and assets; and certain operating costs are
provided in note 2.1 to the financial statements.
Andrew Carr
Chief Financial Officer
36
GROUP FINANCIAL REVIEW
2013 was another
successful year for Merlin
Trading performance
Revenue grew by £118 million, or 10.9 per cent. comprising
6.7 per cent. like for like growth, a £51 million contribution from
new openings and acquisitions, along with favourable movements
in foreign exchange rates and other items. Further detail on the
impact of foreign exchange movements is provided below.
Visitor numbers grew by 10.7 per cent. during the year, reflecting
a combination of underlying growth in the existing estate, the
contribution from the opening of the LEGOLAND California
hotel, as well as the addition of seven new midway attractions.
The existing estate benefited from strong volume growth in Asia
and London, the continued impact of ongoing investment through
the capital development cycles, and our strategy to develop our
parks into resorts by adding new accommodation. The UK
showed a degree of recovery following the impact of the London
Olympics in 2012. In addition, the return to more seasonally
normal weather in northern Europe in 2013 following the
extremely wet weather in the prior year also helped to support
this year on year growth. The challenging economic conditions in
southern Europe have yet to show significant improvement.
However, Gardaland’s performance has stabilised and we
anticipate making further major investments in the resort
from 2015.
Revenue per capita (RPC) was £18.14, up by 1.2 per cent. on the
prior year (2012: £17.93). This was driven by a combination of
the bounceback in the UK, as well as the mix effect of the midway
roll out. The Company’s focus continues to be on revenue
maximisation rather than specific volume or RPC targets.
Over the past five years, the Company has grown revenues at a
compound annual growth rate of 11.6 per cent. with average like
for like growth of 4.2 per cent.
EBITDA grew by £44 million, or 12.8 per cent. to £390 million
reflecting solid conversion of the revenue performance. EBITDA
growth from each of the Operating Groups was partly offset by
an increase in costs reflecting the flow back of one-off savings in
2012, as well as certain additional central costs that arise as a
result of the Company’s recent Listing.
Operating profit growth of £32 million and 12.3 per cent. was
driven by the growth in EBITDA, partially offset by an increase in
the depreciation and amortisation charge to £100 million.
Finance costs
Net finance costs of £104 million reduced by £14 million (2012:
£118 million) reflecting facility amendments made in 2013 which
reduced the margins payable on the Group’s debt portfolio and
the repayment of borrowings from the net proceeds of the IPO.
Taxation
A tax charge of £24 million is equivalent to an effective tax rate
of 12.7 per cent. (2012: 14.3 per cent.) of profit before tax. The
difference between the reported effective tax rate and the UK
standard tax rate of 23 per cent. is primarily due to the
recognition of deferred tax assets in the UK, combined with
different tax rates that apply in the various jurisdictions we
operate in around the world.
Post-tax exceptional and non-trading items
Exceptional operating costs before tax were £30 million. Of
these, £28 million related to the IPO in November 2013 and a
further £2 million were incurred in the year related to acquisition
related activities. No impairment losses were incurred in 2013.
Further details are provided in note 2.2.
Exceptional finance income before tax of £16 million was
recorded in relation to gains and losses on derivative financial
instruments which were not hedge accounted.
Tax on exceptional and non-trading items amounted to a
charge of £3 million.
Foreign exchange rate sensitivity
Merlin is exposed to fluctuations in foreign currency exchange
rates. The table below shows the impact on revenue of
movements in various currencies relative to Sterling.
Currency
EUR
USD
AUD
Other
Total
2012
average
FX rates
2013
average
FX rates
%age
movement
in FX rates
Revenue
impact
1.24
1.58
1.53
-
1.17
1.55
1.62
-
6.0%
2.1%
(6.1%)
-
14
5
(6)
5
18
37
Merlin Entertainments plc Annual Report and accounts 2013 GROUP FINANCIAL REVIEW
Earnings per share
Basic earnings per share was 15.1 pence.
Cash flow
Adjusted earnings per share, which excludes the impact of
exceptional and non-trading items, was 16.9 pence.
Reconciliation between basic and adjusted earnings
Profit attributable to shareholders
Exceptional items after tax
Adjusted profit attributable
to shareholders
Number of shares (million)
Basic earnings per share
Adjusted earnings per share
2013
£m
145
17
162
958
15.1p
16.9p
Dividend
A dividend has not been proposed (2012: £nil).
The Company intends to adopt a progressive dividend policy
whilst maintaining an appropriate level of dividend cover and
retaining sufficient capital in the Group to fund continued
investment. It is therefore the Board’s current intention to target
an initial payout ratio of approximately 35-40 per cent. of net
income normalised for Merlin’s long term expected tax rate.
The Directors intend that the Company will in future pay an
interim dividend and final dividend in approximate proportions of
one third, two thirds respectively of the total annual dividend with
effect from 2014. Accordingly, the Company intends to propose
its first dividend at the time of the publication of the 2014
half-year results. If approved, this dividend will be paid in the
second half of the year.
Net cash inflow from
operating activities
Capital expenditure
Acquisition of Turkuazoo and
retail outlet (2012: Living and Leisure Australia)
Proceeds from bank loans, net of financing
costs
2013
£m
2012
£m
365
348
(152)
(163)
(11)
(156)
-
167
Net proceeds from IPO
194
Refinancing and repayment of borrowings
(179)
-
-
Interest paid, net of interest received
(92)
(108)
Other
Net cash inflow for the year
-
125
(7)
81
Merlin continues to be highly cash generative. During 2013 the
Group generated a net operating cash flow after tax of £365
million, after taking account of the net cash flow impact of
exceptional and non-trading items.
Capital expenditure of £152 million was incurred in order to
invest in both the existing estate businesses (£95 million) and
new openings (£57 million).
In line with our strategy, Merlin’s capital investment programme
creates new attractions for the existing businesses following the
investment cycles laid down for each Operating Group. The year
on year reduction was driven predominantly by the timing of the
capital investment cycles in the Group’s theme parks and resorts.
The LEGOLAND Parks Operating Group also saw a significant
uplift from the opening of the new 250 room hotel in
LEGOLAND California and the Knight’s Castle themed hotel at
LEGOLAND Deutschland. Overall, the Group invested £18
million in new accommodation projects in 2013, creating 284
rooms, consistent with our long term plans of an average of
£25 million spend and 200 new rooms/keys per annum.
All major capital projects are appraised both operationally and
financially and Merlin sets clear project return targets to assist in
assessing the viability and prioritisation of capital investment projects.
The Group invested £38 million in expanding the midway
portfolio. Six new attractions were opened in 2013 and we are
on track for a further six in 2014.
38
Merlin Entertainments plc Annual Report and accounts 2013 GROUP FINANCIAL REVIEW
Acquisitions in 2013 were primarily in respect of the Turkuazoo
aquarium in Istanbul and a retail outlet in London (including the
repayment of borrowings). In 2012 the strategic acquisition of
LLA totalled £156 million including the purchase of assets net of
cash acquired (and repayment of borrowings). Further details are
provided in note 3.1.
Net interest paid in 2013 has reduced reflecting the impact of
the amendment to the Group’s debt facilities made in mid- 2013
and the repayment of debt from the proceeds of the IPO.
Net debt
Bank loans and borrowings
2013
£m
1,185
Less: cash and cash equivalents
(264)
2012
£m
1,337
(142)
1,195
84
1,279
3.7
921
85
1,006
2.6
Net bank debt
Finance lease obligations
Net debt
Leverage on net debt
to underlying EBITDA
Maturity of bank
borrowing facilities
July 2019
July 2017
Loan facilities
During the year, Merlin amended the terms of its borrowing
facilities to reduce the margin payable on borrowings and
extended the maturity of the facility by two years to July 2019.
Further details are provided in note 5.2. The reduction in net debt
as a result of the primary proceeds of the IPO led to a further
reduction in the margin payable on the borrowings.
The Facilities Agreement requires Merlin to comply with certain
financial and non- financial covenants.
The financial covenants include a requirement to maintain certain
ratios of EBITDA to both net interest payable and net debt. The
Facilities Agreement is secured by fixed charges over the shares in
certain Group companies and certain intra-Group receivables.
Merlin has a revolving facility of £150 million (2012: £138
million). This facility is in addition to the term debt and is available
to finance working capital requirements and for general corporate
purposes. As at 28 December 2013, £nil had been drawn down
from the revolving facility (2012: £nil).
Leverage on net debt at the year end equates to 2.6x underlying
EBITDA (2012: 3.7x), recognising both the growth
in EBITDA and the repayment of bank debt during the year.
Merlin’s loan facilities (drawn and undrawn) and the level of
interest rate swaps (see note 5.6) are set in order to provide
suitable financing for the Group’s future expansion plans.
Net assets
The IPO enhanced the strength of the balance sheet, with net
assets of the Group increasing from £617 million in 2012 to
£944 million in 2013.
This reflects the net IPO proceeds of £194 million and
£145 million profit for the year, net of £12 million of other
comprehensive income, primarily exchange differences arising on
the retranslation of assets denominated in foreign currencies.
As we announced in our IPO Prospectus, we intend to shortly
complete a capital reduction process whereby, subject to court
approval, £3,183 million of share premium will be converted into
profit and loss reserves. This conversion has no effect on the
overall net asset position but increases distributable reserves by
an equivalent amount.
Return on capital employed (ROCE)
The Board considers ROCE to be an important metric for
appraising financial performance and uses it in the remuneration
of senior executives. The profit measure used in calculating ROCE
is based on underlying net operating profit after taking into
account a normalised long term tax rate. The capital employed
element of the calculation is based on net operating assets which
include all net assets other than deferred tax, financial assets and
liabilities, and net debt. ROCE in 2013 was 10.2 per cent.
Summary
Overall I am again very pleased with our financial performance
in 2013. The continued strong trading of the Group and the long
term shareholding structure following the IPO give an appropriate
financial platform on which we can pursue our aggressive growth
strategy based around our six strategic growth drivers.
Andrew Carr
Chief Financial Officer
26 February 2014
39
Merlin Entertainments plc Annual Report and accounts 2013 CORPORATE GOVERNANCE
MERLIN PEOPLECORPORATE
SOCIAL RESPONSIBILITY
MERLIN IS PASSIONATE ABOUT THE WAY IT CONDUCTS ITS BUSINESS AND ARTICULATES
THIS THROUGH ‘THE MERLIN WAY’. THESE VALUES ARE COMMUNICATED TO ALL
EMPLOYEES AND, ALONGSIDE THEIR COMMERCIAL RESULTS, ARE HOW THE PERFORMANCE
OF MANAGEMENT AND EMPLOYEES IS EVALUATED. WE ALSO BELIEVE IN HAVING A
PROACTIVE INVOLVEMENT WITH THE COMMUNITIES IN WHICH WE OPERATE AND WITH
THE MARINE ENVIRONMENT AROUND WHICH THE SEA LIFE BRAND HAS BEEN BUILT. OUR
PEOPLE ARE KEY PARTICIPANTS IN THESE INITIATIVES - AND DO SO WITH A PASSION.
Conservation and wildlife
As well as being the world’s premier operator of aquariums
through our SEA LIFE brand, Merlin also operates world standard
zoos in the UK and Australia and cares for marine mammals
around the world. The Company has an excellent reputation for
the ethical and responsible care, preservation and conservation of
animals and the marine environment. This reputation is widely
acknowledged by expert organisations around the world.
¬ Busan Aquarium successfully bred second generation Weedy
Sea Dragons - a world first!
¬ SEA LIFE were very successful in breeding seven Gentoo
Penguins at Billund which is excellent for a first breeding
season, while twelve Gentoo chicks are currently being raised
in SEA LIFE Melbourne, Australia and Kelly Tarlton’s SEA LIFE
in Auckland, New Zealand.
In 2013 we launched the SEA LIFE Marine Conservation Trust.
The Trust has been set up to fund global marine conservation
campaigns utilising the scale and network of SEA LIFE to maximise
the efficiency of the funds raised. A calendar of fundraising events
and campaigns is planned for 2014 across the SEA LIFE estate and
we are aiming to raise more funds and awareness of marine
threats than ever before.
Breed, Rescue, Protect
‘Breed, Rescue, Protect’ is a global initiative that actively engages
our guests and employees in our conservation and welfare work.
Breed
This was a great year for successful breeding of many marine
species across the SEA LIFE network, with over 70 different
species and over 6,200 individual animals bred. Key highlights have
included significant breeding of seahorses, tropical sharks and
penguins. Some of the most notable successes have been:
¬ Tropical sharks, with Chang Feng Ocean World Shanghai
breeding three White Tip Reef Sharks and SEA LIFE
Scheveningen with the birth and rearing of a Black Tip Reef Shark.
¬ The first ever successful fertilisation of a bamboo shark in
SEA LIFE Melbourne through artificial insemination.
Rescue
We have rescued more than 120 injured or orphaned seal pups
through our European seal sanctuaries and successfully returned
many of them back to the wild after a period of rehabilitation and
care. SEA LIFE Blankenberge alone rescued 22 seal pups.
Globally across SEA LIFE sites, 83 turtles were rescued with the
majority of these being cared for by our Australia and New
Zealand sites. Eleven of these were then satellite tagged and can
be tracked on www.turtlewatch.org.au. Australasian sites alone
rescued 34 different species and 135 animals, with 59 releases
back to the wild.
The USA SEA LIFE Centres provided homes to four additional
rescued but non-releasable sea turtles and continue to provide
homes to unwanted pet reptiles, fish and sharks wherever possible.
In July, two Finless Porpoises were released back to their ocean
home after being cared for at our Busan Aquarium in South
Korea. This species is under significant pressure in the
wild with the main threats being as a result of by-catch during
commercial fishing activity. This was a great opportunity for the
Busan Aquarium to take part in an ongoing ‘Rescue, Rehabilitation
and Release’ programme in partnership with the South
Korean Government.
40
CORPORATE SOCIAL RESPONSIBILITY
Merlin has an excellent reputation for the ethical
and responsible care, preservation and conservation
of animals and the marine environment
Protect
We continue to campaign alongside the Whale and Dolphin
Conservation Society in the pursuit of global protection for all
cetaceans and, most importantly, for the banning of mass culls
and capture from the wild. Our UK SEA LIFE teams have been
working alongside the Marine Conservation Society to secure
Marine Protection Zones around the UK coastline.
Again, local teams around the world have reported their own
successes, most notably:
¬ SEA LIFE Centres in the USA continued to develop local
conservation programmes and supported the Whale and
Dolphin Society’s Right Whale Conservation programme,
assisting in the collection of over 75,000 signatures to support
the extension of the boat strike rule in US waters.
¬ In partnership with the Scottish Sea Angling Conservation
Network, SEA LIFE Loch Lomond successfully tagged and
released 107 sharks including Tope, Spurdog, Bullhuss, Rays and
Common Skate.
¬ Chang Feng Ocean World Shanghai hosted ‘Running for the
Yangtze River Porpoise’ during December. This event was in
collaboration with WWF and the Wuhan Baiji Conservation
Fund to raise public awareness about the endangered
porpoise and about protecting our aquatic environments
and their animals.
¬ Also of note is the accreditation of SEA LIFE Kansas City to
the American Association of Zoos and Aquariums, putting it
among the top ten per cent. of the over 2,000 animal
attractions in North America.
Zoos
WILD LIFE Sydney has raised donations with all funds going
directly to Koala and Bilby habitat preservation and conservation.
They also launched the WILD LIFE Conservation fund (National
Threatened Species Day) and have launched ‘Adopt a Koala’ and
‘Adopt a Bilby’ programmes.
The zoo at Chessington World of Adventures Resort continues its
successful breeding programmes with three Scimitar Horned
Oryx, two Gentle Lemurs and two Golden Headed Tamarins all
being bred this year. We now house over ten per cent. of the
entire European collection of Gentle Lemurs which is a
critically endangered species.
The zoo at Chessington World of Adventures Resort
It was a successful year for the translocation of animal stock. We
have imported three male White Rhinos, four male Giraffes, four
Blesbok and five Nile Lechwe; and have moved two Gorillas out
of the collection to participate in breeding programmes at
ZooParc de Beauval and Leipzig in Europe.
The Chessington Conservation Fund continues to grow and has
built on the partnership with the World Land Trust which is now
supporting a ranger in Equador to oversee the 128 acres of
rainforest (equivalent in size to Chessington Resort) secured last
year to protect the area from illegal logging. Chessington provided
significant support to the European Association of Zoos and
Aquaria, ending the year as their second biggest donor (€20,000),
out of over 300 zoos across Europe.
41
Merlin Entertainments plc Annual Report and accounts 2013 CORPORATE SOCIAL RESPONSIBILITY
Human rights and social responsibility
In addition to taking the time to understand the real needs of our
visitors in order to provide them with attractions and experiences
which combine safe, quality environments with exciting, often
educational experiences, we also:
¬ Develop our products in line with broad environmental
needs. This is reflected in our choice of location and our
efforts to respect local social and environmental issues; our
responsible care and choice of the animals and marine life we
exhibit; our worldwide campaigning and rescue activities; and
our choice and management of suppliers.
¬ Work in partnership with the communities in which we
operate. We seek to develop attractions that reflect the
culture, locale and environment in which they are situated, not
to impose a ‘one size fits all’ solution on them.
¬ Apply ‘The Merlin Way’ in our dealings with our workforce,
with equal opportunities in all areas including recruitment,
promotion, development and benefits. We work as one team
supporting and trusting one another, encouraging and
recognising individual initiative and responsibility as well as
respecting individual contributions. Our aim is to ensure all
our colleagues enjoy their work, develop their full potential,
celebrate success and learn from experience.
¬ Extend that respect and team approach to all our business
dealings with our business partners and advisors.
¬ Insist that all of our retail suppliers sign our ethical terms and
conditions before we place any orders with them. We have an
independent Far East audit company in place that audits our
suppliers’ factories in the areas of child labour, working
conditions and environmental impact.
Merlin does not have a specific human rights policy at present but
we believe that through the actions we take as outlined above, we
adhere to internationally proclaimed human rights principles. We
will give careful consideration to whether a specific human rights
policy is needed in the future.
Environmental policy and greenhouse gas
emissions reporting
The Company meets all of its legal obligations in respect of waste
management and recycling in each of the jurisdictions in which we
operate. In the UK, Merlin is registered for the Government’s
Carbon Reduction Commitment (CRC) Energy Efficiency Scheme
under which the Company surrendered 44,380 CRC allowances
in October 2013. The CRC scheme requires the Company to
collect information on the CO2 emissions from use of electricity
and gas in the UK.
During the year, the UK Government introduced a requirement
that UK listed companies should report their global levels of
Greenhouse Gas (GHG) emissions in their Annual Reports and
accounts. The mandatory requirement is for disclosure of direct
emissions (defined as scope 1), for example from heating, cooling,
transport fuel, and indirect emissions (scope 2), for example from
purchased electricity, and only to the extent that such emissions
are the responsibility of the Company.
Prior to the IPO in November 2013 Merlin had over a number of
years been undertaking a number of initiatives in this area. This has
included engaging with the Carbon Trust to identify our UK
carbon footprint and to identify opportunities to reduce it, for
example, by replacing old technology bulbs with low energy or
LED lighting. Other initiatives have included provision of capital
expenditure budgets for sites to test and/or implement
environmentally focused initiatives such as outdoor swimming
pool covers; power correction; power limitation; and solar power
for signage. We have also introduced an annual ‘Environmental
Award’ to encourage sites to identify and implement
relevant initiatives.
At a Group level Merlin has not in the past collected the global
data necessary to meet these GHG emissions reporting
requirements and therefore is unable to comply with these new
reporting requirements as at 28 December 2013. Subsequent to
the IPO in November 2013 the Group’s intention is to establish
processes for the capture of the relevant data. The Company
should therefore be able to meet these requirements when it
reports for 2014.
42
Merlin Entertainments plc Annual Report and accounts 2013
CORPORATE SOCIAL RESPONSIBILITY
In 2013, more attractions than ever before have
hosted visits from Merlin Magic Wand children
Merlin’s Magic Wand children’s charity
Our children’s charity, Merlin’s Magic Wand, puts the magic back
into the childhoods of seriously ill, disabled and disadvantaged
children across the world by arranging great days out at our
attractions. For those children faced with conditions and
circumstances that prevent them from having a day out, the
charity delivers ‘Taking the Magic to the Children’ projects, a local
outreach initiative designed to take Merlin’s Magic to severely ill
children that live within the localities of Merlin attractions.
2013 has been the biggest year yet for Merlin’s Magic Wand,
providing over 36,000 tickets to enable disadvantaged children
and their families to have magical days out at Merlin attractions all
over the world. In 2013, more attractions than ever before have
hosted visits from Magic Wand children (rising from 47
attractions in 2012 to 77 attractions in 2013).
We have also continued our ‘Taking the Magic to the Children’
outreach programme in 2013. This year saw the opening of our
Alton Towers themed playroom at the University Hospital in
North Staffordshire; the opening of a unique Merlin playroom at
Kupferhof Children’s Centre in Hamburg; and projects in progress
in Blackpool, Berlin and Hunstanton.
Merlin Entertainments provides funding to the charity and
supports the day to day operation by providing office
accommodation and facilities at no cost and by subsidising the
employment costs of the small charity team.
In addition to this, the Company donates the tickets distributed by
the charity and which have a retail value of over £1 million. This
enables the charity to use fundraising to provide travel grants,
without which many of the children that we help would not be
able to visit, and to deliver the ‘Taking the Magic to the Children’
projects.
2013 has been a great year for fundraising. We have received
tremendous support from the network of attractions across the
globe. Merlin teams worldwide have shown dedication,
commitment and creativity raising over £274,000 through
fundraisers, ranging from abseiling down the dome of Madame
Tussauds London to a Food Truck Wars event in Florida.
Merlin visitors around the world have also rallied behind the
charity, dropping their change into collection tins at attractions
and getting involved with events such as the Halloween themed
raffle at the Hamburg Dungeon.
Corporate partners turned out in force to raise money at our
annual cricket day; over £25,000 was raised. CVC has confirmed
its continued support for Merlin’s Magic Wand this year, providing
support through events, partnership activity and an ongoing
financial commitment to the charity.
With ever increasing support, we are confident that Merlin’s
Magic Wand will make an even greater difference in 2014.
Local attraction community involvement
Our attractions around the world are active in local community
projects and initiatives.
These can range from supporting local projects to find a way to
replace copper in the fishing nets used by local fishing teams, to
sponsoring a local canal to ‘clean up’ every quarter and running an
annual ethical fishing morning, teaching people what they can
catch while fishing and how to do this responsibly.
In another local initiative, nearly 2,500 guests made up of children
suffering from cancer and heart diseases and their families came
for an unforgettable day at LEGOLAND Billund.
We also support local community initiatives in and around the
South Bank and London generally, including funding a community
chest pot for local charities and ticket and out of hours
event donations.
Alton Towers themed playroom at the University Hospital in
North Staffordshire
43
Merlin Entertainments plc Annual Report and accounts 2013 CORPORATE
GOVERNANCE STATEMENT
MERLIN BELIEVES THAT EFFECTIVE CORPORATE GOVERNANCE IS A FUNDAMENTAL ASPECT
OF A WELL RUN COMPANY AND IS COMMITTED TO MAINTAINING HIGH STANDARDS OF
CORPORATE GOVERNANCE ACROSS ITS GROUP.
Introduction
Merlin has a premium listing on the London Stock Exchange
(Listing). As such it is subject to the UK Corporate Governance
Code (2012) (the Code), the Disclosure and Transparency Rules
(the DTRs) and the Listing Rules. In addition, Merlin has regard for
the views of its shareholders and institutional shareholder
representative bodies.
(excluding the Chairman) are independent of the Company, the
Board is committed to becoming compliant with this
recommendation during 2014.
Apart from the structure of the Board, Merlin has complied
throughout the accounting period with all relevant provisions of
the Code, the DTRs and the Listing Rules.
The Code can be viewed on the website of the Financial Reporting
Council (www.frc.org.uk). The DTRs and the Listing Rules can be viewed
on the website of the Financial Conduct Authority (www.fshandbook.info).
Statement of compliance
In preparation for Listing, Merlin undertook a review of its
governance structure in order to identify changes which would need
to be implemented prior to and on Listing in order to ensure a
strong governance environment and, so far as reasonably possible,
full compliance with the Code, the DTRs and the Listing Rules. The
principal area in which the Company’s governance structure needed
to be strengthened in order to be fit for life as a listed plc related to
the composition of its Board and Committees. The Board
recognised the need to strengthen the Board and its Committees, in
particular by appointing additional independent Non-executive
Directors. Accordingly, in the months prior to Listing the Company
conducted a rigorous search process through Spencer Stuart, an
external search company with no links to the Company. As a result,
four highly experienced independent Non-executive Directors were
identified with a wide range of relevant industry knowledge. Charles
Gurassa, Ken Hydon and Miguel Ko joined the Board prior to Listing
and Fru Hazlitt will join the Board in April 2014. In addition, the
Company’s three pre-IPO major shareholders reduced their
representation on the Board to one Director each.
Leading up to the IPO the new Directors were subject to a full
induction process as they familiarised themselves with the Group, its
operations and its management, both through personal meetings and
time spent reviewing and consulting on the IPO offer documents.
Together with Sir John Sunderland as Chairman of the Company, the
Board is confident that it has the strength, skills and experience to
govern the Company appropriately and effectively. Although the
composition of the Board does not at this time fully comply with the
recommendation of the Code that at least half the Directors
Evaluation of effectiveness
As the Company has only been listed for a short period during
2013, the Board and its Committees considered that it was not
appropriate to conduct an externally facilitated evaluation of their
effectiveness. Each member of the Board and its Committees has
conducted an internal evaluation of their effectiveness and has
concluded that throughout the year the functions and responsibilities
included within the remit of each had been effectively undertaken.
The Board and the Committees had regard to the fact that the
Company and the Group had undergone a significant degree of
scrutiny of the applicable controls, systems and procedures in
preparation for Listing and that a thorough due diligence and
verification process had not disclosed any material weaknesses.
Investor relations
The Company communicates with institutional and private
shareholders in a number of ways.
Merlin’s website is regularly updated with news and information,
including this Annual Report which sets out our strategy and
performance together with our plans for future growth. Going
forward our presentations to analysts and shareholders will be
available on the Company website, and at our Annual General
Meeting all shareholders have the opportunity to vote on the
resolutions proposed.
During the year the Company met regularly with potential
institutional investors as part of the preparation for Listing and such
meetings will continue on a regular basis. This activity is led by the
Chief Executive Officer (CEO) and the Chief Financial Officer
(CFO), together with the Company’s Investor Relations team, and
procedures are in place to then keep the Board regularly informed
of such investors’ views. This process will continue to evolve as
Merlin builds on its relationships with external investors in the
months and years post Listing.
44
BOARD
OF DIRECTORS
The members of the Board during the year and at the date of this Report are as follows:
Sir John Sunderland,
Non- executive Chairman
Nick Varney,
Chief Executive Officer
Andrew Carr,
Chief Financial Officer
Sir John was appointed Non- executive
Chairman of Merlin Entertainments in
December 2009 and was appointed
Non-executive Chairman of the
Company on 20 October 2013.
Nick has over 22 years’ experience in
the visitor attractions industry and was
appointed Chief Executive Officer of
Merlin Entertainments in 1999. He was
appointed a Director of the Company
on 20 October 2013.
Andrew is a qualified chartered
accountant and was appointed Chief
Financial Officer of Merlin Entertainments
in 1999. He was appointed a Director of
the Company on 20 October 2013.
Prior to that, Nick was Managing Director
of Vardon Attractions and a main board
director of Vardon plc. In 1999 Nick led
the management buyout of Vardon
Attractions to form Merlin Entertainments
and, in 2005, initiated the process which
led to its acquisition by Blackstone. Before
joining Vardon Attractions, Nick held senior
positions within The Tussauds Group,
including Marketing Director of Alton
Towers and Head of Group Marketing.
Prior to that, Andrew was Financial
Director of Vardon Attractions and played
a key role in the management buyout of
Vardon Attractions to form Merlin
Entertainments in 1999 and in the
subsequent business, including two
follow-on buyouts and the acquisitions of
LEGOLAND, Gardaland and The Tussauds
Group. Before joining Vardon Attractions,
Andrew trained, and was subsequently
head of a regional Corporate Finance
Department, at KPMG.
Sir John is currently a Non- executive
Director of Barclays Bank PLC and AFC
Energy plc and an adviser to CVC, one
of the Company’s major shareholders.
Previously, Sir John was Chairman of
Cadbury Schweppes from 2003 to 2008
and Chief Executive Officer from 1996 to
2003. Sir John was also President of the
CBI from 2004 to 2006, President of the
Chartered Management Institute from
2006 to 2007, President of the Food and
Drink Federation from 2002 to 2004, a
Non- executive Director of the Rank
Group from 1998 to 2006 and a
Director of the Financial Reporting
Council from 2004 to 2011. Sir John is
also the Chancellor of Aston University,
a member of the Council of The University
of Reading and an Associate Member
of BUPA.
45
BOARD OF DIRECTORS
Charles Gurassa,
Senior Independent Non-executive Director
Ken Hydon,
Non- executive Director
Miguel Ko,
Non- executive Director
Charles was appointed Senior
Independent Non-executive Director of
Merlin Entertainments with effect from
1 September 2013 and Chairman of the
Remuneration Committee with effect
from 1 October 2013, in both cases
conditional on IPO taking place. He was
appointed a Director of the Company on
20 October 2013 whereupon he assumed
the positions of Senior Independent
Non-executive Director and Chairman
of the Remuneration Committee of
the Company.
Charles is currently the Senior
Independent Director and Deputy
Chairman of easyJet plc and the Non-
executive Chairman of Tragus, NetNames
and Genesis Housing Association. Charles
has spent 35 years in the travel and
tourism industry where his roles included
Group Chief Executive of Thomson Travel
Group plc, Director of Passenger and
Cargo Business at British Airways,
Executive Chairman of TUI Northern
Europe and Airline Group and Board
Member of TUI AG. He is Chairman of
National Trust Enterprises.
Ken was appointed a Non-executive
Director and Chairman of the Audit
Committee of Merlin Entertainments with
effect from 1 October 2013, conditional
on IPO taking place. He was appointed a
Non-executive Director and Chairman of
the Audit Committee of the Company on
20 October 2013.
Miguel was appointed a Non-executive
Director of Merlin Entertainments with
effect from 1 September 2013, conditional
on IPO taking place. He was appointed a
Non-executive Director of the Company
on 20 October 2013.
Ken is currently a Non-executive Director
of Reckitt Benckiser Group plc and
Pearson Plc. Previously, he was CFO of
Vodafone Group Plc. Ken was also a
Non-executive Director of Tesco Plc from
2004 to 2013 and a Non-executive
Director of Royal Berkshire NHS
Foundation Trust from 2005 to 2012.
Miguel is currently Non-executive
Chairman of Starwood Hotels & Resorts
Worldwide, Asia Pacific Division. He is also
an Independent Non-executive Director
of Formula One (Delta Topco Limited),
Samsonite International S.A., Changi
Airport Group and Surbana International
Consultants Holdings. From 2000 to 2012,
Miguel was Chairman and President of
Starwood Hotels & Resorts, Asia Pacific.
Before joining Starwood, he was President,
Asia Pacific of Pepsi-Cola International &
ITT Sheraton Corporation. Miguel
received his B.A. in Economics from
University of Massachusetts, Boston and
Master in Business Administration from
Suffolk University, United States. He is
also a non-practising Certified Public
Accountant (CPA), licensed by the State
Board of Accountancy in the State of
New Hampshire, United States.
46
Merlin Entertainments plc Annual Report and accounts 2013 BOARD OF DIRECTORS
Søren Thorup Sørensen,
Non- executive Director
Dr. Gerry Murphy,
Non- executive Director
Rob Lucas,
Non- executive Director
Søren was appointed a Non- executive
Director of the Company on 20 October
2013, representing KIRKBI.
