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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ANNUAL REPORT AND ACCOUNTS 2014
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. OUR AIM IS TO DELIVER MEMORABLE EXPERIENCES TO MILLIONS OF VISITORS
ACROSS OUR GROWING PORTFOLIO OF MIDWAY ATTRACTIONS AND THEME PARKS. WE ARE DRIVEN
BY SIX GROWTH DRIVERS AND OUR UNIQUE CREATIVE AND PRODUCTION RESOURCE ‘MERLIN
MAGIC MAKING’ WHICH SITS AT THE HEART OF EVERYTHING WE DO.
Financial highlights and KPIs (1), (2), (3)
2010
2011
2012
2013
2014
Visitors
62.8m +4.9%
Revenue
£1,249m +4.8%
At the end of
December 2014,
Merlin operated:
41.0
46.5
54.0
59.8
62.8
801
933
1,074
1,192
1,249
Underlying EBITDA
£411m +5.3%
Underlying operating profit
£311m +7.1%
256
296
346
390
411
198
222
258
290
311
Like for like revenue growth
+7.1%
Return on capital employed
10.6% (2013:10.2%)
Non- financial KPIs (1), (5), (6), (7)
Customer satisfaction (5)
Staff engagement (6)
Health and safety (7)
Basic EPS
16.0p (2013:15.1p (4))
Adjusted EPS
17.7p (2013:16.9p (4))
2013
2014
✔
✔
✔
✔
✔
✔
Footnotes (see page 3 for further footnotes to this Annual Report and Accounts):
(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) Group profit before tax for 2014 was £226 million (2013: £172 million).
(4) The 2013 EPS figures were affected by capital changes arising as part of the IPO in November 2013.
(5) Source - customer satisfaction surveys: measure is based on 90%+ rating as ‘satisfied’ or ‘very satisfied’.
(6) Source - annual employee surveys: measure is based on 80%+ rating for ‘staff engagement’ (see page 39 for further details).
(7) Source - internal health and safety reports: measure is based on a reduction in ‘business related incidents’ per 100,000 visits.
© MARVEL
Star Wars © & ™ Lucasfilm Ltd.
Shrek © DreamWorks Animation LLC.
LEGO, the LEGO logo, the Brick and Knob configurations, the Minifigure, Legends of Chima
and LEGOLAND are trademarks of the LEGO Group ©2015 The LEGO Group.
London Eye conceived and designed by Marks Barfield Architects.
Operated by London Eye Management Services Limited, a Merlin Entertainments Group Company.
The Madame Tussauds images shown depict wax figures created and owned by Madame Tussauds.
2
167
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 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
ADDITIONAL INFORMATION
SHAREHOLDER INFORMATION
FINANCIAL RECORD
GLOSSARY
103
104
105
106
107
108
109
157
158
162
163
164
WELCOME TO MERLIN ENTERTAINMENTS
CONTENTS
OUR STRATEGY AND BUSINESS MODEL
Merlin at a glance
Merlin’s brands
Strategy and global presence
Merlin’s growth drivers
2014 year in review
CHAIRMAN’S STATEMENT
CHIEF EXECUTIVE’S REPORT
OPERATIONAL REVIEW - MIDWAY ATTRACTIONS
OPERATIONAL REVIEW - LEGOLAND PARKS
OPERATIONAL REVIEW - RESORT THEME PARKS
MERLIN MAGIC MAKING
TEAM MERLIN
RISKS AND UNCERTAINTIES
GROUP FINANCIAL REVIEW
CORPORATE SOCIAL RESPONSIBILITY
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE STATEMENT
BOARD OF DIRECTORS
CORPORATE GOVERNANCE REPORT
AUDIT COMMITTEE REPORT
DIRECTORS’ REMUNERATION REPORT
NOMINATION COMMITTEE REPORT
DIRECTORS’ REPORT
DIRECTORS’ RESPONSIBILITIES STATEMENT
INDEPENDENT AUDITOR’S REPORT
2
3
4
4
6
8
10
12
14
16
22
26
30
34
38
42
48
54
60
61
64
68
74
93
94
97
98
Footnotes to this Annual Report and Accounts:
• Unless otherwise stated, the terms ‘Merlin’, ‘Merlin Entertainments’, ‘the Group’, ‘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 ‘2014’ mean the 52 week period ended 27 December 2014 and references to ‘2013’ or ‘previous year’ mean the 52 week period ended
28 December 2013.
• References to visitors mean all individual visits to Merlin owned or operated attractions.
• The terms ‘financial statements’, ‘consolidated financial statements’ and ‘accounts’ are used interchangeably.
• Like for like growth refers to the growth between 2013 and 2014 on a constant currency basis using 2014 exchange rates and includes all businesses owned and opened before the start of 2013.
• EBITDA is defined as profit before finance income and costs, taxation, depreciation and amortisation 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 exceptional items that are classified separately within the financial statements (see note 2.2 to the financial
statements on page 114 for further details).
• Return on capital employed is based on underlying operating profit after taking account of a normalised long term tax rate.
• Percentages are calculated based on figures before rounding and are then rounded to one decimal place.
3
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
OUR STRATEGY
and business model
OUR VISION IS TO BECOME THE
WORLDWIDE LEADER IN BRANDED,
LOCATION BASED ENTERTAINMENT.
Merlin has two core products:
Midway attractions, which
are typically smaller, indoor
attractions located in city
centres or resorts.
Theme Parks, which
are larger multi-day
destination venues,
increasingly with on-site
themed accommodation.
The Theme Parks are managed in two Operating Groups:
LEGOLAND Parks and Resort Theme Parks.
4
Merlin’s
unique creative
and production
resource
Sitting at the heart
of everything
we do
Find out more on
pages 34 to 37
Merlin Entertainments plc Annual Report and Accounts 2014 Indoor attractions located in
city centres or resorts
MIDWAY
92 ATTRACTIONS
21 COUNTRIES
4 CONTINENTS
42%(1)
1-2 HOUR EXPERIENCE
5 GLOBAL CHAINABLE BRANDS AND
‘SHREK’S ADVENTURE!’ UNDER DEVELOPMENT
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Outdoor attractions with rides and
shows, complemented with themed
accommodation
LEGOLAND
PARKS
6 ATTRACTIONS
5 COUNTRIES
3 CONTINENTS
1-3 DAY EXPERIENCE
31%(1)
LEGO THEMED ACCOMMODATION, RIDES,
SHOWS AND INTERACTIVE EXPERIENCES
3 NEW PARKS IN DUBAI, JAPAN AND
SOUTH KOREA UNDER DEVELOPMENT
27%(1)
RESORT
THEME
PARKS
6 ATTRACTIONS (2)
UK, GERMANY, ITALY
1-3 DAY EXPERIENCE
ACCOMMODATION, RIDES, SHOWS AND
INTERACTIVE EXPERIENCES AROUND
A CENTRAL THEME
Footnotes:
(1) Based on 2014 revenue.
(2) Excludes Gardaland Waterpark.
5
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
OUR STRATEGY
and business model
MERLIN’S BRANDS
MIDWAY
Each of our three Eye observation
attractions offers the ultimate bird’s
eye view, unparalleled and different
every time, giving an Inspiring
Perspective of the location’s
landscape and iconic landmarks.
The nine Dungeons are a unique
mix of dark, historical horror
and irreverent humour delivered
through set piece shows performed
by live actors, rides and spine
chillingly themed sets. Scary Fun is
the goal, delivered daily to families,
teenagers and young adults.
Eleven LEGOLAND Discovery Centres
are the ultimate LEGO indoor playground,
with over two million bricks under one roof.
With Playful Learning at the heart of the
experience, they create a fun filled and
interactive environment where children
and parents are inspired to be creative.
®
With 45 sites, SEA LIFE is the world’s
biggest aquarium brand, built around the
notion of Amazing Discoveries, and
home to a variety of creatures from
shrimps and starfish to seahorses, rays,
sharks and seals. SEA LIFE campaigns
actively on a variety of conservation issues
prioritised around breeding, rescue and
protection of the marine environment.
Madame Tussauds’ heritage and the
breathtaking artistry of the figures
at our 18 sites differentiate it from
other wax attractions. Famous Fun is
the heart of the experience, where
visitors are encouraged to interact
with all the historical and celebrity
figures from Napoleon to One
Direction and everything in between.
Merlin Entertainments plc Annual Report and Accounts 2014 THEME PARKS
With Playful Learning at the
heart of the experience, our six
LEGOLAND resorts across Europe,
North America and Asia offer a
unique LEGO themed experience
for families with children aged two
to twelve years, often including
highly themed accommodation
and based on interactivity,
imagination and family fun.
Insane fun is on offer at Thorpe Park,
the UK’s third biggest theme park
and acknowledged thrill capital for
teenagers, young adults and older
families. The resort now includes
the unique THORPE SHARK hotel,
offering bite-sized rooms in a
stunning waterfront location.
Heide Park is Germany’s third
biggest theme park with rides and
attractions appealing to all ages,
set in four lands of Extraordinary
Adventure. The resort attracts
visitors from all over Germany
and beyond, who can stay in the
Heide Park Adventure hotel or
adjacent Holiday Village.
Gardaland Resort is Italy’s leading
theme park. Located on the edge
of Lake Garda, 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.
Jousting, knights, princesses,
falconry, staged scenes by
Madame Tussauds and the
Castle Dungeon all make
Warwick the Ultimate
Castle experience.
Wild Adventure is at the
heart of Chessington World
of Adventures Resort, 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 Safari and Azteca
resort hotels.
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.
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 OUR STRATEGY
and business model
NORTH AMERICA ATTRACTIONS
®
Arizona
California
Charlotte
Dallas
Kansas City
Minnesota
California
Florida
Hollywood
Las Vegas
New York
San Francisco
Washington D.C.
San Francisco
Atlanta
Boston
Chicago
Dallas
Kansas City
Toronto
Westchester
UK ATTRACTIONS
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
Revenue by indoor
& outdoor attactions (1)
Visitors by
domestic / tourist (2)
Revenue by Geography (1)
Outdoor 60%
Indoor 40%
Domestic 64%
Tourist 36%
UK 39%
Continental Europe 26%
North America 22%
Asia Pacific 13%
(1) Based on 2014 revenue. (2) Based on a sample of visitors answering the question ‘What is your home country?’.
Merlin Entertainments plc Annual Report and Accounts 2014 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.
CONTINENTAL EUROPE ATTRACTIONS
Benalmadena
Berlin
Blankenberge
Bray
Gardaland
Hannover
Helsinki
Jesolo
Königswinter
Konstanz
®
München
Oberhausen
Paris
Porto
Scheveningen
Speyer
Timmendorfer
Strand
Turkuazoo
Aquarium
Amsterdam
Berlin
Vienna
Amsterdam
Berlin
Hamburg
Lake Garda
Milan
Berlin
Oberhausen
Billund
Günzburg
Soltau
Key
Existing Merlin attractions
2014 new openings
ASIA PACIFIC ATTRACTIONS
®
Auckland
Bangkok
Busan
Melbourne
Mooloolaba
Shanghai
Sydney
TM
Manly
Malaysia
Tokyo
Bangkok
Beijing
Hong Kong
Singapore
Shanghai
Sydney
Tokyo
Wuhan
Sydney
Illawarra
Otway
Mount Hotham
Hamilton Island
Sydney
Falls Creek
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 OUR STRATEGY
and business model
MERLIN’S GROWTH DRIVERS
Merlin has six highly complementary growth drivers
PLANNED CAPITAL
INVESTMENT CYCLES
Adding new rides and features to
our attractions to drive customer
satisfaction, increase capacity and
provide a compelling new
proposition to guests.
STRATEGIC
SYNERGIES
Leveraging the scale of the Group in
key markets to exploit enhanced
operational, marketing and buying power.
RESORT
POSITIONING
Developing our theme parks into
short break destinations: extending the
catchment area, creating new revenue
streams and improving guest satisfaction.
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Merlin Entertainments plc Annual Report and Accounts 2014
OUR STRATEGY and business model
390
411
346
256
296
2010
2011
2012
2013
2014
Underlying EBITDA £ million (1)
(1) 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.
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MIDWAY ROLL OUT
Opening new Midway attractions
under one of our chainable global
brands. Merlin has opened 19 (1)
new sites in the last three years.
(1) Includes Turkuazoo Aquarium which was a standalone
acquisition that has since been rebranded to SEA LIFE.
NEW LEGOLAND
PARK DEVELOPMENTS
Opening new full scale LEGOLAND
Parks. Merlin has announced plans
for parks in Dubai (2016), Japan and
South Korea (both 2017) and is
exploring further potential sites
in Asia and North America.
STRATEGIC
ACQUISITIONS
Pursuing acquisition opportunities that
complement our strategic objectives.