Gerry was appointed a Non- executive
Director of the Company on 20 October
2013, representing Blackstone.
Rob was appointed a Non- executive
Director of the Company on 20 October
2013, representing CVC.
Rob is a Managing Partner of CVC. An
engineer by profession, he graduated from
Imperial College, London, and spent nearly
ten years with 3i before joining CVC in
1996. He is a member of CVC’s European
Investment Committee and sits on the
board of both CVC and a number of
CVC’s investee companies.
Søren is currently the Chief Executive
Officer of KIRKBI, following his
appointment in March 2010. Søren
was formerly a Partner, Chief Financial
Officer and member of the Group
Executive Board of A.P. Moller – Maersk
Group between 2006 and 2009. Prior to
this he was Managing Partner of KPMG
Denmark, having been a Partner at
KPMG since 1997.
Outside the KIRKBI Group, Søren is
currently Non-executive Vice-chairman of
Topdanmark A/S and holds Non-executive
Director positions at LEGO A/S, TDC A/S
and Falck Holding A/S.
Gerry is a Senior Managing Director
in Blackstone’s private equity group in
London, Chairman of Blackstone’s
European holdings and a Director of
United Biscuits, Intertrust Group and Jack
Wolfskin. Before joining Blackstone in
2008, Gerry was CEO of Kingfisher plc,
a leading home improvement retailer in
Europe and Asia. He has previously been
CEO of Carlton Communications plc,
Exel plc and Greencore Group plc and
spent his earlier career with Grand
Metropolitan plc (now Diageo plc).
He is a Non- executive Director of British
American Tobacco plc and has also served
on the boards of Reckitt Benckiser Group
plc, Abbey National plc and Novar plc.
He received his BSc and PhD in food
technology from University College Cork
and MBS in marketing from University
College Dublin.
47
Merlin Entertainments plc Annual Report and accounts 2013 EXECUTIVE
COMMITTEE
The Executive Committee comprises certain senior executives of the Group, and further details on its responsibilities and activities
can found on page 53. As at the date of this Report the members of the Executive Committee are:
Nick Varney
Chief Executive Officer, member of the Board of Directors as noted above.
Andrew Carr
Chief Financial Officer, member of the Board of Directors as noted above.
Mark Allsop
Chief Information Officer
Colin Armstrong
Group Legal Director
Company Secretary
David Bridgford
Strategy Director
Tea Colaianni
Group HR Director
Andy Davies
Commercial Services Director
Glenn Earlam
Managing Director
Midway Attractions
Mark Fisher
Chief Development Officer
John Jakobsen
Managing Director
LEGOLAND Parks
Nick Mackenzie
Managing Director
Resort Theme Parks
Grant Stenhouse
Project Development Director
48
CORPORATE
GOVERNANCE REPORT
UK corporate governance code
As at the date of this report the Company complies and the
Company intends to continue to comply with the UK Corporate
Governance Code (2012) (the Code) except as set out below.
The Board will also take account of institutional shareholder
governance rules and guidance on disclosure and shareholder
authorisation of corporate events.
The Code recommends that a UK listed company’s Chairman be
independent on appointment. The Board considers that the
Chairman was independent on appointment. The Chairman’s role
is to ensure good corporate governance.
The Code recommends that at least half the members of the
Board of Directors (excluding the Chairman) of a UK listed
company should be independent in character and judgement and
free from relationships or circumstances which are likely to affect,
or could appear to affect, their judgement. The Board has
concluded that, as set out in the Code, Charles Gurassa, Ken
Hydon and Miguel Ko are independent Non-executive Directors
and that their appointments as independent Non-executive
Directors are in the best interests of shareholders. Although Mr
Gurassa serves on the board of Tragus Group Limited (a
Blackstone portfolio company) and Mr Ko serves on the board of
Formula One (Delta Topco Limited – a CVC portfolio company),
the other Directors have concluded that the judgement,
experience and challenging approach of each of them should
ensure that they make a significant contribution to the work of
the Board and its Committees. Blackstone and CVC, along with
KIRKBI, were the pre-IPO shareholders of Merlin and remain
major shareholders post-IPO. On the basis of their evaluation, the
Board has determined that Mr Gurassa and Mr Ko are of
independent character and judgement and may still be regarded
as independent Directors for the purposes of the Code.
Board responsibilities and procedures
The Board is responsible for overseeing Merlin, including:
¬ Funding and capital structure.
¬ The development of strategy and major policies.
¬ The review of management performance.
¬ The approval of the annual operating plan, the Annual Report
and financial statements, and major acquisitions and disposals.
¬ The system of internal control.
¬ Corporate governance.
The Chairman is responsible for the effective running of the Board
and for communications with all Board and Committee members
and shareholders. He ensures that the Board receives sufficient
information on financial trading and corporate issues prior to
Board meetings. The Chief Executive Officer, assisted by senior
management, is responsible for day-to-day operations and the
development of strategic plans for consideration by the Board.
The Board intends to meet at least six times a year and may meet
at other times as required or otherwise at the request of one or
more of the Directors. Where urgent decisions are required on
matters specifically reserved for the Board between meetings, there
is a process in place to facilitate discussion and decision making.
The Directors of all Group companies, as well as the Board, also
have access to the advice and services of the Group Legal Director
and Company Secretary, as well as external advice on legal and
corporate governance matters.
Appropriate induction and subsequent training is provided to new
members of the Board and its Committees.
Board committees
The Board has established Audit, Remuneration, Nomination, and
Health, Safety and Security Committees with formally delegated
duties and responsibilities, and written terms of reference. From
time to time, separate Committees may be set up by the Board
to consider specific issues when the need arises.
The terms of reference of each of the Board and its Committees
are available on the Company’s corporate website.
49
CORPORATE GOVERNANCE REPORT
Pursuant to Relationship Agreements with the pre-IPO major
shareholders, the Company has agreed with each of them that
they may each appoint an observer (with the right to attend and
speak at Committee meetings, but not vote) to each of the Audit
Committee, Remuneration Committee and Nomination
Committees for so long as it (together with its respective
affiliates) holds at least ten per cent. of the Company’s ordinary
shares. While KIRKBI holds at least ten per cent. of the Company’s
ordinary shares, it may also appoint an observer (in addition to a
Non-executive Director) to the Board (with the right to attend
and speak at Board meetings, but not vote).
Audit committee
The Audit Committee assists the Board in discharging its
responsibilities in relation to financial reporting, external and
internal audits and controls, including reviewing the Company’s
annual financial statements; reviewing and monitoring the extent
of the non-audit work undertaken by external auditors; advising
on the appointment of external auditors; and reviewing the
effectiveness of the Company’s internal audit activities, internal
controls and risk management systems. The ultimate responsibility
for reviewing and approving the Annual Report and accounts and
the half yearly reports remains with the Board.
The Code recommends that the Audit Committee should
comprise at least three independent Non-executive Directors
and that at least one member should have recent and relevant
financial experience. As the Audit Committee consists of three
independent Non-executive Directors, the Company complies
with this Code recommendation. Ken Hydon is considered by
the Board to have recent and relevant financial experience.
No members of the Audit Committee have links with the
Company’s external auditors.
The Committee is chaired by Ken Hydon. The members of the
Committee are the Chairman of the Committee, Charles Gurassa
and Miguel Ko. The Chairman of the Board is not a member of
the Committee.
The Committee meets at least four times during the financial year
at appropriate times in the audit cycle. In addition, it meets at such
other times as the Board or the Committee Chairman requires,
or if requested by the external auditors. Only Committee
members have the right to attend and vote at its meetings but, as
noted earlier, each of the pre-IPO major shareholders has a right
to appoint an observer to attend meetings of the Committee
while they hold at least ten per cent. of the Company’s ordinary
shares. In addition, the Chairman, Chief Executive Officer, Chief
Financial Officer and other individuals can be invited to attend
all or any part of any meeting of the Committee as and
when appropriate.
The Committee has access to sufficient resources to carry out its
duties, including the services of the Group Legal Director and
Company Secretary and the Group’s internal audit function.
Independent external legal and professional advice can also be
taken by the Committee if it believes it is necessary to do so.
Internal controls
Details of the internal controls of the Company (including a
description of the main features of its internal control and risk
management arrangements in relation to the financial reporting
process) and the manner in which the Board and its Committees
assess the effectiveness of these controls are set out on page 59.
Remuneration committee
The Remuneration Committee assists the Board in determining
its responsibilities in relation to remuneration, including making
recommendations to the Board on the Company’s policy on
executive remuneration; determining the individual remuneration
and benefits package of each of the Executive Directors; and
recommending and monitoring the remuneration of senior
management below Board level.
50
Merlin Entertainments plc Annual Report and accounts 2013 CORPORATE GOVERNANCE REPORT
The Committee considers all material elements of remuneration
policy, remuneration and incentives of Executive Directors and
senior management with reference to independent remuneration
research and professional advice in accordance with the Code
and makes recommendations to the Board on the framework
for executive remuneration and its cost. The Board is then
responsible for implementing the recommendations and
agreeing the remuneration packages of individual Directors. The
Committee is also responsible for making recommendations for
the grants of awards under the Company’s share incentive plans.
In accordance with the Committee’s terms of reference, no
Director may participate in discussions relating to his own terms
and conditions of remuneration. Non-executive Directors’ and
the Chairman’s fees are determined by the full Board.
The Committee’s remit includes recommending to the Board and
other Group companies the policy for the remuneration of the
Executive Directors and other senior management. The objective
of such policy is to ensure that senior management are provided
with appropriate incentives to encourage enhanced performance
and are, in a fair and responsible manner, rewarded for their
individual contributions to the Group’s success. In doing this the
Committee considers whether contractual terms and payments
on termination are fair and, importantly, that failure is
not rewarded. The Committee also reviews the design of share
incentive and bonus plans for approval by the Board and reviews
the Group’s remuneration policies as a whole and remuneration
trends across the Group.
The Code recommends that the Committee should comprise
at least three independent Non-executive Directors. As the
Committee consists of three independent Non-executive
Directors and the Chairman, the Company complies with
this Code recommendation.
The Committee is chaired by Charles Gurassa, the Senior
Independent Non-executive Director. The members of the
Committee are the Chairman of the Committee, Sir John
Sunderland, Ken Hydon and Miguel Ko. Only Committee
members have the right to attend and vote at its meetings but, as
noted earlier, each of the pre-IPO major shareholders has a right
to appoint an observer to attend meetings of the Committee
while they hold at least ten per cent. of the Company’s ordinary
shares. In addition other individuals may be invited to attend from
time to time, as and when appropriate.
The Committee meets formally at least twice each year and
at such other times as the Board or the Committee
Chairman requires.
The Committee has access to sufficient resources to carry out its
duties, including the services of the Group Legal Director and
Company Secretary and the Group’s Human Resources function.
Independent external legal and professional advice can also be
taken by the Committee if it believes it is necessary to do so.
Nomination committee
The Nomination Committee assists the Board in discharging its
responsibilities in relation to the composition of the Board. The
Committee is responsible for evaluating the balance of skills,
knowledge and experience on the Board; the size, structure
and composition of the Board; retirements and appointments
of additional and replacement Directors (other than those
appointed by the pre-IPO major shareholders), and makes
appropriate recommendations to the Board on such matters.
As part of its activities the Nomination Committee also
considers the diversity (including gender diversity) of the Board.
The Code recommends that a majority of the members of the
Nomination Committee should be independent Non-executive
Directors. As the Committee is chaired by the Chairman of the
Board and consists of the Chairman of the Committee and three
further independent Non-executive Directors, the Company
complies with this Code recommendation.
The Committee is chaired by Sir John Sunderland. The members
of the Committee are the Chairman of the Committee, Charles
Gurassa, Ken Hydon and Miguel Ko.
The Committee meets formally at least once a year and at such
other times as the Board or the Committee Chairman requires.
The Committee has access to sufficient resources to carry out its
duties, including the services of the Group Legal Director and
Company Secretary. Independent external legal and professional
advice can also be taken by the Committee if it believes it is
necessary to do so.
51
Merlin Entertainments plc Annual Report and accounts 2013 CORPORATE GOVERNANCE REPORT
The principal duties of the Committee include the following:
¬ To review regularly the structure, size and composition of the
Board (including the skills, knowledge and experience) and
make recommendations to the Board with regard to
any changes.
¬ To identify, nominate and recommend for the approval of the
Board, appropriate candidates to fill Board vacancies as and
when they arise.
¬ To evaluate the balance of skills, knowledge and experience
on the Board and, in the light of this evaluation, prepare a
description of the role and capabilities required for a
particular appointment.
¬ To satisfy itself with regard to succession planning that
processes and plans are in place with regard to both Board
and senior management appointments.
¬ To review annually the time required to fulfil the role of
Chairman, Senior Independent Non- executive Director and
each Non- executive Director and use performance evaluation
to assess whether the Non- executive Directors have devoted
sufficient time to their duties.
¬ To recommend the re- election (or not) by shareholders of any
Director under the retirement and re- election provisions in
the Company’s Articles of Association.
¬ To make a statement in the Annual Report about its activities
and the process used for appointments and explain if external
advice or open advertising has not been used.
¬ To make its terms of reference publicly available.
¬ To ensure that on appointment to the Board, Non- executive
Directors receive formal written terms of appointment.
Health, safety and security committee
The Health, Safety and Security Committee assists the Board in
ensuring that matters of all risk including health, safety and security
are managed effectively and proactively throughout the Group.
Duties of the Committee include reviewing the Group’s risk
register; risk and health and safety policy; compliance with
applicable health and safety directives and legislation; health and
safety statistics, including incident rates and near misses; health and
safety audit findings; and the effectiveness of the Group’s risk
management team (including the quality and numbers of engineers
and other relevant staff). The Committee recommends to the
Board and Group companies the appropriate policies and
procedures for ensuring the health, safety and security of visitors,
employees, suppliers and assets. The Committee is also responsible
for monitoring the adherence to such policies and procedures as
well as for making recommendations for improvements.
The Committee is chaired by Sir John Sunderland. The members
of the committee are the Chairman of the Committee, the
Chief Executive Officer, the Chief Financial Officer, the Senior
Independent Non-executive Director, the Director of Health,
Safety and Risk Management, and the Managing Director of the
Resort Theme Parks Operating Group. Other individuals can be
invited to attend all or any part of any meeting of the Committee
as and when appropriate.
The Committee meets formally at least four times a year
and at such other times as the Board or the Committee
Chairman requires.
The Committee has access to sufficient resources to carry out its
duties, including the services of the Group Legal Director and
Company Secretary and the Group’s health and safety function.
Independent external legal and professional advice can also be
taken by the Committee if it believes it is necessary to do so.
52
Merlin Entertainments plc Annual Report and accounts 2013
CORPORATE GOVERNANCE REPORT
Committee attendance
The numbers of meetings of the Board and its Committees and
the attendance by the Directors during the period from Listing
until 28 December 2013 is set out in the following table:
Executive committee
The Executive Committee is chaired by the Chief Executive
Officer and comprises members of the senior executive
management of the Group.
It meets eight to ten times a year and is responsible for
overseeing the operational performance of the operating
companies in the Group as well as monitoring the progress of
capital projects and strategic transactions.
It makes recommendations to the operating companies and the
Board in relation to matters within its remit.
It is not a formal Committee of the Board.
Board
Meetings*
Audit
Committee
Remuneration
Committee
Health,
Safety
& Security
Committee
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
N/A
N/A
N/A
1/1
1/1
1/1
1/1
N/A
N/A
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Name
Sir John
Sunderland
Nick
Varney
Andrew
Carr
Charles
Gurassa
Ken
Hydon
Miguel Ko
Søren
Thorup
Sørensen
Dr. Gerry
Murphy
Rob Lucas
* Meetings Attended/Total Number of Meetings. Only attendance
of formal members of the meetings is included. Attendance as an
observer is not included. The Nomination Committee has not met
during the period.
53
Merlin Entertainments plc Annual Report and accounts 2013 AUDIT
COMMITTEE
REPORT
STATEMENT FROM THE CHAIRMAN OF THE AUDIT COMMITTEE
The Committee recognises that an independent and effective
internal audit function is essential. The Internal Audit Director has
dual reporting lines to the CFO and myself. We are satisfied with
the internal audit team’s performance; that they focused on the
key accounting and financial control matters globally, achieving
a material coverage of the Company’s revenue and assets;
and that management have responded well to the
auditors’ recommendations.
The Committee routinely looks at the significant accounting
treatments facing the Group and at the year end we focused
on deferred tax asset recognition, the carrying value of interest-
bearing loans and borrowings, and impairment charges. These
are dealt with in more detail later in our report and we have
concluded that the treatment in the accounts is appropriate.
Our terms of reference include reviewing the Company’s overall
risk management systems and we are satisfied the Board has
received regular reports which covered all areas of risk especially
on health and safety matters.
2013 has been an amazing year for the central team who have
succeeded in coping with all the extra and unfamiliar work
associated with becoming a public listed company whilst still
contributing to a strong operating result. 2014 will complete the
learning experience for senior executives in a listed company
environment as well as the Non-executive Directors induction
programme. We continue to benefit from the attendance of the
pre-IPO major shareholder representatives.
Ken Hydon
Chairman of the Audit Committee
26 February 2014
Dear Shareholder
In 2013 the membership of the Audit Committee changed due to
the Company’s Listing in November 2013. Prior to the Listing the
Committee was chaired by the Company Chairman and all of the
Board were members, including the representatives of the three
pre-IPO major shareholders. Whilst the composition of the
Committee changed upon Listing, the fundamental objectives of
the Committee remain consistent both before and after Listing.
In October 2013 the new Committee was approved by the
Board comprising Charles Gurassa, Miguel Ko and myself as
Chair. We have considerable experience working with large
listed multinational companies and are independent
Non-executive Directors.
The Committee has terms of reference and an annual plan that
are aligned to the Code. Full terms of reference of the
Committee are available on our website under Investor Relations
- Corporate Governance. Our focus is on the integrity of the
financial information; robustness of internal controls; the
effectiveness of audit; and providing clear and complete financial
reports to shareholders. We also aim to provide shareholders
with timely communication on significant matters relating to
finance and we monitor fraud risk. The annual plan is based on
four meetings a year but more will be arranged if required.
All members of the Committee expect to attend every meeting
and at the request of the Committee, so do the CFO, Internal
Audit Director, external auditors and Company Secretary. The
Company Chairman and the CEO have a standing invitation to
attend meetings, and often do, with other members of
management attending by invitation.
During 2013 we performed an effectiveness review of the
external auditors, in a year which included extra work in
preparation for the IPO, and considered the quality of their work
and their independence. On the basis of this review we
recommend KPMG be reappointed at the AGM. We also
considered the Code, the recent Competition Commission and
EU recommendations on audit tendering and rotation, and our
current expectation is that the audit will be retendered no later
than 2016 for the 2017 year end.
54
AUDIT COMMITTEE REPORT
Composition of the audit committee
The members of the Committee are Ken Hydon, Charles Gurassa
and Miguel Ko, as detailed elsewhere within the Corporate
Governance Report. Ken Hydon, who chairs the Committee, is a
Fellow of the Chartered Institute of Management Accountants,
the Association of Chartered Certified Accountants and the
Association of Corporate Treasurers. He also serves as the Audit
Committee chair at Reckitt Benckiser plc and Pearson plc and
was previously CFO of Vodafone Group plc. The Board regards
Ken Hydon as the member possessing recent and relevant
financial experience and all three members of the Committee are
regarded by the Board as independent Non-executive
Directors. The varied backgrounds and global experience of the
Committee’s members, and their collective skills and knowledge
of the Company, allows them to fulfil the Committee’s remit
and to oversee the Company’s external auditors.
Regular Committee meetings are also attended by the CFO,
Group Internal Audit Director, Group Finance Director, KPMG
(the external auditor) and the Company Secretary who acts as
secretary to the Committee. The Chairman and CEO also
frequently attend meetings and other members of management
are invited to attend depending on the matters under discussion.
Private meetings are routinely held with internal audit and KPMG,
and the Committee also meets separately. Non-executive
Directors representing the three pre-IPO major shareholders
(being those who have retained ownership of at least ten per
cent. each of the issued share capital of the Company since its
admission to the London Stock Exchange) also regularly attend
the meetings. Prior to Listing, the Audit Committee was chaired
by the Group Chairman, Sir John Sunderland, and comprised
representatives of each of the three pre-IPO major shareholders.
Listing onto the London Stock Exchange
The current Group Audit Committee became effective from
Listing on the London Stock Exchange. Prior to the establishment
of this new Committee, a previous Audit Committee was in place,
the last meeting of which was held on 16 October 2013.
References to the Audit Committee in this report include
activities both before and after Listing.
Role of the audit committee
The Audit Committee has received delegated authority from the
Board set out in its written terms of reference. The primary
purposes of the Audit Committee are:
¬ To monitor the integrity of the financial statements of the
Company relating to its financial performance and review,
challenge where necessary and report to the Board on
significant financial reporting issues and judgements.
¬ To review and report on the effectiveness of the Company’s
internal controls and its overall risk management systems.
¬ To review the Company’s arrangements for its employees to
raise concerns through its whistleblowing and fraud policies.
¬ To monitor and review the effectiveness of the Company’s
internal audit function, and its material findings, in the context
of the Company’s overall risk management system.
¬ To oversee the work of the external auditor including:
• making recommendation to the Board, to be put to
shareholders at the AGM, in relation to the appointment,
re- appointment and removal of the external auditors,
• approve their terms of engagement,
• annually assess their independence, objectivity, effectiveness
and plan, including regular monitoring of the provision of
non-audit services performed by the external auditors,
• review the findings of the audit.
¬ To report formally to the Board and make recommendation
where it is deemed necessary on matters within its duties,
including a formal report to the Board on how it has
discharged its responsibilities.
55
Merlin Entertainments plc Annual Report and accounts 2013
AUDIT COMMITTEE REPORT
Number of audit committee meetings
and attendance
The Committee will meet a minimum of four times per year. Four
Audit Committee meetings were held in 2013, three of which took
place prior to Listing by the former Audit Committee, whilst the
new Audit Committee held one meeting in December 2013.
Attendance at the meetings is shown elsewhere in the Corporate
Governance Report.
Activities of the audit committee
during the year
The Committee has an annual work plan, developed from its terms
of reference, with standing items that the Committee considers at
each meeting in addition to any specific matters arising and topical
items on which the Committee has chosen to focus.
During 2013, the Committee reviewed certain relevant
documentation in relation to the IPO, notably a detailed review
and discussion on the findings within KPMG’s half year
audit memorandum.
Whilst the terms of reference of the Audit Committee were
updated at the point the new Committee was created, the
collective work of the two Audit Committees in 2013 principally
fell under three main areas: internal controls; external auditors;
and accounting, tax and financial reporting, as summarised below.
Internal controls
Accounting, tax and financial reporting
¬ Considered the half year and full year financial statements,
including any significant judgemental items, most notably
goodwill valuation; the tax position of the Company, in
particular in relation to the recognition of deferred tax assets;
and the carrying value of interest-bearing loans and borrowings.
¬ Considered the appropriateness of preparing the half year and
full year accounts on a going concern basis.
¬ Considered the liquidity of the Group, in particular in relation
to any covenants in place.
¬ Reviewed disclosure in the Annual Report and accounts in
relation to internal control, risk management process and the
work of the Committee.
¬ Reviewed and assessed any liability in relation to the
Company’s defined benefit pension schemes.
¬ Received technical updates, in particular in relation to the
requirements and changes to the Code, and assessed the
Audit Committee’s report in the context of the Code’s ‘fair,
balanced and understandable’ requirement.
Significant issues considered by the
audit committee
Following discussion with both management and the external
auditors, the Committee determined that the areas of
greatest and most significant judgement, that could give rise
to misstatement of the Group’s financial statements, related
to the following:
¬ Deferred tax asset recognition (see note 2.3 of the financial
¬ Reviewed and considered the reports of the internal
statements for further details).
audit function.
¬ Reviewed and considered the reports of the external auditors
on the internal control environment.
¬ Reviewed the resources of the internal audit function and
considered and approved the scope of the internal audit plan.
¬ Considered the effectiveness of the internal audit function.
¬ Reviewed and considered the process of risk management
within the Company.
¬ Undertook an assessment of the internal control environment,
facilitated by discussion with relevant management and
external parties following the establishment of the
new Committee.
¬ Discussed the fraud and whistleblowing policy and assessed
its effectiveness.
External auditors
¬ Considered and approved the approach, scope and fees of the
external auditors.
¬ Reviewed the reports and findings of the external audit,
including the 2013 half year audit memorandum which
covered a full audit in support of the IPO process.
¬ Assessed the external auditor’s independence and the level of
non- audit work, in particular paying due attention to the
one-off fees associated with the IPO process.
¬ Considered the effectiveness of the external auditors.
¬ Considered the recommendations of the Code, the recent
Competition Commission and EU recommendations in
relation to the tender of the external audit contract.
¬ Carrying value of interest-bearing loans and borrowings
(see note 5.2).
¬ Impairment charges (see note 4.3).
These items were considered by the Audit Committee at the time
they reviewed and agreed the external auditor’s Group audit plan,
to ensure that due consideration was given at that point, as well as
at the time of reviewing the external auditor’s final audit findings.
Deferred tax asset recognition
In recent years the Group had accumulated significant unrecognised
deferred tax assets, largely from unclaimed capital allowances in the
UK. These assets were not recognised in the past due to the
uncertainty of the availability of future taxable profits.
The judgement over how much of the unrecognised deferred tax
assets should be recognised in 2013 is based on Merlin’s forecasts
regarding the generation of taxable profits within the Group
and the impact of capital allowances on these profits. A number
of changes during 2013 associated with the IPO, including the
restructuring of debt facilities, reorganisation of the Group structure,
and settlement of interest rate swaps, have led to an increased
certainty over the availability of these future taxable profits.
56
Merlin Entertainments plc Annual Report and accounts 2013
AUDIT COMMITTEE REPORT
The value of the assets recognised and the associated sensitivity
analysis required are material items and as such have been
considered by the Audit Committee. In particular, the Committee
considered management’s assessment of the levels at which both
the availability of future taxable profits and the forecast future
capital spend, would need to alter in order to substantially change
the rate at which capital allowances are claimed, and so affect the
recognition of the deferred tax assets. The Committee reviewed
and challenged management’s sensitivity analysis of profit forecasts
and concurred that the results indicated the risk of the deferred
tax assets not being utilised is acceptably low.
Carrying value of interest-bearing loans and borrowings
In 2013 two transactions have significantly affected the carrying
value of the Group’s term debt, being:
¬ The refinancing in July 2013 required assessment of and
accounting for the changes of the debt terms, including an
assessment of the likely future repayment date for the debt.
¬ Accounting for the proceeds raised through the IPO, where a
portion of the Group’s term debt was repaid.
A complex accounting standard makes financial instrument
accounting (the standard under which interest-bearing loans and
borrowings fall) a highly judgemental area. Such judgements can
alter the carrying value of the Group’s debt and both the current
and future finance costs of the Group. The events of 2013
therefore required the completion and audit of complex
calculations and assumptions, particularly in relation to whether
previous issue costs should be carried forward or written off,
and the impact of the expected future refinancing date on the
carrying value of any such issue costs. This subject represents a
significant area of judgement within the 2013 financial statements
as it is based on forward looking information that extends several
years into the future. The Committee has carefully considered
management’s forecasts and the sensitivity to the assumptions
made, in particular in relation to the expected future repayment
date and the impact of such a date being earlier and are satisfied
with the appropriateness of the assumptions.
Impairment charges
Merlin’s business involves opening new attractions in new and, to
some degree, unproven locations. In addition the Group operates
existing businesses in geographically and politically diverse areas.
Although the Group has attained knowledge derived from the
past performance of opening new attractions, inevitably the
performance of new attractions, particularly in new markets, can
be difficult to accurately predict. Similarly the exposure of certain
attractions to macro-economic volatility can give rise to the need
for an impairment assessment.
These factors make forecasts in the existing estate and acquired
businesses similarly uncertain. Valuations are performed by Merlin
based on discounted future cash forecasts and other market data.
They are complex to perform, include judgemental information
such as market discount rates, and are based almost entirely
upon forward looking estimates of future cash flows.
The Audit Committee reviewed management’s calculations
carefully in order to assess the appropriateness of the asset
valuations in the financial statements. As part of this process they
specifically assessed the headroom in the Company’s goodwill
valuation and concluded that the valuations performed and the
accounting treatment adopted which resulted in no impairment
charges being recorded, were appropriate.
Misstatements
Management reported to the Committee that they were not
aware of any material misstatements made intentionally to
achieve a particular presentation. The auditors reported to
the Committee any misstatements that they had found in the
course of their work and no material adjustments were required.
The Committee confirmed that it was satisfied that the auditors
had fulfilled their responsibilities with diligence and
professional scepticism.
After reviewing the presentations and reports from management
and consulting where necessary with the auditors, the Committee
was satisfied that the financial statements appropriately addressed
the critical judgements and key estimates both in respect to the
amounts reported and the disclosures. The Committee was also
satisfied that the significant assumptions used for determining the
value of assets and liabilities had been appropriately scrutinised
and challenged and were sufficiently robust.
Internal audit
The Company has an internal audit function led by the Group
Internal Audit Director who is a member of the Institute of
Chartered Accountants in England and Wales, with twelve years’
experience in both finance and operational roles within the Group.
The internal audit function also comprises four in house auditors,
all of whom hold professional accounting qualifications. The
internal audit function uses outsourced support where necessary;
for example PricewaterhouseCoopers (PwC) have provided
specialist support to aid coverage of the geographic spread of the
Group’s attractions. The Group Internal Audit Director reports
jointly to the Chair of the Audit Committee and the CFO.
During 2013, audits have been undertaken providing coverage in
excess of 80 per cent. of the Group’s revenue, with the priority of
sites to visit determined by the audit function based primarily on
revenue generation and an assessment of business risk, following
consultation with management. This coverage is in line with
the plan approved by the Audit Committee in March 2013.
Following consultation with the Audit Committee, the 2014
audit plan will incorporate a wider range of risk factors into the
planning phase, with an increasing level of focus being placed
on the audit of central functions.
The internal audit reports are reviewed by management with
significant findings also reviewed by the Company’s Executive
Committee. Any such findings are also discussed at the Audit
Committee, along with recommendations and regular updates
on the progress made by relevant management.
57
Merlin Entertainments plc Annual Report and accounts 2013
AUDIT COMMITTEE REPORT
At the first meeting of the new Audit Committee in December
2013, a review of the effectiveness of Internal Audit was
undertaken by discussion. Having considered comments made by
management, external auditors and the quality of the internal
audit reporting and findings, the Committee concluded that the
internal audit function was effective. The review will take place
annually and in 2014 will be based on a questionnaire.
External audit
The external auditors are appointed by shareholders to provide
an opinion on the financial statements and certain other
disclosures prepared by the Directors. KPMG LLP acted as the
external auditors to Merlin Entertainments throughout the year.
The Committee is responsible for oversight of the external
auditors, including approving the annual work plan and, on behalf
of the Board, approving the audit fee. The auditors are eligible for
selection to provide non-audit services only to the extent that
their skills and experience make them a competitive and most
appropriate supplier of these services. Non-audit services are
subject to market tenders or tests and are awarded to the most
appropriate provider. Non-audit services are normally limited to
assignments that are closely related to the annual
audit or where the work is of such a nature that a detailed
understanding of the Group is necessary. The principle followed
with regard to non-audit services is that the auditors may not
provide a service which:
¬ Places them in a position to audit their own work.
¬ Creates a mutuality of interest.
¬ Results in the auditors developing close personal relationships
with Merlin employees.
¬ Results in the auditors functioning as a manager or employee
of Merlin.
¬ Puts the auditors in the role of advocate for Merlin.
Management regularly provides the Committee with reports on audit,
audit-related and non-audit expenditure, together with proposals of
any material non-audit related assignments. The Committee regularly
reviews and, where necessary, challenges management to ensure that
auditor objectivity and independence is not impaired.
The Audit Committee is responsible for recommending to the
Board the appointment, reappointment and removal of the
external auditors, including their remuneration and terms of their
engagement. In doing so the Audit Committee has granted the
CFO the right to approve the following without reference to the
Audit Committee:
¬ Work which a third party requires to be carried out by the
Company’s auditors.
¬ Tax compliance work where the external auditor is
most appropriate.
¬ Any other work up to a value of £100,000 where the external
auditor is best placed to undertake the work.
Fees for non-audit services during the year amounted to £4.2
million (2012 – £0.4 million) representing 300 per cent. of
the audit fees. £2.5 million of the non-audit work related to the
external auditors’ due diligence and support in relation to the
IPO process that resulted in the Listing. KPMG were selected for
this project on the basis that they were able to apply knowledge
gained from work undertaken towards a similar, aborted IPO
process undertaken in 2010 as well as from their position as
auditors. The Committee notes that it is entirely in line with
market practice for the audit firm to undertake the ‘Reporting
Accountant’ work associated with the Listing process. £1.0 million
of the fees for non-audit services related to the half year audit
and August review, also completed in relation to the IPO process.
The other substantial non-audit work undertaken by KPMG,
amounting to £0.7 million, principally related to technical
accounting advice and tax advisory assignments. Details of the
fees paid for audit services, audit related services and non-audit
services can be found in note 2.1 to the financial statements.
On balance, the Committee is satisfied that the overall levels of
audit-related and non-audit fees, and the nature of services
provided, are not such as to compromise the objectivity and
independence of the external auditors.
The Committee has evaluated the performance, independence
and objectivity of KPMG and also reviewed their effectiveness as
external auditors. As a result of the relatively limited time period
between the creation of the Merlin Entertainments plc Audit
Committee and the year end date, the new Committee gathered
feedback through discussion with relevant stakeholders. The
following factors were also considered:
¬ The external auditors’ progress achieved against the agreed
audit plan and communication of any changes to the plan,
including changes in perceived audit risks.
¬ The competence with which the external auditors handled the
key accounting and audit judgements and communication of
the same with management and the Committee.
¬ Feedback from the various attractions audited as to the
performance, competence and service levels of the external
auditor’s work whilst at those sites.
¬ The external auditors’ qualifications, expertise and resources
and their internal quality procedures.
¬ The managerial perspective on the role of KPMG during the
audit and IPO processes.
After taking into account all of the above factors, the Committee
concluded that the external auditors were effective. In future
years a survey facilitated by the secretary to the Committee will
be used to assess the effectiveness of the external auditors.
The Committee has considered the timing of the next formal
tender in light of the Code, the recent Competition Commission
and EU recommendations on audit tendering and rotation and,
our current expectation is that the audit will be retendered no
later than 2016 for the 2017 year end.
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Merlin Entertainments plc Annual Report and accounts 2013
In 2013, the Company was also subject to a series of thorough
reviews and audits as part of the IPO process. These processes
combined with an assessment of discussions with relevant
stakeholders of the internal control systems, satisfied the
Committee that such systems are effective in providing
reasonable assurance against material fraud or loss.
The Board is responsible for the Group’s systems of internal
control and risk management and for reviewing their effectiveness.
The Audit Committee has considered the process by which the
Company approaches risk management and is satisfied that the
Company has systems and procedures in place to identify,
evaluate and manage all material risks to the business, in
accordance with the Turnbull Guidance. These systems and
procedures are designed to manage rather than eliminate risk
of failure to achieve business objectives. They can only provide
reasonable, and not absolute, assurance against material
misstatement or loss. Specifically the Audit Committee has
reviewed the financial risk category and the internal controls in
place. Similarly the Committee is satisfied that this process has
been in place for the year under review and up to the date of
approval of the Annual Report and accounts and that the
process is regularly reviewed by the Board.
AUDIT COMMITTEE REPORT
The Company has entered a Lenders Facilities Agreement which
stipulates that if any newly appointed auditor were not to be one
of the ‘Big Four’ accounting firms, the proposed firm would need
to be approved by the majority of the Company’s lenders.
Internal controls
The Company operates various levels of control against which the
risks of the business are managed. As with any business, the
Company faces risk in all its activities. The Company separates risk
into three categories, namely: health, safety and security risk;
operational and strategic risk; and financial risk. How these risks
are managed is detailed in the Risks and Uncertainties section of
this Annual Report.
Management is responsible for establishing and maintaining
adequate internal controls over financial reporting, including over
the Group’s consolidation processes. Such controls are designed
to manage, rather than eliminate the risk of failure to achieve its
business objectives.
¬ The first level of internal control comprises the delegated
authority limits and purchasing and sale price approval levels
that are stated within the Company’s financial operating
framework documents.
¬ The second level is the review processes the Company
undertakes on its trading performance. Attraction financial
performance is effectively reviewed on a weekly, monthly and
quarterly basis by management. Attraction management
accounts are also reviewed in detail on a monthly and
quarterly basis by management. A comprehensive review of a
detailed strategic process is undertaken annually, as is the
annual budgeting process, both of which are reviewed by
the Executive Committee and the Board.
¬ The third level of assurance is gained from audit and
self-assessment:
• Quarterly the attractions senior finance representatives are
required to self-certify the robustness of their financial
control environment, raising any concerns and issues
for resolution.
• Annually internal audit review the financial controls and
accounting of sites equating to approximately 80 per cent.
of the Group’s revenue, as well as high risk or high revenue
non-attraction functions such as call centres, central finance
functions and major expenditure functions. The internal audit
annual plan is developed in conjunction with management
and through an assessment of a series of risk factors before
being reviewed and approved by the Audit Committee. The
material findings of internal audit are reviewed by
management and the Audit Committee.
• External audit findings on the control environment and
financial statements are reviewed by management, the Audit
Committee and by the Board. The findings of other specialist
experts, such as tax, pension and treasury experts, are also
considered where relevant.
59
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013
DIRECTORS’
REMUNERATION
REPORT
STATEMENT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE
Dear Shareholder
The major project undertaken by the Remuneration Committee
this year has been a detailed review and consequent restructuring
of Merlin’s pay arrangements ahead of our transition to life as a
listed company.
Merlin’s success has been built on an entrepreneurial and
innovative culture. This culture has been underpinned by a
performance-orientated but relatively simple pay model which
has incorporated widespread share ownership throughout our
employee base. Whilst the Committee recognised that this model
required some adaption on Listing to the London Stock Exchange
to comply with best practice expectations of institutional
shareholders, our aim has been to make these changes whilst
retaining the basic principles highlighted above that have
supported Merlin’s commercial success to date.
The pay structure that we have adopted (which is outlined in full
in the Policy Report) is now underpinned by four key principles.
Performance orientated
¬ Rewarding performance is a core part of our ethos. About
75 per cent. of our permanent employees participate in a
bonus plan and over 300 employees receive regular share
awards or share option grants.
¬ To reinforce the link between performance and pay, most
employees are rewarded for the performance of their
particular attraction. Only the senior executives (the Executive
Committee and their direct reports) and central functions are
rewarded for the performance of the overall Group.
¬ For senior executives, including the Executive Directors,
performance-related pay, based on stretching short term
and longer term targets, forms a significant part of their
potential pay packages.
Consistent with best practice
We have introduced a number of key best practice features into
the pay arrangements of our senior executives, including
the Executive Directors.
Annual bonus plan (deferred bonus plan)
The central annual bonus, in which all senior executives, including
the Executive Directors, participate has been restructured
for 2014:
¬ A cap on individual bonus payouts of 150 per cent. of salary
has been introduced.
¬ One third of any senior executive’s bonus payout must be
deferred in shares for three years.
¬ The Committee will have the facility to withhold deferred
bonus payments in exceptional circumstances.
Performance Share Plan (PSP)
Senior executives will receive regular awards of shares under the
PSP. Consistent with best practice, vesting of these awards will be
subject to the achievement of challenging EPS and ROCE
performance targets.
Shareholding guidelines
Members of the Executive Committee will be required to build
up and retain a significant holding of Merlin shares. For Executive
Directors, the requirement will be to build a holding of shares
worth 200 per cent. of salary.
Policy
Our policy is to pay senior executives fairly and in a manner
consistent with best practice. In particular:
¬ Salaries are set at competitive, but not excessive, levels
compared to peers and other companies of an equivalent
size and complexity.
¬ There is potential for market competitive levels of total pay
but only if stretching business targets are delivered.
¬ There is greater emphasis on rewards for delivery of
longer term performance targets than short term
performance targets.
60
DIRECTORS’ REMUNERATION REPORT
The remainder of the Remuneration Report is split into two
sections in line with legislative reporting regulations:
¬ The Policy Report - contains details of the various
components of our future pay model. The Policy Report will
be subject to a binding shareholder vote at the 2014 Annual
General Meeting.
¬ The Annual Report on Remuneration - contains details of
pay received by Directors in the period from Listing to the
end of 2013 and also contains details of how we intend to
implement our pay model during 2014. The Annual Report
on Remuneration will be subject to an advisory vote at the
2014 AGM.
Charles Gurassa
Chairman of the Remuneration Committee
26 February 2014
Simple
For most of our employees, we have retained a high degree
of simplicity in our pay model:
¬ Bonuses (other than for senior executives) are paid
wholly in cash.
¬ Bonuses are primarily based on profit targets for an
employee’s particular attraction.
¬ The use of share options will align middle management
to share price growth and value creation.
Widespread share ownership
We intend to ensure that widespread share ownership remains
an integral part of Merlin’s culture. In order to achieve this, we
operate all-employee share plans that will enable all of our
permanent employees to purchase a stake in our Company.
These plans supplement the two discretionary share plans that
will be operated for senior executives (Deferred Bonus Plan
and PSP) and the Company Share Option Plan (CSOP) for
middle management.
Other major decisions reached by the Committee during this
year include:
¬ Annual bonus payments in respect of 2013 performance
As outlined elsewhere in the Annual Report, Merlin’s financial
performance has been strong during 2013. On the basis of
that performance, and also taking into account individual
performance, the Committee agreed bonus payments for
2013 under the central annual bonus plan of £462,275 and
£298,788 for the CEO and CFO respectively. There are
further details of these payments on page 71.
¬ 2013 PSP awards and CSOP grants
With Listing taking place in the final quarter of 2013, the
Committee felt it would be inappropriate to grant PSP
awards and make CSOP grants in both 2013 and in 2014.
Instead, the Committee decided to make a single PSP award
and CSOP grant to relevant individuals on Listing over shares
with a value of approximately 1.25x the current annual
award policy.
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Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
POLICY REPORT
This part of the report sets out our Directors’ Remuneration Policy (Policy). This Policy will be subject to a binding shareholder vote
at the 2014 AGM. This Policy will apply to payments made from 15 May 2014. The information provided in this section of the
Remuneration Report is not subject to audit.
Policy table
The following table sets out details of each component of the Executive Director remuneration package. Our aim is to provide pay
packages that will:
¬ Motivate and retain our industry leading employees.
¬ Attract high quality individuals to join us.
¬ Encourage and support a high performance culture.
¬ Reward delivery of our business plan and key strategic goals.
¬ Align our employees with the interests of shareholders and other external stakeholders.
Operation
Maximum Opportunity
Performance
conditions (1)
None
None
No absolute maximum has been set
for Executive Director base salaries.
Current Executive Director salaries
are set out in the Annual Report on
Remuneration section of this
Remuneration Report.
Any annual increase in salaries is at the
discretion of the Committee taking into
account the factors stated in this table
and the following principles:
¬ Salaries would typically be increased
at a rate consistent with the average
salary increase (in percentage of salary
terms) for permanent employees.
¬ Larger increases may be considered
appropriate in certain circumstances
(including, but not limited to, a change
in an individual’s responsibilities or in
the scale of their role or in the size
and complexity of the Group).
¬ Larger increases may also be
considered appropriate if a Director
has been initially appointed to the
Board at a lower than typical salary.
There is no overall maximum as the
level of benefits depends on the
annual cost of providing individual
items in the relevant local market
and the individual’s specific role.
Purpose
and link to strategy
Fixed pay
Base salary
To appropriately
recognise responsibilities
and attract and retain
talent by ensuring
salaries are market
competitive.
Generally reviewed annually with any
increase normally taking effect from
1 October although the Committee
may award increases at other times of
the year if it considers it appropriate.
The review takes into consideration a
number of factors, including (but not
limited to):
¬ The individual Director’s role,
experience and performance.
¬ Business performance.
¬ Market data for comparable roles in
appropriate pay comparators.
¬ Pay and conditions elsewhere in
the Group.
Benefits
To provide market
competitive benefits.
Benefits are role specific and take into
account local market practice.
Benefits currently include company car
or car allowance, phone costs, income
protection insurance, annual medical,
private medical insurance and life
assurance of four times annual salary.
The Committee has discretion, in the
event of the appointment of a Director
based overseas or in exceptional
circumstances, to add to or
remove benefits provided to
Executive Directors.
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Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
Purpose
and link to strategy
Pension
To provide market
competitive
retirement benefits.
Variable pay
Annual bonus (2), (3)
To link reward to key
business targets for the
forthcoming year and to
individual contribution.
Additional alignment
with shareholders’
interests through the
operation of bonus
deferral.
Operation
Maximum Opportunity
Performance conditions (1)
Current policy is for the Company to
either contribute to the Group
Pension Plan and/or to provide a cash
allowance in lieu of pension.
None
Executive Directors receive a
contribution of up to 25 per
cent. of salary to the Group
Pension Plan and/or as a cash
allowance in lieu of pension.
The maximum award that can
be made under the central
bonus plan is 150 per cent.
of salary.
Each year the Remuneration
Committee determines the
maximum bonus opportunity
for individual Executive
Directors within this limit.
The Executive Directors are
participants in the central bonus plan
which is reviewed annually to ensure
bonus opportunity, performance
measures and targets are appropriate
and supportive of the business
strategy.
Two thirds of an Executive Director’s
annual bonus is delivered in cash
following the release of audited results
and the remaining third is deferred
into an award over Company shares
under The Merlin Entertainments plc
Deferred Bonus Plan.
¬ Deferred awards are usually
granted in the form of conditional
share awards or nil-cost options (and
may also be settled in cash).
¬ Deferred awards usually vest three
years after award although may vest
early on leaving employment or on a
change of control (see later sections).
¬ An additional payment (in the form
of cash or shares) may be made in
respect of shares which vest under
deferred awards to reflect the value of
dividends which would have been paid
on those shares during the vesting
period (this payment may assume that
dividends had been reinvested in
Company shares on a
cumulative basis).
¬ Deferred awards will be subject to
withholding at the Remuneration
Committee’s discretion during the
deferral period in exceptional
circumstances where the Committee
finds that the Executive Director has
engaged in misconduct justifying
summary dismissal or there has been a
material misstatement of the financial
accounts relating to the relevant
bonus year which has led to
an overpayment of bonus.
The bonus is based on
performance assessed over one
year using appropriate financial,
strategic and individual
performance measures.
The majority of the bonus will
be determined by measure(s) of
Group financial performance.
The selected measure(s) for the
next financial year are set out
in the Annual Report on
Remuneration section
of this Remuneration Report.
A sliding scale of targets is set
for each Group financial
measure with payout at zero for
threshold financial performance
increasing to 50% for meeting
expectations and 100% for
maximum performance.
The remainder of the bonus will
be based on financial, strategic
or operational measures
appropriate to the individual
Director. The selected measures
for the next financial year are
set out in the Annual Report on
Remuneration section of this
Remuneration Report.
Any bonus payout is ultimately
at the discretion of the
Committee.
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Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
Purpose
and link to strategy
Operation
Maximum Opportunity
Performance conditions (1)
Awards are usually granted annually
under the PSP to Executive Directors
and other selected senior executives.
Individual award levels and
performance conditions on which
vesting will be dependent are
reviewed annually by the
Remuneration Committee.
Awards may be granted as conditional
awards of shares, nil-cost options
or forfeitable share awards
(or, if appropriate, as
cash-settled equivalents).
Awards normally vest at the end of a
period of at least three years following
grant although may vest early on
leaving employment or on a change of
control (see later sections).
An additional payment (in the form
of cash or shares) may be made in
respect of shares which vest under
PSP awards to reflect the value of
dividends which would have been paid
on those shares during the vesting
period (this payment may assume
that dividends had been reinvested
in Company shares on a
cumulative basis).
Tax-approved monthly savings scheme
facilitating the purchase of shares
through share options at a discounted
exercise price by all eligible
UK employees.
Executive Directors are eligible to
participate on the same basis as
other employees.
The CSOP permits grants of share
options with an exercise price of not
less than the market value of a share
(as determined by the Committee) at
the time of grant.
Options are usually exercisable
between three and ten years following
grant although may have a different
exercise period on leaving
employment or on a change of
control (see later sections).
Options that are HMRC unapproved
may, if appropriate, be settled in cash
or be net-settled.
The maximum annual award
permitted under the PSP is
shares with a market value
(as determined by the
Committee) of 350 per cent.
of salary.
Each year the Remuneration
Committee determines the
actual award level for
individual Executive Directors
within this limit.
Vesting of PSP awards is
dependent on measures of
Group earnings and return on
total investment with the
precise measures and weighting
of the measures determined by
the Committee ahead of each
award. These details are
disclosed in the Annual Report
on Remuneration section
of this Remuneration Report.
Performance will usually be
measured over a three year
performance period. For
achieving a ‘threshold’ level of
performance against a
performance measure, no more
than 25 per cent. of the portion
of the PSP award determined by
that measure will vest. Vesting
then increases on a sliding scale
to 100 per cent. for achieving
a stretching maximum
performance target.
Monthly saving limit of £250
prior to 6 April 2014, £500
thereafter (or such other limit
as may be approved from
time to time by HMRC) under
all savings contracts held by
an individual.
The Sharesave scheme is
structured in accordance with
HMRC requirements so has no
performance conditions but
requires participants to make
regular savings into a
savings contract.
Annual awards of options over
shares worth up to 100 per
cent. of salary at grant (or, if
the Remuneration Committee
determines that special
circumstances exist, 200 per
cent. of salary).
If CSOP awards were, in
exceptional circumstances,
granted to an Executive Director,
they would be subject to an
appropriate performance condition
as determined by the Committee.
An individual promoted to the
Board may have outstanding
CSOP awards (granted prior to
their promotion) that have no
performance conditions attached
to them.
Performance Share Plan
(PSP) (3), (4)
To link reward to key
business targets for the
longer term and to
retain executives.
All Employee Share
Plan (UK Sharesave
Scheme) (3), (5)
To create staff
alignment with the
Group and promote a
sense of ownership.
Company Share
Option Plan
(CSOP) (3)
Executive Directors will
only receive CSOP
awards in exceptional
circumstances.
Individuals who are
promoted to the Board
may have outstanding
awards under this plan.
64
Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
Notes to table:
(1) The Committee may vary or waive any performance condition(s) if circumstances
occur which cause it to determine that the original condition(s) have ceased to be
(4) Performance measures - PSP. The PSP performance measures are chosen to provide
alignment with our longer term strategy of growing the business in a sustainable
manner that will be in the best interests of shareholders and other key stakeholders in
appropriate, provided that any such variation or waiver is fair, reasonable and not
the Company. In particular, our use of earnings and return on total investment
materially less difficult to satisfy than the original condition (in its opinion). In the event
measures is designed to reward management for delivery of key financial measures of
that the Committee was to make an adjustment of this sort, a full explanation would
Company success that should result in sustainable value creation. Targets are
be provided in the next Remuneration Report.
(2) Performance measures - annual bonus. The annual bonus measures are reviewed
annually and chosen to focus executive rewards on delivery of key financial targets for
the forthcoming year in addition to key strategic or operational goals relevant to an
individual. Precise targets for bonus measures are set at the start of each year by the
considered ahead of each PSP grant by the Remuneration Committee taking into
account relevant external and internal reference points and are designed to be
appropriately stretching.
(5) Broadly equivalent versions of the UK Sharesave Scheme operate for USA employees
(US Employee Stock Purchase Plan) and overseas employees (Overseas Sharesave
Remuneration Committee based on relevant reference points, including, for
Scheme). An Executive Director based in the USA or overseas may be eligible to
Group financial targets, the Company’s business plan and are designed to be
participate in one of these schemes instead of the UK Sharesave Scheme. The
appropriately stretching.
(3) The Committee may: (a) in the event of a variation of the Company’s share capital
and (with the exception of HMRC approved options) demerger, super dividend or
dividend in specie or any other corporate event which it reasonably determines
monthly contribution limit for the US Employee Stock Purchase Plan would be
specified by the Remuneration Committee before each grant.
(6) The Committee reserves the right to make any remuneration payments and
payments for loss of office notwithstanding that they are not in line with the policy set
justifies such an adjustment, adjust; and (b) amend the terms of awards granted under
out above where the terms of the payment were agreed: (a) before the policy came
the share schemes referred to above in accordance with the rules of the relevant
into effect; or (b) at a time when the relevant individual was not a Director of the
plans (which were summarised for shareholders in the Company’s IPO Prospectus).
Company and, in the opinion of the Committee, the payment was not in
Share awards may be settled by the issue of new shares or by the transfer of existing
consideration for the individual becoming a Director of the Company. For these
shares. In line with prevailing best practice at the time this Policy Report is approved,
purposes ‘payments’ includes the Committee satisfying awards of variable
any issuance of new shares is limited to five per cent. of share capital over a rolling ten
remuneration and, in relation to an award over shares, the terms of the payment
year period in relation to discretionary employee share schemes and ten per cent. of
share capital over a rolling ten year period in relation to all employee share schemes.
are ‘agreed’ at the time the award is granted.
(7) The Committee may make minor amendments to the policy set out in this Policy Report
(for regulatory, exchange control, tax or administrative purposes or to take account of a
change in legislation) without obtaining shareholder approval for that amendment.
Differences in policy from broader employee population
There are differences in the precise components within the pay policy for Executive Directors and for our employees generally and a
greater proportion of Executive Directors’ pay is ‘at risk’ and determined by performance than for our employees generally. However, as
outlined in the Committee Chairman’s statement, common principles underlie the pay policy through the Company including for the
Executive Directors. In particular, we place great emphasis throughout the Company on reward being linked to performance (either
Group performance or of an employee’s particular attraction) and on encouraging share ownership (through participation in the PSP,
CSOP or the All Employee Share Plan).
Non-executive Directors
Purpose and link to strategy
Operation
Opportunity
Non-executive Director
(NED) fees
To appropriately recognise
responsibilities by ensuring
fees are market competitive.
Fees are set at an appropriate level that is
market competitive and reflective of the
responsibilities and time commitment
associated with specific roles.
No absolute maximum has been set for
individual NED fees. Current fee levels
are set out in the Annual Report on
Remuneration section of this
Remuneration Report.
The Company’s Articles of Association
provide that the total aggregate fees paid
to the Chairman and NEDs will not
exceed £1,000,000.
NED fees (other than NEDs whose appointment is in
respect of their position as representatives of the pre-IPO
major shareholders) comprise payment of an annual basic
fee and additional fees for further Board responsibilities
such as:
¬ Senior Independent Director.
¬ Audit Committee Chairman.
¬ Remuneration Committee Chairman.
The Chairman of the Board receives an all-inclusive fee.
No NED participates in the Group’s incentive
arrangements or pension plan or receives any other
benefits other than where travel to the Company’s
registered office is recognised as a taxable benefit in
which case a NED may receive the grossed-up costs
of travel as a benefit.
Fees are generally reviewed annually.
NEDs whose appointment is in respect of their position as
shareholder representatives do not receive a fee.
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Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
Illustrations of application of remuneration policy
Merlin’s remuneration arrangements have been designed to ensure that a significant proportion of pay is dependent on the delivery of
stretching short term and long term performance targets.
The charts below provide illustrative values of the remuneration package for Executive Directors under three assumed performance
scenarios. The charts are for illustrative purposes only and actual outcomes may differ from that shown.
Assumed performance
Assumptions used
All performance scenarios (Fixed pay)
Minimum performance (Variable pay)
Performance in line with expectations (Variable pay)*
Maximum performance (Variable pay)*
¬ Consists of total fixed pay, including base salary,
benefits and pension.
¬ Base salary – salary effective as at 1 January 2014.
¬ Benefits – estimated value of 5% of salary.
¬ Pension – amount expected to be received in 2014
(25% of salary).
¬ No pay-out under the annual bonus.
¬ No vesting under the PSP.
¬ 50% of the maximum pay-out under the annual bonus.
¬ 50% vesting under the PSP.
¬ 100% of the maximum pay-out under the annual bonus.
¬ 100% vesting under the PSP.
*PSP awards have been shown at face value, with no share price growth or discount rate assumptions. All-employee share plans have
been excluded. For the purposes of the illustration, we have, consistent with legislative requirements, included the maximum permitted
annual bonus opportunity (150 per cent. of salary) and maximum permitted PSP award (350 per cent. of salary) as set out in the Policy
Table above. We would emphasise that these are the maximum permitted awards under the incentive schemes. The CFO’s actual
annual bonus opportunity for 2014 (135 per cent. of salary) is lower than the scheme maximum and the face value of the PSP awards
granted to the CEO and CFO in November 2013 (310 per cent. of salary and 280 per cent. of salary respectively) was lower than the
scheme maximum.
PSP
Annual Bonus
Fixed Pay
4000
0
0
0
£
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Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
Components and approach
The remuneration package offered to new appointments may
include any element listed in the Policy Table above, or any other
element which the Committee considers is appropriate given the
particular circumstances, with due regard to the best interests of
shareholders subject to the limits on variable pay set out above.
In considering which elements to include, and in determining the
approach for all relevant elements, the Committee will take into
account a number of different factors, including (but not limited
to) market practice, existing arrangements for other Executive
Directors and internal relativities. If appropriate, different targets
may be applied to a new appointment’s annual bonus in their year
of joining.
The Committee would seek to structure buyout and variable pay
awards on recruitment to be in line with the Company’s
remuneration framework so far as practical but, if necessary, the
Committee may also grant such awards outside of that
framework as permitted under Listing Rule 9.4.2 subject to the
limits on variable pay set out above. The exact terms of any such
awards (e.g. the form of the award, timeframe, performance
conditions, and leaver provisions) would vary depending upon the
specific commercial circumstances.
Recruitment of Non-executive Directors
In the event of the appointment of a new Non-executive
Director, remuneration arrangements will normally be in line
with the structure set out in the Policy Table for Non-executive
Directors. However the Committee (or the Board as appropriate)
may include any element listed in the Policy Table above, or any
other element which the Committee considers is appropriate
given the particular circumstances, with due regard to the best
interests of shareholders.
Approach to recruitment renumeration
Principles
In determining remuneration arrangements for new appointments
to the Board (including internal promotions), the Committee
applies the following principles:
¬ The Committee takes into consideration all relevant factors,
including the calibre of the individual, market data and existing
arrangements for other Executive Directors, with a view that
any arrangements should be in the best interests of Merlin and
our shareholders, without paying more than is necessary.
¬ Typically, the new appointment will have (or be transitioned
onto) the same package structure as the other Executive
Directors, in line with the Policy Table presented above.
¬ Where an Executive Director is appointed from within the
organisation, the normal policy of the Company is that any
legacy arrangements would be honoured in line with the
original terms and conditions. Similarly, if an Executive Director
is appointed following the Company’s acquisition of or merger
with another company or business, legacy terms and
conditions would be honoured.
¬ Upon appointment, the Committee may consider it
appropriate to offer additional remuneration arrangements in
order to secure the appointment. In particular, the Committee
may consider it appropriate to ‘buy out’ terms or remuneration
arrangements forfeited on leaving a previous employer
(discussed below).
¬ The Committee may provide costs and support if the
recruitment requires relocation of the individual.
Maximum level of variable pay
The maximum level of variable remuneration which may be
granted to new Executive Directors in respect of recruitment
shall be limited to the maximum permitted in the Policy Table,
namely 500 per cent. of their annual salary. This limit excludes any
payments or awards that may be made to buy out the Director
for terms, awards or other compensation forfeited from their
previous employer (discussed below).
Buy outs
To facilitate recruitment, the Remuneration Committee may make
a one-off award to buy out terms, incentives and any other
compensation arrangements forfeited on leaving a previous
employer. In doing so, the Committee will take account of all
relevant factors, including any performance conditions attached to
incentive awards, the likelihood of those conditions being met, the
proportion of the vesting/performance period remaining and the
form of the award (e.g. cash or shares). The overriding principle
will be that any replacement buy out award should be of
comparable commercial value to the terms, incentives and other
compensation which have been forfeited. However such awards
would only be considered where there is a strong commercial
rationale to do so.
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Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
Service contracts
Key terms of the current Executive Directors’ service agreements and Non-executive Directors’ letters of appointment (other than
Non-executive Directors whose appointment is in respect of their position as representatives of the pre-IPO major shareholders) are
summarised in the table below. It is envisaged that any future appointments would have equivalent contractual arrangements unless
otherwise stated in this Policy Report.
Provision
Policy
Notice period
Termination payment
Executive Directors - twelve months’ notice by either the Company or the Executive Director.
Non-executive Directors - three months’ notice by either the Company or the Non-executive
Director or no notice period if terminated by shareholders.
There is no payment in lieu of notice clause in the Executive Directors’ service agreements.
Any payments of compensation on termination would be subject to negotiation in line with
general principles which include a duty for the individual to mitigate loss.
Non-executive Directors are entitled to receive any fee accruing in respect of their notice period.
Expiry date
Executive Directors have rolling twelve months’ notice periods so have no fixed expiry date.
All Non-executive Directors have rolling three months’ notice periods so have no fixed expiry date.
Each of the Non-executive Directors nominated by the pre-IPO major shareholders, are appointed pursuant to the relevant
Relationship Agreement with their nominating shareholder and do not have individual letters of appointment with the Company.
These Relationship Agreements provide for the aforementioned shareholders to maintain a Non-executive Director as a shareholder
representative for so long as they hold ten per cent. of the Company’s share capital. The Company has the right to remove these
directors should the relevant shareholding fall below ten per cent. and no fees or termination payments are payable.
Each Director will retire and put themselves forward for re-election at the first Annual General Meeting of the Company.
All Executive Directors’ service agreements and Non-executive Directors’ letters of appointment are available for inspection at the
Company’s registered office in 3 Market Close, Poole, Dorset BH15 1NQ.
Policy on payment for loss of office
As outlined above, there are no contractual obligations to make any payments to Executive Directors in relation to loss of office and any
termination payment would be subject to negotiation although would not be expected in normal circumstances to exceed salary,
pension and benefits in relation to the individual’s outstanding notice period.
In relation to payments under non-contractual incentive schemes, the Committee would take the following factors into account:
¬ The Committee may determine that the Executive Director is eligible to receive a bonus in respect of the financial year in which they
cease employment. This bonus would usually be time apportioned. In determining the level of bonus to be paid, the Committee may,
at its discretion, take into account performance up to the date of cessation or over the financial year as a whole.
¬ The treatment of outstanding share awards is governed by the relevant share plan rules.
The following table summarises the treatment of share awards for leavers and on a change of control in share plans under which
Executive Directors could hold awards.
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Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
Plan
Deferred
Bonus Plan
Performance
Share Plan
Company
Share Option Plan
Executive Directors
will only receive
CSOP awards in
exceptional
circumstances.
Individuals who are
promoted to the
Board may have
outstanding awards
under this plan.
Good leaver
categories
Treatment for good leaver
Treatment for
any other leaver
Treatment on a change of control /
voluntary winding-up
¬ Death.
¬ Injury.
¬ Disability.
¬ Ill-health.
¬ Retirement.
¬ Redundancy.
¬ Transfer of
employing company
or business to which
an individual’s
employment relates
out of the Group.
¬ Any other
scenario in which
the Remuneration
Committee
determines that good
leaver treatment is
appropriate (other
than circumstances
justifying summary
dismissal).
Deferred bonus awards vest on
cessation of employment /
death.
Deferred
bonus
awards lapse.
Deferred bonus awards
vest in full.