11
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
OUR STRATEGY
and business model
JAN / FEB / MAR
APR / MAY / JUN
PLANNED CAPITAL
INVESTMENT CYCLES
STRATEGIC SYNERGIES
Relaunch UK
Merlin Annual Pass
RESORT POSITIONING
MIDWAY
ROLL OUT
King’s Castle hotel opens
at LEGOLAND Deutschland
Hotel Extension at
LEGOLAND Billund
THORPE SHARK hotel
at Thorpe Park
®
Announce DreamWorks Animation
alliance for ‘Shrek’s Adventure!’
NEW LEGOLAND PARK
DEVELOPMENTS
Announce LEGOLAND
Japan for 2017
CORPORATE
Announce preliminary
2013 results
Annual General
Meeting
12
Merlin Entertainments plc Annual Report and Accounts 2014 OUR STRATEGY and business model
2014 YEAR IN REVIEW
JUL / AUG / SEP
OCT / NOV / DEC
New ticketing and
Reserve and Ride
trials at Thorpe Park
June openings
Announce first interim
dividend of 2p per share
Announce LEGOLAND
Korea for 2017
13
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 CHAIRMAN’S
Statement
IN MERLIN’S FIRST FULL YEAR AS A PUBLICLY QUOTED COMPANY, WE
HAVE ACHIEVED THE FINANCIAL OBJECTIVES SET AT THE TIME OF THE
FLOTATION. THESE ACHIEVEMENTS DERIVE FROM THE STRENGTH OF
OUR BRANDS DEPLOYED ON AN INCREASINGLY GLOBAL BASIS. OUR
FUTURE GROWTH WILL COME FROM A CONTINUING COMMITMENT
TO THE SAME STRATEGY.
Sir John Sunderland
Non-executive Chairman
Merlin Entertainments plc Annual Report and Accounts 2014 CHAIRMAN’S Statement
Trading performance and strategy
2014 was another successful year for Merlin Entertainments,
with growth driven by a combination of our existing estate of
attractions, six new Midway openings and new accommodation
at five of our theme park resorts.
There is a strong culture of risk management across Merlin.
Our approach has evolved during 2014 and the Risks and
uncertainties section of this report on pages 42 to 47 sets this
out under three headings of health, safety and security risks;
wider commercial and strategic risks; and financial process risks.
LEGOLAND Parks in particular had a very strong performance
in the year of ‘The LEGO Movie’ and good weather benefited
our European businesses throughout the year. These factors
more than offset specific challenges in the Midway Attractions
Operating Group as a result of political unrest in Thailand and
extreme weather early in the year in North America.
We continued to deliver on our longer term objectives with
the announcements in February of a strategic alliance with
DreamWorks Animation to develop ‘Shrek’s Adventure!’ that
has great potential to become a sixth Midway brand; and in June
and November of the planned construction of LEGOLAND
Parks in Japan and South Korea respectively, with both
planned to open from 2017.
Dividends
Consistent with our proposed dividend policy we paid our
inaugural interim dividend of 2.0 pence per share in September.
I am pleased to announce that the Board will be recommending
to the Annual General Meeting (AGM) in May that we pay our
first final dividend of 4.2 pence per share in June. This will
equate to a first full year dividend of 6.2 pence per share.
Governance and the board
We welcomed Fru Hazlitt to the Board as an independent
Non-executive Director in April 2014. She adds to the breadth
of skills of the Board and joins a high calibre and experienced
team. One of the final elements of the transition from private
to public is the composition of the Board. We are currently in
an interim period with our pre-IPO private equity shareholder
representatives remaining on the Board. Given the strength and
independent approach of our existing Board members, we chose
not to be compliant in the first year of operation as a listed
company. We have always intended and will be fully compliant
by the time of the anniversary of our first AGM in May 2015.
Shareholder engagement
In addition to the comprehensive programme of engagement
at Executive level with shareholders, Charles Gurassa, the
Senior Independent Non-executive Director and head of the
Remuneration Committee, our Company Secretary and I also
met with many of our leading shareholders during the year
to ensure a full and mutually constructive dialogue.
Health, safety and security
Merlin’s number one priority is delivering safe and memorable
experiences to visitors and the Company puts the health, safety
and welfare of both its customers and employees at the forefront
of its operational focus. The Group’s approach to safety management
is based upon continuous improvement to mitigate this risk.
I continue to chair Merlin’s Health, Safety and Security Committee
which is a full committee of the Board and is the most senior
health, safety and security governance body within the Group.
More details on this Committee’s activities can be found in the
Corporate Governance section of this report on page 67.
Corporate social responsibility (CSR)
The Group’s CSR activities are specifically focused on the four
areas of: sustainability and the environment; animal welfare; the
Merlin’s Magic Wand charity; and disability.
Considerations around sustainability and the environment are
increasingly important to the way we run our businesses. In this
regard I am pleased that we are now able to report as planned
on our greenhouse gas emissions, in this our first full year as a
listed company. Merlin has always been proud of the approach
we take to animal welfare and the protection of the marine
environment. In particular our charity, the SEA LIFE Trust,
has launched the ‘Wipe out Whaling’ campaign to end the
transportation of whale meat through European ports, and will,
among other activities, fund campaigns focused on the protection
of marine habitats. Our own children’s charity, Merlin’s Magic
Wand, helps sick, disabled and disadvantaged children visit our
attractions or enjoy Merlin magic at themed areas installed
at children’s homes and hospitals. In 2014 every single Merlin
attraction that had been open for more than four months of the
year welcomed children via the auspices of Merlin’s Magic Wand.
Finally, we seek to alleviate the challenges faced by guests and
employees affected by disability and have the long term
aspiration of becoming industry leaders in this area.
Our CSR report on pages 54 to 59 provides further detail on
these areas as well as on our community engagement and other
associated matters.
Our people
I would like to thank our management team and all our
employees around the world for their contribution to another
successful year for the Company. Our success is thanks to
their leadership and dedication.
Outlook
As we look forward to 2015 and beyond, we remain confident
that our proven growth strategy and committed management
team will continue to deliver in the years ahead.
Sir John Sunderland
Non-executive Chairman
25 February 2015
15
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 CHIEF EXECUTIVE’S
Report
OUR FIRST FULL FINANCIAL YEAR AS A PUBLIC COMPANY SAW US DELIVER
ANOTHER STRONG PERFORMANCE IN OUR OPERATING BUSINESSES AND
FURTHER SUBSTANTIAL PROGRESS ON NEW DEVELOPMENTS. WHAT IS
MORE, WE GAVE OVER 60 MILLION VISITORS MEMORABLE EXPERIENCES.
MERLIN REMAINS WELL PLACED TO CAPITALISE ON GLOBAL GROWTH
IN LEISURE SPENDING AND DEMAND FOR BRANDED, LOCATION
BASED ENTERTAINMENT.
Nick Varney
Chief Executive Officer
Merlin Entertainments plc Annual Report and Accounts 2014 Visitors (m)
Revenue (£m)
Underlying EBITDA (£m)
Underlying operating profit (£m)
Like for like revenue growth
Like for like EBITDA growth
CHIEF EXECUTIVE’S Report
2014
62.8
1,249
411
311
2013
59.8
1,192
390
290
Growth
+4.9%
+4.8%
+5.3%
+7.1%
Constant
Currency
Growth
+9.6%
+11.0%
+13.3%
+7.1%
+7.8%
Particularly pleasing is that we have
maintained our customer satisfaction levels
well above our 90% target
Existing estate
Against what was a very strong 2013, we are pleased with the
performance of our existing estate of attractions, with all three
Operating Groups recording like for like (LFL) revenue and
profit growth.
The ‘stand out’ performance was from LEGOLAND Parks where
strong underlying momentum, and the addition of the LEGO
CHIMA water park in LEGOLAND California (LLC), were
further boosted by the phenomenal success of ‘The LEGO
Movie’. Recognising the potential of this movie launch, our teams
were able to put in place strong marketing plans including the
launch of the film itself at LLC and McDonalds Happy Meal
promotions across North America and Europe.
Within Resort Theme Parks, good weather across the trading
season, together with a major new ride, ‘Flight of the Demons’ at
Heide Park in Germany and ‘CBeebies Land’ at Alton Towers in
the UK, meant the good performance of 2013 was built upon.
It was also pleasing to see Gardaland in Italy continuing to
recover after the sharp decline seen in 2012 as a result of
the challenging economic conditions in southern Europe.
Midway, whilst still recording LFL revenue growth of 3.0%, had a
somewhat subdued year in 2014 as a result of a number of
external factors and the later phasing or delay to some of its
major capital expenditure projects. Political unrest in Thailand
had a significant impact on our two businesses in Bangkok
(Madame Tussauds and SEA LIFE Bangkok Ocean World),
while early in the year extreme cold weather brought
disruption to our East Coast and Midwest North American
attractions. Elsewhere our businesses in China continued to
deliver good growth and the UK businesses also performed well.
New business development
In the year we continued the international expansion of Midway
attractions with six new openings across four separate brands in
both our North America and Asia Pacific regions. Of particular
note is the San Francisco Dungeon, marking the first of this
brand to be opened outside of Europe.
Flight of the Demons at Heide Park Resort, Germany
17
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
CHIEF EXECUTIVE’S Report
Elsewhere we added further new accommodation to our theme
parks, driving both the resort positioning we are seeking as well
as delivering attractive financial returns. The year saw us open a
further Castle hotel as part of the Holiday Village at LEGOLAND
Deutschland; a new themed wing to the LEGOLAND Billund
hotel; the extension of accommodation at Warwick Castle; the
THORPE SHARK hotel at Thorpe Park; and finally the highly-
themed new Azteca hotel at Chessington World of Adventures.
THORPE SHARK hotel at Thorpe Park
Group performance summary
The combined result of the existing estate performance and the
addition of new attractions and accommodation was a rise in
Group revenue of 4.8% from £1,192 million to £1,249 million,
despite adverse foreign exchange headwinds. This in turn led
to a growth in underlying EBITDA and operating profit of 5.3%
and 7.1% respectively. On a constant currency basis this would
equate to growth in underlying EBITDA and operating profit
of 11.0% and 13.3% respectively.
Visitor numbers also broke through the 60 million mark, rising to
62.8 million. Particularly pleasing in this respect is that we have
maintained our customer satisfaction levels well above our 90%
target and importantly have recorded a further reduction in the
number of business related incidents per 100,000 guests (our key
health and safety KPI). As ever, we remain determined to deliver
safe and memorable experiences to our customers and are
relentlessly focused on further reducing the small numbers
of occasions where we get it wrong.
18
Market overview
Our market continues to grow, driven by increasing leisure time
and rising incomes particularly in fast growing countries such as
China. Globally, leisure spending is forecast to increase by over
4% per annum over the next decade according to the World
Travel & Tourism Council (source: WTTC Travel & Tourism
Economic Impact 2014). We see the key relevant dynamics
for Merlin within this growth trend as being:
• An increasing demand for strong brands and/or Intellectual
Properties brought to life as part of quality, location based
entertainment experiences.
• A continuing trend towards short breaks in preference to
the traditional longer holiday.
• Strong tourism growth in ‘gateway’ cities, as emerging
middle classes travel more internationally.
• The continued rise of the internet (and within this, mobile
platforms) as the primary information and booking
interface for customers.
The strength and diversification of the global Merlin portfolio
leaves us well placed to benefit from these trends. This in turn
will assist us as we continue to focus on building a geographically
diversified company which will ultimately derive a third of its
revenues from each of the Americas, Europe and Asia Pacific.
Strategic developments
Merlin has six complementary strategic growth drivers as laid
out on pages 10 to 11 of this report. The Operational Reviews
of each of our three Operating Groups and the Merlin Magic
Making section of this Strategic Report outline our achievements
during 2014. Furthermore, we have exciting developments
planned against each for 2015 and beyond.
Planned capital investment cycles
Adding new rides and features to our existing estate of attractions
to drive customer satisfaction, increase capacity and provide a
compelling new proposition to guests. The pre-determined
investment cycles in place for each of the Operating Groups
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.
At a Group level the investment over the cycle is broadly in
line with depreciation and follows a pre-set ratio to revenue
(typically 8-10%).
We see a continuing
trend towards short breaks
Merlin Entertainments plc Annual Report and Accounts 2014
CHIEF EXECUTIVE’S Report
Following the success of the LEGOLAND Windsor and
California hotels, 2015 will see the opening of a 152 bedroom
hotel at LEGOLAND Florida. Within Resort Theme Parks an
exciting 125 chalet development, ‘The Enchanted Village’, will be
added to the Alton Towers Resort. Looking further ahead, plans
are already progressing for a new hotel at the Gardaland Resort
in Italy to be opened in 2016.
Midway roll out
Opening new Midway attractions under one of our chainable
global 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% ROIC. Increasingly, our focus is on opening multiple
attractions in the same locations to form clusters from which we
can derive operational, marketing and cross-selling advantages.
2015 is a significant year for our Midway roll out programme
with seven new attractions due to open including the launch
in London of a potential sixth brand, ‘Shrek’s Adventure!’, in
association with DreamWorks Animation. The other major
development will be the Orlando cluster featuring the 400
foot Orlando Eye observation wheel (funded by our partner,
Circle Entertainment) together with a Madame Tussauds
and SEA LIFE Centre.