Awards lapse.
PSP awards will vest on a
time-apportioned basis (unless
the performance period is
complete or unless the
Committee determines
otherwise) and subject to the
Committee’s determination of
the extent to which any relevant
performance conditions
are satisfied.
Options lapse. Options will become exercisable
on a time-apportioned basis
(unless any performance period
is complete or unless the
Committee determines
otherwise) and subject to the
Committee’s determination of
the extent to which any relevant
performance conditions
are satisfied.
PSP awards will usually vest on a
time-apportioned basis on the
normal vesting date subject to
any relevant performance
condition(s) measured over the
full performance period.
However, in the event of death,
or special circumstances at the
Remuneration Committee’s
discretion, awards may vest early
based on the Committee’s
determination of the extent to
which any relevant performance
conditions are satisfied.
The Committee has the
discretion, acting fairly and
reasonably, to disapply time
apportionment.
Options become exercisable for
a period of six months after the
date on which the Committee
determines the extent to which
the option becomes exercisable
(or twelve months in the event
of death).
Options will become
exercisable subject to the
Committee’s determination
of the extent to which any
relevant performance conditions
are satisfied and on a
time-apportioned basis unless
the Committee determines
otherwise. In relation to
HMRC-unapproved options,
options may become exercisable
at the normal vesting date or
earlier if the Committee
determines.
UK Sharesave
Scheme / Overseas
Sharesave Scheme
US Employee Stock
Purchase Plan
Options become exercisable immediately on death, ceasing employment due to injury, disability, retirement,
redundancy, sale of the employing company or business to which an individual’s employment relates out of the
Group or on a change of control of the Company.
Options become exercisable on death, ceasing employment due to injury, permanent disability, reaching normal
retirement age, sale of the employing company or business to which an individual’s employment relates or on a
change of control of the Company.
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Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013
DIRECTORS’ REMUNERATION REPORT
Consideration of employment conditions elsewhere in the Group
The Committee does not formally consult with employees as part of its process when determining Executive Director pay. However
the Committee is kept informed of general decisions made in relation to employee pay and related issues by the Group HR Director
and is conscious of the importance of ensuring that its pay decisions for Executive Directors are regarded as fair and reasonable within
the business. As outlined in the Policy Table, pay and conditions in the Group are one of the specific considerations taken into account
when the Committee is determining salary levels for the Executive Directors.
Consideration of shareholders’ views
The Company’s three major shareholders each had a representative on the Committee in the pre-Listing period and, accordingly, the
structure of our post-Listing remuneration policy has been subject to significant consultation with them. In addition we have sought the
views of our largest institutional shareholders and leading advisory bodies post Listing.
ANNUAL REPORT ON REMUNERATION
AUDITED INFORMATION
The Annual Report on Remuneration will be subject to an advisory shareholder vote at the 2014 Annual General Meeting.
The information provided in this section of the Remuneration Report up until the ‘Unaudited information’ heading on page 73
is subject to audit.
Single total figure of remuneration
The following table sets out the total remuneration for Executive Directors and Non-executive Directors for the period from
Listing until 28 December 2013. As Merlin was a newly listed company during 2013, there is no disclosure in this report of prior
year information.
All figures shown in £000
Salary and fees (1)
Benefits (2)
Annual bonus (3)
2013
Long term
incentives (4)
Pension (5)
TOTAL
Executive Directors
Nick Varney
Andrew Carr
Non-executive Directors
Sir John Sunderland
Charles Gurassa
Ken Hydon
Miguel Ko
Søren Thorup Sørensen
Dr. Gerry Murphy
Rob Lucas
Notes to the table – methodology
72
43
32
9
8
6
-
-
-
3
2
-
-
-
-
-
-
-
58
38
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
11
-
-
-
-
-
-
-
151
94
32
9
8
6
-
-
-
(1) Salary and fees - this represents the cash paid or receivable in respect of the period from 13 November 2013 (Listing) to 28 December 2013.
(2) Benefits - this represents the taxable value of all benefits paid or receivable in respect of the period from 13 November 2013 (Listing) to 28 December 2013. Executive
Directors receive company car or car allowance, phone costs, income protection insurance, annual medical, private medical insurance and life assurance of four times annual salary.
(3) Annual bonus - cash bonus paid in respect of the period from Listing to 28 December 2013 (calculated on a time apportioned basis). The cash bonus for the full financial year
is disclosed below.
(4) Long term incentives - this column relates to the value of long term awards whose performance period ends in the year under review. The first long term incentive award
granted post Listing has a performance period that ends in 2016. As a result, this column has a zero figure in 2013.
(5) Pension - Executive Directors receive a Company contribution worth 25 per cent. of salary to the Group Personal Pension Plan up to the Annual Allowance and, in respect
of the balance, as a cash allowance. This figure represents the contribution in respect of the period from Listing to 28 December 2013.
(6) Colin Armstrong and Fiona Rose were appointed as Directors on 20 September 2013 and resigned on 29 October 2013. During that period they acted purely in an
administrative capacity prior to Listing and received no remuneration for such services.
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Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
Additional disclosures in respect of the single figure table
Annual bonus
Executive Directors are participants in the central bonus plan. The central bonus plan for 2013 comprised a bonus pool linked to Group
underlying EBITDA performance out of which individual awards were made based on role, seniority, contribution and performance
against pre-set targets for operational and financial measures relevant to the individual. The specific structure of the bonus pool for the
2013 central bonus plan is regarded by the Board as commercially sensitive as it was designed and agreed in the context of Merlin being
an unlisted company.
The table below sets out the annual cash bonus awards made to Executive Directors in respect of the full 2013 financial year.
Nick Varney
Andrew Carr
2013 annual bonus
£462,275
£298,788
These payments were determined by the Remuneration Committee having taken account of:
¬ The Group’s strong financial performance. Group EBITDA (net of bonus payments) of £390 million significantly out-performed the
target set for the year of £379 million and showed significant year-on-year growth of 12.8 per cent.
¬ Individual contribution to the delivery of the financial performance.
¬ Individual contribution to the preparation and execution of the IPO.
¬ Performance against targets for operational and financial measures relevant to the individual. For the CEO these measures included
successful delivery of new openings and customer satisfaction and for the CFO these measures included Group EBITDA margin and
successful execution of the restructuring of the Group’s banking facilities.
As outlined elsewhere in the Remuneration Report, the central bonus plan has been restructured for 2014 in line with listed
company best practice.
Scheme interests awarded during the financial year
Performance Share Plan awards
Performance Share Plan (PSP) awards are granted over Merlin shares with the number of shares under award determined by reference
to a percentage of base salary. Vesting of the awards is conditional upon satisfaction of performance conditions and is usually also
conditional upon continued employment until the awards vest.
An initial award was granted under the PSP to selected senior executives, including the Executive Directors, on 12 November 2013.
This award is subject to the performance conditions described below and will vest on 1 April 2017 after the release of financial results
for the financial year ending 31 December 2016. There will be no grant under the PSP during 2014 to Executive Directors and the next
PSP award to them will be granted during 2015.
As disclosed in the Listing Prospectus, the initial PSP awards to the CEO and CFO were granted over shares worth 310 per cent. of
salary and 280 per cent. of salary respectively. These award levels were set by the Committee in recognition of the absence of a PSP
grant in 2014 and are consistent with the Committee’s current policy that the annualised value of PSP awards to the CEO and CFO
should be over shares worth 250 per cent. of salary and 225 per cent. of salary respectively.
The following table provides details of the awards made under the PSP on 12 November 2013.
Type of award
Maximum
number of shares
Face value (£)
Nick Varney
Andrew Carr
Performance
shares
560,952
£1,767,000
306,667
£966,000
Face value
(% of salary)
310%
Threshold vesting
(% of award)
End of
performance
period
For EPS element 10% of
award (max 50%)
280% For ROCE element 12.5%
of award (max 50%)
31 December
2016
As disclosed in the Prospectus, the maximum number of shares awarded has been calculated using the Offer Price of 315p.
71
Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
Vesting of the initial PSP awards is subject to satisfaction of the following performance conditions measured over the three financial
years to 31 December 2016.
EPS performance condition (50% of award)
ROCE performance condition (50% of award)
EPS growth
% of award
vesting
Below threshold
<7% p.a. cumulative growth
Threshold
7% p.a. cumulative growth
0%
10%
Below threshold
Threshold
Between threshold
and maximum
7% - 14% p.a.
cumulative growth
10% to 50%
on sliding scale
Between threshold
and maximum
Average ROCE
<9%
9%
9% - 13%
% of award
vesting
0%
12.5%
12.5% to 50%
on sliding scale
Maximum
14% p.a. cumulative growth
50%
Maximum
13%
50%
Based on Adjusted EPS using the full-year impact of the post
Listing financing and tax structure.
Based on Earnings Before Interest and Tax (pre-Exceptional items
and after taxation) divided by end of period net operating assets.
Adjusted EPS growth will be calculated by comparing EPS for the
financial year ending 31 December 2016 with EPS for the
financial year ending 28 December 2013.
Average ROCE will be calculated as an average of ROCE for the
three individual financial years ending 27 December 2014, 26
December 2015 and 31 December 2016.
Payments to past directors
There were no payments to past directors during 2013.
Payments for loss of office
There were no payments for loss of office to directors during 2013.
Statement of Directors’ shareholding and share interests
Upon Listing, the Committee introduced a shareholding requirement of 200 per cent. of base salary for the Executive Directors. Both of
the current Executive Directors had a shareholding that surpassed that requirement at 28 December 2013.
Executive Directors are expected to achieve the shareholding requirement primarily by retaining at least 50 per cent. of any share awards
that vest under the PSP and the Deferred Bonus Plan (after selling sufficient shares to satisfy tax liabilities). Individuals are expected to be
compliant with their shareholding requirement within five years of Listing or, if later, within five years of that individual becoming subject to
the requirement. The Committee reviews ongoing individual performance against the shareholding requirement at the end of each
financial year.
Current shareholding requirements and the number of shares held by Directors are set out in the table below.
Director
Nick Varney (2), (3)
Andrew Carr (2), (3)
Sir John
Sunderland (3)
Charles Gurassa
Ken Hydon
Miguel Ko
Søren Thorup Sørensen
Dr. Gerry Murphy
Rob Lucas
Value of shareholding at
28 December 2013 as a %
of salary (Shareholding
requirement target)
4,103%(200%)
3,955%(200%)
-
-
-
-
-
-
-
Number of shares
Shares owned outright
at 28 December 2013
Interests in
share incentive schemes,
awarded without performance
conditions at 28 December 2013
Interests in share incentive
schemes, awarded subject to
performance conditions at
28 December 2013 (1)
6,477,823
3,780,123
531,044
31,746
31,746
158,730
-
-
-
-
-
-
-
-
-
-
-
-
560,952
306,667
-
-
-
-
-
-
-
72
Merlin Entertainments plc Annual Report and accounts 2013 DIRECTORS’ REMUNERATION REPORT
Notes to the table
(1) This relates to shares awarded under the PSP in November 2013.
(2) For the purposes of determining Executive Director shareholdings, the individual’s salary and the share price as at 28 December 2013 has been used (361 pence).
(3) On Listing Nick Varney sold 2,776,210 shares, Andrew Carr sold 1,620,053 shares and Sir John Sunderland sold 227,590 shares at the listing price of 315 pence.
Between 29 December 2013 and the date of this report, Nick Varney and Andrew Carr were both granted options to purchase 3,036
ordinary shares as part of the All Employee Sharesave Scheme at an exercise price of 296.35 pence per share. The options are, in
normal circumstances, not exercisable until the completion of a three year savings period, which will end on 1 April 2017 and will then
be exercisable for a period of six months. The exercise period will, therefore, in normal circumstances, be from 1 April 2017 until
30 September 2017.
UNAUDITED INFORMATION
The information provided in this section of the Remuneration Report is not subject to audit.
Performance graph and CEO remuneration table
The chart below compares the Total Shareholder Return performance of the Company over the period from Listing to 28 December
2013 to the performance of the FTSE 250 Index. This index has been chosen because it is a recognised equity market index of which
Merlin is a member. The base point in the chart for Merlin equates to the Offer Price of 315p. As Merlin has only been listed for a
short period during 2013 we have provided the entire historical performance to date (dotted line in chart) as well as the statutory
requirement to show movement in performance between Listing and financial year ends (unbroken line in chart).
The table next to the chart summarises the CEO single figure for total remuneration, annual bonus pay-outs and PSP vesting levels
as a percentage of maximum opportunity over this period.
e
h
t
t
a
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
l
a
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e
t
a
d
e
h
t
n
o
/
)
n
i
l
r
e
M
(
e
c
i
r
P
r
e
f
f
O
)
0
5
2
E
S
T
F
(
g
n
i
t
s
i
L
f
o
Listing (13 November 2013)
28 December 2013
CEO single figure
of remuneration
Annual bonus pay-out
(as a % of maximum
opportunity)
PSP vesting out-turn
(as a % of maximum
opportunity)
2013*
£000
151
n/a (no maximum
limit applied in 2013)
n/a (no award
vested in 2013)
Merlin Entertainments
FTSE 250
* From Listing to 28 December 2013.
Percentage change in remuneration of the CEO
As Merlin was a newly listed company during 2013, there is no disclosure in
this report of requirements which require comparison of 2012 with 2013.
Accordingly, this report does not contain a comparison of changes
between 2012 and 2013 in the level of CEO remuneration and of
employee remuneration.
Relative importance of the spend on pay
The chart on the right illustrates the total expenditure on pay for all of
Merlin’s employees compared to distributions to shareholders by way of
dividend and share buyback. In order to provide context for these figures,
underlying operating profit is also shown.
73
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013
DIRECTORS’ REMUNERATION REPORT
Implementation of remuneration policy in 2014
This section provides an overview of how the Committee is proposing to implement our remuneration policy in 2014.
Base salary
As described in the Committee Chairman’s Annual Statement, Executive Director base salaries were reviewed as part of the restructuring
of pay arrangements ahead of Listing. The next annual salary review will be carried out by the Committee in October 2014.
The table below shows base salaries effective from Listing.
Nick Varney
Andrew Carr
Salary 13 November 2013
£570,000
£345,000
Pension and benefits
As in 2013, the Executive Directors will receive a Company contribution worth 25 per cent. of salary to the Group Pension Plan up to
the Annual Allowance and, in respect of the balance, as a cash allowance. They will also receive a standard package of other benefits
consistent with those received in 2013.
Annual bonus
As described in the Committee Chairman’s Annual Statement, the bonus plan for 2014 has been structured as follows:
¬ A bonus cap has been introduced of 150 per cent. of salary for the CEO and 135 per cent. of salary for the CFO.
¬ One third of any bonus earned will be deferred into shares for three years under The Merlin Entertainments plc Deferred Bonus Plan.
¬ Deferred shares will be subject to potential clawback during the deferral period in exceptional circumstances including evidence
coming to light of misconduct justifying summary dismissal or of a material misstatement of the financial accounts.
The annual bonus for 2014 for Executive Directors will be determined as detailed below:
As a percentage of maximum bonus opportunity
Measure
Underlying operating profit
Delivery of development pipeline
Customer satisfaction
Underlying EBITDA margin
Effective cash tax rate
CEO
80%
10%
10%
-
-
CFO
80%
-
-
10%
10%
Payment under the non-financial elements of the bonus will be scaled back to the extent that Group underlying operating profit targets
are not fully met. This means that if there is no payment under the Group underlying operating profit element of the bonus scheme,
there will also be no payment under this element of the bonus irrespective of performance against the aforementioned individual
measures. The targets themselves, as they relate to the financial year 2014, are deemed to be commercially sensitive. However,
retrospective disclosure of the targets and performance against them will be provided in next year’s remuneration report to the
extent that they do not remain commercially sensitive at that time.
Performance Share Plan
As detailed above, the current Executive Directors will not receive an award under the PSP during 2014. The next grant to these
individuals will be during 2015.
All Employee Share Plan
The first invitation to UK employees (including Executive Directors) to participate in the All Employee Sharesave Plan (UK Sharesave Plan)
was issued in early 2014. Similar invitations were issued to relevant employees under the US Employee Stock Purchase Plan and the
Overseas Sharesave Plan.
74
Merlin Entertainments plc Annual Report and accounts 2013
DIRECTORS’ REMUNERATION REPORT
Non-executive Director remuneration
The table below shows the fee structure for Non-executive Directors for 2014. Non-executive fees are determined by the full Board
except for the fee for the Chairman of the Board which is determined by the Remuneration Committee.
Basic non-executive fee
Senior Independent Director additional fee
Audit Committee Chairman additional fee
Remuneration Committee Chairman additional fee
Chairman of the Board all-inclusive fee
2014 fees
£50,000
£10,000
£10,000
£10,000
£250,000
There are no fees paid for membership of Board Committees.
Consideration by the Directors of matters relating to Directors’ remuneration
The Committee has, since Listing, been chaired by Charles Gurassa. The Committee consists of the three independent Non-executive
Directors and the Chairman of the Board.
The Committee met once during 2013 post-Listing. The CEO, Group HR Director, Group Compensation & Benefits Director and the
Group Legal Director (in his role as secretary to the Committee) were also present at that meeting by invitation.
The Committee is responsible for determining all aspects of Executive Director pay. It also monitors pay arrangements for other senior
executives and oversees the operation of all share plans. Full terms of reference of the Committee are available on our website under
Investor Relations - Corporate Governance.
Deloitte LLP was appointed by the Company in 2013 to provide advice on executive remuneration matters. During the year, the
Committee received independent and objective advice from Deloitte principally on market practice and in relation to the post-Listing
structure of remuneration packages and design of share schemes. Deloitte was paid £131,350 in fees during 2013 for these services
(charged on a time plus expenses basis). Deloitte is a founding member of the Remuneration Consultants Group and as such, voluntarily
operates under the code of conduct in relation to executive remuneration consulting in the UK. In addition, other practices of Deloitte,
separate from the executive remuneration practice, have provided general tax advice to the Company during the year.
Shareholder voting on 2012 remuneration report
As an unlisted company, Merlin’s Annual Report for 2012 did not contain a Remuneration Report.
External board appointments
Executive Directors are normally entitled to accept external appointments outside the Company with the consent of the Board.
Any fees received may be retained by the Director.
As at the date of this report, neither of the Executive Directors held an external appointment for which they received a fee.
Annual General Meeting
This Remuneration Report will be submitted for approval at our first Annual General Meeting to be held on 15 May 2014. The Policy
Report will be subject to a binding shareholder vote and the Annual Report on Remuneration will be subject to an advisory
shareholder vote.
On behalf of the Board
Charles Gurassa
Chairman of the Remuneration Committee
26 February 2014
75
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 CORPORATE GOVERNANCE
MERLIN PEOPLEDIRECTORS’
REPORT
Introduction
This section of the Annual Report includes additional information
required to be disclosed under the Companies Act 2006, the
DTRs, the Code and the Listing Rules.
Financial instruments
Details of the financial instruments used by the Group and certain
risks associated therewith are set out within note 5.6 of the
financial statements.
Certain information required to be included in the Directors’
Report is included in other sections of this Annual Report, including:
¬ The Strategic Report on pages 2 to 43.
¬ The Corporate Governance Statement on page 44.
¬ The section entitled ‘Board of Directors’ on pages 45 to 47.
¬ The Corporate Governance Report on pages 49 to 53.
¬ The Audit Committee Report on pages 54 to 59.
¬ The Directors’ Remuneration Report on pages 60 to 75.
The sections referred to above provide an overview of the
strategy, development and performance of the Company’s
business in the year ended and as at 28 December 2013 together
with information on the approach of the Company to Corporate
Governance and the constitution, work and effectiveness of the
Board and its principal Committees. These sections are
incorporated by reference into this Directors’ Report.
Greenhouse gas emissions
The disclosures concerning greenhouse gas emissions required by
law are considered in the Corporate Social Responsibility section
on page 42.
Future developments
Details of material proposed future developments in relation to
the Company and its businesses are set out within the Strategic
Report on pages 2 to 43.
Research and development
Details of material research and development in relation to the
business of the Company and its subsidiaries are described in the
Merlin Magic Making section on pages 28 to 31.
Incorporation, listing and structure
Merlin Entertainments plc was incorporated on 20 September
2013 under the name Arthur Entertainments plc with registered
number 08700412. Its name was changed to Merlin
Entertainments plc on 30 September 2013.
On 12 November 2013 the Company acquired the entire issued
share capital of Merlin Entertainments S.à r.l. to become the
ultimate holding company of the Merlin Entertainments Group.
On 13 November 2013 the share capital of the Company was
admitted to listing on the Official List of the London Stock Exchange.
Employee diversity, engagement and disabled persons
Details of the Company’s activities relating to diversity and
employee engagement are set out in the People section on
pages 32 to 33.
The operations of Merlin Entertainments are performed through its
numerous subsidiary and associated undertakings around the world.
Details of the Company’s subsidiary and associated undertakings
are set out within the financial statements in note 6.8.
The Company makes no differentiation between able bodied and
disabled persons in terms of recruitment, training and career
progression. The Company will make every effort to continue the
employment and training of those persons who become disabled
while employed by the Company.
Internal controls
Information on the Group’s internal controls is set out on page 59.
Prior to 13 November 2013 the Company was not subject to
the Code, the DTRs or the Listing Rules. From its listing on 13
November 2013 the Company has complied with each of the
Code, the DTRs and the Listing Rules except, as disclosed on
page 44 of this Report, in relation to the composition of the
Board. The Board considers that its composition is such as to
ensure that no individual will dominate the Board’s decision taking,
no undue reliance will be placed on particular individuals and the
Board will continue to be capable of operating effectively. In
addition to the current Directors, Fru Hazlitt has agreed to join
the Board as a further independent Non-executive Director with
effect from 1 April 2014. The Board is committed to becoming
compliant with the Board composition recommendations of the
Code during 2014.
76
DIRECTORS’ REPORT
Directors
The names of the persons who, at any time during the financial
year, were Directors of the Company are:
A Director may be removed by the Company in certain
circumstances set out in the Company’s Articles of Association or
by a special resolution of the Company.
Name
Date of
appointment
Date of
resignation
All Directors will stand for re-election on an annual basis, in line
with the recommendations of the Code.
Sir John Sunderland
20 October 2013
Nick Varney
Andrew Carr
20 October 2013
20 October 2013
Charles Gurassa
20 October 2013
Ken Hydon
Miguel Ko
20 October 2013
20 October 2013
Søren Thorup Sørensen
20 October 2013
Dr. Gerry Murphy
20 October 2013
Rob Lucas
20 October 2013
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Colin Armstrong
20 September 2013 29 October 2013
Fiona Rose
20 September 2013 29 October 2013
Directors’ indemnities and insurance
The Articles of Association of the Company permit it to
indemnify the Directors of the Company or any Group company
against liabilities arising from or in connection with the execution
of their duties or powers to the extent permitted by law. The
Company has not given any specific indemnity in favour of the
Directors but the Company has purchased Directors’ and officers’
liability insurance as well as Prospectus liability insurance during
the year, which provides cover for liabilities incurred by Directors
in the performance of their duties or powers and in connection
with the issue of the Prospectus in relation to the Listing of the
Company’s shares on the London Stock Exchange.
Pursuant to the Relationship Agreements entered into between
the Company and each of the pre-IPO major shareholders (KIRKBI,
Blackstone and CVC), each of these shareholders is entitled to
appoint one Director to the Board. In addition, KIRKBI is entitled
to appoint one observer to attend (but not vote at) meetings of
the Board and each of the pre-IPO major shareholders is entitled
to appoint one observer to attend (but not vote at) meetings of
the Audit Committee and Remuneration Committee.
Share capital and related matters
Details of the Company’s share capital and movements therein
since incorporation are set out on page 142 in note vi of the
parent Company financial statements.
The Articles of Association do not contain any restrictions on
the transfer of shares in the Company other than customary
restrictions applicable where any amount is unpaid on a share
(all the issued share capital of the Company as at the date of
this Report is fully paid).
Pursuant to the Underwriting Agreement entered into on
30 October 2013 between the Company and the Global
Coordinators on the IPO:
¬ The pre-IPO major shareholders agreed, subject to certain
customary exceptions, not to dispose of any shares in the
Company for a period of 180 days following Listing.
No amount was paid under any of these indemnities or
insurances during the year other than the applicable
insurance premiums.
Appointment and removal of directors
A Director may be appointed by an ordinary resolution of
shareholders in general meeting following nomination by the
Board or a member (or members) entitled to vote at such a
meeting, or following retirement by rotation if the Director
chooses to seek re-election at a general meeting. In addition, the
Directors may appoint a Director to fill a vacancy or as an
additional Director, provided that the individual retires at the
next AGM.
¬ Each of the Executive Directors, Non-executive Directors and
Merlin Entertainments Share Plan Nominee Limited (on behalf
of the senior management shareholders) agreed, subject to
certain customary exceptions, not to dispose of any shares in
the Company for a period of 360 days following Listing.
Each ordinary share in the capital of the Company ranks equally in
all respects. No shareholder holds shares carrying special rights
relating to the control of the Company. However, the Company has
entered into Relationship Agreements with each of the pre-IPO
major shareholders in connection with the exercise of their rights
as major shareholders in the Company and their right to appoint
Directors to the Board.
77
Merlin Entertainments plc Annual Report and accounts 2013
DIRECTORS’ REPORT
Details of these Relationship Agreements are set out below and
in the Corporate Governance Report on pages 49 to 53.
As at 25 February 2014, the latest practicable date prior to the
date of this Report, the Company had been notified pursuant to
DTR5 of the following interests in three per cent. or more of the
Company’s total voting rights:
Transactions with related parties
Details of the transactions entered into by the Company with
parties who are related to it are set out in note 6.3 of the
financial statements.
The only material transactions with related parties during the year are:
Name of
Shareholder
Number of
Ordinary Shares
% of Issued
Share Capital
302,971,529
213,517,421
29.89
21.06
Nature of
Holding
(Direct/
Indirect)
Direct
¬ LEGOLAND Licence and Co-operation Agreement (LCA).
This agreement sets out the rights granted to the Group in
connection with the development, operation and promotion
of the Group’s present and future LEGOLAND businesses.
It includes certain requirements for the Group to develop
LEGOLAND attractions, certain operational requirements for
those attractions, and the nature of royalties due for the use
Direct
of the rights.
KIRKBI
Invest A/S
Blackstone
Merlin
Holdings
Limited
Lancelot
Holdings S.à r.l.
(CVC)
Blackrock
Investment
Management
(UK) Limited
118,023,926
11.64
Direct
65,541,502
6.47
Indirect
Amendment to the company’s articles
of association
The Company’s Articles of Association may only be amended by a
special resolution of its shareholders passed at a general meeting
of its shareholders.
Acquisition and disposal of own shares
The Company has not acquired or disposed of any of its own
shares during the year save as set out in note vi of the parent
Company financial statements.
Power of directors in respect of share capital
The Directors may exercise all the powers of the Company
(including, subject to obtaining the required authority from the
shareholders in general meeting, the power to authorise the issue
of new shares and the purchase of the Company’s shares).
Since its shares were listed on the London Stock Exchange on 13
November 2013, the Directors have not exercised any of the
powers to issue or purchase shares in the Company.
78
¬ Blackstone Relationship Agreement/CVC Relationship
Agreement/KIRKBI Relationship Agreement. These relationship
agreements with the pre-IPO major shareholders describe the
relationship of the Company with each of those shareholders
together with and subject to certain minimum shareholding
requirements, the right of each of those shareholders to be
represented on the Board; appoint observers to each of the
Remuneration, Nomination and Audit Committees; and certain
anti-dilution rights.
¬ Underwriting Agreement. This agreement between, inter alios,
the Company; the pre-IPO major shareholders; the IPO
underwriters; and the Directors sets out the underwriting
arrangements for the Company’s Listing on 13 November
2013. As part of this agreement the pre-IPO major
shareholders and the Directors became subject to certain
lock-up arrangements whereby they agreed not to dispose of
any shares in the Company for a period of 180 days and 360
days respectively.
Change of control
The only significant agreements to which the Company is a party
that take effect, alter or terminate upon a change of control of the
Company following a takeover bid, and the effect thereof, are
as follows:
¬ The LCA includes rights for KIRKBI to terminate the LCA on a
change of control of Merlin but only if this would result in a
Licensee (as defined in the LCA) being controlled by a LEGO
competitor or an inappropriate party.
Merlin Entertainments plc Annual Report and accounts 2013
DIRECTORS’ REPORT
The LCA defines an inappropriate party as any person or
entity (other than a financial institution) where one third of its
revenue is derived from the manufacture and sale of tobacco,
armaments and/or pornographic material.
On 24 February 2014 the Company announced a strategic
alliance with DreamWorks to launch a new midway brand.
This will see an initial roll out programme of six attractions
over nine years in international city locations.
¬ The Relationship Agreements with KIRKBI, Blackstone and
CVC respectively, each contain provisions allowing KIRKBI,
Blackstone or CVC as the case may be to terminate the
relevant Relationship Agreement with immediate effect by
written notice to the Company on any person acquiring
control of the Company (being 50 per cent. of the voting
rights of the Company).
¬ The Senior Facilities Agreement entered into by the Group
with Unicredit Group as facility agent, originally dated 4 March
2007 and amended and restated on 28 June 2013 (SFA)
includes provisions in relation to a change of control or the
sale of all or substantially all of the Group’s assets, the
occurrence of which will give the lenders under the SFA the
right to accelerate outstanding loans, terminate commitments
and enforce their security. Further details on the Group’s
banking facilities are shown in note 5.2 of the
financial statements.
The Company does not have agreements with any Director or
employee that would provide compensation for loss of office or
employment resulting from a change of control.
Branches outside the UK
The Company has no branches outside the UK.
Dividend
The Directors are not proposing to recommend any dividend
in respect of the 2013 financial year.
Political donations
No political donations were made during the year.
Subsequent events
In the Company’s IPO Prospectus the Company noted its
intention to reduce its share capital by means of a court
sanctioned reduction of capital. The final court hearing to
formally approve the proposed reduction is scheduled to take
place on 26 February 2014. If the reduction is approved, the
effect will be to increase available reserves for distribution by way
of dividends to shareholders in the amount of £3,183 million.
Going concern
The Directors consider that the Group has adequate financial
resources to continue operating for the foreseeable future and
that it is therefore appropriate to adopt the going concern basis
in preparing the financial statements.
The Directors have satisfied themselves that the Group is in a
sound financial position and that it has access to sufficient
borrowing facilities and can reasonably expect those facilities to
be available to meet the Group’s foreseeable cash requirements.
Audit information
So far as the Directors are aware, there is no relevant audit
information of which the auditors are unaware. The Directors
have taken all reasonable steps to ascertain any relevant
audit information and ensure the auditors are aware of
such information.
Re-appointment of auditors
As recommended by the Audit Committee, a resolution for the
re-appointment of KPMG LLP as auditors to the Company will be
proposed at the 2014 Annual General Meeting.
Approval of annual report
The Strategic Report, Corporate Governance Statement and
Report, and the Directors’ Report were approved by the Board
on 26 February 2014.
For and on behalf of the Board
Colin N. Armstrong
Group Company Secretary
26 February 2014
79
Merlin Entertainments plc Annual Report and accounts 2013
DIRECTORS’ RESPONSIBILITY STATEMENT
Directors’ responsibility statement
The Directors are responsible for preparing the Annual Report
and the Group and parent Company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and parent
Company financial statements for each financial year. Under that
law they are required to prepare the Group financial statements in
accordance with IFRSs as adopted by the EU and applicable law.
They have elected to prepare the parent Company financial
statements in accordance with generally accepted accounting
principles in the UK (UK GAAP). Under company law the Directors
must not approve the financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and parent Company and of the profit or loss of the Group
for that period. In preparing each of the Group and parent
Company financial statements, the Directors are required to:
¬ Select suitable accounting policies and then apply
them consistently.
¬ Make judgements and estimates that are reasonable
and prudent.
¬ For the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the EU.