Completing the line-up are a SEA LIFE Centre in Michigan, USA
(opened in January 2015) and LEGOLAND Discovery Centres in
Osaka, Japan and Istanbul, Turkey. We are already well advanced
with planning for a further seven attractions in 2016.
Oblivion at Gardaland Resort, Italy
19
The Orlando Eye, Florida
In 2015 a major new ride, ‘Oblivion’, will be launched at
Gardaland in Italy, while in the LEGOLAND Parks Operating
Group three parks will introduce new LEGO Friends themed
areas. All LEGOLAND Parks and Discovery Centres will
benefit from a new short LEGO Movie 4D experience, with a
completely new storyline that can only be seen at our venues.
Equally exciting are the product innovations planned in Midway,
in particular major new ‘Star Wars’ features that will be opened at
Madame Tussauds London and Berlin. As always all attractions in the
Group will have something new to drive visitation across the year.
Strategic synergies
Leveraging the scale of the Group in key markets to exploit
enhanced operational, marketing and buying power. 2015 will see
us expand our dedicated US call centre and continue with third
party promotions. In addition, we will extend our CRM databases
in the UK and Germany allowing for more targeted and efficient
promotions, maximising Group synergies. Our UK database
currently stands at three million records, whilst the German
database launched in 2014 has seen good initial results.
Resort positioning
Developing our theme parks into short break destinations: extending
the catchment area, creating new revenue streams and improving
guest satisfaction. The key driver of this transformation is the
presence of on-site themed accommodation. To date, all
investments whether themed hotels or Holiday Villages have
been highly successful, delivering against our investment criteria,
driving multi-day stays, and significantly increasing the level of
pre-booked business, hence providing an element of
protection against the impact of adverse weather.
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 CHIEF EXECUTIVE’S Report
Merlin’s central
mission is to deliver memorable
experiences to our millions
of visitors
New LEGOLAND Park developments
Opening new full scale LEGOLAND Parks. 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. Having opened LEGOLAND Florida
(2011) and LEGOLAND Malaysia (2012), we are now engaged
on three further projects: LEGOLAND Dubai (management
contract) which will open in 2016; and LEGOLAND Japan and
LEGOLAND Korea (both operated and leased) for 2017.
Looking further ahead we are in early discussions for new park
developments in the USA and China. The Group’s strong free
cash generation leaves us in a favourable position to consider
these projects.
Strategic acquisitions
Pursuing acquisition opportunities that complement our
strategic objectives. 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 for the future is on North America and Asia,
where we target assets that can be rebranded to Merlin’s brands
(or provide new brand opportunities) and that 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
and borrowing facilities available to make them should suitable
opportunities arise.
Merlin Magic Making
Merlin Magic Making (MMM) 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.
20
Major progress was made in 2014 with regard to establishing
and/or consolidating key partnerships with major Intellectual
Property (IP) owners. MMM’s engagement with Disney,
DreamWorks Animation and BBC Worldwide, amongst others,
has facilitated an exciting new stream of developments ranging
from a potential new brand, Shrek’s Adventure!, to significant new
features in our existing attractions. When added to our long
term close relationship with the LEGO Company, the world’s
biggest toy brand, and our own in-house IP development, Merlin
is well placed to continue delivering compelling reasons for
people to visit our attractions well into the future.
Memorable experiences and our teams
Merlin’s central mission is to deliver memorable experiences
to our millions of visitors, something we all do because of
our love of fun.
Merlin’s amazing team is at the heart of everything we do
and consequently we dedicate a lot of energy and resource
to recruitment, retention, training and development. We are
privileged to have such an engaged workforce of almost 26,000
at peak season. Our annual ‘Wizard Wants to Know’ staff survey
was sent out to nearly 21,000 employees on a phased basis
during the summer months. A phenomenal 97% of them
completed the survey and of those 95% said ‘they enjoy
working here’. Most importantly, since becoming a public
company, almost 30% of worldwide staff have elected to
take part in the Company’s share save schemes. We are
very pleased with this high level of participation.
Looking ahead
Merlin Entertainments has adapted well to being a public
company and our focus now is to deliver on the expectations
of the many shareholders who have supported us. In this regard
we believe we are well placed with a unique business model in
a growing global market to deliver further exciting growth in
the years ahead. What is more, we plan to have fun doing it!
Nick Varney
Chief Executive Officer
25 February 2015
Michael and William Bay Hansen, visitors to LEGOLAND Billund
(Winner of the Merlin Magical Moments Photo Competition 2014)
>
Merlin Entertainments plc Annual Report and Accounts 2014
Merlin Entertainments plc Annual Report and Accounts 2014 MIDWAY
Attractions
2014 WAS ANOTHER YEAR OF GROWTH FOR THE MIDWAY ATTRACTIONS
OPERATING GROUP, ALBEIT WITH SOME SPECIFIC CHALLENGES ALONG THE
WAY. POLITICAL UPHEAVAL IN BANGKOK, EXTREME WEATHER EARLY IN THE
YEAR IN NORTH AMERICA AND SOME DELAYS IN CAPITAL INVESTMENTS LED
TO REVENUE AND EBITDA GROWTH BELOW OUR LONG TERM TRAJECTORY.
THE STRONG MIDWAY ROLL OUT PLAN HAS CONTINUED WITH THE
ADDITION OF SIX NEW ATTRACTIONS AND THE REBRANDING OF TWO
ACQUIRED AQUARIUMS TO BECOME SEA LIFE CENTRES.
Merlin Entertainments plc Annual Report and Accounts 2014 OPERATIONAL REVIEW - MIDWAY Attractions
2014
38.1
529
214
167
2013
37.1
524
212
164
Growth
+2.8%
+1.1%
+1.0%
+1.9%
Constant
Currency
Growth
+6.2%
+5.5%
+6.2%
+3.0%
Visitors (m)
Revenue (£m)
Underlying EBITDA (£m)
Underlying operating profit (£m)
Like for like revenue growth
The Madame Tussauds ‘One Direction’
touring set attracted teenage customers
everywhere it appeared
Trading performance
Trading performance for the Midway Attractions Operating
Group overall in 2014 continued to show growth in visitor
numbers, revenues and profits, although the reported numbers
were adversely impacted by movements in foreign exchange
rates, as shown in the table above. Growth in visitors of 2.8%
resulted in growth in revenues and underlying operating profits
of 6.2% when translated on a constant currency basis.
Existing estate
Like for like growth in revenues from our existing estate of
3.0% was lower than our long term trajectory due to three
main factors. Firstly, political upheaval in Bangkok led to the
displacement of the Prime Minister and the introduction of
Military Rule. Consequently, in the spring there was widespread
rioting which attracted significant global media coverage and
visitors stayed away from Bangkok. This led to a substantial
reduction in visitor numbers to our Madame Tussauds and
SEA LIFE businesses there.
Secondly, the ‘Polar Vortex’ of snow storms which hit North
America in January and February led to potential visitors staying
at home and in addition some schools cancelled school holidays
around Easter and the spring break to compensate for the
school time lost to the storms.
Finally, our capital investment plan had a number of significant
projects which were planned to occur relatively late in the year
and in addition a number of major projects were delayed due to a
number of specific reasons particular to each case. A combination
of these factors meant that revenue growth in the second half of
the year was stronger than the first half and the benefit of these
2014 investments will only be fully realised in 2015.
Elsewhere, our LEGOLAND Discovery Centres (LDCs) were
boosted by the phenomenal success of ‘The LEGO Movie’; the
Australian ski fields delivered a strong performance as a result
of better snow conditions; whilst the London attractions settled
down to a more normal pattern of growth following an
exceptional year in 2013 which was boosted by all the
Olympic coverage during 2012.
Capital investment
Despite the later phasing of our capital investments, our existing
estate growth was underpinned by our strategy of planned capital
investment cycles across each brand, with each Midway attraction
having a ‘high-year’ once every five years.
During 2014 we delivered a number of successful new
high-year capital projects including a new ‘splash pad’ water
play area outside our LDC in Dallas; a new Marvel 4D Cinema
at Madame Tussauds (MT) Hollywood, following the success of
similar films at MTs in New York and London; a new Gentoo
penguin area at SEA LIFE Birmingham, which has scope to add
King Penguins at a later stage in the attraction’s development;
and a new ghost show at the Amsterdam Dungeon.
In the non-high capital investment years, most attractions receive
‘mobile features’ which we move around the world to several different
locations over a period of years, thus maximising capital efficiency.
During 2014, Madame Tussauds had a number of touring figure
sets of One Direction; Bollywood; Steve Jobs; Abba; three Michael
Jackson figures at different ages; the British Royal family; and
The Beatles. One Direction drove a significant number of teenage
customers at every single attraction where this feature appeared.
Consequently we now have two One Direction touring sets!
23
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
OPERATIONAL REVIEW - MIDWAY Attractions
SEA LIFE has four mobile features: ‘Turtle Sanctuary’, ‘Octopus
Hideout’, ‘Sea Stars’ and ‘Claws’. All of these features are designed
to give our visitors the opportunity to see amazing creatures,
including starfish from across the world and giant Japanese
Spider Crabs.
Customer satisfaction
The combination of our investments this year, along with our
relentless focus on customer service, have added significantly to
the overall experience of our guests, as demonstrated by the
excellent customer satisfaction scores we continue to enjoy.
Looking ahead
2015 will see a significant further expansion of the Midway
estate with a combination of individual and cluster location
attractions. ‘Clustering’ is where we have more than one
attraction in the same location, providing operating cost,
marketing and cross-selling advantages.
Following an extensive rebranding, we have already relaunched, as
a SEA LIFE Centre, the Turkuazoo Aquarium in Istanbul that had
been a standalone acquisition in 2013. We will then add an LDC in
the same mall location later this year to form the Istanbul cluster.
In the spring the Orlando cluster in Florida will open at
I-Drive 360 on International Drive. This will feature the
400 foot Orlando Eye observation wheel that we will operate
as a management contract, together with a SEA LIFE Centre
and an MT. As well as creating a new cluster of Midway
attractions in its own right, we also anticipate significant
marketing opportunities with LEGOLAND Florida.
In the summer we will bring ‘Shrek’s Adventure!’ to the South
Bank in London, where it will join the Coca-Cola London Eye,
London Dungeon and SEA LIFE Centre already located there.
Based on the Shrek series of films, the largest animated franchise
in history, this entirely new attraction has been developed in
association with DreamWorks Animation. We have confidence
that this has the potential to become our sixth Midway brand.
Together with SLC Michigan, USA (already opened), and LDC
Osaka, Japan, this will total seven completely new Midway sites
in 2015. We are already well advanced with planning for a
further seven attractions in 2016.
In the summer of 2015
we bring Shrek’s Adventure! to
the South Bank in London
Our LDCs have three themed versions of major scenes from
the Star Wars movies recreated in LEGO bricks with interactive
features which bring the displays to life for our visitors.
Midway roll out
During 2014 our expansion of Midway attractions continued
around the world with the launch of a further six new attractions.
In North America we launched an LDC in Boston which has
taken the brand to a new level in terms of the quality and
breadth of what is on offer; a SEA LIFE Centre in Charlotte,
North Carolina, which received a very high level of local media
coverage; and a Dungeon and MT in San Francisco. This is the
first time we have taken the Dungeon brand outside of Europe
and we are encouraged by the positive customer response.
In Asia we introduced a Madame Tussauds in Beijing just
off Tiananmen Square. The strong early performance of this
attraction gives us confidence that the brand has a growing
reputation and awareness in the huge Asian market, where
the hunger for anything related to fame and celebrity seems
stronger than ever. At the end of the year we opened a
Madame Tussauds in Singapore which we have combined
with an existing attraction (Images of Singapore).
Midway sites
UK
Continental Europe
North America
Asia Pacific
Total
December
2013
Change
2014
December
2014
23
26
15
22
86
-
-
4
2
6
23
26
19
24
92
Strategic acquisitions
During 2014 we have rebranded two recently acquired
aquariums as SEA LIFE Centres. SEA LIFE Busan Aquarium
was launched in July with a prominent conservation focus and
in December we launched SEA LIFE Bangkok Ocean World.
Both aquariums were part of our acquisition of Living and
Leisure Australia in 2012 and in both cases we invested
several million pounds in creating very high quality
experiences which are befitting of the SEA LIFE brand.
24
Merlin Entertainments plc Annual Report and Accounts 2014
SEA LIFE BUSAN
What did
we do?
How did
we do it?
What was
the result?
We relaunched Busan Aquarium as SEA LIFE Busan Aquarium in July
2014. Busan Aquarium was acquired as part of the Living and Leisure
Australia acquisition in 2012 and we have been gradually rebranding
one or two aquariums each year to SEA LIFE whilst significantly
increasing the quality and breadth of the customer experience.