Having taken advice from the Audit Committee, the
Remuneration Committee and the Health, Safety and Security
Committee as well as from its legal and other professional
advisers, the Board considers the Annual Report and Financial
Statements, taken as a whole, to be fair, balanced and
understandable and that it provides the information necessary
for shareholders to assess the Company’s performance,
business model and strategy.
Neither the Company nor the Directors accept (and hereby
excludes) any liability to any person in relation to this Report
except to the extent that such liability is imposed by law and
may not be validly excluded.
The Board confirms to the best of its knowledge that:
¬ The consolidated financial statements contained in this Report
(which have been prepared in accordance with IFRSs as
adopted by the EU), when taken as a whole, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Group.
¬ The parent Company financial statements (which have been
prepared in accordance with applicable UK Accounting
Standards), give a true and fair view of the state of affairs
of the parent Company.
¬ For the parent Company financial statements, state whether
applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained
in the parent Company financial statements.
¬ The Directors’ Report and the other sections of this Report
referred to therein together represent a fair review of the
strategy, development and performance of the business and the
position of the Group together with a description of the principal
risks and uncertainties that it faces.
Nick Varney
Chief Executive Officer Chief Financial Officer
26 February 2014 26 February 2014
Andrew Carr
¬ Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
parent Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the parent Company and
enable them to ensure that its financial statements comply with
the Companies Act 2006. They have general responsibility for
taking such steps as are reasonably open to them to safeguard
the assets of the Group and to prevent and detect fraud
and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
80
Merlin Entertainments plc Annual Report and accounts 2013
INDEPENDENT
AUDITOR’S REPORT
TO THE MEMBERS OF MERLIN ENTERTAINMENTS PLC ONLY
Opinions and conclusions arising from our audit
Our opinion on the financial statements is unmodified
We have audited the financial statements of Merlin
Entertainments plc for the year ended 28 December 2013 set
out on pages 84 to 143. In our opinion:
¬ the financial statements give a true and fair view of the state
of the Group’s and of the parent Company’s affairs as at
28 December 2013 and of the Group’s profit for the year
then ended;
¬ the Group financial statements have been properly prepared
in accordance with International Financial Reporting Standards
as adopted by the European Union (IFRSs as adopted by
the EU);
¬ the parent Company financial statements have been properly
prepared in accordance with UK Generally Accepted
Accounting Practice and the provisions of the Companies Act
2006; and
¬ the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the
IAS Regulation.
Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements
the risks of material misstatement that had the greatest effect on
our audit were as follows.
Valuation of non-current assets £2,344 million (2012: £2,297 million)
Refer to page 54 (Audit Committee Report) and page 107
(accounting policy and financial disclosures).
¬ The risk - A history of business combinations resulting in
significant goodwill balances and the capital intensive nature of
the Group’s business model exposes the Group to a risk that
the value of the Group’s goodwill, intangible asset and
property, plant and equipment balances may not prove to be
recoverable in full. This risk is prevalent as inherent uncertainty
is involved in forecasting and discounting future cash flows, due
to the Group’s new attractions often being in unproven
locations and the unpredictable impact of environmental,
macro and micro economic, and social trends on trading
performance. As these cash flows and discount rates are the
key assumptions forming the basis of the assessment of
recoverability, this is one of the key judgemental areas that
our audit concentrated on.
Key risks
The risks of material misstatement that have had the
greatest effect on our audit were:
¬ Valuation of non-current assets;
¬ Recognition of deferred tax assets; and
¬ Finance costs.
¬ Our response - Our audit procedures included, among others,
an analysis of the Group’s previous ability to forecast cash
generation accurately and challenging the reasonableness of
current forecasts. This challenge included an assessment of the
Group’s future plans for the business and a comparison of
those inputs against similar past investments made by the
Group to assess the level of the risk inherent in the
current strategies.
Benchmarking was performed on the data used by the Group
to calculate its discount rates to market data, such as publicly
available analysts’ reports.
We performed a sensitivity analysis of both discount rates and
forecast cash flows and the resulting headroom across all
valuations and considered the appropriateness of the related
disclosures. We also assessed whether the Group’s disclosures
about the sensitivity of the outcome of the impairment
assessment to changes in key assumptions reflected the risks
inherent in the valuation of goodwill.
Deferred tax assets recognition £56 million (2012: £34 million)
Refer to page 54 (Audit Committee Report), page 96
(accounting policy) and page 97 (financial disclosures).
¬ The risk - In previous years, the Group had significant
unrecognised deferred tax assets from unclaimed capital
allowances, primarily in the UK. These were not recognised
due to the level of uncertainty over the availability of future
taxable profits against which these allowances would be
utilised. The Group has revised these forecasts, taking into
account the restructuring of the Group’s operations in
connection with the IPO, leading to the recognition of further
deferred tax assets at the balance sheet date. The amount of
the additional deferred tax asset recognised is based on
the Group’s forecast of taxable profits which is
inherently subjective.
81
INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only
¬ Our response - Our audit procedures included, among
others, assessment of the Group’s forecast of taxable profits
and challenging the forecasts of trading profits and capital
spend in these estimates by taking into consideration the
Group’s historical ability to forecast accurately, taking into
account the inherent uncertainty of future looking estimates
of trading performance.
Using our own tax specialists, we evaluated the resulting
forecast tax positions and utilisation of capital allowances for
reasonableness, given our understanding of the legislation
surrounding the use of such allowances.
We performed sensitivity analysis of forecast taxable profits
and capital spend in assessing the forecasts above to assess the
likelihood of misstatement and the appropriateness of the
Group’s disclosure around the judgement.
Finance costs £109 million (2012: £126 million)
Refer to page 54 (Audit Committee Report) and page 112
(accounting policy) and page 113 (financial disclosures).
¬ The risk - During the year the Group has refinanced its debt.
Accounting standards require that the Group assesses whether
the refinancing represents a continuation of the existing facility
or the repayment of the original facility and the inception of a
new facility. This depends on the significance of the changes to
the future cash flows and affects the way previous financing
fees are treated. In addition the Group makes a judgement of
the expected life of the new facility. This affects the period
over which the refinancing costs, and if carried forwards, the
previous financing fees, are expensed.
These judgements affect the amount of finance costs
recognised in the year.
¬ Our response - In respect of the Group’s accounting for the
refinancing, our audit procedures included, among others,
corroborating the Group’s calculation of the cash flow impact
of the refinancing by reference to the underlying contracts and
the Group’s key assumptions, such as the term of the facility, in
accordance with the requirements of the accounting standards.
We made a qualitative assessment of the terms of the new
facility to assess whether any other changes in terms indicated
the facility was, in substance, repaid and reissued.
In respect of the Group’s judgement relating to the life of the
revised facility, our procedures included, among others, an
assessment of the Group’s long term business plans and
forecasts compared to their previous ability to accurately
forecast the timing of future refinancing, taking into account
other strategic plans of the Group that could trigger the need
for a future refinancing, such as significant acquisitions or new
openings. We read the facilities agreement to identify any
economic incentives for early repayment.
In light of the above we considered the appropriateness of the
Group’s assessment of the likely future repayment date of the
debt, making comparison to past behaviours. We considered
the adequacy of the Group’s disclosures in respect of
the refinancing.
Our application of materiality and an overview of the
scope of our audit
The materiality for the Group financial statements as a whole was
set at £12,000,000. This has been determined with reference to a
benchmark of revenue (of which it represents 1%), which we
consider to be one of the principal considerations for members
of the Company in assessing financial performance of the Group.
We agreed with the Audit Committee to report to it all
corrected and uncorrected misstatements we identified through
our audit with a value in excess of £600,000, in addition to other
audit misstatements below that threshold that we believe
warranted reporting on qualitative grounds.
Audits for group reporting purposes, including those performed
by the Group audit team, were performed at the key reporting
components in the following countries: UK, USA, Australia,
Denmark, Germany and Italy. These audits covered 70% of total
Group revenue and 67% of total Group assets. In addition,
specified procedures were performed at locations representing
a further 12% of revenues.
The Group audit team carried out audits covering 35% of total
Group revenue, including the only individually financially significant
component, Merlin Attractions Operations Limited. The largest
component not audited by the Group audit team directly
represents 8% of Group revenue.
For the remaining sites, the largest of which individually
contributed £11,000,000 to Group revenue, analytical procedures
were performed at Group level.
The audits undertaken for group reporting purposes at the key
reporting components of the company were all performed to
local materiality levels. These local materiality levels were set
individually for each component by the Group audit team and
ranged from £750,000 to £4,000,000.
Scope of our audit by Revenue
Group team audited, 35%
Component team audited, 35%
Specified procedures
performed, 12%
Analytical procedures, 18%
82
Merlin Entertainments plc Annual Report and accounts 2013
INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only
Detailed audit and specified procedure instructions were sent to
component auditors. These instructions covered the significant
audit areas that should be covered by these audits (which
included the relevant risks of material misstatement detailed
above) and set out the information required to be reported back
to the Group audit team. Telephone or in person meetings were
also held with the auditors at these locations.
Under the Listing Rules we are required to review:
¬ the Directors’ statement, set out on page 79, in relation to
going concern; and
¬ the part of the Corporate Governance Statement on pages 44
and 49 relating to the Company’s compliance with the nine
provisions of the 2010 UK Corporate Governance Code
specified for our review.
Our opinion on other matters prescribed by the Companies
Act 2006 is unmodified
We have nothing to report in respect of the above
responsibilities.
In our opinion:
¬ the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the
Companies Act 2006; and
¬ the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities
Statement set out on page 80, the directors are responsible for
the preparation of the financial statements and for being satisfied
that they give a true and fair view. A description of the scope
of an audit of financial statements is provided on the
Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate
This report is made solely to the Company’s members as a
body and is subject to important explanations and disclaimers
regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2013a, which are
incorporated into this report as if set out in full and should be
read to provide an understanding of the purpose of this report,
the work we have undertaken and the basis of our opinions.
Mark Summerfield (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Dukes Keep, Marsh Lane,
Southampton
SO14 3EX
26 February 2014
We have nothing to report in respect of the matters on which
we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if,
based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains a
material inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is
otherwise misleading.
In particular, we are required to report to you if:
¬ we have identified material inconsistencies between the
knowledge we acquired during our audit and the Directors’
statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s performance, business
model and strategy; or
¬ the section of the annual report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
¬ adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
¬ the parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
¬ certain disclosures of directors’ remuneration specified by
law are not made; or
¬ we have not received all the information and explanations
we require for our audit.
83
Merlin Entertainments plc Annual Report and accounts 2013
FINANCIAL STATEMENTS - CONTENTS
PRIMARY STATEMENTS
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
SECTION 1 – BASIS OF PREPARATION
SECTION 2 – RESULTS FOR THE YEAR
2.1 PROFIT BEFORE TAX
2.2 EXCEPTIONAL AND NON-TRADING ITEMS
2.3 TAXATION
2.4 EARNINGS PER SHARE
SECTION 3 – BUSINESS COMBINATIONS
SECTION 4 – OPERATING ASSETS AND LIABILITIES
4.1 PROPERTY, PLANT AND EQUIPMENT
4.2 GOODWILL AND INTANGIBLE ASSETS
4.3 IMPAIRMENT TESTING
4.4 WORKING CAPITAL
4.5 PROVISIONS
SECTION 5 – CAPITAL STRUCTURE AND FINANCING
5.1 NET DEBT
5.2 BORROWINGS
5.3 LEASE OBLIGATIONS
5.4 DERIVATIVE FINANCIAL INSTRUMENTS
5.5 FINANCE INCOME AND COSTS
5.6 FINANCIAL RISK FACTORS AND FAIR VALUE ANALYSIS
5.7 EQUITY AND CAPITAL MANAGEMENT
5.8 SHARE-BASED PAYMENT TRANSACTIONS
SECTION 6 – OTHER NOTES
6.1 INVESTMENTS
6.2 EMPLOYEE BENEFITS
6.3 RELATED PARTY TRANSACTIONS
6.4 CONTINGENT LIABILITIES
6.5 NEW STANDARDS AND INTERPRETATIONS
6.6 ULTIMATE PARENT COMPANY INFORMATION
6.7 SUBSEQUENT EVENTS
6.8 SUBSIDIARY AND JOINT VENTURE UNDERTAKINGS
MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
FINANCIAL RECORD
84
85
86
87
88
89
90
92
92
95
96
99
100
103
103
105
107
109
111
112
112
112
113
115
116
117
123
124
127
127
127
131
132
133
133
133
134
139
144
145
Merlin Entertainments plc Annual Report and accounts 2013
CONSOLIDATED INCOME STATEMENT
For the 52 weeks ended 28 December 2013
(2012: 52 weeks ended 29 December 2012)
2013
Exceptional
& non-trading
items (2)
£m
Underlying
trading
£m
Revenue
Cost of sales
Gross profit
Staff expenses
Other operating expenses
Note
2.1
2.1
2.1
1,192
(170)
1,022
(297)
(335)
Total
£m
1,192
Underlying
trading
£m
1,074
(170)
(163)
1,022
911
(297)
(261)
(30)
(365)
(304)
EBITDA (1)
2.1
390
(30)
360
346
4.1, 4.2
(100)
-
(100)
Depreciation, amortisation
and impairment
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit for the year
Profit attributable to:
Owners of the Company
Non-controlling interest
Profit for the year
Earnings per share
Basic and diluted earnings
per share (p)
290
1
(105)
186
(24)
162
162
-
162
5.5
5.5
2.3
2.4
(88)
258
6
260
21
(109)
(124)
172
(27)
140
(20)
(17)
145
120
(44)
120
-
120
(44)
-
(44)
(17)
-
(17)
145
-
145
15.1
2012
Exceptional
& non-trading
items (2)
£m
-
-
-
(1)
(5)
(6)
(53)
(59)
19
(2)
(42)
(2)
-
-
-
-
(30)
20
(4)
(14)
(3)
(1) EBITDA – this is defined as profit before finance income and costs, taxation, depreciation, amortisation and impairment and is after
taking account of attributable profit after tax of joint ventures.
(2) Details of exceptional and non-trading items are provided in note 2.2.
Total
£m
1,074
(163)
911
(262)
(309)
340
(141)
199
25
(126)
98
(22)
76
76
-
76
8.0
85
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 52 weeks ended 28 December 2013
(2012: 52 weeks ended 29 December 2012)
Profit for the year
Other comprehensive income
Items that may be reclassified to profit and loss
Exchange differences on retranslation of subsidiaries
Exchange differences relating to the net investment in foreign operations
Effective portion of changes in fair value of cash flow hedges
Income tax on items relating to components of other comprehensive income
Other comprehensive income for the year net of income tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interest
Total comprehensive income for the year
Note
2013
£m
145
2012
£m
76
5.5
2.3
(8)
(8)
5
(1)
(12)
133
133
-
133
(24)
6
(1)
1
(18)
58
59
(1)
58
86
Merlin Entertainments plc Annual Report and accounts 2013
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 28 December 2013
(2012: 29 December 2012)
Non-current assets
Property, plant and equipment
Intangible assets
Investments
Other receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Other financial assets
Cash and cash equivalents
Total assets
Current liabilities
Interest-bearing loans and borrowings
Other financial liabilities
Trade and other payables
Tax payable
Provisions
Non-current liabilities
Interest-bearing loans and borrowings
Finance leases
Other payables
Provisions
Employee benefits
Deferred tax liabilities
Total liabilities
Net assets
Issued capital and reserves attributable to owners of the Company
Non-controlling interest
Total equity
Note
2013
£m
2012
£m
4.1
4.2
6.1
4.4
2.3
4.4
4.4
5.4
5.1
5.2
5.4
4.4
4.5
5.2
5.1
4.4
4.5
6.2
2.3
5.7
1,321
961
3
3
56
1,290
970
-
3
34
2,344
2,297
24
64
6
264
358
23
47
-
142
212
2,702
2,509
6
9
223
21
11
270
4
63
179
19
13
278
1,179
1,333
85
23
37
4
160
1,488
1,758
944
940
4
944
84
22
36
5
134
1,614
1,892
617
613
4
617
The financial statements were approved by the Board of Directors on 26 February 2014 and were signed on its behalf by:
Nick Varney
Chief Executive Officer
Andrew Carr
Chief Financial Officer
87
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 52 weeks ended 28 December 2013
(2012: 52 weeks ended 29 December 2012)
Share
capital
£m
Share
premium
£m
Capital
reserve
£m
Translation
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Note
Total
parent
equity
£m
Non-
controlling
interest
£m
1,230
(493)
(52)
(6)
(130)
550
(1,230) 1,230
-
-
-
-
737
(52)
(6)
(130)
550
-
-
76
76
-
(17)
(1)
(18)
(16)
(16)
-
(1)
(1)
-
76
-
59
4
737
(68)
(7)
(54)
613
1
-
1
-
-
-
-
1
-
-
-
8
1
-
-
-
-
4
4
-
-
-
-
-
-
-
-
-
-
2,979
(2,987)
200
-
-
-
145
145
(17)
(17)
-
-
5
5
-
-
-
(12)
145
133
-
-
(7)
194
Total
equity
£m
555
-
555
76
5
-
5
-
(1)
-
4
-
-
-
-
-
58
4
617
145
(12)
133
-
194
10 3,183 (2,250)
(85)
(2)
84
940
4
944
1.1
At 1 January 2012 as
previously stated
Adjustment for reverse
acquisition
At 1 January 2012
Profit for the year
Other comprehensive
income for the year net
of income tax
Total comprehensive
income for the year
Shares issued
5.7
At 29 December 2012
Profit for the year
Other comprehensive
income for the year net
of income tax
Total comprehensive
income for the year
Bonus issue
Shares issued
At 28 December 2013
5.7
5.7
5.7
88
Merlin Entertainments plc Annual Report and accounts 2013 CONSOLIDATED STATEMENT OF CASH FLOWS
For the 52 weeks ended 28 December 2013
(2012: 52 weeks ended 29 December 2012)
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation, amortisation and impairment
Finance income
Finance costs
Taxation
Working capital changes
(Decrease)/increase in provisions and other non-current liabilities
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Acquisition of subsidiaries
Acquisition of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Proceeds from bank loans
Financing costs
Capital repayments of finance leases
Interest paid
Settlement of interest rate swaps and foreign exchange contracts
Repayment of borrowings
Net cash outflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of movements in foreign exchange
Cash and cash equivalents at end of year
Note
2013
£m
2012
£m
145
76
4.1, 4.2
5.5
5.5
2.3
3.1
100
(21)
109
27
360
30
(3)
387
(22)
365
1
(6)
(152)
(157)
194
102
(11)
-
(93)
(39)
(236)
(83)
125
142
(3)
141
(25)
126
22
340
24
1
365
(17)
348
2
(72)
(163)
(233)
-
175
(8)
(3)
(110)
5
(93)
(34)
81
60
1
5.1
264
142
89
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 1 BASIS OF PREPARATION
52 weeks ended 28 December 2013
1.1 Basis of preparation
Merlin Entertainments plc (the Company) is a company incorporated in the United Kingdom and its registered office is 3 Market Close,
Poole, Dorset, BH15 1NQ.
The consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial
Reporting Standards as adopted by the EU (Adopted IFRS).
The Company has elected to prepare its parent company financial statements in accordance with UK GAAP.
The accounting policies set out in the sections below have, unless otherwise stated, been applied consistently to all periods presented in
these consolidated financial statements and have been applied consistently by all subsidiaries and joint ventures.
The Group prepares its annual consolidated financial statements on a 52 or 53 week basis. These consolidated financial statements have been
prepared for the 52 weeks ended 28 December 2013 (2012: 52 weeks ended 29 December 2012). The consolidated financial statements are
prepared on the historical cost basis except for derivative financial instruments and certain investments measured at their fair value.
The consolidated financial statements are presented in Sterling. The functional currency of the Company is Sterling.
All values are stated in £ million (£m) except where otherwise indicated.
Going concern
The Group continues to trade profitably reporting a profit for the year of £145 million (2012: £76 million) and continues to generate
cash with operating cash inflows of £365 million (2012: £348 million). As highlighted in note 5.2, the Group is funded by a bank loan
facility, the maturity of which was extended in the year to 2019. The Group’s forecasts show that it will be able to operate within the
terms of that facility.
After reviewing the Group’s cash flow forecasts and trading budgets and making appropriate enquiries, the Directors believe the Group
to be operationally and financially robust and that it will generate sufficient cash to meet its borrowing requirements for the next twelve
months. The Directors therefore have a reasonable expectation that the Group has adequate resources to continue in operational
existence for the foreseeable future and, accordingly, the Group continues to adopt the going concern basis in preparing its consolidated
financial statements.
Basis of consolidation
On 12 November 2013 the entire share capital of the Group’s previous parent company, Merlin Entertainments S.à r.l. was acquired by
Merlin Entertainments plc funded by an issue of the equity instruments of Merlin Entertainments plc in exchange for these instruments.
There were no changes in rights or proportions of control in the Group as a result of this transaction.
Whilst the equity instruments of Merlin Entertainments S.à r.l. were legally acquired, in substance the Directors have determined that
Merlin Entertainments S.à r.l. is the accounting acquirer of Merlin Entertainments plc. As such, this transaction has been accounted for as
a reverse acquisition.
Accordingly, these financial statements are issued in the name of the new legal parent, Merlin Entertainments plc, but are a continuation
of the financial statements of Merlin Entertainments S.à r.l. In accordance with the requirements of IFRS 3: ‘Business Combinations’, the
financial statements of Merlin Entertainments S.à r.l., including comparative information, have been retroactively adjusted to transfer
£1,230 million from share premium to capital reserve to reflect the legal capital position of Merlin Entertainments plc as shown in the
consolidated statement of changes in equity. No other adjustments have arisen in respect of this reverse acquisition.
The consolidated financial statements comprise the financial statements of Merlin Entertainments plc and its subsidiaries and branches
at the end of each reporting period and include its share of its joint ventures’ results using the equity method.
Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the
financial and operating policies of an entity to obtain benefits from its activities. In assessing control, potential voting rights that are
currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases.
All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated.
Where subsidiaries enter into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, these
are considered to be insurance arrangements and accounted for as such. In this respect, the subsidiary concerned treats the guarantee
contract as a contingent liability until such time as it becomes probable that it will be required to make a payment under the guarantee.
90
Merlin Entertainments plc Annual Report and accounts 2013
SECTION 1 BASIS OF PREPARATION (continued)
52 weeks ended 28 December 2013
1.1 Basis of preparation (continued)
Foreign currency
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except
when deferred in equity as qualifying net investment hedges.
The results and financial position of those Group companies that do not have a Sterling functional currency are translated into
Sterling as follows:
¬ Assets and liabilities are translated at the closing rate at the end of the reporting period.
¬ Income and expenses are translated at average exchange rates during the year.
¬ All resulting exchange differences are recognised in equity in the translation reserve.
Classification of financial instruments issued by the Group
Financial instruments often consist of a combination of debt and equity and the Group has to decide how to attribute values to each.
They are treated as equity only to the extent that they meet the following two conditions:
(i) they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or
financial liabilities with another party under conditions that are potentially unfavourable to the Group; and
(ii) where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the Group’s own equity instruments or is a derivative that will be settled by the Group
exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability, and where such an instrument takes
the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share
premium account exclude amounts in relation to those shares.
Finance payments associated with financial liabilities are dealt with as part of finance costs. Finance payments associated with financial
instruments that are classified in equity are dividends and are recorded directly in equity.
Judgements and estimates
The preparation of financial statements requires management to exercise judgement in applying the Group’s accounting policies. It also
requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
On an ongoing basis the following areas involve a higher degree of judgement or complexity and are explained in more detail in the
related notes:
¬ Recognition of deferred tax assets (note 2.3).
¬ Impairment testing (note 4.3).
During the year the following specific item also involved a higher degree of judgement or complexity:
¬ Accounting for the Group’s amendment to its financing facilities (note 5.2).
New standards and interpretations
A full list of new accounting standards and interpretations that have been implemented in the year or will be implemented next year,
and which have no significant impact, can be found in note 6.5.
91
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 2 RESULTS FOR THE YEAR
52 weeks ended 28 December 2013
2.1 Profit before tax
Segmental information
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur
expenses. The Group is managed through its three Operating Groups, which form the operating segments on which the information
shown below is prepared. The Group determines and presents operating segments based on the information that is provided internally
to the Chief Executive Officer (CEO), who is the Group’s chief operating decision maker. An operating segment’s operating results are
reviewed regularly by the CEO to make decisions about resources to be allocated to the segment and assess its performance, and for
which discrete financial information is available. Performance is measured based on segment EBITDA, as included in internal
management reports.
Information regarding the results of each operating segment is included below.
2013
£m
524
352
314
2012
£m
458
308
290
1,190
1,056
2
18
1,192
1,074
2013
£m
212
127
81
420
(30)
390
(30)
360
(100)
(88)
172
2012
£m
179
113
73
365
(19)
346
(6)
340
(141)
(101)
98
Midway Attractions
LEGOLAND Parks
Resort Theme Parks
Segment revenue
Central and other revenue
Revenue
Midway Attractions
LEGOLAND Parks
Resort Theme Parks
Segment profit, being segment EBITDA
Central costs
EBITDA before exceptional and non-trading items
Exceptional and non-trading items within EBITDA (note 2.2)
EBITDA
Depreciation, amortisation and impairment
Net finance costs
Consolidated profit before tax
92
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 28 December 2013
2.1 Profit before tax (continued)
Geographical areas
While each Operating Group is managed on a worldwide basis the information presented below is based on the geographical locations
of the visitor attractions concerned.
Geographical information
United Kingdom
Continental Europe
North America
Asia Pacific
Deferred tax
Investments
Revenues
2013
£m
Non-current
assets
2013
£m
Revenues
2012
£m
Non-current
assets
2012
£m
466
307
247
172
778
829
373
305
425
280
217
152
757
796
362
348
1,192
2,285
1,074
2,263
56
3
2,344
34
-
2,297
Revenue
Revenue arises from the operation of visitor attractions and theme park resorts. Revenue represents the amounts (excluding VAT and
similar taxes) received from customers for admissions tickets, room revenue, retail and food and beverage sales. Revenue from the sale
of annual passes is deferred and then recognised over the period that the pass is valid. Ticket revenue is recognised at point of entry.
From time to time, the Group enters into service contracts for attraction development and revenue is recognised under these contracts
on a percentage completion basis. Service contract revenue in the year is not material.
Cost of sales
Cost of sales of £170 million (2012: £163 million) represents variable expenses (excluding VAT and similar taxes) incurred from revenue
generating activity. Retail inventory and food and beverage consumables are the principal expenses included under this category.
93
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 28 December 2013
2.1 Profit before tax (continued)
Operating costs
Staff numbers and costs
The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:
Operations
Attraction management and central administration
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Other pension costs
Auditor’s remuneration
Audit of these financial statements
Audit of financial statements of subsidiaries
Other assurance services (1), (2)
Other services relating to taxation
Services relating to corporate finance transactions (2), (3)
All other services
2013
2012
14,573
13,117
1,712
1,719
16,285
14,836
2013
£m
255
32
10
2012
£m
226
28
8
297
262
2013
£m
1.0
0.3
1.1
0.3
2.9
-
5.6
2012
£m
1.2
0.3
0.1
0.3
0.1
0.2
2.2
(1)
(2)
(3)
Other assurance services in 2013 includes £1.0 million in relation to the half year audit undertaken as part of the IPO process.
These costs are included within other operating expenses – exceptional and non-trading items (see note 2.2).
Services relating to corporate finance transactions includes fees incurred as part of the IPO process.
94
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 28 December 2013
2.2 Exceptional and non-trading items
Accounting policy
Due to their nature, certain exceptional and non-trading items have been classified separately in order to draw them to the attention
of the reader. In the judgement of the Directors this presentation shows the underlying business performance of the Group
more accurately.
Exceptional and non-trading items
The following items are exceptional or non-trading and have been shown separately on the face of the consolidated income statement:
Within staff expenses:
Redundancy and related costs (4)
Within other operating expenses:
Costs in respect of IPO (1)
Acquisition costs (2)
Exceptional and non-trading items included within EBITDA
Within depreciation, amortisation and impairment:
Impairment of intangible assets (5)
Impairment of property, plant and equipment (5)
Exceptional and non-trading items included within operating profit
Within finance income and costs:
Unrealised gain on re-measurement of financial derivatives at fair value (3)
Unrealised loss on re-measurement of financial derivatives at fair value (3)
Settlement of foreign exchange contracts (6)
Exceptional and non-trading items before income tax
Exceptional and non-trading items income tax charge
Exceptional and non-trading items for the year
2013
2013
£m
2012
£m
-
-
28
2
30
30
-
-
-
30
(20)
4
-
(16)
14
3
17
1
1
-
5
5
6
40
13
53
59
(14)
2
(5)
(17)
42
2
44
(1)
(2)
(3)
Certain professional and advisory fees have been incurred in 2013 as part of the process of listing shares in the Group through an
Initial Public Offering. They are separately presented as they are not part of the Group’s underlying operating expenses. In addition,
£7 million has been recognised directly in equity.
Directly attributable acquisition and subsequent integration costs were incurred in respect of the acquisitions described in note 3.1.
These are separately presented as they are not part of the Group’s underlying operating expenses.
The Group has separately presented gains and losses on derivative financial instruments, where the items are not hedge accounted,
in order to better present the underlying finance cost for the Group (note 5.5).
95
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 28 December 2013
2.2 Exceptional and non-trading items (continued)
2012
(4)
(5)
(6)
Redundancy and related costs were incurred in 2012 following an internal review of the Gardaland Resort business in Italy. These
were separately presented as they were not part of the Group’s underlying operating expenses.
Total impairment losses of £53 million were incurred in 2012, being £40 million in respect of goodwill for the Resort Theme Parks
Operating Group (note 4.2) and £13 million in aggregate in respect of property, plant and equipment at three of the Group’s
midway attractions (note 4.1). These were all driven by lower projected cash flows within business plans arising from adverse
economic conditions within southern Europe.
The Group entered into a number of foreign exchange contracts in connection with the acquisition of Living and Leisure Australia
in 2012. They were not hedge accounted and accordingly gains were recognised when they were settled. These were separately
presented as they were not part of the Group’s underlying finance income.
2.3 Taxation
Accounting policies
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement unless it relates to
items recognised directly in equity, when it is recognised directly in equity, or when it relates to items recognised in other comprehensive
income, when it is recognised through the statement of comprehensive income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end
of the reporting period, and any adjustment to tax payable in respect of previous periods.
Deferred tax is provided on certain temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and taxation purposes respectively. The following temporary differences are not provided for: the initial recognition of goodwill;
the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and
differences relating to investments in subsidiaries and joint ventures to the extent that they will probably not reverse in the foreseeable
future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period.
After considering forecast future profits, deferred tax assets are recognised where it is probable that future taxable profits will be
available against which those assets can be utilised.
Recognised in the income statement
Current tax expense
Current year
Adjustment for prior periods
Total current income tax
Deferred tax expense
Origination and reversal of temporary differences
Changes in tax rate
Adjustment for prior periods
Total deferred tax
Total tax expense in income statement
96
2013
£m
2012
£m
26
(1)
25
4
-
(2)
2
27
18
-
18
3
(1)
2
4
22
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 28 December 2013
2.3 Taxation (continued)
Reconciliation of effective tax rate
Profit before tax
Income tax using the domestic corporation tax rate
Non-deductible expenses
Income not subject to tax
Effect of tax rates in foreign jurisdictions
Effect of changes in tax rate
Unrecognised temporary differences
Effect of recognising deferred tax assets
previously unrecognised
Adjustment for prior periods
Total tax expense in income statement
2013
%
23.0%
9.8%
(9.9%)
10.6%
0.1%
1.0%
2013
£m
172
40
16
(17)
18
-
2
2012
%
28.8%
23.0%
(17.7%)
7.0%
(0.9%)
3.9%
2012
£m
98
28
22
(17)
7
(1)
4
(16.9%)
(29)
(23.1%)
(23)
(2.0%)
15.7%
(3)
27
1.4%
22.4%
2
22
Merlin Entertainments plc is a UK company and the reconciliation of effective tax rate has been performed at the UK statutory rate.
The comparative information uses the Luxembourg statutory rate.
During 2013 a number of changes associated with the IPO, including the restructuring of debt facilities and the settlement of interest
rate swaps have led to an increased certainty over the availability of future taxable profits in the UK, which has led to the recognition of
deferred tax assets in the UK, arising largely from unclaimed capital allowances. Sensitivity analysis was performed when the asset was
recognised. This showed that no reasonably foreseeable changes in the future taxable profits of the UK operations or the forecast
capital spend would result in non-utilisation of the deferred tax assets.
Recognised directly in equity through the statement of other comprehensive income
Foreign exchange translation differences relating to the net investment in foreign operations
Total tax expense/(income) in statement of other comprehensive income
2013
£m
1
1
2012
£m
(1)
(1)
Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Other short term temporary differences
Intangible assets
Tax value of loss carry-forwards
Tax assets/(liabilities)
Set-off tax
Net tax assets/(liabilities)
Assets
2013
£m
2012
£m
40
26
-
3
69
(13)
56
-
19
-
13
32
2
34
Liabilities
2013
£m
(112)
(13)
(48)
-
(173)
13
(160)
2012
£m
(83)
-
(49)
-
Net
2013
£m
(72)
13
(48)
3
2012
£m
(83)
19
(49)
13
(132)
(104)
(100)
(2)
-
-
(134)
(104)
(100)
97
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 28 December 2013
2.3 Taxation (continued)
Other short term temporary differences primarily relate to miscellaneous items, including various accruals and prepayments.
Set-off tax is separately presented to show deferred tax assets and liabilities by category before the effect of offsetting these amounts in
the statement of financial position where the Group has the right and intention to offset these amounts.
Movement in deferred tax during the current year
Property, plant and equipment
Other short term temporary differences
Intangible assets
Tax value of loss carry-forwards
Net tax assets/(liabilities)
Movement in deferred tax during the previous year
Property, plant and equipment
Other short term temporary differences
Intangible assets
Tax value of loss carry-forwards
Net tax assets/(liabilities)
Unrecognised deferred tax assets
Property, plant and equipment
Other short term temporary differences
Intangible assets
Tax value of loss carry-forwards
Net tax assets
30 December
2012
£m
Acquired
in business
combinations
(note 3.1)
£m
Recognised
in other
comprehensive
income
£m
Effect of
movements
in foreign
exchange
£m
Recognised
in income
£m
28
December
2013
£m
(83)
19
(49)
13
(100)
-
-
-
-
-
10
(3)
1
(10)
(2)
-
(2)
-
-
(2)
1
(1)
-
-
-
(72)
13
(48)
3
(104)
Acquired
in business
combinations
(note 3.1)
£m
1 January
2012
£m
Recognised
in other
comprehensive
income
£m
Effect of
movements
in foreign
exchange
£m
Recognised
in income
£m
29
December
2012
£m
(88)
13
(50)
25
(100)
(1)
4
-
-
3
4
3
1
(12)
(4)
-
-
-
-
-
2
(1)
-
-
1
(83)
19
(49)
13
(100)
2013
£m
2012
£m
7
30
4
55
96
29
30
6
94
159
The unrecognised deferred tax assets relating to loss carry-forwards include £nil (2012: £3 million) which expire within five years and
£1 million (2012: £1 million) which expire within ten years. The remaining losses and other timing differences do not expire under
current tax legislation. Unrecognised loss carry-forwards of £47 million ceased to exist on the liquidation of certain subsidiary
companies domiciled in Luxembourg.
98
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 28 December 2013
2.4 Earnings per share
Basic earnings per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be
issued on the conversion of all dilutive potential ordinary shares into ordinary shares.
Adjusted earnings per share is calculated in the same way except that the profit for the period attributable to ordinary shareholders is
adjusted for exceptional and non-trading items (see note 2.2).
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Profit attributable to ordinary shareholders
Exceptional and non-trading items net of tax (see note 2.2)
Adjusted profit attributable to ordinary shareholders
Basic weighted average number of shares
Dilutive potential ordinary shares
2013
£m
145
17
162
2012
£m
76
44
120
2013
2012
957,880,691
947,404,479
-
-
Diluted weighted average number of shares
957,880,691
947,404,479
Awards issued under the share incentive schemes described in note 5.8 are not dilutive for the years ended 28 December 2013 and
29 December 2012, as the performance conditions attached to the PSP have not been achieved at the reporting date and the average
market price of the ordinary shares subject to the CSOP scheme did not exceed the sum of the exercise price and the fair value of
services to be provided for these awards.
Basic earnings per share
Basic earnings per share
Diluted earnings per share
Adjusted earnings per share
Adjusted earnings per share
Adjusted diluted earnings per share
2013
Pence
15.1
15.1
2013
Pence
16.9
16.9
2012
Pence
8.0
8.0
2012
Pence
12.7
12.7
99
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 3 BUSINESS COMBINATIONS
52 weeks ended 28 December 2013
3.1 Business combinations
Accounting policies
When a business combination takes place, the Directors consider the rights and intentions of the directors of both entities and the overall
controlling parties before and after acquisition to determine who the acquiring party is, and then account for business combinations by
applying the purchase method. Having determined the acquiring party, any individually identifiable assets, liabilities and contingent liabilities
acquired are valued. These include the property, plant and equipment and any intangible assets which can be sold separately or which arise
from legal rights regardless of whether those rights are separable, with any remaining balance being assigned to goodwill.
Given the specialised nature of the property, plant and equipment acquired, fair values are calculated on a depreciated replacement cost
basis. The key estimates are the replacement cost, where industry specific indices are used to restate original historic cost; and
depreciation, where the total and remaining economic useful lives are considered, together with the residual value of each asset. The total
estimated lives applied are consistent with those set out in note 4.1. Residual values are based on industry specific indices.
2013
Rays Ski Shop
On 9 January 2013 the Group acquired Rays Ski Shop in Victoria, Australia for the consideration of £1 million settled in cash. The net
assets acquired were £nil. Goodwill arose on this acquisition as it provided an opportunity for the Group to expand its offering to
customers visiting the Hotham and Falls Creek Ski Resorts.
Turkuazoo Aquarium
On 19 September 2013 the Group acquired the Turkuazoo Aquarium in Istanbul, Turkey for the consideration of £1 million settled in
cash for 100 per cent. of the share capital of Istanbul Sualti Dunyasi Turizm Ticaret A.S. The net assets acquired were £1 million. No
goodwill arose on this acquisition.
Iconic Images
On 3 December 2013 the Group acquired Iconic Images International Limited for the consideration of £4 million settled in cash. The
net assets acquired were £nil. Goodwill arose on this acquisition as it provided an opportunity for the Group to expand its retail offering
on the South Bank, where the London Eye, SEA LIFE London Aquarium and the London Dungeon are all located.
These acquisitions had the following combined effect on the Group’s assets and liabilities:
Fair values at
acquisition
£m
6
(5)
1
5
6
6
6
Acquirees’ net assets at the acquisition date:
Property, plant and equipment
Bank loans
Net identifiable assets and liabilities
Goodwill
Consideration
Analysis of consideration:
Cash
Analysis of net cash outflow:
Cash paid at acquisition
100
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 3 BUSINESS COMBINATIONS (continued)
52 weeks ended 28 December 2013
3.1 Business combinations (continued)
The goodwill on these transactions is not deductible for tax purposes.
In the period to 28 December 2013 these acquisitions contributed £1 million to the consolidated revenue and a profit of £nil to the
consolidated underlying operating profit of the Group. Had the acquisitions occurred on 30 December 2012, the estimated Group
revenue to 28 December 2013 would have been £1,196 million and the estimated underlying operating profit would have been
£290 million.
2012
Living and Leisure Australia
The Group’s offer to acquire all of Living and Leisure Australia (LLA) went unconditional with effect from 10 February 2012. This
included nine leisure attractions in the Asia Pacific region as well as a management contract in Dubai. The acquired businesses have been
integrated into the Group’s existing Midway Attractions Operating Group.
As part of financing this acquisition, the Group drew down new debt under its existing financing facilities, and the consideration of £98
million was settled in cash. Directly attributable acquisition costs were incurred on the transaction and the subsequent integration
activities of £2 million in 2011 and £5 million in 2012.
Goodwill arose on this acquisition as it provided opportunities for the Group to use its knowledge to develop the profitability of
existing attractions as well as expand into new territories and facilitate the roll out of further midway attractions.
SEA LIFE London Aquarium Shop
The Group also acquired Cotswold Village Green Limited for £1 million in cash on 20 March 2012, which operated the shop adjacent to
the SEA LIFE London Aquarium at County Hall, London. The net assets acquired were £nil. Goodwill arose on this acquisition as it
provided an opportunity for the Group to expand its retail offering at the SEA LIFE London Aquarium site.
101
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 3 BUSINESS COMBINATIONS (continued)
52 weeks ended 28 December 2013
3.1 Business combinations (continued)
These acquisitions had the following combined effect on the Group’s assets and liabilities:
Acquirees’ net assets at the acquisition date:
Property, plant and equipment
Other intangible assets
Inventories
Trade and other receivables
Cash and cash equivalents
Bank loans
Finance leases
Trade and other payables
Provisions and employee benefits
Current tax liabilities
Deferred tax assets and liabilities
Net identifiable assets and liabilities
Goodwill
Consideration
Analysis of consideration:
Cash
Analysis of net cash outflow:
Cash acquired
Cash paid at acquisition
Net cash outflow
Fair values at
acquisition
£m
132
5
2
4
27
(90)
(1)
(21)
(10)
(4)
3
47
52
99
99
99
(27)
99
72
The goodwill on these transactions is not deductible for tax purposes.
In the period to 29 December 2012 these acquisitions contributed £75 million to the consolidated revenue and a profit of £19 million
to the consolidated underlying operating profit of the Group. Had the acquisitions occurred on 1 January 2012, the estimated Group
revenue to 29 December 2012 would have been £1,083 million and the estimated underlying operating profit would have been
£258 million.
102
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 4 OPERATING ASSETS AND LIABILITIES
52 weeks ended 28 December 2013
4.1 Property, plant and equipment
Accounting policies
Property, plant and equipment (PPE) are stated at cost less accumulated depreciation and impairment losses.
Where parts of an item of PPE have different useful lives, they are accounted for separately.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of PPE.
Land is not depreciated. Assets under construction are not depreciated until they come into use, when they are transferred to buildings
or plant and equipment as appropriate.
The estimated useful lives are as follows:
Asset class
Depreciation policy
Freehold / long leasehold buildings
50 years
Leasehold buildings
Plant and equipment
20 - 50 years
5 - 30 years
On inception of a lease the estimated cost of decommissioning any additions is included within PPE and depreciated over the lease
term. A corresponding provision is set-up as disclosed in note 4.5.
103
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 28 December 2013
4.1 Property, plant and equipment (continued)
Property, plant and equipment
Cost
Balance at 1 January 2012
Acquisitions through business combinations (note 3.1)
Additions
Movements in asset retirement provisions
Disposals
Transfers
Effect of movements in foreign exchange
Balance at 29 December 2012
Acquisitions through business combinations (note 3.1)
Additions
Movements in asset retirement provisions (note 4.5)
Disposals
Transfers
Effect of movements in foreign exchange
Balance at 28 December 2013
Depreciation
Balance at 1 January 2012
Depreciation for the year - owned assets
Depreciation for the year - leased assets
Impairment
Disposals
Effect of movements in foreign exchange
Balance at 29 December 2012
Depreciation for the year - owned assets
Depreciation for the year - leased assets
Disposals
Effect of movements in foreign exchange
Balance at 28 December 2013
Carrying amounts
At 1 January 2012
At 29 December 2012
At 28 December 2013
104
Land and
buildings
£m
Plant and
equipment
£m
Under
construction
£m
699
658
Total
£m
1,414
132
170
4
(9)
-
(35)
1,676
6
149
1
(16)
-
(31)
1,785
302
83
4
13
(9)
(7)
386
95
4
(16)
(5)
464
57
2
127
-
-
(95)
(1)
90
-
106
-
-
(136)
2
62
-
-
-
-
-
-
-
-
-
-
-
-
39
32
1
(8)
65
(13)
774
6
34
(1)
(11)
73
(14)
861
191
60
2
5
(8)
(3)
247
67
3
(11)
(3)
303
467
527
558
57
90
62
1,112
1,290
1,321
91
11
3
(1)
30
(21)
812
-
9
2
(5)
63
(19)
862
111
23
2
8
(1)
(4)
139
28
1
(5)
(2)
161
588
673
701
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 28 December 2013
4.1 Property, plant and equipment (continued)
PPE was tested for impairment in accordance with the Group’s accounting policy, as referred to in note 4.3. No impairment charges
have been made in the year (2012: £8 million in land and buildings and £5 million in plant and equipment). The impairment in 2012 was in
respect of three of the Group’s midway attractions, arising from a review of market and economic conditions at those locations.
The charge was included within depreciation, amortisation and impairment in the consolidated income statement.
The Group leases buildings and plant and equipment under finance lease agreements secured on those assets, some of which arose as a
result of the arrangements referred to in note 5.3. At 28 December 2013 the net carrying amount of leased buildings was £19 million
(2012: £20 million) and the net carrying amount of leased plant and machinery was £37 million (2012: £39 million).
Capital commitments
At the year end the Group has a number of outstanding capital commitments amounting to £35 million (2012: £40 million), for which
no provision has been made. These commitments are expected to be settled within two financial years of the reporting date.
4.2 Goodwill and intangible assets
Accounting policies
Goodwill represents the difference between the cost of an acquisition and the fair value of the net identifiable assets acquired and any
contingent liabilities assumed. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to groups of cash-
generating units and is not amortised but is tested annually for impairment. In respect of joint ventures, the carrying amount of goodwill
is included in the carrying amount of the investment in the joint venture.
Where they arise on acquisition, brands have been valued based on discounted future cash flows using the relief from royalty method,
including amounts into perpetuity. Currently all brands held are regarded as having indefinite useful economic lives. This is based upon
the strong historical performance of the brands over a number of economic cycles, the demonstrable ‘chaining’ of brands, and the
Directors’ intentions regarding the future use of brands. The Directors feel this is a suitable policy for a brands business which invests in
and maintains the brands, and foresee no technological developments or competitor actions which would put a definite life on the
brands. The brands are tested annually for impairment.
Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.
Other intangible assets comprise software licences, sponsorship rights and other contract based intangible assets. They are amortised on
a straight-line basis from the date they are available for use. They are stated at cost less accumulated amortisation and impairment losses.
The estimated useful lives of other intangible assets are as follows:
Asset class
Licences
Estimated useful life
Life of licence (up to 15 years)
Other intangible assets
Relevant contractual period (up to 30 years)
105
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 28 December 2013
4.2 Goodwill and intangible assets (continued)
Goodwill and intangible assets
Cost
Balance at 1 January 2012
Acquisitions through business combinations (note 3.1)
Additions
Effect of movements in foreign exchange
Balance at 29 December 2012
Acquisitions through business combinations (note 3.1)
Additions
Effect of movements in foreign exchange
Balance at 28 December 2013
Amortisation and impairment
Balance at 1 January 2012
Amortisation for the year
Impairment
Effect of movements in foreign exchange
Balance at 29 December 2012
Amortisation for the year
Effect of movements in foreign exchange
Balance at 28 December 2013
Carrying amounts
At 1 January 2012
At 29 December 2012
At 28 December 2013
Intangible assets
Goodwill
£m
Brands
£m
Other
£m
Total
£m
912
52
-
(15)
949
5
-
(12)
942
133
-
40
-
173
-
1
174
192
-
-
(2)
190
-
-
1
191
13
-
-
(1)
12
-
-
12
779
776
768
179
178
179
20
5
1
(1)
25
-
1
(1)
25
8
1
-
-
9
1
1
11
12
16
14
1,124
57
1
(18)
1,164
5
1
(12)
1,158
154
1
40
(1)
194
1
2
197
970
970
961
Intangible assets are tested for impairment in accordance with the Group’s accounting policy, as referred to in note 4.3. As a result of these
tests, no goodwill has been written off in the year (2012: £40 million in respect of goodwill within the Resort Theme Parks operating segment).
Goodwill
Goodwill is allocated to the Group’s segments which represent the lowest level at which it is monitored and tested for impairment. It is
denominated in the relevant local currencies and therefore the carrying value is subject to movements in the underlying exchange rates.
Midway Attractions
LEGOLAND Parks
Resort Theme Parks
106
2013
£m
531
39
198
768
2012
£m
543
39
194
776
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 28 December 2013
4.2 Goodwill and intangible assets (continued)
Brands
The Group has valued the following acquired brands, all with indefinite useful economic lives. They are all denominated in their relevant
local currencies and therefore the carrying value is subject to movements in the underlying exchange rates.
Midway Attractions
Madame Tussauds
SEA LIFE
London Eye
Other
Resort Theme Parks
Gardaland Resort
Alton Towers Resort
Thorpe Park
Heide Park
Other
2013
£m
2012
£m
26
16
10
8
60
48
32
15
12
12
26
16
10
8
60
47
32
15
12
12
119
179
118
178
The Madame Tussauds brand value is predominantly related to the London attraction but includes value identified with the Group’s
other Madame Tussauds attractions. The SEA LIFE brand is related to the Group’s portfolio of SEA LIFE attractions (including aquariums
in London and Sydney). The London Eye, Gardaland Resort, Alton Towers Resort, Thorpe Park and Heide Park brands all arise from
those specific visitor attractions.
4.3 Impairment testing
Accounting policies
The carrying amounts of the Group’s goodwill, intangible assets and PPE are reviewed annually to determine whether there is any
indication of impairment. If any such indication exists or if the asset has an indefinite life, the asset’s recoverable amount is estimated.
The process of impairment testing is to estimate the recoverable amount of the assets concerned, and recognise an impairment loss
whenever the carrying amount of those assets exceeds the recoverable amount.
The level at which the assets concerned are reviewed varies as follows:
Asset
Goodwill
Brands
PPE
Goodwill is reviewed at an Operating Group level, being the relevant grouping of
cash-generating units (CGUs) at which the benefit of such goodwill arises. A CGU is the
smallest identifiable group of assets that generates largely independent cash inflows,
being the Group’s individual attractions.
Brands are reviewed individually.
PPE is reviewed at an attraction level.
107
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 28 December 2013
4.3 Impairment testing (continued)
For assets that do not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the
assets belong.
Impairment losses are recognised in the income statement. They are allocated first to reduce the carrying amount of goodwill, and then
to reduce the carrying amount of other intangible assets and other assets on a pro rata basis.
Calculation of recoverable amount
Management judge the recoverable amount of an asset as the greater of its value in use and its fair value less costs to sell. To assess value
in use, estimated future cash flows are discounted to their present value using an appropriate pre-tax discount rate. The Group uses a
multiple of EBITDA to estimate fair value. This multiple is based on the Group’s average market capitalisation as a multiple of the Group’s
underlying EBITDA. The Group’s internally approved five year business plans are used as the basis for these calculations, with cash flows
beyond the five year business plan horizon then extrapolated using a long term growth rate.
Common assumptions have been adopted for the purpose of testing goodwill across the business and for testing brand values as their
risk profiles are similar. The key assumptions and estimates used when calculating the net present value of future cash flows from the
Group’s businesses are as follows:
Estimate
Future cash flows
Growth in EBITDA
Assumed to be equivalent to the operating cash flows of the businesses less the cash flows in
respect of capital expenditure. The Group uses EBITDA as a proxy for the operating cash
flows of its attractions as they are not significantly impacted by movements in working capital.
Visitor numbers and revenue projections are based on market analysis, including the total
available market, historic trends, competition and site development activity, both in terms of
capital expenditure on rides and attractions as well as marketing activity.
Operating costs projections are based on historical data, adjusted for variations in visitor
numbers and planned expansion of site activities as well as general market conditions.
Timing and quantum of future capital
and maintenance expenditure
Projections are based on the attractions’ long term development plans, taking into account the
capital investment necessary to maintain and sustain the performance of the attractions’ assets.
Long term growth rates
Discount rates to reflect the risks
involved
A growth rate of 2.5 per cent. (2012: 2.5 per cent.) was determined based on management’s
long term expectations, taking account of historical averages and future expected trends in
both market development and market share growth.
Based on the estimated weighted average cost of capital of a ‘market participant’ within the
main geographical regions where the Group operates, these are drawn from market data and
businesses in similar sectors, and adjusted for asset specific risks. The key assumptions of the
‘market participant’ include the ratio of debt to equity financing, risk free rates and the
medium term risks associated with equity investments. Net present values are calculated using
an appropriate pre-tax discount rate of between nine per cent. and 13 per cent. (2012: nine
per cent. and twelve per cent.), derived from the Group’s post-tax weighted average cost of
capital of between seven per cent. and ten per cent. (2012: seven per cent. and nine per cent.).
Projecting future growth involves a degree of judgement and uncertainty. The Group operates in geographically and politically diverse
areas and although the Group has attained knowledge from the past performance of opening new attractions, inevitably the
performance of new attractions, particularly in new markets, can be difficult to accurately predict. Similarly, the exposure of certain
attractions to macro-economic volatility can give rise to uncertainties in these projections.
The Directors consider that no reasonably foreseeable change in any of the above key assumptions, in particular the discount rate and
growth rate assumptions used, would significantly alter the outcome of the Group’s impairment testing.
108
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 28 December 2013
4.3 Impairment testing (continued)
No impairment losses were recorded in 2013. Total impairment losses of £53 million were recorded in 2012, being £40 million in
respect of a partial impairment of goodwill for the Resort Theme Parks Operating Group and £13 million in aggregate in respect of
property, plant and equipment at three of the Group’s midway attractions. These were all primarily driven by lower projected cash flows
within business plans arising from adverse economic conditions within southern Europe.
The key assumptions used in assessing the recoverable amount of Resort Theme Parks’ goodwill in 2012 were the EBITDA forecasts and
discount rate applied. If the estimated EBITDA levels used in the value in use calculations had been one per cent. lower than the
estimate used at 29 December 2012 the Group would have recognised a further impairment against goodwill of £10 million. A pre-tax
discount rate of eleven per cent. has been used to discount the forecast cash flows in these calculations. If the discount rate used in the
value in use calculations had been 0.1 per cent. higher than the estimate used at 29 December 2012 the Group would have recognised
a further impairment against goodwill of £8 million. At 28 December 2013 if the estimated EBITDA levels used in the value in use
calculations had been one per cent. lower or the discount rate used had been 0.1 per cent. higher the Resort Theme Parks’ goodwill
would still not be impaired.
4.4 Working capital
Accounting policies
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle and includes
expenditure incurred in acquiring the inventories and bringing them to their present location and condition.
Trade and other receivables
Trade receivables are recognised and carried at the original invoice amount less an allowance for any amounts considered by
management to be uncollectible. Bad debts are written off when identified. Other receivables are stated at their amortised cost less
impairment losses.
Inventories
Maintenance inventory
Goods for resale
Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
2013
£m
6
18
24
2012
£m
6
17
23
Current assets
Non-current assets
2013
£m
2012
£m
2013
£m
2012
£m
12
25
27
64
12
12
23
47
-
-
3
3
-
-
3
3
109
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 28 December 2013
4.4 Working capital (continued)
Ageing of trade receivables
The ageing analysis of trade receivables, net of allowance for uncollectible amounts, is as follows:
Neither past due nor impaired
Up to 30 days overdue
Between 30 and 60 days overdue
Trade and other payables
Trade payables
Accruals and deferred income
Other payables
2013
£m
2012
£m
6
4
2
12
7
4
1
12
Current liabilities
Non-current liabilities
2013
£m
28
184
11
223
2012
£m
33
133
13
179
2013
£m
2012
£m
-
3
20
23
-
3
19
22
110
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 28 December 2013
4.5 Provisions
Accounting policy
Provisions are recognised when the Group has legal or constructive obligations as a result of past events and it is probable that
expenditure will be required to settle those obligations. They are measured at the Directors’ best estimates, after taking account of
information available and different possible outcomes.
If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Provisions
Balance at 30 December 2012
Provisions made during the year
Utilised during the year
Unused amounts reversed
Unwinding of discount
Effect of movements in foreign exchange
Balance at 28 December 2013
2013
Current
Non-current
2012
Current
Non-current
Asset
retirement
provisions
£m
Other
£m
29
2
-
(1)
1
(1)
30
-
30
30
-
29
29
20
4
(5)
(1)
-
-
18
11
7
18
13
7
20
Total
£m
49
6
(5)
(2)
1
(1)
48
11
37
48
13
36
49
Asset retirement provisions
Certain attractions operate on leasehold sites and these provisions relate to the anticipated costs of removing assets and restoring the
sites concerned at the end of the lease term.
They are established on inception and discounted back to present value with the discount then being unwound through the income
statement as part of finance costs. They are reviewed at least annually.
Other
Other provisions largely relate to the estimated cost arising from open insurance claims, tax matters and legal issues.
111
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING
52 weeks ended 28 December 2013
5.1 Net debt
Analysis of net debt
Net debt is the total amount of cash and cash equivalents less interest-bearing loans and borrowings and finance lease liabilities. Cash
and cash equivalents comprise cash balances, call deposits and other short term liquid investments such as money market funds which
are subject to an insignificant risk of a change in value.
Cash and cash equivalents
Interest-bearing loans and borrowings (note 5.2)
Net bank debt
Current finance leases (note 5.3)
Non-current finance leases (note 5.3)
Net debt
2013
£m
264
2012
£m
142
(1,185)
(1,337)
(921)
(1,195)
-
-
(85)
(84)
(1,006)
(1,279)
Restricted funds of £6 million (2012: £6 million) are included in cash and cash equivalents.
5.2 Borrowings
Accounting policy
Interest-bearing loans and borrowings
Interest-bearing loans and borrowings are initially recognised at fair value, being consideration received less any directly attributable
transaction costs. Thereafter, interest-bearing loans and borrowings are stated at amortised cost with any difference between cost and
redemption value being recognised in the income statement over the period of the borrowings on an effective interest rate basis. To
calculate this effective interest rate the Group estimates the expected future gearing during the life of the facility based on the Group’s
business plans and forecasts, and expected future interest rates. This includes the amortisation of all transaction costs over the same
period. The Group assesses whether the terms of the borrowings provide a clear commercial incentive or a contractual commitment to
repay them over a specific period that is shorter than the contractual life of the facility, or if the Group’s current plans or forecasts
suggest an early repayment or refinancing is probable. If this is the case the Group will adopt that as the period used for the purposes
of the effective interest rate calculations. If neither of these conditions exists the Group calculates its effective interest rate and hence
amortises transaction costs based on the contractual term of the facility.
If the Group modifies its debt arrangements, it considers how substantive the change is in determining the appropriate accounting.
This includes both qualitative analysis, and quantitative analysis of the level of change in the cash flows of the new and old arrangements.
Interest-bearing loans and borrowings
Current
2013
£m
Non-current
2012
£m
2013
£m
2012
£m
Total
2013
£m
2012
£m
-
6
6
1
3
4
1,179
1,333
1,179
1,334
-
-
6
3
1,179
1,333
1,185
1,337
Secured bank loans
Interest payable
112
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.2 Borrowings (continued)
Terms and debt repayment schedule
This table provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, showing both the
principal and carrying values, which are measured at amortised cost. For more information about the Group’s exposure to interest rate,
liquidity, foreign currency and credit risks, see note 5.6.
Secured bank loan
Secured bank loan
Secured bank loan
Secured bank loan
Secured bank loan
Interest payable
Currency
Nominal
interest rate
Year of
maturity
3.75%
3.39%
3.43%
5.87%
2019
2019
2019
2019
GBP
EUR
USD
AUD
RMB
2013
2012
Principal
value
£m
Carrying
amount
£m
Principal
value
£m
Carrying
amount
£m
412
378
329
90
-
401
368
323
87
-
455
463
277
164
1
447
454
273
159
1
1,209
1,179
1,360
1,334
6
1,185
3
1,337
On 28 June 2013 the Group entered into an amendment to the facility that extended the contractual date of repayment from July 2017
to July 2019, and that involved the Group repaying and then drawing down borrowings in a differently weighted blend of currencies to
better match the Group’s ongoing needs. Reflecting management’s judgement that this is a non-substantive change to an existing facility,
the Group accounted for this on a continuation accounting basis. At the reporting date the amended terms of the borrowings provide
no clear commercial incentive or contractual commitment to repay them over a specific period that is shorter than the contractual life
of the facility and accordingly the Group calculates its effective interest rate and hence amortises transaction costs based on the
contractual term of the facility. The loans are secured by fixed charges over the shares in certain Group companies and certain
intra-group receivables.
The nominal interest rate for secured bank loans in the table above represents the floating interest rate, including applicable margin,
which prevailed at the reporting date. The Group uses interest rate swaps to hedge its interest rate exposure and these are described in
note 5.4.
5.3 Lease obligations
Accounting policies
Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance
leases. Where land and buildings are held under finance leases the accounting treatment of the land is considered separately from that of
the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the
present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge
is allocated during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Operating lease payments
Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease
incentives received and predetermined non-contingent rent increases are recognised in the income statement as an integral part of the
total lease expense over the lease term.
Lease arrangements
The Group undertook a sale and leaseback transaction during 2007, involving the property, plant and equipment of certain attractions.
The leases entered into are accounted for as finance or operating leases depending on the specific circumstances of each lease.
113
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.3 Lease obligations (continued)
Each of these lease agreements runs for a period of 35 years from inception and allows for annual rent increases based on the
inflationary index in the United Kingdom and fixed increases in Continental Europe. The Group has the option, but is not contractually
required, to extend each of the lease agreements individually for two further terms of 35 years, subject to an adjustment to market rates
at that time.
During 2012 the Group undertook a sale and leaseback transaction of the LEGOLAND Windsor Hotel. The lease entered into is being
accounted for as an operating lease. The gain on the sale is deferred over the 35 year lease term, as the lease was not at fair value.
In addition, the Group also enters into operating leases for a number of its premises. These leases are typically of a duration of between
ten and 60 years, with rent increases generally determined based on local market practice. The key contractual terms in relation to each
lease are considered when calculating the rental charge over the lease term. During 2013 £83 million (2012: £76 million) was recognised
as an expense in the income statement in respect of operating leases.
The tables below set out the total lease obligations for the Group:
Finance leases
These tables provide information about the future minimum lease payments and contractual terms of the Group’s finance lease liabilities,
as follows:
Less than one year
Between one and five years
More than five years
Finance lease liabilities
Finance lease liabilities
Present
value of
minimum
lease
payments
2013
£m
Future
minimum
lease
payments
2012
£m
Present
value of
minimum
lease
payments
2012
£m
Interest
2012
£m
Future
minimum
lease
payments
2013
£m
6
26
259
291
Interest
2013
£m
6
26
174
206
-
-
85
85
6
24
254
284
Currency
Nominal
interest rate
Year of
maturity
GBP
EUR
5.64%
9.11%
2042
2042
6
24
170
200
2013
£m
54
31
85
-
-
84
84
2012
£m
54
30
84
The nominal interest rate for finance leases in the table above represents the weighted average effective interest rate. This is used
because the table above aggregates finance leases with the same maturity date and currency.
Operating leases
The minimum rentals payable as lessee under non-cancellable operating leases are as follows:
Less than one year
Between one and five years
More than five years
114
2013
£m
74
291
1,380
1,745
2012
£m
68
269
1,359
1,696
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.4 Derivative financial instruments
Accounting policies
The Group holds derivative financial instruments primarily to hedge its foreign currency and interest rate exposures.
Interest rate swaps, foreign exchange contracts and committed share issues
Derivatives are recognised initially at fair value and attributable transaction costs are recognised in profit or loss as incurred.
Thereafter changes in fair value are recognised immediately in the income statement, except where the Group adopts hedge
accounting as described below.