We redeveloped the whole of the aquarium adding new shipwreck,
‘bay of rays’, seahorse and ocean tank features, whilst transforming the
attraction to make it more child friendly, in line with our SEA LIFE
approach. This included tanks designed with child-sized viewing areas
for children to discover, a quiz trail and tailored creature descriptions.
Central to the relaunch was the integration of the SEA LIFE
conservation message of ‘Breed, Rescue and Protect’, where we
highlight the number of creatures SEA LIFE breeds globally; the
number and types of creatures that we rescue from distressed marine
environments; and how we play our part in protecting the broader
marine environment with hands-on work by our own teams. The
SEA LIFE Busan Aquarium uniquely features the rescue, rehabilitation
and release of wonderful Finless Porpoises as part of this programme
of active marine conservation work. The programme has been created
in conjunction with the South Korean Government to help save the
ever increasing numbers of injured porpoises.
The relaunch has achieved revenue increases in line with our
expectations and supported a significant increase in lead ticket price.
Despite the price increase, customer satisfaction and ‘value for money’
scores have improved, demonstrating effective capital expenditure.
The rescue and release of the Finless Porpoises is an illustration of
our conservation and welfare work and positions the brand in a
very positive manner with our customers.
CASE STUDY
25
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 LEGOLAND
Parks
2014 WAS AN EXCEPTIONAL YEAR FOR THE LEGOLAND PARKS OPERATING
GROUP. ALL SIX EXISTING LEGOLAND PARKS DELIVERED YEAR ON YEAR
REVENUE GROWTH, BENEFITING FROM STRONG CAPITAL INVESTMENTS AND
THE PHENOMENAL SUCCESS OF ‘THE LEGO MOVIE’. WITH LEGOLAND DUBAI
AND LEGOLAND JAPAN ALREADY UNDER CONSTRUCTION AND LEGOLAND
KOREA ALSO ANNOUNCED, WE ARE FIRMLY ON TRACK WITH OUR
LEGOLAND PARK DEVELOPMENT PROGRAMME.
Merlin Entertainments plc Annual Report and Accounts 2014 Visitors (m)
Revenue (£m)
Underlying EBITDA (£m)
Underlying operating profit (£m)
Like for like revenue growth
Trading performance
The LEGOLAND Parks Operating Group had an exceptional
year in 2014, due to a continued successful capital investment
programme and the impact of ‘The LEGO Movie’. A 9.8%
growth in visitors converted into revenue growth of 15.7%
and underlying operating profit growth of 21.1%, both on a
constant currency basis, with reported numbers adversely
affected by movements in foreign exchange rates. The flow
through of incremental revenues to profit is tempered by the
mix of revenues, variable trading and labour costs, as well as
unexpected remedial costs at the LEGOLAND Windsor hotel.
Existing estate and capital investment
In 2014, the highlight of the LEGOLAND parks capital
investment cycle was the ‘high-year’ LEGO CHIMA water park
at LEGOLAND California. This investment almost doubled the
size of the existing water park and has been extremely popular
with visitors. These factors, together with the launch of ‘The
LEGO Movie’ at this attraction and generally good weather,
helped secure the best summer ever at this resort.
In LEGOLAND Billund, Denmark, we had a ‘medium-year’
investment, comprising the ‘Ghost -The Haunted House’
attraction and drop ride experience. This has performed
well in attracting additional visitors to the resort.
All the LEGOLAND Parks, especially the two North American
sites, benefited significantly in 2014 from ‘The LEGO Movie’.
Launched at LEGOLAND California in February, the film was
a major blockbuster hit especially in the USA and the UK.
This drove consumer demand for the LEGO product and
The LEGO Movie launched
at LEGOLAND California
in February
OPERATIONAL REVIEW - LEGOLAND Parks
2014
12.7
386
142
120
2013
11.5
352
127
106
Growth
+9.8%
+9.5%
+11.9%
+13.2%
Constant
Currency
Growth
+15.7%
+19.2%
+21.1%
+13.2%
visitation to all our LEGOLAND sites. Guests were able to
visit the actual film set at LEGOLAND California, and across
all the parks we reaped the rewards of strong marketing and
promotional campaigns.
We also benefited from more favourable weather in 2014 in the
European parks, especially at Easter where the 2013 comparative
period had been extremely challenging.
Resort positioning
The repositioning of the parks as short break destinations continues
to be very popular with guests, driving higher satisfaction scores,
higher spends and an increase in pre-booked business. In 2014,
we opened the 68 bedroom King’s Castle hotel at LEGOLAND
Deutschland Holiday Village which had an average occupancy
rate of over 95% during the peak summer months. This augments
the smaller Knight’s Castle hotel that opened the previous year.
Elsewhere we re-themed the Holiday Village at LEGOLAND
Billund, which we took over at the start of 2013, and
expanded the LEGOLAND Billund hotel with 24 highly
themed new bedrooms.
The new LEGO CHIMA water park in LEGOLAND California
27
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
OPERATIONAL REVIEW - LEGOLAND Parks
The LEGO product
remains hugely popular and
our co-operation with the
LEGO Company is excellent
Developing new LEGOLAND Parks
We made significant progress in 2014 in our strategy to add at
least one new LEGOLAND Park every three years, always with
an unerring focus on the returns that can be generated from the
three different financing and development models that we follow.
Operated and leased sites
In June 2014 we announced our plans for LEGOLAND Japan in
Nagoya, scheduled for opening in 2017. Nagoya sits in the centre
of Japan which is the second largest theme park market in the
world. The development of the park will be supported by the
City of Nagoya through the development of the local travel
infrastructure including a 5,000 space car park. The site will
have the potential both for future park expansion and on-site,
themed accommodation. It will be developed under our ‘operated
and leased’ model, where Merlin has an operating company that
contributes a portion of total park investment and leases the
balance of the assets from a third party; in this case from a
company owned by KIRKBI (a shareholder in Merlin and a
major shareholder in the LEGO Company).
In November 2014 we announced LEGOLAND Korea. This is
also scheduled for a 2017 opening and is financed under a similar
model to LEGOLAND Japan, in this case funded by a property
company owned by a consortium of local public and private
investors. This park will be situated on a picturesque island
setting in Chuncheon, located approximately one hour from
Seoul, South Korea, and within a two hour drive time for nearly
24 million residents. National and regional governments and
Chuncheon City will between them fund transportation
and wider infrastructure support.
Management contracts
LEGOLAND Malaysia was developed under a ‘management
contract’ model and this has been operating successfully since its
opening in September 2012. We expect, with our local partners,
to open LEGOLAND Dubai as the first LEGOLAND Park in
the Middle East in 2016. Furthermore, we continue to pursue
opportunities and may in time see one or more parks under
this model in China.
28
Operated and owned
This is how the first five LEGOLAND Parks were developed,
and we expect to identify more locations where this model
can be applied. Specifically, we are exploring some encouraging
opportunities for a third park in North America.
Customer satisfaction
Alongside the commercial performance and resort expansion,
it is particularly pleasing to report that we have increased our
already high customer satisfaction score across the LEGOLAND
Parks Operating Group as a whole.
Looking forward
Alongside our longer term LEGOLAND Parks development
programme, we continue to invest in capital projects both for
new rides and accommodation offerings.
2015 will see a ‘high-year’ capital investment in a brand new
LEGO Friends area at LEGOLAND Windsor along with similar
smaller investments in California and Florida. Cinemas in all our
LEGOLAND Parks and LEGOLAND Discovery Centres will
benefit from an exclusive short 4D movie experience based
on ‘The LEGO Movie’ and containing exciting new content.
In terms of accommodation, construction is on schedule for the
opening of our second LEGOLAND hotel in the USA at the park
entrance to LEGOLAND Florida in late spring 2015. This will
combine with marketing opportunities from the opening of our
other Midway attractions in Orlando this year. Plans are also in
progress for further additions to our existing hotels and
Holiday Villages for the years to come.
The LEGO product remains hugely popular and our
co-operation with the LEGO Company and KIRKBI remains
excellent, resulting in many initiatives which benefited our
business in 2014 and will continue to do so in the future. This
collaborative approach covers both tactical and strategic matters,
with our teams meeting at least once a year to plan for future
developments to our mutual benefit. Tactical collaboration occurs
in all markets around events and promotional activities. On the
strategic level we are well integrated into the long term product
programmes of the LEGO Company and are seeing the results
of this collaboration in such things as our planned new LEGO
Friends areas in three LEGOLAND Parks for 2015.
Emmet and Wyldstyle from ‘The LEGO Movie’
Merlin Entertainments plc Annual Report and Accounts 2014
LEGOLAND CASTLE HOTEL, GERMANY
What did
we do?
How did
we do it?
What was
the result?
In April we continued our programme of transforming our
theme parks into destination resorts when we opened our second
LEGOLAND Castle hotel at the LEGOLAND Deutschland Holiday
Village in Bavaria in southern Germany. The 68 bedroom King’s
Castle hotel is a follow-up to the Knight’s Castle we opened in 2013.
The hotel represented an investment of approximately £9 million
and has been financed entirely from Merlin’s cash flow.
Merlin’s expert hotel team, combined with local architects and the
local LEGOLAND Deutschland management team, were responsible
for developing the product on the basis of the very successful smaller
Knight’s Castle launched in 2013. The development and operational
set up worked very well, leveraging the expertise that has been
built up across the Group.
The project was delivered on time and on budget. Financial
performance has been stronger than expected, outperforming the
business case for developing the hotel without cannibalising our
existing offers in the Holiday Village. Guest satisfaction scores have
been very high and, in line with our experience in other resorts, even
higher than for day visitors. Over 60% of visitors to the Holiday Village
come from outside Germany; a trend that is increasing. This all
continues to underpin the strategy of repositioning the parks as
short break destinations.
CASE STUDY
29
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 RESORT
Theme Parks
THE RESORT THEME PARKS OPERATING GROUP DELIVERED A SECOND
SUCCESSIVE YEAR OF STRONG REVENUE AND EBITDA GROWTH SHOWING
CONTINUED PROGRESS SINCE THE MARKET CHALLENGES FACED IN 2012.
THIS WAS ACHIEVED THROUGH EFFECTIVE IMPLEMENTATION OF THE
STRATEGIC GROWTH DRIVERS OF PLANNED CAPITAL INVESTMENTS;
TRANSFORMING THE THEME PARKS INTO SHORT BREAK DESTINATIONS;
AND CAPITALISING ON GROUPWIDE STRATEGIC SYNERGIES.
Merlin Entertainments plc Annual Report and Accounts 2014 OPERATIONAL REVIEW - RESORT Theme Parks
2014
12.0
331
87
60
2013
11.2
314
81
54
Growth
+7.2%
+5.6%
+7.2%
+11.0%
Constant
Currency
Growth
+8.4%
+11.6%
+16.4%
+7.2%
Visitors (m)
Revenue (£m)
Underlying EBITDA (£m)
Underlying operating profit (£m)
Like for like revenue growth
Trading performance and capital investment
Trading performance for the Resort Theme Parks (RTP)
Operating Group overall in 2014 built on the good performance
of 2013 to show continued growth in visitor numbers, revenue
and profit. Growth in visitors of 7.2% resulted in growth in
revenue of 8.4% and underlying operating profit of 16.4%,
both converted on a constant currency basis.
The strategic focus for RTP continues to be to create a
portfolio of differentiated short break destinations based at
unique theme park locations. Once again 2014 saw the launch
of new compelling experiences at each of the RTP resorts,
in accordance with our established capital investment cycles.
The successful launch of each of these was key to ensuring
revenue growth at every one of the six RTP resorts.
The ‘high-year’ capital investment in RTP was the launch of a
major new roller coaster ‘Flight of the Demons’ at Heide Park
Resort in Germany, targeting the thrill-seeker market. In addition,
Alton Towers introduced ‘CBeebies Land’ in association with BBC
Worldwide. Based on the TV channel of the same name, this
successfully attracted a wider demographic to the resort of
families with children under the age of six. Thorpe Park also
introduced a strong and internationally known Intellectual
Property (IP) based attraction with ‘Angry Birds Land’, including
a new and exclusive 4D movie experience developed in
association with Rovio, the owner of the Angry Birds IP. The
successful introduction of a lower priced Thorpe Park season
pass, together with a new web/mobile booking platform and
pricing structure, also helped to deliver growth in a challenging
economic environment for the resort’s core 16-24 age group.
Chessington World of Adventures launched ‘Scorpion Express’,
the reinvigoration of an existing ride complete with new theming,
fire effects and near misses, to cost-effectively deliver a new ride
experience for the resort. Gardaland introduced ‘Prezzemolo
Land’, a new wet and dry play area based on the park’s famous
character mascot and targeted at younger children. In Italy the
economic and political landscape continued to be difficult but
despite this Gardaland has seen modest revenue and EBITDA
growth. This was driven by the key management initiatives of
increasing penetration of international tourists visiting Lake Garda;
launching a successful ‘value for money’ season pass initiative for
both the resident and tourist market; and further targeted
cost saving initiatives to improve operational efficiency.