The fair value of interest rate swaps is determined by reference to market rates at the end of the accounting period. It is the estimated
amount that the Group would receive or pay to exit the swap at the end of the reporting period, taking into account current interest
rates, credit risks and bid/ask spreads.
The fair value of foreign exchange contracts is the present value of future cash flows and is determined by reference to market rates at
the end of the accounting period.
Hedge accounting
The Group has designated certain derivatives as hedges against variable cash flows resulting from fluctuations in interest rates. On initial
designation of the hedge, the Group formally documents the relationship between the hedging instruments and hedged items, including
the risk management objectives and strategy in undertaking the hedge transaction, and the methods that will be used to assess the
effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an
ongoing basis, as to whether the hedging instruments are expected to be ‘highly effective’ in offsetting the changes in the fair value or cash
flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge
are within a range of 80-125 per cent. Effectiveness testing is performed using regression analysis at inception and on a regular basis
thereafter.
The effective portion of changes in fair value of the derivative is recognised in other comprehensive income and presented in the hedging
reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. The
amount recognised in other comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows
affect profit or loss, and under the same line item in the statement of comprehensive income as the hedged item.
If the hedging instrument no longer meets the criteria for hedge accounting, cumulative gains or losses previously recognised in other
comprehensive income would be recognised immediately in profit or loss.
Other financial assets
Derivative financial instruments
Hedge accounted interest rate swaps
Non-hedge accounted interest rate swaps
Non-hedge accounted foreign exchange contracts
Other financial liabilities
Derivative financial instruments
Hedge accounted interest rate swaps
Non-hedge accounted interest rate swaps
The Group’s exposure to interest rate, liquidity, foreign currency and credit risks is disclosed in note 5.6.
2013
£m
2012
£m
4
1
1
6
-
-
-
-
2013
£m
2012
£m
8
1
9
8
55
63
115
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.5 Finance income and costs
Accounting policies
Income and costs
Finance income comprises interest income, applicable foreign exchange gains and gains on hedging instruments that are recognised in
the income statement. Finance costs comprise interest expense, finance charges on finance leases, applicable foreign exchange losses and
losses on hedging instruments that are recognised in the income statement. Interest income and interest expense are recognised as they
accrue, using the effective interest method.
Capitalisation of borrowing costs
The Group capitalises borrowing costs directly attributable to the acquisition, construction or production of assets taking a substantial
period of time to get ready for their intended use as part of the cost of that asset.
Net investment in foreign entities
On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other
currency instruments designated as hedges of such investments, are taken to equity. The Group treats specific intercompany loan
balances, which are not intended to be repaid in the foreseeable future, as part of its net investment. In the event of a foreign entity
being sold or a hedging item being extinguished, such exchange differences would be recognised in the income statement as part of
the gain or loss on sale.
Finance income and costs
Finance income
In respect of assets not held at fair value
Interest income
In respect of liabilities held at fair value
Unrealised gain on re-measurement of financial derivatives at fair value
- Interest rate swaps and foreign exchange contracts
Other
Net foreign exchange gain
Finance costs
In respect of liabilities not held at fair value
Interest expense on financial liabilities measured at amortised cost
Other interest expense
In respect of liabilities held at fair value
Unrealised loss on re-measurement of financial derivatives at fair value
- Interest rate swaps and foreign exchange contracts
Other
Net foreign exchange loss
2013
£m
2012
£m
1
20
-
21
2013
£m
102
1
4
2
6
14
5
25
2012
£m
122
2
2
-
109
126
Capitalised borrowing costs amounted to £2 million in 2013 (2012: £3 million), with a capitalisation rate of 6.8 per cent.
(2012: 7.5 per cent.). Tax relief on capitalised borrowing costs amounted to £1 million in 2013 (2012: £1 million).
116
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.5 Finance income and costs (continued)
Recognised in consolidated statement of other comprehensive income
Foreign currency translation differences relating to the net investment in foreign operations
2013
£m
8
2012
£m
(6)
Foreign currency translation differences relating to the net investment in foreign operations are stated before attributable income
tax (note 2.3).
5.6 Financial risk factors and fair value analysis
Interest rate risk
Interest rate risk is the risk that the Group is impacted by changes in interest rates. At 28 December 2013 the Group had floating rate
debt in Sterling, Euros, US Dollars and Australian Dollars.
The Group hedges its cash flow exposure to its floating rate loans with interest rate swaps. At the reporting date 85 per cent.
(2012: 76 per cent.) of the secured bank loans were hedged in this way.
The carrying amount of the Group’s interest-bearing financial instruments was:
Fixed rate instruments
Financial liabilities - finance leases
Financial liabilities - interest rate swaps
Variable rate instruments
Financial assets - cash and cash equivalents
Financial liabilities - bank loans and overdrafts
Carrying amount
2013
£m
2012
£m
(85)
(4)
(89)
(84)
(63)
(147)
264
142
(1,179)
(1,334)
(915)
(1,192)
Interest rate swaps have a fixed leg and a floating leg; they have been classified as fixed rate financial liabilities in the table above as the
fair value of the swaps is dependent on the fixed rate.
The Group has performed sensitivity analysis on these balances as follows:
Fair value sensitivity analysis
This analysis shows the Group’s sensitivity to changes in interest rates. It is calculated by measuring the impact on profit and loss or
equity of a change in the present value of derivatives. This assumes a shift in the yield curve of +/- 50 basis points (bp) (2012: 50bp).
If interest rates had been 50bp higher/lower and all other variables were held constant, the impact would be as follows:
50bp increase in interest rates
50bp reduction in interest rates
2013
Profit or
loss
£m
-
-
2012
Profit or
loss
£m
11
(11)
Equity
£m
(14)
14
Equity
£m
2
(2)
117
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.6 Financial risk factors and fair value analysis (continued)
Cash flow sensitivity analysis
This analysis shows the sensitivity of the Group’s cash flows to changes in interest rates by comparing the expected annual interest
expense/income which would apply to year end balances at year end interest rates, to the annual expense/income which would arise
had interest rates been 50bp higher.
This analysis assumes that all other variables remain constant.
Bank loans and overdrafts
Interest rate swaps
Cash and cash equivalents
Cash flow sensitivity (net)
Profit or (loss)
2013
£m
(5)
5
1
1
2012
£m
(7)
5
1
(1)
A decrease of 50bp would result in a loss of £1 million (2012: profit of £1 million).
Liquidity risk
Liquidity risk is the risk that the Group would not have sufficient funds to meet its financial obligations as they fall due. The Group’s
Treasury Department produces short term and long term cash forecasts to identify liquidity requirements and headroom, which are
reviewed by the Group’s Chief Financial Officer. Surplus cash is actively managed across Group bank accounts to cover local shortfalls or
invested in bank deposits or liquidity funds. In some jurisdictions bank cash pooling arrangements are in place to optimise the use of
cash. The Group has access to a revolving credit facility of £150 million (2012: £138 million) in addition to its existing borrowings to
meet any shortfalls.
At 28 December 2013, the Group had cash and cash equivalents of £264 million together with this revolving credit facility, which can be
used to meet its contractual cash flows.
The following table sets out the contractual maturities of financial liabilities, including interest payments and excluding the impact of
netting agreements. This analysis assumes that interest rates prevailing at the reporting date remain constant.
Carrying
amount
£m
Contractual
cash flows
£m
0 to <1
year
£m
1 to <2
years
£m
2 to <5
years
£m
5 years
and over
£m
2013
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Trade payables
Derivative financial liabilities
Hedge accounted interest rate swaps
Non-hedge accounted interest rate swaps
1,179
(1,462)
85
28
8
1
(206)
(28)
(25)
(1)
1,301
(1,722)
(45)
(6)
(28)
(5)
(1)
(85)
(45)
(6)
-
(1)
-
(52)
(139)
(20)
-
(19)
-
(1,233)
(174)
-
-
-
(178)
(1,407)
118
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.6 Financial risk factors and fair value analysis (continued)
2012
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Trade payables
Derivative financial liabilities
Hedge accounted interest rate swaps
Non-hedge accounted interest rate swaps
Carrying
amount
£m
Contractual
cash flows
£m
0 to <1
year
£m
1 to <2
years
£m
2 to <5
years
£m
5 years
and over
£m
1,334
(1,671)
84
33
8
55
(205)
(33)
(9)
(63)
1,514
(1,981)
(67)
(6)
(33)
(4)
(27)
(137)
(67)
(1,537)
(6)
-
(5)
(27)
(18)
-
-
(9)
-
(175)
-
-
-
(105)
(1,564)
(175)
Foreign currency risk
The Group operates internationally with its operating assets, revenues and costs denominated primarily in the functional currencies of
the relevant local territories. The Group is exposed to foreign currency risk on cash flows that are not denominated in an entity’s local
currency and to the translation of non-Sterling earnings. Net foreign exchange cash flow exposures, where material, are hedged by
foreign exchange transactions.
The translation exposures to foreign currency earnings are hedged by bank debt denominated in the Group’s principal currencies in
ratios intended to provide a match between funding requirements and the cash generation capabilities of the Group’s operations in
each of its locations. The principal currencies are Sterling, Euros, US Dollars and Australian Dollars.
The Group’s financial instruments are set out by currency below:
Sterling
£m
Euro
£m
US
Dollar
£m
Australian
Dollar
£m
Other
£m
Total
£m
2013
Cash and cash equivalents
Trade receivables
Secured bank loans
Finance lease liabilities
Derivatives
Trade payables
2012
Cash and cash equivalents
Trade receivables
Secured bank loans
Finance lease liabilities
Derivatives
Trade payables
220
6
(401)
(54)
5
(10)
(234)
116
5
(447)
(54)
(23)
(10)
8
2
(368)
(31)
(2)
(9)
11
2
4
1
(323)
(87)
-
(6)
(3)
(400)
(319)
9
2
6
2
-
-
(2)
(84)
4
2
(454)
(273)
(159)
(30)
(28)
(12)
-
(12)
(7)
-
-
(2)
(413)
(513)
(284)
(155)
21
1
-
-
-
(4)
18
7
1
(1)
-
-
(2)
5
264
12
(1,179)
(85)
(3)
(28)
(1,019)
142
12
(1,334)
(84)
(63)
(33)
(1,360)
119
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.6 Financial risk factors and fair value analysis (continued)
The Group treats certain structural intercompany loans as net investment hedging instruments. At 28 December 2013 the Group had
hedged £251 million (2012: £552 million) in Euro denominated loans, £17 million (2012: £57 million) in Sterling denominated loans and
£149 million (2012: £40 million) in US Dollar denominated loans. Translation movements on these loans are therefore shown in other
comprehensive income, see note 5.5.
Foreign currency sensitivity analysis
The table below shows the sensitivity to a ten per cent. strengthening/weakening of Sterling against all foreign currencies at the reporting date.
The Group’s sensitivity to foreign exchange rates is calculated by retranslating monetary assets and liabilities which are held in currencies
other than the functional currencies of the reporting entities using exchange rates which have been flexed by +/- ten per cent. from the
Sterling exchange rates existing at the end of the reporting period. Where the Group has designated specific monetary assets or liabilities
as hedging instruments that are hedging underlying foreign exchange exposures, this has been taken account of. The sensitivity analysis for
forward foreign exchange contracts uses a discounted cash flow technique applying a ten per cent. strengthening/weakening of Sterling
against Euros, US Dollars, Danish Kroner, Hong Kong Dollars, Australian Dollars and Singapore Dollars. The analysis assumes that all other
variables remain constant.
The impact of these retranslations on profit/loss has been aggregated and is as follows, split by category of financial instrument:
10% strengthening of Sterling
Profit or (loss) impact
Secured
bank loans
£m
Derivatives
(unhedged)
£m
Total
£m
2
5
-
-
(2)
-
5
2
10
-
-
(2)
-
10
3
-
(1)
(1)
1
1
3
3
(1)
(1)
-
-
-
1
5
5
(1)
(1)
(1)
1
8
5
9
(1)
-
(2)
-
11
2013
Euro
US Dollars
Danish Kroner
Hong Kong Dollars
Australian Dollars
Singapore Dollars
2012
Euro
US Dollars
Danish Kroner
Hong Kong Dollars
Australian Dollars
Singapore Dollars
120
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.6 Financial risk factors and fair value analysis (continued)
10% weakening of Sterling
2013
Euro
US Dollars
Danish Kroner
Hong Kong Dollars
Australian Dollars
Singapore Dollars
2012
Euro
US Dollars
Danish Kroner
Hong Kong Dollars
Australian Dollars
Singapore Dollars
Profit or (loss) impact
Secured
bank loans
£m
Derivatives
(unhedged)
£m
Total
£m
(2)
(5)
-
-
1
-
(6)
(2)
(10)
-
-
2
-
(4)
-
1
1
(1)
(1)
(4)
(3)
1
1
-
-
-
(6)
(5)
1
1
-
(1)
(10)
(5)
(9)
1
-
2
-
(10)
(1)
(11)
A ten per cent. strengthening/weakening of Sterling would have no impact on the hedging reserve.
Certain financial assets and liabilities of the Group are held by entities operating with a functional currency other than Sterling and do
not have a base in local functional currency or Sterling. Accordingly, these instruments are sensitive to movements in foreign exchange
rates but are not impacted by a strengthening or weakening of Sterling as presented above. The impact on profit/(loss) would be a loss
of £3 million following a ten per cent. strengthening of the relevant functional currency and would be a profit of £3 million following a
ten per cent. weakening of the relevant functional currency.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. Credit risk is limited to the carrying value of the Group’s monetary assets. The Group has credit policies in place with regard
to its trade receivables. Credit evaluations are performed on customers requiring credit over a certain amount.
The Group manages credit exposures in connection with financing and treasury activities including exposures arising from bank deposits,
cash held at banks and financial and derivative transactions, by appraisal, formal approval and ongoing monitoring of the credit position
of counterparties. Counterparty exposures are measured against a formal transaction limit appropriate to that counterparty’s
credit position.
121
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.6 Financial risk factors and fair value analysis (continued)
Fair values
Basis for determining fair values
Derivatives
Derivatives are carried at fair value, as defined in note 5.4.
Non-derivative financial assets
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of
interest at the reporting date.
Non-derivative financial liabilities
Where available, market values have been used to determine the fair values of secured bank loans. Where market values are not
available, or are not reliable, fair values have been calculated by discounting cash flows at prevailing interest rates. During 2013 market
values became available for secured bank loans following the amendment to the facility. In 2012 the discount rate used for determining
the fair value of the secured bank loans was 7.8 per cent. For finance leases the market rate of interest is determined by reference to
similar lease agreements.
Fair value versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:
Derivative assets and liabilities:
Hedge accounted interest rate swaps
Non-hedge accounted interest rate swaps
Non-hedge accounted foreign exchange contracts
Non-derivative assets and liabilities:
Investments
Trade and other receivables
Cash and cash equivalents
Secured bank loans
Finance lease liabilities
Trade and other payables
2013
Carrying
amount
£m
2012
Fair
value
£m
Carrying
amount
£m
Fair
value
£m
(4)
-
1
3
37
264
(4)
-
1
3
37
264
(8)
(55)
-
-
24
142
(8)
(55)
-
-
24
142
(1,179)
(1,217)
(1,334)
(1,275)
(85)
(28)
(85)
(28)
(84)
(33)
(84)
(33)
(991)
(1,029)
(1,348)
(1,289)
Fair value hierarchy
The Group analyses financial instruments carried at fair value by valuation method. The different levels have been defined as follows:
¬ Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
¬ Level 2: inputs other than quoted prices included within Level 1 that are observable for assets or liabilities, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
¬ Level 3: inputs for assets or liabilities that are not based on observable market data (unobservable inputs).
At 28 December 2013 the Group had £3 million (2012: £63 million) of derivative financial liabilities classified as Level 2. The Group has
an investment in IDR Resorts Sdn. Bhd. acquired for £3 million as disclosed in note 6.1. This investment is classified as a Level 3
investment in the fair value hierarchy. At the reporting date there are no indicators the value is either impaired or above cost.
Accordingly, no valuation adjustments have been recorded. There have been no transfers between levels in 2013 (2012: nil). No other
financial instruments are held at fair value. If the secured bank loans were held at fair value they would be classified as Level 1.
122
Merlin Entertainments plc Annual Report and accounts 2013
SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.7 Equity and capital management
Capital management
The capital structure of the Group consists of debt which includes borrowings (see note 5.2), cash and cash equivalents and equity
attributable to equity holders of the parent company, as disclosed below. The Group’s objective when managing capital is to maintain a
strong capital base so as to maintain investor and creditor confidence and to sustain future development of the business; to provide
returns for shareholders; and to optimise the capital structure to reduce the cost of capital. There are no externally imposed capital
requirements on the Group.
To enable the Group to meet its objective, the Directors monitor returns on capital through constant review of earnings generated
from the Group’s capital investment programme and through regular budgeting and planning processes, manage capital in a manner so
as to ensure that sufficient funds for capital investment and working capital are available, and the requirements of the Group’s debt
covenants are met.
The Group does not routinely make additional issues of capital, other than for the purpose of raising finance to fund significant
acquisitions or developments intended to increase the overall value of the Group.
Share schemes have been created to allow employees of the Group to participate in the ownership of the Group’s equity instruments,
in order to ensure employees are focused on growing the value of the Group to achieve the aims of all the shareholders.
Share capital and reserves
Share capital
Ordinary shares of £0.01 each
2013
Number
2012
Number
2013
£m
2012
£m
On issue and fully paid at beginning of year
156,767,050
156,271,845
Cancelled in the year
Bonus issue
Issued in the year
(10,868,759)
804,101,709
-
-
63,746,032
495,205
1
-
8
1
On issue and fully paid at end of year
1,013,746,032
156,767,050
10
1
-
-
-
1
The share capital above reflects the retroactive adjustment described in note 1.1.
Issue of new shares
2013
The Company was incorporated on 20 September 2013. On incorporation one A ordinary share of £0.01 was issued for consideration of £0.01.
On 12 November 2013 the Company acquired the entire issued share capital of Merlin Entertainments S.à r.l. in consideration for the
issue of 136,767,049 A ordinary shares of £0.01 to the previous shareholders of A class shares of Merlin Entertainments S.à r.l. and
20,000,000 B ordinary shares of £0.01 to the previous shareholders of B class ordinary shares of Merlin Entertainments S.à r.l.
On 13 November 2013 all of the A ordinary shares and 9,131,241 of the B ordinary shares of the Company were converted into
ordinary shares of £0.01 in Merlin Entertainments plc. The remaining 10,868,759 B ordinary shares were converted into deferred
ordinary shares in Merlin Entertainments plc and were subsequently gifted back to the Company and cancelled.
On 13 November 2013 a bonus issue of 804,101,709 shares was made to holders of the ordinary shares in the Company.
No consideration was payable on the issue of the shares.
On 13 November 2013 the Company became listed on the London Stock Exchange and the issue of 63,492,064 ordinary shares for a
total consideration of £200 million became unconditional. £7 million of directly attributable costs were recorded in equity in retained
earnings. Costs not directly attributable to the issue of new shares were charged to the income statement.
On 13 November 2013 the Company issued 253,968 ordinary shares to certain Non-executive Directors for consideration of £1 million.
123
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.7 Equity and capital management (continued)
2012
To assist with the acquisition and development into LEGOLAND Florida of the Cypress Gardens theme park in 2010, the Group
entered into an agreement with an existing shareholder to invest US$30 million. The agreement allowed for additional shares to be
issued at par to the shareholder should a listing or sale of the Group not take place before 31 August 2012. In 2011 it was considered
probable that such an event would not occur, and accordingly this committed share issue was recognised at a value of £4 million.
495,205 A ordinary shares in Merlin Entertainments S.à r.l. were therefore issued during 2012 resulting in a premium of £4 million.
Ordinary shares
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
general meetings of the Company.
Each ordinary share in the capital of the Company ranks equally in all respects. No shareholder holds shares carrying special rights
relating to the control of the Company. However, the Company has entered into Relationship Agreements with each of the pre-IPO
major shareholders, KIRKBI, Blackstone and CVC in connection with the exercise of their rights as major shareholders in the Company
and their right to appoint Directors to the Board.
The nominal value of shares in issue is shown in share capital, with any additional consideration for those shares shown in share premium.
Capital reserve
Balances have arisen in the capital reserve when the Group’s previous parent company, Merlin Entertainments S.à r.l. arranged its own
acquisition by Merlin Entertainments plc, a new legal parent. The balances arising represent the difference between the value of the
equity structure of the previous and new parent companies. When the capital position of the parent company is rearranged, such as for
the bonus issue in the year, the capital reserve is adjusted appropriately such that the equity balances presented in the Group accounts
best reflect the underlying structure of the Group’s capital base.
No other adjustments have arisen in respect of this reverse acquisition.
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of
foreign operations.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments
related to hedged transactions that have not yet occurred.
5.8 Share-based payment transactions
Accounting policy
The fair value of equity-settled share-based payments is recognised as an employee expense with a corresponding increase in equity. The
fair value is measured at grant date and charged as the employees become unconditionally entitled to the rights.
The Group’s equity-settled share plans are settled either by the issue of shares by Merlin Entertainments plc or by the purchase of shares in
the market. The fair value of the share plans is recognised as an expense over the expected vesting period net of deferred tax with a
corresponding entry to retained earnings. The fair value of the share plans is determined at the date of grant. Non-market based vesting
conditions (i.e. earnings per share and return on capital employed targets) are taken into account in estimating the number of awards likely
to vest. The estimate of the number of awards likely to vest is reviewed at each accounting date up to the vesting date, at which point the
estimate is adjusted to reflect the actual awards issued. No adjustment is made after the vesting date even if the awards are forfeited or are
not exercised.
The Group operates cash-settled versions of the employee incentive schemes for employees in certain territories. The issues and resulting
charges of these schemes are not material to the financial statements.
124
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.8 Share-based payment transactions (continued)
Equity-settled schemes
The Group operates three employee share incentive schemes: the Performance Share Plan (PSP), the Company Share Option Plan
(CSOP) and the All Employee Sharesave Plan as set out in the Directors’ Remuneration Report and the tables below.
The first issues of awards under the PSP and CSOP were in November 2013 and the Company intends to issue awards to eligible
employees following the issue of the 2014 year end financial statements and annually thereafter. Permanent employees are eligible to
receive these awards at the discretion of the Remuneration Committee. The Sharesave Plan was launched in January 2014 after the
balance sheet date. There were no employee Sharesave Plan contracts in respect of options over shares in the Company at 28
December 2013 (2012: nil).
All awards under the PSP and CSOP are granted for nil consideration. The total number of shares granted under the various Group
incentive plans, excluding lapsed and surrendered options, may not exceed ten per cent. of the issued share capital in any ten year
period (101 million £0.01 ordinary shares as at 28 December 2013).
PSP Awards
Date of grant
12 November 2013
CSOP Awards
Date of grant
12 November 2013
Exercise
price (£)
Period when
exercisable
Average
remaining
contractual
life (years)
Number
of shares
2013
Number
of shares
2012
-
2017-2024
10.3 3,633,489
3,633,489
-
-
Exercise
price (£)
Period when
exercisable
Average
remaining
contractual
life (years)
Number
of shares
2013
Number
of shares
2012
3.15
2016-2023
9.9 2,298,375
2,298,375
-
-
A summary of the rules for both schemes and the performance conditions attaching to the PSP are given in the Directors’
Remuneration Report.
The weighted average exercise prices (WAEP) over the year were as follows:
PSP Awards
Outstanding at beginning of year
Granted during the year
Outstanding at end of year
Exercisable at end of year
CSOP Awards
Outstanding at beginning of year
Granted during the year
Outstanding at end of year
Exercisable at end of year
Number
2013
WAEP (£)
2013
Number
2012
WAEP (£)
2012
-
n/a
3,633,489
3,633,489
-
-
-
-
-
-
-
-
n/a
n/a
n/a
n/a
Number
2013
WAEP (£)
2013
Number
2012
WAEP (£)
2012
-
2,298,375
2,298,375
-
n/a
3.15
3.15
-
-
-
-
-
n/a
n/a
n/a
n/a
125
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 28 December 2013
5.8 Share-based payment transactions (continued)
The fair value per award granted and the assumptions used in the calculations are as follows:
Date of grant
Type of
award
Number
of awards
Exercise
price (£)
12 November 2013
PSP
3,633,489
-
12 November 2013
CSOP 2,298,375
3.15
Share price
at grant
date (£)
Fair
value per
award (£)
Expected
dividend
yield
Expected
volatility
Award life
(years)
Risk free
rate
3.15
3.15
3.15
0.97
n/a
0.8%
n/a
30%
3.4
4.9
1.1%
1.7%
A description of the key assumptions used in calculating the share-based payments is as follows:
¬ The binomial valuation methodology was used.
¬ Due to insufficient trading history in the Group’s shares, the expected volatility is based on a portfolio of comparator companies.
¬ The risk free rate is equal to the prevailing UK Gilts rate at grant date, which is commensurate with the expected term.
¬ Expected forfeiture rates are based on recent experience of staff turnover levels.
¬ Behavioural expectations have been estimated in estimating the award life.
¬ The charge is spread over the vesting period on a straight-line basis.
The total charge for the year relating to employee share-based payment plans was £nil (2012: £nil) which was charged to staff expenses.
Equity-settled schemes (closed)
The Group previously operated equity-settled schemes that enabled certain senior employees to acquire B class ordinary shares in Merlin
Entertainments S.à r.l. at market value. Market value was determined based on an analysis of profit multiples in the Group’s industry sector.
At the discretion of the CEO further shares could also have been granted in recognition of long service and/or outstanding contribution.
These shares vested on the IPO of the Company in November 2013.
No charge arose during the year (2012: £nil). The number of shares issued was as follows:
At beginning of year
Issued during the year
Forfeited during the year
Converted into B ordinary shares of Merlin Entertainments plc
At end of year
Number
2013
Number
2012
19,283,150 17,996,500
1,320,725
1,626,875
(603,875)
(340,225)
(20,000,000)
-
- 19,283,150
126
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 6 OTHER NOTES
52 weeks ended 28 December 2013
6.1 Investments
Accounting policy
Joint ventures
Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated
financial statements include the Group’s share of the total recognised income and expenses of joint ventures on an equity accounted
basis, from the date that joint control commences until the date that joint control ceases.
Investments
Other
Investment in joint ventures
At beginning of year
Effect of movements in foreign exchange
At end of year
2013
£m
3
3
2012
£m
-
-
2013
£m
2012
£m
-
-
-
1
(1)
-
Other
In November 2013 the Group acquired 16,350,300 shares in IDR Resorts Sdn. Bhd. (IDR) for the consideration of £3 million. This
represents 8.8 per cent. of the outstanding share capital of IDR. IDR is accounted for at fair value and is not consolidated.
6.2 Employee benefits
Accounting policies
Defined contribution pension schemes
In the case of defined contribution schemes, the Group pays fixed contributions into a separate fund on behalf of the employee and has
no further obligations to employees. The risks and rewards associated with this type of scheme are assumed by the members rather
than the employer. Obligations for contributions to defined contribution pension schemes are recognised as an expense in the income
statement as incurred.
Defined benefit pension schemes
A defined benefit scheme is a post-employment benefit scheme other than a defined contribution scheme. The Group’s net obligation is
calculated for each scheme by estimating the amount of future benefit that employees have earned in return for their service in the
current and prior periods. That benefit is discounted to determine its present value and offset by the fair value of any scheme assets.
The calculation is performed by a qualified actuary using the projected unit credit method.
All actuarial gains and losses are recognised in the period they occur directly in equity through other comprehensive income.
Defined contribution pension schemes
The Group operates a number of defined contribution pension schemes and the total expense relating to those schemes in the current
year was £10 million (2012: £8 million).
127
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.2 Employee benefits (continued)
Defined benefit pension schemes
The Group operates two defined benefit schemes: a closed scheme for certain former UK employees of The Tussauds Group, which
was acquired in 2007, and a closed scheme for certain employees of Gardaland in Italy. The Tussauds Group scheme entitles retired
employees to receive an annual payment based on a percentage of final salary for each year of service that the employee provided.
The entitlement of the retired employees under the Gardaland scheme is dependent on the state laws in place at the date employment
commenced and is subject to a certain minimum period of service. The pension schemes have not directly invested in any of the
Group’s own financial instruments or in properties or other assets used by the Group.
Tussauds
Group
£m
Gardaland
£m
Total
£m
11
5
1
17
(20)
(3)
7
3
5
15
(18)
(3)
-
-
-
-
(1)
(1)
-
-
-
-
(2)
(2)
Tussauds
Group
£m
Gardaland
£m
13
1
1
15
1
1
17
-
-
-
-
-
-
-
11
5
1
17
(21)
(4)
7
3
5
15
(20)
(5)
Total
£m
13
1
1
15
1
1
17
The assets and liabilities of the schemes are:
2013
Equities
Corporate bonds and cash
Property
Fair value of scheme assets
Present value of defined benefit obligations
Net pension liability
2012
Equities
Corporate bonds and cash
Property
Fair value of scheme assets
Present value of defined benefit obligations
Net pension liability
Movement in the present value of scheme assets
At 1 January 2012
Interest income on plan assets
Remeasurement gain
At 29 December 2012
Interest income on plan assets
Remeasurement gain
At 28 December 2013
128
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.2 Employee benefits (continued)
Movement in the present value of the defined benefit obligations
At 1 January 2012
Interest cost
Remeasurement loss
At 29 December 2012
Transfers out
Interest cost
Remeasurement loss
At 28 December 2013
Amounts recognised in the income statement
2013
Net interest on defined benefit liability
2012
Net interest on defined benefit liability
Amounts recognised in the statement of comprehensive income
2013
Return on plan assets (excluding amounts included in net interest expense)
Actuarial changes arising from changes in financial assumptions
Actuarial changes arising from changes in demographic assumptions
Actuarial changes arising from changes in experience
2012
Return on plan assets (excluding amounts included in net interest expense)
Actuarial changes arising from changes in financial assumptions
Tussauds
Group
£m
Gardaland
£m
(16)
(1)
(1)
(18)
-
(1)
(1)
(20)
(2)
-
-
(2)
1
-
-
(1)
Total
£m
(18)
(1)
(1)
(20)
1
(1)
(1)
(21)
Tussauds
Group
£m
Gardaland
£m
Total
£m
-
-
-
-
-
-
Tussauds
Group
£m
Gardaland
£m
Total
£m
1
(1)
1
(1)
-
1
(1)
-
-
-
-
-
-
-
-
-
1
(1)
1
(1)
-
1
(1)
-
129
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.2 Employee benefits (continued)
Actuarial assumptions
Principal actuarial assumptions (expressed as weighted averages) at the year end were:
Discount rate
Future salary increases
Rate of price inflation
Tussauds
Group
2013
Tussauds
Group
2012
Gardaland
2013
Gardaland
2012
4.6%
3.7%
3.4%
4.5%
3.4%
3.1%
3.1%
-
2.0%
2.8%
-
2.0%
The amendment to IAS 19 became effective in the current financial year and has been applied retrospectively. Under the amendment to
IAS 19, the expected rate of return on scheme assets must be the same as the discount rate used in the calculation of scheme liabilities.
The impact of reducing the expected rate of return on the scheme assets from 5.0 per cent. to 4.5 per cent. for 2012 is £nil.
Assumptions regarding future mortality are based on published statistics and mortality tables. For the Tussauds Group scheme the
actuarial table used is S1PA. The mortality assumption adopted predicts that a current 65 year old male would have a life expectancy to
age 85 and a female would have a life expectancy to age 88.
History of actuarial gains and losses
Present value of the defined benefit obligation
Fair value of scheme assets
Deficit in the schemes
Actuarial adjustments arising on scheme liabilities
Actuarial adjustments arising on scheme assets
2013
£m
(21)
17
(4)
(1)
1
2012
£m
(20)
15
(5)
(1)
1
2011
£m
(18)
13
(5)
(1)
(1)
The cumulative amount of actuarial gains and losses recognised is a loss of £2 million.