Finally, Warwick Castle extended its ‘Horrible Histories Foul
Fayre’ across the full operating season.
Resort positioning
A key future growth driver for RTP is increased investment in
unique accommodation offerings to drive increased additional
short break visitation, multi-day stays and pre-booked visits.
In 2014 we successfully introduced the new 90 bedroom
‘THORPE SHARK’ hotel at Thorpe Park and extended and
improved the accommodation offering at Warwick Castle
including the addition of two luxury ‘Tower Suites’ within the
Castle itself. Later in the year we launched the 69 bedroom
‘Azteca’ hotel at Chessington World of Adventures alongside
the relaunch of the existing hotel as the ‘Safari’ themed hotel.
Strategic synergies
RTP both contributes to and benefits from the wider Merlin
Group in terms of strategic synergies, with the continued
success of customer promotions and the development of the
Merlin Annual Pass. The problem of queues impacting customer
satisfaction remains a key challenge for the theme park industry
generally and a number of initiatives to alleviate the impact of
queues were trialled in 2014. These included the introduction
of mobile apps and electronic screens showing queue times and
providing tips to avoid queues. We also trialled an online ticketing
platform and a mobile based ‘Reserve and Ride’ virtual queuing
system at Thorpe Park. Further initiatives and trials will continue
in 2015 in this area.
Customer satisfaction
With the uplift in visitor numbers to our attractions in 2014 it
was vital that we maintained focus on our key KPI of customer
satisfaction. It is a testament to the great teams across the RTP
resorts that all sites increased their scores year on year.
Looking forward
Gardaland will have the ‘high-year’ capital investment in 2015 which
will be ‘Oblivion’, a major roller coaster drop ride. Our longer term
aim is to transform Gardaland into a major European short break
destination for both Italians and international visitors alike so this
will be an important step on that journey, as will the launch of a
new highly themed ‘Adventure’ hotel planned for 2016. Work
is also underway at Alton Towers on the 2015 launch of the
‘Enchanted Village’ including both lodges and luxury tree-houses.
31
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 CBEEBIES LAND AT ALTON TOWERS RESORT
What did
we do?
How did
we do it?
We introduced a new highly recognisable land to an existing area
of the theme park. This was aimed primarily at families with young
children, a previously under-represented demographic at Alton Towers,
for whom a short break is considered an attractive proposition.
Having identified the potential of the target demographic, our
attraction and creative teams identified CBeebies as a strong and
compelling Intellectual Property (IP) asset that could deliver increased
park visitation and short break visits to the resort. The team from
Merlin Magic Making negotiated a licence deal with BBC Worldwide
(who own the rights to CBeebies). The creative teams then worked
closely with the BBC to develop a compelling experience that would
transform an existing under-utilised area of the park with attractions
and rides featuring famous CBeebies characters and shows such as
‘Postman Pat’, ‘Charlie and Lola’, ‘In the Night Garden’, ‘Tree Fu Tom’
and ‘Justin’s House’.
What was
the result?
In 2014 Alton Towers saw a 10% increase in visitors driven by
CBeebies Land, as well as an 8% increase in leisure room nights
booked at the hotels. Research confirmed that 17% of visitors
to CBeebies Land were new visitors to Alton Towers.
CASE STUDY
32
Merlin Entertainments plc Annual Report and Accounts 2014 Merlin Entertainments plc Annual Report and Accounts 2014 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 creative ideas and produces amazing
content for our attractions.
• Delivers them at market leading speed and value.
FINDING THE MAGIC
‘SITES ALREADY SECURED IN CHINA FOR 2016’
After a successful delivery of the 2014 pipeline things are looking
very positive for 2015, with all sites secured and design and build
programmes underway.
2016 is also shaping up to be in line with our strategic plans, with
two sites already secured in China, as well as a number of other
site opportunities in progress.
We have strengthened the team in North America with our first ever
Site Search Director based full time in the USA, meaning we now have
in-house Merlin influence in all our major development geographies.
W O R L D W I D E
MERLIN Magic Making
PRODUCING THE MAGIC
‘FANTASTIC LEGO MODELS…RECORD
NUMBERS OF MADAME TUSSAUDS FIGURES…’
When reporting last year we thought that our production teams
had scaled unbelievable new heights BUT we are excited to say
that we have been even more productive in 2014.
Our five LEGO model facilities across the USA, UK, Denmark,
Germany and Malaysia have again been able to deliver fantastic
LEGO models to new accommodation in LEGOLAND
Deutschland and our new (and best ever!) LEGOLAND
Discovery Centre in Boston, as well as over 20 assignments
in our existing businesses.
Madame Tussauds figure production has again been at its highest
ever, with over 230 wax figures produced for new openings in
Singapore, Beijing, San Francisco and globally across the existing
estate of attractions.
CREATING THE MAGIC
‘WE CONTINUE TO DEVELOP SOME VERY
STRONG INTELLECTUAL PROPERTY
RELATIONSHIPS’
It is never quiet when it comes to looking at the creative and
innovative ways that we are able to drive the business forward.
2014 has been no exception, with a host of new and exciting
projects coming to fruition.
Our Midway roll out programme continued during 2014,
including our first Dungeon foray outside of Europe, with the
launch of the San Francisco Dungeon, in the USA; three Madame
Tussauds launches (our most ever!) including our first business
in Beijing; as well as a LEGOLAND Discovery Centre and a
SEA LIFE Centre.
Things were no less impressive in our existing businesses
whether it was ‘scaring the beegeebies’ out of you in our new
haunted house concept in LEGOLAND Billund; confronting the
wing coaster ‘Flug Der Dämonen’ at Heide Park; riding the rapids
in our new ‘LEGO CHIMA’ water park in LEGOLAND California;
or just taking a well earned rest in our new Azteca hotel at
Chessington World of Adventures Resort.
We continue to develop some very strong Intellectual Property
(IP) relationships with the BBC, Rovio and Marvel as evidenced
by our most recent openings of the amazing ‘CBeebies Land’
at Alton Towers; ‘Angry Birds Land’ at Thorpe Park; and our
‘Marvel Super Heroes 4D’ film at Madame Tussauds.
2015 will see IP relationships developed even further. We will
introduce a Star Wars exhibition in the Madame Tussauds attractions
in London and Berlin (see Case Study on page 37). In Midway our
drive to introduce new brands continues at pace, so most exciting
of all will be the launch in London in the summer of the world’s
first Shrek Midway attraction ‘Shrek’s Adventure!’, created in
close collaboration with the DreamWorks Animation team.
35
Merlin Entertainments plc Annual Report and Accounts 2014 MERLIN Magic Making
‘WE AGAIN PLAYED A CENTRAL ROLE IN
THE WIDER AQUARIUM COMMUNITY’
It has been a very busy year for Merlin’s Animal Welfare and
Development team, with a whole host of projects centred
around the welfare and wellbeing of our creatures.
Early on in the year we successfully moved a group of captive
bred penguins from our New Zealand SEA LIFE Centre to our
National SEA LIFE Centre in Birmingham in the UK, a story
which was followed on UK national television by BBC2, for
their ‘Penguins on a Plane’ mini-series.
We again played our part in the wider aquarium community, with
leading roles on a number of BIAZA (British & Irish Association
of Zoos and Aquariums) Committees and active participation
in a number of industry conferences, think tanks and meetings.
Core to this wider community strategy has been our continued
work on a number of projects with the SEA LIFE Trust.
Innovation has also been a key activity in 2014, with a number
of trials taking place with technology aimed at enhancing the
SEA LIFE visitor experience, be it transparent touch screens;
the development of Remote Operated
Vehicles giving unique underwater views;
or new low energy lighting systems for
our aquarium displays.
We moved a group of
captive bred penguins from
our New Zealand SEA LIFE
Centre to our SEA LIFE Centre in
Birmingham in the UK, a story
which was followed by BBC2
36
DELIVERING THE MAGIC
‘WELL PLACED TO MEET THE
NEXT SET OF CHALLENGES’
Another record breaking year in project management has seen us
working on 49 major projects in eleven countries during the year,
with the projects in total representing a capital investment of
over £230 million.
We delivered new accommodation offerings across five different
sites to support our resort strategy; opened three new Madame
Tussauds as part of our six Midway roll outs (including our first
ever Madame Tussauds boat ride!); introduced The Dungeons to
the USA (our first outside of Europe); developed fantastic projects
with Intellectual Property partners, the BBC and Rovio at two
of our parks; launched our third (!) winged coaster at another;
brought LEGO Duplo and CHIMA Worlds and water parks
into the LEGOLAND Parks; launched and relaunched SEA LIFE
Centres and a LEGOLAND Discovery Centre; expanded a
Madame Tussauds… and brought penguins to the heart of England!
Innovative thinking across the whole of Merlin Magic Making
remains our guiding philosophy. This, as well as delivering
compelling propositions to entice our customers to come
and visit, along with our aim to drive great value from
everything we produce, means that we are well placed to
meet the next set of challenges… so bring on the fun!
Merlin Entertainments plc Annual Report and Accounts 2014 MERLIN Magic Making
What are
we doing?
How are
we doing it?
What will the
results be?
We have teamed up directly with the Lucasfilm team and put together
the first ever Star Wars Madame Tussauds exhibition, ready for launch
in the 2015 season. Two separate exhibitions are being produced, one
in the Madame Tussands flagship attraction in London and one in our
hugely successful Madame Tussauds in Berlin. Initially for a five year
period, the success of the Star Wars intellectual property is set to
go from strength to strength with the launch of a new series of
films over the next few years.
Our creative teams have been working hard to produce a series
of realistic sets which depict the epic Star Wars story. They will be
brought to life with original music from the films, special sound effects,
lighting, props and even smells, enabling our guests to feel like they are
right in the middle of the action. The heroes of the sets, of course, will
be the world famous Madame Tussauds figures, representing some of
the most iconic characters ever to be produced.
We will have produced a unique chronological story, through both the
prequels and the original trilogy, which will allow guests to immerse
themselves in the amazing story of Star Wars. Visitors will be able to
stage a ’Lightsaber’ duel with Anakin Skywalker; feel like they are
piloting the Millennium Falcon with Chewbacca; or recreate the iconic
‘I am your father’ moment with Darth Vader. The scene is set for this
to be one of the best Madame Tussauds exhibitions ever undertaken!
CASE STUDY
37
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 TEAM MERLIN
WE DESCRIBE OUR COMPANY’S CULTURE AS ‘THE MERLIN WAY’. IT CAPTURES
THE ESSENCE OF HOW OUR EMPLOYEES ARE ALIGNED WITH OUR 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. OUR STRATEGY DRIVES US TOWARDS OUR AMBITIONS: TO BE
THE BEST COMPANY TO WORK FOR IN OUR INDUSTRY; TO NURTURE OUR
GLOBAL LEADERS; AND TO REWARD PERFORMANCE. WE MEASURE OUR
SUCCESS THROUGH THE OUTSTANDING EMPLOYEE ENGAGEMENT SCORES
WE CONTINUE TO RECORD IN OUR ANNUAL EMPLOYEE SURVEY.
Merlin Entertainments plc Annual Report and Accounts 2014 TEAM MERLIN
Women now work at every level within Merlin including the
Board and the Executive Committee. 107 or around 35% of all
our senior leaders are women as are 4,065 or approximately
50% of our permanent colleagues globally.
Other engagement initiatives
We encourage all of our attractions to use the Merlin intranet
to publish newsfeeds of interesting information and developments
at their sites, as well as providing further regular communications
through the more traditional routes of newsletters, team briefs
and noticeboards.
In addition, all our employees can be actively involved themselves
through a number of popular initiatives. These include:
• STAR - our online global recognition scheme that saw more
than 90,000 ’Stars’ sent out worldwide in 2014, in recognition
of an outstanding contribution or as a simple ‘Thank You’ for a
job well done.
• Spark an idea - an online portal for colleagues to share their
ideas, big or small. We have received hundreds of ideas since
we launched this scheme in 2012 and lots have already been
put into practice in our attractions. We never cease to be
amazed by all the fabulous ideas that our people come
up with.
• The Merlin Way film competition - run every year to give our
people everywhere the chance to make a two minute video
clip demonstrating just how they make The Merlin Way come
to life. They can be so good that we show these inspirational
films when we are looking to attract new recruits to come
and join us at Team Merlin.
Employee engagement
We believe that our people lie at the heart of all we do and
are committed to being the best company to work for in our
industry. Whether permanent or temporary, full or part time,
based in Germany or Singapore (or anywhere else in the world),
we want to attract people from all walks of life and make
sure they have a truly great experience working for us.
Our employment policies, amongst many other things, are
testament to this and include Equal Opportunities, Global
Whistleblowing and Global Study Support.
‘The Wizard Wants to Know’
Our annual online employee survey,
‘The Wizard Wants to Know’,
went out in the summer to all
our employees across the globe.
This survey is our chance to find
out how engaged our people are
and to hear what it’s like to work
for this magical Company of
ours. We are excited that 97%
completed the survey and thrilled
that 95% said that they enjoy
working here. We think these
are truly awesome scores!
Our overall staff engagement score is one of Merlin’s key
performance indicators and is derived from the responses to
a number of key questions within the survey. We are delighted
that our staff engagement score was exceptionally high once
again. It was way above our 80% target, something that we
are all very proud of. The largest driver of this, we believe, is
‘The Merlin Way’, our spell of values that wins the hearts
and minds of our employees to deliver the most magical,
memorable experiences to our guests.
Diversity
We believe that our people are the single biggest reason behind
the Company’s success, so we always strive to make life at Merlin
better for all of them, with diversity being an important part of
this. We have designed our strategy to give us the best people
for all roles, regardless of gender, race, disability, sexual orientation
or any other factor. Our aim is to ensure that everyone has equal
access to all opportunities wherever possible. Further details
of our disability agenda are outlined in our Corporate Social
Responsibility section on page 58. In terms of gender diversity,
we have launched the Women at Merlin (W@M) programme
to help us give women the chances and support they need
to achieve their ambitions and develop into senior roles.
Throughout 2014 W@M activities included a number of
different events, workshops and webinars. Our diversity
strategy was recognised when we won the ‘Women 1st’
Large Business Award this year. That was incredibly gratifying
and a strong indication that we are doing the right things.
< The Merlin Way: our spell of values that wins the hearts and minds
of our employees to deliver memorable experiences to our guests.
Hosts at LEGOLAND Windsor making it fun!
39
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
TEAM MERLIN
Colleagues at Alton Towers bringing some fun to CBeebies Land
40
Talent and development
It is essential to Merlin’s future growth that we recruit and
develop the ‘Team Merlin’ of the future. We are an entertainment
company, dedicated to providing memorable experiences to our
guests, so we seek out the people who have a love of fun and
a natural ability to inject some magic into the lives of our guests
when they come and visit one of our attractions. Once recruited,
we then nurture their talents and support their development
throughout their careers with us.
Recruitment
We use technology more and
more in our hiring strategy to
improve the application process,
with social media a big part of
this approach. We work on
building relationships in developing
markets to improve our campaigns
there and make us as appealing
as possible to local candidates.
Our recruiters need to be experts
in choosing Merlin people with
the right skills and attitudes, so
we have online tools to help them
share best practice, as well as
videos with opinions and ideas
from our senior leaders.
XLR8
We have a well-established fast track graduate programme in
place for marketing and general management positions, which
we call XLR8. Roles on the programme are always tailored to the
individuals who are supported through their career every step of
the way. The success of this can be seen through our 2012 intake,
all of whom have progressed to permanent roles in 2014. We
have also promoted lots of our previous XLR8 alumni into senior
positions across the Group during the past year. The 2014 intake
included fun-loving, talented recruits from across the UK, North
America, Germany, China and Australia.
Leadership development programmes
We have many superb leadership development programmes in
place, including our flagship ‘Xcalibre’ course, run with Kingston
University in the UK and aimed at leaders who have bags of
potential. We also have the Merlin leadership programme, which
we run across the globe. In addition, during the course of last
year we introduced some ‘Bootcamps’, which are development
centres specifically for our general management, finance and
HR team members. These courses include a combination
of personal development and
competency assessment to help
us identify and nurture talent.
Merlin Entertainments plc Annual Report and Accounts 2014 Merlin employee exchange programme
The Merlin Employee Exchange Programme helps our people
via a ‘job swap’ in another attraction (that can be anywhere in
the world) to help them develop new skills, experiences, and
relationships, positioning them for their next step in their
professional journey.
And finally, at any time our teams can access Merlin’s School
of Magic, our online training resource run in conjunction with
the renowned Ashridge Business School.
Compensation and benefits
When you rely on your people as much as we do, we believe it
is essential to provide compensation and benefit programmes
which are competitive and which support our business
and culture.
Share plans
This year we made good progress towards our goal of helping
as many of our colleagues as possible to take an equity stake in
Merlin. We call this ‘owning a piece of the magic’, and we believe
it is an important way of making Team Merlin even more
committed to our success.
Following our Listing in November 2013, we launched our
first Employee Sharesave plan in January 2014 to give all our
permanent colleagues the chance to save money over a three
year period to buy Merlin shares. This was communicated
internally with a comprehensive, multi-media campaign that
included videos from our CEO, webinars, face to face briefings,
intranet updates, posters and ‘table-top teasers’. Overall, almost
30% of permanent staff took up the opportunity to start saving
to buy shares. In the UK, the take-up rate was 40%, with some
teams having more than 80% of their people taking part.
We have also continued to roll out the other long term incentive
plans that we launched last year, making grants to more than 50
colleagues who joined Merlin or were promoted to senior
management grades during the year.
Other benefits initiatives
We run a number of programmes to support our teams
and continue to harmonise our local benefit structures on
a territory by territory basis.
With our rapid growth, 2014 has seen a big step up in the
number of colleagues moving to new countries to support
our business growth. Our international mobility programme is
therefore proving invaluable in helping us move our talent
safely, securely and comfortably.
We offer an external, confidential Employee Assistance
Programme to support our staff when they need it. We also
offer reduced-cost gym memberships at a number of sites
and have various wellness initiatives around the Group.
TEAM MERLIN
Actors from the Blackpool Tower Dungeon, ready for Scary Fun!
41
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 RISKS
and uncertainties
MERLIN HAS A PROACTIVE APPROACH TO THE MANAGEMENT OF POTENTIAL
RISKS AND UNCERTAINTIES WHICH COULD AFFECT THE HEALTH AND SAFETY OF
GUESTS, STAFF OR OUR ANIMALS OR HAVE A MATERIAL IMPACT ON THE GROUP’S
BUSINESS PERFORMANCE, DELIVERY OF ITS STRATEGY OR THE INTEGRITY OF ITS
FINANCIAL REPORTING. IT IS AN INTEGRATED ‘BOTTOM UP’ AND ‘TOP DOWN’
APPROACH, WITH BUSINESS RISKS IDENTIFIED, EVALUATED, CONTROLLED AND
MONITORED BY BOTH OUR ATTRACTION AND CORPORATE MANAGEMENT
TEAMS, OVERSEEN BY THE BOARD AND ITS COMMITTEES.
Overview of Merlin’s risk management approach
Evolution in approach
During the course of 2014, Merlin has reviewed its overall
risk management approach to further align it to the management
of the business and the Board Committee structure.
Prior to this change in approach, risks were categorised into:
health and safety matters; current trading and future expansion
risks. All matters were overseen by a Corporate Risk Management
Committee which reported to the Executive Committee and,
through the CEO, to the Board. In addition, there was a dedicated
Health, Safety and Security Committee of the Board chaired by
the Chairman to oversee all health and safety matters.
In the latter part of 2014, an amended approach to risk
management has been implemented. The Group has now
separated risk management into three components to reflect
the varying functions and committees that manage and oversee
such risks on an ongoing basis. The three components are:
• Health, safety and security risk.
• Commercial and strategic risk.
• Financial process risk.
Whilst the Board retains overall responsibility, specific
Committees are appointed by the Board to oversee the
management of the risks in each category:
• The Health, Safety and Security Committee and the Audit
Committee comprise Board members to oversee health,
safety and security matters and financial process risks respectively.
• The Group’s Executive Committee, a non-Board committee,
oversees commercial and strategic risk through a Commercial and
Strategic Risk Management Committee made up of members of the
Executive Committee and other relevant senior managers. It reports
quarterly to the Board on such matters, through the CFO.
Risk registers provide the
basis for ongoing risk management
and all are formally reviewed at
least once a year
42
Merlin Entertainments plc Annual Report and Accounts 2014
RISKS and uncertainties
Risk appetite
The Board has defined the Group’s risk appetite
(tolerance of risk) according to whether a risk is pure
or speculative.
Pure risk refers to situations where there is clear regulatory
guidance and matters are strictly defined, such as ride safety,
accounting practices or food hygiene. The Group has a very
low appetite for pure risk. In practice this means that wilful
breach of any national or local legislation is unacceptable.
Speculative risk relates to decisions for which acceptance of a risk
can bring commercial benefit. The Group has a greater appetite
for speculative risk, which it assesses based on an appropriate
analysis of threats and opportunities, along with appropriate
decision-making authority levels. Factors such as the scale of
possible commercial upside, the potential market size, the
quantum of downside risk and timescales involved may all
be relevant to speculative risk decisions.
Risk management
Each attraction and central function maintains a risk register, being
a record of the material risks it faces categorised into the three
components of risk as identified above. The registers include
a rating of each risk, based on an assessment of the likelihood
and impact after taking into account existing mitigating control
measures. Where this assessment indicates a high residual risk,
additional actions are considered to further mitigate the risk. In
respect of financial risks, such actions may include the use of
hedging instruments to protect against movements in foreign
exchange and interest rates, following an assessment of the
perceived risks in each case. Risk registers provide the basis
for ongoing risk management and all are formally reviewed
at least once a year.
In addition to the ongoing risk management processes, periodic
detailed reviews of specific risk issues are also undertaken. This
review process, together with structured audit programmes
covering both financial processes and health, safety and security
controls across the Group, allow the Board to gain assurance
over the robustness of risk management systems.
Health, safety and security risks
Integral to Merlin’s strategic vision is our absolute commitment
to continuously achieve high standards of health, safety and
security (HSS). Merlin’s number one priority is delivering safe
and memorable experiences to guests. Our unequivocal focus
is on ensuring that our operations are as safe as possible at all
times, thereby honouring the trust that our guests, employees
and shareholders place in us. Our ultimate aim is to proactively
and continuously improve HSS performance.
Our unequivocal focus is on
ensuring that our operations are
as safe as possible at all times,
thereby honouring the trust that
our guests, employees and
shareholders place in us
HSS management
Responsibility for the management of HSS resides with the
Board, with day to day management delegated, via the Executive
Committee, to the relevant management teams throughout the
Group with local HSS committees in place at both Operating
Group and attraction levels.
Merlin’s HSS Policy and health and safety management
system together set mandatory obligations for standards and
performance across all our operations. Our approach, which is
well embedded across the Group, incorporates the requirements
contained within the UK official guidance on the safe practice of
fairgrounds and amusement parks (HS(G)175), as endorsed by
the UK Health and Safety Executive. Similar guidance, including
in respect of robust independent inspection regimes, is applied
in all territories in which we operate.
HSS assurance
Merlin conducted 78 HSS audits during 2014 to assess compliance
with our HSS policy and manual, which are reported to the HSS
Committee. These audits are in addition to the regional and
attraction based self-inspections that also take place throughout
the year. In addition, thorough in-service annual inspections were
conducted on all our rides during the reporting period, meeting
UK requirements (or other national equivalents) as a minimum.
These are typically performed by accredited independent third
party inspectors.
All attractions that prepare and serve food and beverages are
subject to half-yearly or annual food safety audits, performed
by specialist independent third party inspectors, to verify
compliance with Merlin’s comprehensive food safety policy.
43
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
RISKS and uncertainties
Commercial and strategic risks
Commercial and strategic risk management is delegated from
the Board, via the CEO and the Executive Committee, to
the Commercial and Strategic Risk Management Committee
(CSRMC). This latter Committee comprises, the CFO, who is
a member of the Board, relevant members of the Executive
Committee and other relevant senior managers and is chaired by
the CFO. It meets four times per year with matters arising being
reported to both the Executive Committee and the Board on
a quarterly basis by the CFO. To provide the Non-executive
Directors with sufficient information to gain assurance over the
process of commercial and strategic risk management, a fuller
document is provided annually detailing the items discussed and
output of the CSRMC. Furthermore, in 2015 the minutes of
each meeting will be issued to the Non-executive Directors.
The management of commercial and strategic risk is embedded
across the Group through normal business review processes. In
addition, from 2014 onwards, each attraction and central function is
required to perform a full risk assessment workshop on an annual
basis. The purpose of this process is to review any material changes
in the external commercial landscape and to assess whether recent
trading trends may require an alternative risk management
approach. These annual assessments are incorporated into the
commercial and strategic section of the risk register for each
Operating Group and are aggregated at Group level.
Financial process risk
Financial processes within the Group are led and co-ordinated
by the central finance function. Financial process risks are
managed by that team through an ongoing assessment of
external regulatory changes, the quality and timeliness of internal
financial reporting and other financial risk areas such as taxation
and treasury. Key issues are reviewed on a quarterly basis by
a senior finance team within Merlin.
Further assurance is gained from both the internal and external
audit processes. In 2014 the internal audit function, based on an
annual assessment of risk, provided audit coverage of material
central functions and attractions covering over 70% of revenue
generated, identifying procedural weaknesses and providing a
structure to assess management’s response. The Group is also
subject to external audit. Matters arising from both audit
functions are reported to the Audit Committee.