Consolidated statement of financial position reconciliation
Liability at beginning of year
Transfers out
Liability at end of year
The Group expects £1 million in contributions to be paid to its defined benefit schemes in 2014.
2010
£m
(16)
13
(3)
1
1
2013
£m
(5)
1
(4)
2009
£m
(16)
11
(5)
(2)
1
2012
£m
(5)
-
(5)
130
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.3 Related party transactions
Identity of related parties
The Group has related party relationships with its pre-IPO major shareholders who exert significant influence, key management
personnel, joint ventures and IDR Resorts Sdn. Bhd. which, together with its subsidiaries, owns LEGOLAND Malaysia Park.
All dealings with related parties are conducted on an arm’s length basis.
Transactions with shareholders
During the year the Group entered into transactions with the pre-IPO major shareholders, KIRKBI Invest A/S, Blackstone Capital
Partners and funds advised by CVC Capital Partners (via Lancelot Holdings S.à r.l.). The Group also entered into transactions with CVC
Capital Partners and the LEGO Group, a related party of KIRKBI Invest A/S. Transactions entered into, including the purchase and sale of
goods, payment of fees and royalties, and trading balances outstanding at 28 December 2013, are as follows:
2013
KIRKBI Invest A/S
Blackstone Capital Partners
CVC Capital Partners
LEGO Group
2012
KIRKBI A/S
Blackstone Capital Partners
CVC Capital Partners
LEGO Group
Goods and services
Amounts
owed by
related party
£m
Sales
£m
Amounts
owed to
related party
£m
Purchases
£m
-
-
-
1
1
-
-
-
1
1
-
-
-
1
1
-
-
-
1
1
7
1
1
37
46
7
1
1
37
46
1
-
-
1
2
1
-
-
2
3
As members of a banking syndicate, certain shareholders (or other parties related to those shareholders) are owners of elements of
the Group’s bank loan portfolio as described in note 5.2. Balances outstanding at 28 December 2013 are; parties related to KIRKBI
Invest A/S £56 million (2012: £59 million), funds advised by parties related to Blackstone Capital Partners £36 million (2012: £38 million)
and funds advised by parties related to CVC Capital Partners £31 million (2012: £44 million).
Interest is paid and accrued on the same terms as the rest of the banking syndicate as described in note 5.2.
131
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.3 Related party transactions (continued)
Transactions with key management personnel
Key management of the Group, being the Executive and Non-executive Directors of the Board, the members of the Executive
Committee (2012: the members of the Executive Board) and their immediate relatives control 2.6 per cent. (2012: 7.1 per cent.) of
the voting shares of the Company.
The compensation of key management was as follows:
Key management emoluments including social security costs
Contributions to money purchase pension schemes
Share-based payments and other related payments
2013
£m
4.2
0.4
0.2
4.8
2012
£m
2.6
0.3
-
2.9
Transactions with other related parties
As part of the agreement for the development and operation of LEGOLAND Malaysia, the Group is committed to subscribing for share
capital in IDR Resorts Sdn. Bhd. (IDR) which together with its subsidiaries owns the park. On this basis, IDR and its subsidiaries are
deemed to be related parties (together ‘parties related to LEGOLAND Malaysia’). At 28 December 2013 the Group had subscribed
for 16,350,300 shares in IDR.
Transactions entered into, including the purchase and sale of goods, payment of fees and trading balances outstanding at
28 December 2013, are as follows:
2013
Parties related to LEGOLAND Malaysia
2012
Parties related to LEGOLAND Malaysia
6.4 Contingent liabilities
Goods and services
Amounts
owed by
related party
£m
Sales
£m
Amounts
owed to
related party
£m
Purchases
£m
2
4
3
4
-
1
-
-
The Group has contingent liabilities arising from local planning obligations and other obligations. The total liability under these obligations
could amount up to £1 million (2012: £1 million).
132
Merlin Entertainments plc Annual Report and accounts 2013
SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.5 New standards and interpretations
The following standards and interpretations, issued by the International Accounting Standards Board (IASB) or the International Financial
Reporting Interpretations Committee, have been adopted by the Group with no significant impact on its consolidated
financial statements:
¬ IAS 1 (Amendment) ‘Presentation of items of other comprehensive income’.
¬ IAS 1 (Amendment) ‘Presentation of financial statements – comparative information beyond minimum requirements and
presentation of the opening statement of financial position and related notes’.
¬ IAS 16 (Amendment) ‘Property, plant and equipment – classification of servicing equipment’.
¬ IAS 32 (Amendment) ‘Financial instruments: presentation – income tax consequences of distributions’.
¬ IAS 34 (Amendment) ‘Interim financial reporting – segment assets and liabilities’.
¬ IFRS 13 ‘Fair value measurement’.
¬ IAS 19 (Amendment) ‘Defined benefit plans’.
¬ IFRS 7 (Amendment) ‘Financial instruments: disclosures – offsetting financial assets and financial liabilities’.
EU endorsed IFRS and interpretations with effective dates after 28 December 2013 relevant to the Group will be implemented in
the financial year when the standards become effective.
The IASB has issued the following standards, amendments to standards and interpretations that will be effective for the Group as
from 1 January 2014 or after. The Group does not expect any significant impact on its consolidated financial statements from
these amendments.
¬ IFRS 10 ‘Consolidated financial statements’.
¬ IFRS 11 ‘Joint arrangements’.
¬ IFRS 12 ‘Disclosure of interests in other entities’.
¬ IAS 27 ‘Separate financial statements’.
¬ IAS 28 ‘Investments in associates and joint ventures’.
¬ IAS 32 (Amendment) ‘Financial instruments: presentation – offsetting financial assets and financial liabilities’.
6.6 Ultimate parent company information
The largest group in which the results of the Company are consolidated is that headed by Merlin Entertainments plc, incorporated in
the United Kingdom. No other group financial statements include the results of the Company.
6.7 Subsequent events
In the Company’s IPO Prospectus the Company noted its intention to reduce its share capital by means of a court sanctioned reduction
of capital. The final court hearing to formally approve the proposed reduction is scheduled to take place on 26 February 2014. If the
reduction is approved, the effect will be to increase available reserves for distribution by way of dividends to shareholders in the amount
of £3,183 million.
On 24 February 2014 the Company announced a strategic alliance with DreamWorks to launch a new midway brand. This will see an
initial roll out programme of six attractions over nine years in international city locations.
133
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013
SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.8 Subsidiary and joint venture undertakings
The Group has the following investments in subsidiaries and joint ventures:
Subsidiary undertaking
AAE Unit Trust
AQDEV Pty Limited
Aquia Pty Ltd
Australian Alpine Enterprises Holdings Pty Ltd
Australian Alpine Enterprises Pty Ltd
Australian Alpine Reservation Centre Pty Ltd
Christchurch Investment Company Limited
Falls Creek Ski Lifts Pty Ltd
Gebi Falls Creek Pty Ltd
Hotham Heights Developments Ltd
Hotham Ski Services Pty Ltd
Illawarra Tree Topps Pty Ltd
Limlimbu Ski Flats Ltd
Living and Leisure Australia Limited
Living and Leisure Australia Trust
Living and Leisure Australia Management Limited
Living and Leisure Finance Trust
LLA Aquariums Pty Limited
Melbourne Underwater World Pty Ltd
Melbourne Underwater World Trust
ME LoanCo (Australia) Pty Limited
Merlin Entertainments (Australia) Pty Ltd
MHSC DP Pty Ltd
MHSC Hotels Pty Ltd
MHSC Properties Pty Ltd
MHSC Transportation Services Pty Ltd
Mount Hotham Management and Reservation Pty Ltd
Mount Hotham Skiing Company Pty Ltd
MUW Holdings Pty Ltd
Northbank Development Trust
Northbank Place (Vic) Pty Ltd
Oceanis Australia Pty Ltd
Oceanis Australia Unit Trust
Oceanis Developments Pty Ltd
Oceanis Foundation Pty Ltd
Oceanis Holdings Limited
Oceanis Korea Unit Trust
Oceanis NB Pty Ltd
Oceanis Northbank Trust
Oceanis Unit Trust
Parkthorn Properties Pty Ltd
Sydney Attractions Group Pty Ltd
Sydney Tower Observatory Pty Limited
Sydney Wildlife World Pty Limited
The Otway Fly Pty Ltd
The Otway Fly Unit Trust
The Sydney Aquarium Company Pty Limited
Underwater World Sunshine Coast Pty Ltd
134
Class of
Country of
share held
incorporation
Australia
-
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
-
Australia
Australia Ordinary
Australia
-
Australia Ordinary
Australia Ordinary
-
Australia
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia
-
Australia Ordinary
Australia Ordinary
Australia
-
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia
-
Australia Ordinary
-
Australia
Australia
-
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia Ordinary
Australia
-
Australia Ordinary
Australia Ordinary
Ownership
2013
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
57.0%
65.0%
100.0%
100.0%
64.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
50.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Ownership
2012
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
57.0%
65.0%
100.0%
100.0%
64.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
50.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
US Fly Trust
White Crystal (Mount Hotham) Pty Ltd
Madame Tussauds Austria GmbH
MT Austria Holdings GmbH
SEA LIFE Centre Belgium N.V.
Merlin Entertainments (Canada) Inc
Madame Tussauds Exhibition (Shanghai) Company Limited
Madame Tussauds Exhibition (Wuhan) Company Limited
Merlin Entertainments Hong Kong Limited
Shanghai Chang Feng Oceanworld Co. Ltd
LEGOLAND ApS
LL Datterselskab af december 2012 ApS
Merlin Entertainments Group Denmark Holdings ApS
SEA LIFE France SARL
Dungeon Deutschland GmbH
Heide-Park Soltau GmbH
LEGOLAND Deutschland Freizeitpark GmbH
LEGOLAND Deutschland GmbH
LEGOLAND Discovery Centre Deutschland GmbH
LEGOLAND Holidays Deutschland GmbH
LLD Share Beteiligungs GmbH
LLD Share GmbH & Co. KG
Madame Tussauds Deutschland GmbH
Merlin Entertainments Group Deutschland GmbH
SEA LIFE Deutschland GmbH
SEA LIFE Konstanz GmbH
Tussauds Deutschland GmbH
Tussauds Heide Metropole GmbH
SEA LIFE Centre Bray Limited
Gardaland S.r.l.
Incoming Gardaland S.r.l.
Merlin Attractions Italy S.r.l.
Merlin Entertainments Group Italy S.r.l.
Merlin Water Parks S.r.l.
Ronchi del Garda S.p.A.
Ronchi S.p.A.
LEGOLAND Japan Limited
Merlin Entertainments (Japan) Limited
Merlin Entertainments Group Luxembourg 3 S.à r.l.
Merlin Lux Finco 1 S.à r.l.
Merlin Lux Finco 2 S.à r.l.
LEGOLAND Malaysia Hotel Sdn. Bhd
Merlin Entertainments Group (Malaysia) Sdn. Bhd
Merlin Entertainments Studios (Malaysia) Sdn. Bhd
Amsterdam Dungeon B.V.
Madame Tussauds Amsterdam B.V.
Merlin Entertainments Holdings Nederland B.V.
SEA LIFE Centre Scheveningen B.V.
Auckland Aquarium Limited
Merlin Entertainments (New Zealand) Limited
Merlin Entertainments (SEA LIFE PORTO) Unipessoal Lda
Country of
Class of
incorporation
share held
Australia
-
Australia Ordinary
Austria Ordinary
Austria Ordinary
Belgium Ordinary
Canada Ordinary
China Ordinary
China Ordinary
China Ordinary
China Ordinary
Denmark Ordinary
Denmark Ordinary
Denmark Ordinary
France Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Germany Ordinary
Ireland Ordinary
Italy Ordinary
Italy Ordinary
Italy Ordinary
Italy Ordinary
Italy Ordinary
Italy Ordinary
Italy Ordinary
Japan Ordinary
Japan Ordinary
Luxembourg Ordinary
Luxembourg Ordinary
Luxembourg Ordinary
Malaysia Ordinary
Malaysia Ordinary
Malaysia Ordinary
Netherlands Ordinary
Netherlands Ordinary
Netherlands Ordinary
Netherlands Ordinary
New Zealand Ordinary
New Zealand Ordinary
Portugal Ordinary
Ownership
2013
100.0%
82.6%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
99.9%
99.9%
100.0%
100.0%
100.0%
(1) 49.4%
90.4%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
60.0%
100.0%
100.0%
100.0%
Ownership
2012
100.0%
82.6%
100.0%
100.0%
100.0%
100.0%
100.0%
-
-
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
97.8%
97.8%
100.0%
100.0%
100.0%
(1) 44.7%
88.5%
-
100.0%
100.0%
-
-
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
60.0%
100.0%
100.0%
100.0%
135
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
Merlin Entertainments Singapore Pte. Ltd
Aquaria Twenty-One Co. Ltd
Busan Aquaria Twenty One Co. Ltd
Merlin Entertainments (Korea) LLC
SLCS SEA LIFE Centre Spain S.A.
Merlin Entertainments (Thailand) Limited
Siam Ocean World Bangkok Co Ltd
Istanbul Sualti Dunyasi Turizim Ticaret A.S
Alton Towers Limited
Alton Towers Resort Operations Limited
Charcoal CLG 1 Limited (company limited by guarantee)
Charcoal CLG 2 Limited (company limited by guarantee)
Charcoal Holdco Limited
Charcoal Midco 1 Limited
Charcoal Newco 1 Limited
Charcoal Newco 1a Limited
Chessington Hotel Limited
Chessington World of Adventures Limited
Chessington World of Adventures Operations Limited
Chessington Zoo Limited
CWA PropCo Limited
Iconic Images International Limited
LEGOLAND US Holdings Limited
LEGOLAND Windsor Park Limited
London Aquarium (South Bank) Limited
London Dungeon Limited
London Eye Holdings Limited
London Eye Management Services Limited
Madame Tussaud’s Limited
Madame Tussaud’s Touring Exhibition Limited
M.E.G.H. Limited
Merlin Attractions Management Limited
Merlin Attractions Operations Limited
Merlin Entertainment Limited
Merlin Entertainments (Asia Pacific) Limited
Merlin Entertainments (Blackpool) Limited
Merlin Entertainments (Dungeons) Limited
Merlin Entertainments (SEA LIFE) Limited
Merlin Entertainments Developments Limited
Merlin Entertainments Finance Limited
Merlin Entertainments Group Employee Benefit Trustees Limited
Merlin Entertainments Group Holdings Limited
Merlin Entertainments Group International Limited
Merlin Entertainments Group Limited
Merlin Entertainments Group Operations Limited
Merlin’s Magic Wand Trustees Limited
Merlin UK Finco 1 Limited
Merlin UK Finco 2 Limited
Merlin US Holdings Limited
SEA LIFE Centre (Blackpool) Limited
136
Country of
incorporation
Class of
share held
Singapore Ordinary
South Korea Ordinary
South Korea Ordinary
South Korea Ordinary
Spain Ordinary
Thailand Ordinary
Thailand Ordinary
Turkey Ordinary
UK Ordinary
UK Ordinary
-
UK
UK
-
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
Ownership
2013
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Ownership
2012
-
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
-
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
-
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
-
-
100.0%
100.0%
Merlin Entertainments plc Annual Report and accounts 2013 SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
SEA LIFE Centres Limited
SEA LIFE Marine Conservation Trustees Limited
The London Planetarium Company Limited
The Millennium Wheel Company Limited
The Seal Sanctuary Limited
The Tussauds Group Limited
Thorpe Park Operations Limited
Tussauds (NBD) Limited
Tussauds Attractions Limited
Tussauds Finance Limited
Tussauds Group (UK) Pension Plan Trustee Limited
Tussauds Holdings Limited
Tussauds Hotels Limited
Tussauds Intermediate Holdings Limited
Tussauds Limited
Tussauds Theme Parks Limited
Warwick Castle Limited
Wizard AcquisitionCo Limited
Wizard BondCo Limited
Wizard EquityCo Limited
Wizard NewCo Limited
Lake George Fly LLC
LEGOLAND California LLC
LEGOLAND Discovery Center Boston LLC
LEGOLAND Discovery Centre (Dallas) LLC
LEGOLAND Discovery Centre (Meadowlands) LLC
LEGOLAND Discovery Centre US LLC
Madame Tussauds Hollywood LLC
Madame Tussaud Las Vegas LLC
Madame Tussaud’s New York LLC
Madame Tussauds Orlando LLC
Madame Tussauds San Francisco LLC
Madame Tussauds Washington LLC
Merlin Entertainments Group Florida LLC
Merlin Entertainments Group US Holdings Inc
Merlin Entertainments Group US LLC
Merlin Entertainments Group Wheel LLC
Merlin Entertainments North America LLC
Merlin Entertainments US NewCo LLC
San Francisco Dungeon LLC
SEA LIFE Charlotte LLC
SEA LIFE Michigan LLC
SEA LIFE Minnesota LLC
SEA LIFE Orlando LLC
SEA LIFE US LLC
The Tussauds Group LLC
Country of
incorporation
Class of
share held
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
UK Ordinary
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
USA
-
USA Ordinary
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
-
USA
Ownership
2013
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Ownership
2012
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
-
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
-
100.0%
100.0%
100.0%
100.0%
100.0%
-
100.0%
-
-
-
100.0%
100.0%
100.0%
100.0%
137
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SECTION 6 OTHER NOTES (continued)
52 weeks ended 28 December 2013
6.8 Subsidiary and joint venture undertakings (continued)
Joint venture
SEA LIFE Helsinki Oy
Pirate Adventure Golf Limited
Country of
incorporation
Class of
share held
Finland Ordinary
UK Ordinary
Ownership
2013
50.0%
50.0%
Ownership
2012
50.0%
50.0%
Merlin Entertainments S.à r.l., Merlin Entertainments Group Luxembourg S.à r.l., Merlin Entertainments Group Luxembourg 2 S.à r.l.,
Cotswold Village Green Limited and Oceanic Village Limited were liquidated during the year.
Dirk Frimout Centrum N.V. was sold during the year.
(1) Merlin Entertainments plc has control over this entity via control of the immediate parent entity and the control that the immediate
parent entity has over the subsidiary entity.
138
Merlin Entertainments plc Annual Report and accounts 2013 MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
Company Balance Sheet at 28 December 2013
Fixed assets
Investment in subsidiary undertaking
Current assets
Amounts owed by subsidiary undertakings
Cash at bank and in hand and short term deposits
Creditors: amounts falling due within one year
Net current assets
Net assets
Capital and reserves
Called up share capital
Share premium
Profit and loss account
Shareholders’ funds - equity
Note
iv
v
vi
vii
vii
2013
£m
3,107
3,107
78
1
79
(4)
75
3,182
10
3,183
(11)
3,182
The notes on pages 140 to 143 form part of these financial statements.
The parent Company financial statements were approved by the Board of Directors on 26 February 2014 and were signed on its behalf by:
Nick Varney
Chief Executive Officer
Andrew Carr
Chief Financial Officer
139
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013
NOTES TO MERLIN ENTERTAINMENTS PLC
COMPANY FINANCIAL STATEMENTS
i Accounting policies
These parent Company financial statements have been prepared on a going concern basis using the historical cost convention in
accordance with generally accepted accounting principles in the UK (‘UK GAAP’) and the Companies Act 2006.
The financial period reported represents the period from incorporation of the Company on 20 September 2013 to 28 December 2013.
The Directors have taken advantage of the exemption available under s408 of the Companies Act 2006 and have not presented a profit
and loss account of the Company.
The Company has taken advantage of the exemption under FRS 1 ‘Cash Flow Statements’ and has not presented a cash flow statement.
The cash flows of the Company are included in the consolidated financial statements of Merlin Entertainments plc.
The Company has taken advantage of the exemption under FRS 8 ‘Related Party Transactions’ from disclosing transactions with wholly
owned subsidiaries that are part of the group headed by Merlin Entertainments plc.
A summary of the Company’s significant accounting policies is set out below.
Investments in subsidiaries
Investments in subsidiaries are stated at cost, less provision for impairment. The carrying amount of the Company’s investments in
subsidiaries is reviewed annually to determine whether there is any indication of impairment. If any such indication exists the investment’s
recoverable amount is estimated. If the carrying value of the investment exceeds the recoverable amount, the investment is considered
to be impaired and is written down to the recoverable amount. The impairment loss is recognised in the profit and loss account.
Foreign currency
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account.
Share-based payments
The fair value of employee share option plans is calculated at the date of grant using the binomial valuation methodology. The resulting
cost is charged to the parent company profit and loss account over the vesting period of the schemes. The value of the charge is
adjusted to reflect the actual and expected levels of vesting of the schemes. Where the Company awards options to employees of
subsidiary companies, this is treated as a capital contribution.
Debtors
Debtors are recognised initially at fair value and subsequently at amortised cost using the effective interest rate method, less provision
for impairment.
Financial liabilities and equity instruments
Financial instruments and equity liabilities are classified according to the substance of the arrangements that have been entered into.
Equity instruments issued by the Company are recorded as the proceeds received net of the direct costs of issuance.
Taxation
Corporation tax is provided on the taxable profit for the period, using the tax rates that have been substantively enacted at the balance
sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date and would
give rise to an obligation to pay more or less tax in the future.
After considering forecast future profits, deferred tax assets are recognised where it is probable that future taxable profits will be
available against which those assets can be utilised.
Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which the timing
differences are expected to reverse, based on the tax rates that have been substantively enacted at the balance sheet date.
140
Merlin Entertainments plc Annual Report and accounts 2013 NOTES TO MERLIN ENTERTAINMENTS PLC
COMPANY FINANCIAL STATEMENTS (continued)
ii Employees
The average number of employees of the Company during the period was six. All employees were Directors of the Company.
The employment costs of the Directors of the Company have been borne by Merlin Entertainments Group Limited for their services to
the Group as a whole. The costs related to these Directors are included within the Directors’ Remuneration Report on pages 60 to 75.
Two Directors are accruing benefits under defined contribution schemes.
iii Dividends
No dividend has been paid in the period and none has been proposed at the date of approval of these financial statements.
iv Investment in subsidiary undertaking
Cost and carrying value
At 20 September 2013
Additions
At 28 December 2013
Shares in
subsidiary
undertaking
£m
-
3,107
3,107
The subsidiary undertaking of the period end is as follows:
Company
Activity
Country of
incorporation
Shareholding
Description of
shares held
Merlin Entertainments Group Luxembourg 3 S.à r.l.
Holding company Luxembourg
100.0% Ordinary
A full list of Group companies is included in note 6.8.
v Creditors: amounts falling due within one year
Other creditors
Accruals and deferred income
2013
£m
2
2
4
141
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 NOTES TO MERLIN ENTERTAINMENTS PLC
COMPANY FINANCIAL STATEMENTS (continued)
vi Called up share capital
Ordinary shares of £0.01 each
Incorporation
Share for share exchange
Cancelled in the period
Bonus issue
Shares issued
At end of the period
Redeemable ordinary shares of £50,000.00 each
Incorporation
Redeemed
At end of the period
2013
Number
2013
£m
1
156,767,049
(10,868,759)
804,101,709
63,746,032
1,013,746,032
1
(1)
-
-
1
-
8
1
10
-
-
-
The Company was incorporated on 20 September 2013. On incorporation one A ordinary share of £0.01 was issued for consideration of
£0.01 and one redeemable ordinary share of £50,000.00 was issued for consideration of £50,000 (in the form of an undertaking to pay).
On 12 November 2013 the Company redeemed the outstanding redeemable ordinary share at par for £50,000.
On 12 November 2013 the Company, under a share for share exchange agreement, acquired the entire issued share capital of Merlin
Entertainments S.à r.l. in consideration for the issue of 136,767,049 A ordinary shares of £0.01 to the previous shareholders of A class
ordinary shares of Merlin Entertainments S.à r.l. and 20,000,000 B ordinary shares of £0.01 to the previous shareholders of B class
ordinary shares of Merlin Entertainments S.à r.l. Under a subsequent reorganisation, Merlin Entertainments plc acquired the entire
issued share capital of Merlin Entertainments Group Luxembourg 3 S.à r.l. and Merlin Entertainments S.à r.l. was liquidated.
On 13 November 2013 all of the A ordinary shares in issue and 9,131,241 of the B ordinary shares of the Company were converted
into ordinary shares of £0.01 in Merlin Entertainments plc. The remaining 10,868,759 B ordinary shares were converted into deferred
ordinary shares in Merlin Entertainments plc and were subsequently gifted back to the Company and cancelled.
On 13 November 2013 the merger reserve of the Company was capitalised to effect a bonus issue of 804,101,709 shares to holders of
the ordinary shares in the Company. No consideration was payable on the issue of the shares.
On 13 November 2013 the Company became listed on the London Stock Exchange and the issue of 63,492,064 ordinary shares for a
total consideration of £200 million became unconditional.
On 13 November 2013 the Company issued 253,968 ordinary shares to certain Non-executive Directors for consideration of £1 million.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
general meetings of the Company.
142
Merlin Entertainments plc Annual Report and accounts 2013 NOTES TO MERLIN ENTERTAINMENTS PLC
COMPANY FINANCIAL STATEMENTS (continued)
vii Reconciliation of movements in shareholders’ funds
At 20 September 2013
Loss for the period
Share for share exchange
Bonus issue
Issue of shares
At 28 December 2013
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Profit and
loss account
£m
-
-
1
8
1
10
-
-
-
2,983
200
3,183
-
-
2,991
(2,991)
-
-
-
(4)
-
-
(7)
(11)
Total
£m
-
(4)
2,992
-
194
3,182
The loss after tax for the period in the accounts of Merlin Entertainments plc is £4 million.
143
Merlin Entertainments plc Annual Report and accounts 2013Merlin Entertainments plc Annual Report and accounts 2013 SHAREHOLDER INFORMATION
Share listing
The Company’s shares are listed on the London Stock Exchange.
Registered in
England and Wales
Share register and registrars
The Company’s share register is maintained and administered in the
UK by Computershare Investor Services PLC at the address set
out below.
Computershare operates a portfolio service for Merlin
shareholders called Investor Centre. This provides our shareholders
with online access to information about their investments as well as
a facility to help manage their holdings online, such as being able to:
(i) update dividend mandate bank instructions and review
dividend payment history;
(ii) update member details and address changes; and
(iii) register to receive Company communications electronically.
Computershare also offers an internet and telephone share dealing
service to existing shareholders which can also be accessed through
the Investor Centre.
Investor Centre can be accessed at www.investorcentre.co.uk.
Company number
08700412
EPIC/TIDM
MERL
ISIN
GB00BDZT6P94
Registered office
Merlin Entertainments plc
3 Market Close
Poole
Dorset
BH15 1NQ
United Kingdom
Telephone:
Email:
Website:
+44 (0)1202 440082
investor.relations@merlinentertainments.biz
www.merlinentertainments.biz
Dividends
No dividends have been or will be recommended or declared for
the year ended 28 December 2013.
Company secretary
Colin N. Armstrong
Financial calendar
The principal dates in our financial calendar for 2014 are as follows:
Preliminary Announcement of Results
Q2 Interim Management Statement
AGM
Interim Results
Q3 Interim Management Statement
Pre-close Trading Update
27 February
15 May
15 May
31 July
18 September
2 December
Shareholder communications
We would encourage our shareholders to receive their
communications from the Company electronically using email and
web-based communications. This means that information about the
Company can be received as soon as it is available. The use of
electronic communications also reduces costs and the impact on
the environment. Shareholders can register for electronic
communications through Investor Centre or by
contacting Computershare.
Shareholders with any queries regarding their shareholding should
contact Computershare.
The Investor Relations section of our corporate website also
contains information which shareholders may find helpful
(see www.merlinentertainments.biz/investor-relations).
AGM
The first AGM of the Company will be held on 15 May 2014
at Lake View, Thorpe Park Resort, Staines Road, Chertsey,
Surrey KT16 8PN at 11.00am.
The Notice of AGM will be sent to shareholders separately.
Investor relations director
Alistair Windybank
External auditors
KPMG LLP
Dukes Keep
Marsh Lane
Southampton
SO14 3EX
United Kingdom
Telephone:
+44 (0)23 8020 2000
Joint Corporate Brokers
Barclays Bank PLC
5 North Colonnade
Canary Wharf
London
E14 4BB
Citigroup Global Markets Limited
Citigroup Centre
Canada Square
Canary Wharf
London
E14 5LB
Registrars
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Telephone:
Investor Centre:
Website:
+44 (0)870 703 6259
www.investorcentre.co.uk/contactus
www.computershare.com
144
Merlin Entertainments plc Annual Report and accounts 2013
FINANCIAL RECORD
Results
Revenue
Underlying EBITDA
Underlying operating profit
Operating profit
Profit/(loss) before tax
Consolidated statement of financial
position
Property, plant and equipment
Intangible assets
Cash and cash equivalents
Non-current interest-bearing loans and
borrowings (excluding shareholder loans)
Non-current shareholder loans
Total equity
Consolidated statement of cash flows
Net cash flow from operating activities
Changes in working capital
Net increase/(decrease) in cash
and cash equivalents
2013
£m
2012
£m
1,192
1,074
390
290
260
172
1,321
961
264
1,179
-
944
365
30
125
346
258
199
98
1,290
970
142
1,333
-
617
348
24
81
2011
£m
946
306
232
230
96
1,112
970
60
1,178
-
555
292
3
(4)
2010
£m
801
256
198
158
26
951
917
67
1,061
-
505
183
6
(18)
2009
£m
769
236
177
177
(14)
909
946
87
1,081
596
(114)
234
3
(53)
145
Merlin Entertainments plc Annual Report and accounts 2013 NOTES
146
Merlin Entertainments plc Annual Report and accounts 2013 WELCOME TO MERLIN ENTERTAINMENTS
FINANCIAL HIGHLIGHTS AND KEY
PERFORMANCE INDICATORS
MERLIN ENTERTAINMENTS IS EUROPE’S LEADING AND THE WORLD’S SECOND- LARGEST
VISITOR ATTRACTION OPERATOR. AS AT THE END OF DECEMBER 2013, MERLIN OPERATED
99 ATTRACTIONS IN 22 COUNTRIES ACROSS FOUR CONTINENTS. OUR AIM IS TO DELIVER
UNIQUE, MEMORABLE AND REWARDING EXPERIENCES TO MILLIONS OF VISITORS ACROSS
OUR GROWING ESTATE.
Financial highlights and KPIs (1), (2)
Visitors
59.8m + 10.7%
Revenue
£1,192m + 10.9%
38.5
41.0
46.5
769
801
54.0
59.8
1,192
1,074
933
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Underlying EBITDA
£390m + 12.8%
Underlying operating profit (3)
£290m + 12.3%
390
346
236
256
296
290
258
177
198
222
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
Like for like revenue growth +6.7%
Return on capital employed 10.2%
Basic EPS - 15.1p
Adjusted EPS - 16.9p
Non- financial KPIs
Customer satisfaction (4)
Staff engagement (5)
Health and safety (6)
2012
✔
✔
✔
2013
✔
✔
✔
Footnotes (see page 3 for further footnotes to the Annual Report):
(1) The KPIs shown above are Merlin’s key financial and non-financial performance indicators.
(2) Figures presented for 2011 are based on underlying trading figures compiled on a 52 week basis for ease of comparison. Statutory numbers for 2011 were prepared on a 53 week basis.
(3) Underlying operating profit is Merlin’s key profit measure. Group profit before tax for 2013 was £172 million (2012: £98 million).
(4) Source - customer satisfaction surveys; measure - 90%+ rating as ‘satisfied’ or ‘very satisfied’.
(5) Source - annual employee surveys; measure - 80%+ (see page 32 for further details).
(6) Source - internal health and safety reports; measure based on ‘Business Related Incidents’ per 100,000 visits.
2
147
Merlin Entertainments plc Annual Report and accounts 2013 Registered Office:
Merlin Entertainments plc
3 Market Close
Poole
Dorset, BH15 1NQ
Registered number: 08700412
Registered in England & Wales
www.merlinentertainments.biz
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