Business continuity planning
Disaster recovery plans are in place at all attractions, incorporating
escalation procedures and crisis management protocols that
are regularly updated on a groupwide basis. More broadly,
business continuity plans exist to allow the attractions to recover
performance in the event of various adverse incidents. Examples
of such incidents could include prolonged power failure, major IT
failure or life support system failure within a SEA LIFE attraction. It
is recognised that only limited contingency planning can be made
against natural disasters such as major flooding or earthquakes,
however the Group’s geographic diversity provides protection
against the financial impact of such occurrences.
The tables on the following pages highlight the main risks that have
been identified through the Group’s risk assessment processes and
that have the potential to impact on our strategic development.
The tables show whether, in the opinion of the Board, such risks are
increasing, stable or decreasing based on management assessment,
review of available data and after taking account of the mitigating
factors identified.
44
Merlin Entertainments plc Annual Report and Accounts 2014 RISKS and uncertainties
Description
Mitigating factors
Risk trend
Health, safety and security (HSS)
Ride and
attractions
safety
Health and safety is one of Merlin’s
Key Performance Indicators.
A serious accident to a guest or staff member
on a ride or at an attraction could cause harm
to an individual and impact confidence in the
Group’s brands.
Stable
• Proactive ownership of HSS risks by line management
based on the provision and adoption of HSS policies,
Codes of Practice and guidance notes.
• Competent and trained operational and engineering staff,
backed up by professional HSS teams supporting,
monitoring and inspecting attractions.
• Utilisation of HSS systems to support the management of
risks with annual risk register and action planning
processes by each attraction.
• Regular internal and annual independent external
auditing regimes.
• Regular review of performance as well as key policies
and procedures.
Contractor
management
The delivery of new attractions and experiences,
which often involve work by sub-contractors.
Poor standard of work or unreliable delivery
could impact the Group’s safety and
growth expectations.
• Contractor approval procedures.
• Major contracts are managed by qualified project
managers and are subject to strict tendering processes.
• Contractor performance is managed by in-house project
management teams.
Stable
Macro event
A material macro event such as the spread of
a worldwide pandemic or malicious attempt
to sabotage a ride or attraction could
impact visitation.
• Detailed security protocols.
• Regularly tested major incident management plans.
Increasing
45
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 RISKS and uncertainties
Description
Mitigating factors
Risk trend
Commercial and strategic
Customer
satisfaction
Customer satisfaction is one of Merlin’s
Key Performance Indicators.
A downturn in customer enjoyment of our
attractions could impact repeat visitation.
Similarly subsequent adverse social media
feedback could adversely affect customer
likelihood to visit.
People
availability and
expertise
Staff engagement is one of Merlin’s
Key Performance Indicators.
Merlin is a people business. The inability to
attract and retain motivated, customer service
orientated staff could impact guest satisfaction
and future expansion.
Animal welfare
Growth would be impacted if animals were lost
to disease or other welfare issues.
• Regular and detailed customer feedback collected at
every location. Data analysed against challenging
satisfaction targets and actions taken accordingly.
• Ongoing investment in our attractions continually
refreshes the experiences for customers.
Stable
• Personal development plans in place at all levels of the
business to encourage long term employment stability.
• Succession planning processes embedded across the
Group and proactively managed.
Increasing
• External Zoo Licence audits ensure appropriate
animal care.
• Internal ethics committee and the Merlin Animal Welfare
and Development team ensure the ethical treatment of
animals in our care.
Availability and
delivery of new
sites and
attractions
The Midway and LEGOLAND Parks growth
strategy is predicated on the availability of
suitable sites. A decline in the pipeline of
suitable and economically viable sites could
inhibit this growth.
Planning permission is often required for new
rides and attractions so growth could be
impacted if planning permission were not
able to be obtained.
• Experienced site search and business development teams,
working several years in advance to maintain a strong
pipeline of expansion opportunities.
• In 2014 the LEGOLAND development and site search
teams have been expanded to support the development
of new parks and other sites.
• Sites regularly update their development masterplans
and teams work closely on fostering links with their
local communities.
Competition
Competition for leisure time and new entrants to
the market could reduce opportunities for growth.
• Diversification to reduce reliance on individual
attractions or locations.
• Ongoing investment in sites to ensure continued
appeal to visitors.
IT robustness,
technological
developments
and cyber
security
The Group has grown in the past both organically
and through acquisition and as a consequence
has varied IT systems across its portfolio.
Such systems are integral to the Group’s
operations and financial reporting integrity.
The Group is conscious of the increasing
threat of cyber crime.
• IT strategy focused on ensuring the long term stability of
operating systems and data security, whilst keeping pace
with the changing face of consumer IT expectations.
• Significant 2014 investment to ensure the Group remains
compliant with payment card industry standards.
• Additional measures put in place to mitigate the
increasing threat of cyber security risk.
• Regular updates to the Board on the progress of the
IT strategy.
Weather /
seasonality
Individual attractions performance can be
affected by particularly adverse weather at
key trading periods.
• Increased portfolio hedging as the proportion of
revenue generated from Asia Pacific and North America
regions increases.
• Healthy mix of indoor and outdoor attractions.
• Strategy to drive an increased percentage of
pre-booked business.
Reducing
46
Stable
Stable
Increasing
Increasing
Merlin Entertainments plc Annual Report and Accounts 2014 RISKS and uncertainties
Description
Mitigating factors
Risk trend
Financial process
Anti-bribery and
corruption
An incident of bribery or corruption could lead
to prosecution and fines and could cause
reputational damage to the Company.
Merlin’s business model is lower risk relative to
other industries as the majority of transactions
are of low value and to individual customers.
Merlin has a well embedded culture across the
Group in which fraud and bribery at any level
are not tolerated. Merlin does however operate
globally and increasingly within territories with
a historically higher propensity to bribery
and corruption.
Stable
• Global fraud and bribery training programme in place
alongside a fraud policy sign off for all staff.
• Regular assessment of bribery exposure, and in
2014 performed an assessment workshop to reassess
risks across the Group.
• Robust financial and contractual controls with regard to
procurement activities. Internal audit monitors purchasing
processes on a rotational basis.
• A separate profit protection team monitors for theft or
other criminal activity across the Group and ensures best
practice for protection is shared between sites.
• A whistleblowing policy is in place together with an
independently operated employee hotline.
Credit risk
Merlin has relationships with a number of
banks and is therefore inherently exposed
to some credit risk.
• Counterparty credit ratings are regularly monitored and
there is no significant concentration of credit risk with
any single counterparty.
Stable
Merlin has very limited credit risk with its
customers, the vast majority of whom pay in
advance or at the time of their visit.
Foreign
exchange risk
Merlin has its main borrowings and revenues
in Sterling, Euros, US Dollars and Australian
Dollars so is inherently exposed to exchange
rate fluctuations which could impact on
financial performance.
Merlin reports its results in Sterling and as such
is subject to translation risk in reporting its
consolidated results.
• Broad match of borrowings in the currencies of
underlying revenues.
• Treasury policies in place and reviewed annually with
regular reviews of currency exposures.
• Currency exposures hedged where appropriate.
• The Group presents constant currency figures where
appropriate to show the underlying results of the
Group excluding the impact of foreign exchange rate
translation differences.
Interest
rate risk
Merlin continues to finance its operations
through a combination of predominantly floating
rate debt, and equity. It is therefore inherently
exposed to interest rate fluctuations which
could impact on financial performance.
• Interest rate swap arrangements in place to fix the
majority of the debt and substantially all of these are
hedge accounted.
• Group policies in place in terms of counterparty
relationships and minimum credit rating criteria.
Liquidity / Cash
flow risk
Many of Merlin’s businesses are seasonal in
nature, generating cash in peak trading periods
and utilising cash out of season, when capital
investments are undertaken and fixed
costs continue to be incurred.
Merlin’s growth plans include both the roll out
of existing Midway and LEGOLAND brands, as
well as strategic acquisitions when appropriate
opportunities present themselves. The Group
needs to have sufficient cash to fund
these activities.
Lack of liquidity and changes to the global credit
market could impact the Group’s long term
ability to meet current growth targets.
• Short term cash flow forecasts are updated frequently in
order to ensure liquidity for business operations on an
ongoing basis.
• Forecasts look forward for at least three years and are
reviewed regularly to ensure sufficient financial headroom
exists and to meet the covenant tests set out in the
Group’s banking facilities.
• Merlin maintains strong relationships with a number
of lenders and keeps the debt markets under review in
order to ensure that funding is obtained at the right time
and at the right price to ensure the availability of funds to
meet its strategic growth plans.
Increasing
Stable
Stable
47
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 GROUP
Financial Review
2014 WAS ANOTHER SUCCESSFUL YEAR FOR MERLIN. IN THE FACE OF
ADVERSE FOREIGN EXCHANGE RATES THE COMPANY GREW REVENUES
BY 4.8%, DRIVING AN INCREASE IN UNDERLYING EBITDA OF 5.3% AND
GENERATING OPERATING CASH FLOW OF £357 MILLION. THE GROUP
CONTINUED TO DE-LEVER AS A RESULT OF ITS EARNINGS GROWTH
AND STRONG CASH FLOW GENERATION.
Andrew Carr
Chief Financial Officer
Merlin Entertainments plc Annual Report and Accounts 2014 GROUP Financial Review
Growth
+/- £m
Change at
actual rate %
Change at
constant rate %
+9.6%
+11.0%
+13.3%
57
21
21
42
63
+4.8%
+5.3%
+7.1%
+41.5%
+34.6%
(46)
(195.3%)
17
-
+11.1%
(4.2%)
2014
£m
1,249
411
311
(62)
249
(70)
179
(17)
2.3x
2013
£m
1,192
390
290
(104)
186
(24)
162
(17)
2.6x
Revenue
EBITDA (1)
Operating profit (1), (2)
Net finance costs (1)
Profit before tax (1)
Taxation (1)
Profit for the year (1)
Post-tax exceptional items
Leverage on net debt to underlying EBITDA
Trading performance
Like for like revenue grew by 7.1% in 2014. When combined with
the contribution from new attractions and accommodation, total
revenue grew by 9.6% also on a constant currency basis. However,
the reported revenue growth was suppressed by significant
unfavourable movements in foreign exchange rates, resulting in
4.8% reported growth to £1,249 million. Further detail on the
impact of foreign exchange movements is provided overleaf.
Visitor numbers grew by 4.9% during the year, reflecting a
combination of underlying growth in the existing estate of
attractions, as well as the addition of six new Midway attractions.
The existing estate benefited from good weather across all of
the main trading periods in Europe; the phenomenal success
of ‘The LEGO Movie’ with its consequent impact on LEGO
brand awareness and our ability to successfully leverage specific
promotional activities; and a strong performance across Resort
Theme Parks. Our Midway businesses delivered a solid year with
specific challenges in Bangkok, which suffered from political unrest;
whilst our North American Midways were adversely impacted
by the extremely cold weather early in the year which reduced
visitation and had a knock-on effect on school holiday periods.
Revenue per capita (RPC) was £18.15, in line with the prior year
(2013: £18.14). This was driven by general underlying increases
and a positive mix impact with proportionally higher visitation in
the LEGOLAND Parks which bring higher average spend levels.
This was however offset by adverse foreign exchange impacts.
The Company’s focus continues to be on revenue maximisation
rather than specific volume or RPC targets.
Over the past four years, the Company has reported growth
in revenue at a compound annual growth rate of 11.8% and
average like for like revenue growth of 4.8%.
Underlying EBITDA grew by £21 million, or 5.3% to £411
million, despite the significant unfavourable foreign exchange
movements. Underlying growth was 7.8% on a like for like basis,
increasing to 11.0% with the contribution of new attractions and
accommodation, on a constant currency basis. The reported
compound annual growth rate in EBITDA over the past four
years was 12.6%.
Merlin’s operating model is such that increased revenues at
existing attractions will flow through to operating profit, subject
to expenditure on a number of incremental variable costs, such
as direct cost of sales, incremental labour costs and variable rents.
Operating margins are also impacted by the mix of revenues across
attractions, including the impact of foreign exchange translation, as
well as the nature of additional revenues generated by each site. In
2014, the growth in EBITDA as a percentage of revenue reflected
a healthy conversion of revenue into profit, tempered by increases
in variable trading costs, new share-based remuneration and
corporate costs as a result of the IPO in 2013, along with
certain remedial costs to the hotel at LEGOLAND Windsor.
Underlying operating profit growth of £21 million and 7.1% was
driven by the growth in EBITDA. The reported depreciation and
amortisation charge remained flat year on year at £100 million
reflecting underlying increases offset by the impact of
foreign exchange movements.
Table notes:
(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 items unless otherwise stated. Further details are provided of exceptional items on page 114.
(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 104 to 161 and those areas requiring significant judgement
in the preparation of the financial statements are summarised on page 110.
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 on pages 111 to 113.
49
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
Foreign exchange rate sensitivity
Merlin is exposed to fluctuations in foreign currency exchange
rates, principally on the translation of the results of our overseas
operations. The table below shows the impact on 2013 revenues
of re-translating them at 2014 foreign exchange (FX) rates.
Operating profits would be similarly impacted.
Currency
USD
EUR
AUD
Other
2013
average
FX rates
2014
average
FX rates
%age
movement
in FX rates
Revenue
impact £m
1.55
1.17
1.62
-
1.66
1.24
1.82
-
(7.5%)
(6.5%)
(12.2%)
-
(17)
(15)
(10)
(10)
(52)
Reduction in 2013 revenues at 2014 FX rates
Underlying EBITDA
grew by £21 million despite
unfavourable foreign
exchange movements
GROUP Financial Review
Finance costs
Net underlying finance costs of £62 million represented a
reduction of £42 million (2013: £104 million). During 2013 facility
amendments were made which reduced the margins payable
on the Group’s debt facilities; there was a restructuring of the
interest rate swaps portfolio; and borrowings were repaid
from the net proceeds of the IPO. During 2014 further
debt repayments of £70 million were made.
Taxation
An underlying tax charge of £70 million is equivalent to an
effective tax rate of 28.0% (2013: 12.7%) of underlying profit
before tax. The difference between the reported effective tax
rate and the UK standard weighted tax rate of 21.5% is mainly
due to the different tax rates that apply in the various
jurisdictions we operate in around the world.
The charge in 2013 reflected similar differences in tax rates
offset by the recognition of deferred tax assets in the UK.
This UK deferred tax asset recognition came as a result of the
Group’s financing changes in that year that resulted both in lower
underlying interest charges and lower levels of debt, and hence
greater certainty of tax becoming payable in the future.
Further detail is provided in note 2.3 to the financial statements.
Exceptional items
There were no exceptional costs impacting EBITDA or operating
profit in 2014 (2013: £30 million in respect of costs associated
with the IPO and acquisition related activities).
Exceptional finance costs before tax of £23 million were recorded
to accelerate the expected amortisation rate of previous loan
issuance costs. This arose as a result of the Board’s assessment at
the end of 2014 that a more reliable estimate of the timeframe
for refinancing would be some time during 2015. Further details
are provided in the financial statements on page 131.
In 2013 net exceptional finance income of £16 million before
tax was recorded in relation to gains and losses on derivative
financial instruments which were not hedge accounted.
Tax on exceptional items amounted to a credit of £6 million
(2013: charge of £3 million).
50
Merlin Entertainments plc Annual Report and Accounts 2014
Earnings per share (EPS)
Basic earnings per share was 16.0p (2013: 15.1p).
Adjusted earnings per share, which excludes the impact of
exceptional items, was 17.7p. (2013: 16.9p).
The 2013 EPS figures were affected by capital changes arising as
part of the IPO in November 2013. Growth in the underlying
profit after tax of the Group was 11.1%.
Reconciliation between basic and adjusted earnings
Profit attributable to shareholders
Exceptional items after tax
Adjusted profit attributable to shareholders
Weighted average number of shares
(million)
Basic earnings per share
Adjusted earnings per share
2014
£m
162
17
179
1,014
16.0p
17.7p
2013
£m
145
17
162
958
15.1p
16.9p
Dividend
As previously announced, the Company intends to adopt a
progressive dividend policy within an initial target range of
payout of 35-40% of underlying profit after tax, so as to
maintain an appropriate level of dividend cover whilst retaining
sufficient capital in the Group to fund continued investment
across our six growth drivers.
In September 2014 we paid our first interim dividend of
2.0 pence per share and we are proposing a final dividend
of 4.2 pence per share. This equates to a full year dividend
of 6.2 pence per share.
GROUP Financial Review
In September
2014 we paid our first
interim dividend
Cash flow
Underlying EBITDA
Exceptional items
Working capital and other movements
Tax paid
Net cash inflow from operating activities
2014
£m
411
-
-
(54)
357
2013
£m
390
(30)
27
(22)
365
Capital expenditure
(192)
(152)
Other investing activities
Net proceeds from IPO
Interest paid, net of interest received
Dividends paid
Net cash inflow before refinancing
and repayment of borrowings
Refinancing and repayment of borrowings
Net cash inflow for the year
(3)
-
(56)
(20)
(11)
194
(92)
-
86
304
(70)
16
(179)
125
Merlin continues to be highly cash generative.
The Group generated a net operating cash flow after tax of
£357 million (2013: £365 million). This primarily reflects underlying
EBITDA, offset by tax payments of £54 million. These tax payments
have increased in 2014 as a result of higher profits together with
the impact of tax losses in certain territories having been utilised.
51
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
Loan facilities
Under the existing bank facilities, Merlin has a revolving facility of
£150 million (2013: £150 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 27 December 2014,
£nil had been drawn down from the revolving facility (2013: £nil).
Merlin is required to comply with certain financial and non-
financial covenants, including a requirement to maintain certain
ratios of EBITDA to both net interest payable and net debt. The
existing facility is secured by fixed charges over the shares in
certain Group companies and certain intra-Group receivables.
The Group’s loan facilities remained unchanged throughout 2014
following the amendments made during 2013 that secured
financing out to 2019. Following the IPO and reflecting the
Group’s subsequent progress, it is pleasing to note that we have
now secured a new £1,300 million banking facility that, once
drawn, will replace the existing debt facilities. The Company
will continue to explore opportunities to diversify sources of
funding and extend maturities.
The new senior unsecured facilities will comprise circa £1,000
million in floating rate term debt, with maturities in 2018 and
2020, along with an increased £300 million revolving credit facility.
The reduction in drawn term debt will be funded through the
use of circa £130 million of the Group’s existing cash balance.
The increased revolving credit line will ensure that the Group has
adequate committed liquidity facilities to support our seasonality
and strategic growth objectives. Under the new facilities we
will be required to comply with certain financial and
non-financial covenants.
Overall, the new financing arrangements are more suitable for
a company of our size and profile. They will provide further
flexibility for the Group and, through lower average margins,
will reduce the cost of debt finance.
GROUP Financial Review
Capital expenditure and investing activities of £195 million
in aggregate was incurred in order to invest in both the existing
estate businesses (£107 million) and new attractions and
accommodation (£88 million, including early stage spend
on new LEGOLAND Park developments).
In line with our strategy, Merlin’s capital investment programme
creates new rides and features for the existing businesses,
following the specific investment cycles laid down for each
Operating Group. In addition, during 2014 we continued to
invest significantly in new accommodation offerings across our
theme park resorts. 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.
Within the £88 million of new development capital expenditure
noted above, the Group invested £49 million in expanding the
Midway portfolio. Six new attractions were opened in 2014
and we are on track for a further seven in 2015.
Repayments of borrowings were made totalling £70 million.
Net interest paid of £56 million (2013: £92 million) has reduced
reflecting all the factors referred to above in relation to the
reduction in the Group’s underlying net finance costs.
Dividends paid in the year of £20 million comprises the
interim dividend for 2014 (2013: £nil).
Net debt
2014
£m
2013
£m
Bank loans and borrowings
1,136
1,185
Less: cash and cash equivalents
(285)
(264)
Net bank debt
Finance lease obligations
Net debt
Leverage on net debt to
underlying EBITDA
851
84
935
921
85
1,006
2.3x
2.6x
Leverage on net debt at the year end equates to 2.3x
underlying EBITDA (2013: 2.6x), recognising both the growth
in EBITDA and the reduction in net debt as a result of the
strong cash generation.
52
Merlin Entertainments plc Annual Report and Accounts 2014 GROUP Financial Review
The Group generated
a net operating cash flow
of £357 million
Summary
Overall I am again very pleased with our financial performance
in 2014. The continued strong trading of the Group, the long
term shareholding structure following the recent IPO, together
with the stability and flexibility of our bank facilities give an
appropriate financial platform on which we can pursue our
growth strategy based around our six strategic growth drivers.
Andrew Carr
Chief Financial Officer
25 February 2015
Net assets
Net assets increased by £119 million from £944 million in
2013 to £1,063 million in 2014.
This reflects £162 million profit for the year, offset by
£27 million of other comprehensive income, primarily
exchange losses arising on the retranslation of net assets
denominated in foreign currencies, together with movements
in the valuation of hedge accounted derivatives. In addition we
incurred an expense of £4 million in respect of share-based
payments and paid an interim dividend of £20 million.
The consolidated statement of financial position on page
106 shows an increase in property, plant and equipment of
£89 million from £1,321 million to £1,410 million, primarily
reflecting the capital additions referred to previously offset by
depreciation charges, together with the retranslation of those
assets at different foreign exchange rates. Foreign exchange
translation differences also account for the majority of the
reported reduction in intangible assets from £961 million to
£942 million. Working capital has remained broadly flat and
net debt has reduced as a result of the financing activities
referred to previously. The net pensions liability remained
broadly flat at £5 million (2013: £4 million).
Further detail is provided in the notes to the financial
statements on pages 109 to 156.
In February 2014 we completed a capital reduction process,
whereby £3,183 million of share premium was converted into
profit and loss reserves. This conversion had no effect on the
overall net asset position but increased 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, along with EPS, in
the remuneration of senior executives. The profit measure used
in calculating ROCE is based on underlying operating profit after
taking account of 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 2014
was 10.6% (2013: 10.2%).
53
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
CORPORATE
Social Responsibility
A KEY ELEMENT OF OUR MERLIN WAY CULTURE IS THAT WE CARE
ABOUT OUR PEOPLE, OUR VISITORS, THE CREATURES IN OUR CHARGE
AND THE COMMUNITIES AND ENVIRONMENT IN WHICH WE OPERATE. WE
CALL THIS ‘BEING A FORCE FOR GOOD’ AND FOCUS OUR EFFORTS IN THE
FOLLOWING KEY AREAS: SUSTAINABILITY AND THE ENVIRONMENT; ANIMAL
WELFARE; MERLIN’S MAGIC WAND CHILDREN’S CHARITY; AND BECOMING
THE COMPANY OF CHOICE FOR VISITORS AND STAFF WITH A DISABILITY.
Our baby Gentoo penguin Elsa,
born at the SEA LIFE London Aquarium
Merlin Entertainments plc Annual Report and Accounts 2014 Sustainability and the environment
Strategy and governance
Merlin’s strategy on sustainability and the environment is
to manage resources responsibly. Ultimate responsibility for
the implementation of this strategy rests with the CEO,
with management teams responsible for implementation
at local and regional levels.
Environmental policy
Merlin recognises that its operations impact upon the
environment and that effective management of this impact
is essential for sustainable business success. We are committed
to monitoring and reviewing our activities and identifying
opportunities for sustainable environmental improvement, in
line with our business goals, in order to minimise the potentially
harmful effects of such activity, wherever and whenever
practicable. In particular we will:
• Comply with all relevant legislation and where appropriate
and practicable, exceed these requirements and apply
best practice.
• Promote a culture of environmental responsibility and
awareness through leadership, communication and training
for customers, employees, contractors and suppliers.
• Further develop our excellent standards of animal husbandry
and welfare, applying best practice across the Group’s
animal collections.
• Consult with relevant stakeholders to meet the Group’s
environmental commitments.
CORPORATE Social Responsibility
Greenhouse gas (GHG) reporting
The Company is required to annually report its carbon
dioxide emissions in tonnes emitted. From 2014 Merlin has been
collecting the global data necessary, both to meet these reporting
requirements and more importantly to drive our long term
aim of reducing our emissions intensity by 2% annually.
Report boundaries
Consistency with
financial statements
Methodology
Intensity ratio
Scope 1
Fuel combustion (natural
gas, diesel, site vehicles)
Scope 2
Purchased electricity
Financial control - All facilities
under the Group’s direct
financial control have
been included.
This report covers the
twelve month period from
1 December 2013 to 30
November 2014 in comparison
to our financial year of
January to December 2014.
UK Government’s Environmental
Reporting Guidance (2013
version) applying emissions
factors from DEFRA (2014)
Emissions per £1 million
of revenue
15,349 tonnes
of CO2 equivalent
125,989 tonnes
of CO2 equivalent
141,338 tonnes
of CO2 equivalent
• Consider and plan for practical and cost-effective control
measures in order to minimise environmental impacts
Group total emissions
(Scope 1 and 2 )
Intensity baseline (revenue)
£1,249 million
Emissions intensity
113 tonnes of CO2 equivalent
per £1 million of revenue
Table notes:
• We have shown 2014 as our base year upon which our targets will be set.
• Refrigerants have not been recorded due to the challenges of data gathering or
estimation. Where practical and material, we plan to include this data from
2015 onwards.
associated with the Group’s operations including energy
conservation, water reduction, pollution prevention, waste
reduction, recycling and disposal.
• Encourage regular investments in environmental initiatives
such as low carbon and renewable technologies, improved
water management and diversion of waste from landfill.
• Strive to continually improve our environmental performance
and minimise the social impact of activities by periodically
reviewing our environmental policy in light of our current
and planned future activities.
Environment and energy management
We have specific budgets set aside to test and implement
environmentally focused initiatives and an annual ‘Environmental
Award’ to motivate our sites in this area. We have developed
groupwide sustainability management and carbon reduction plans
and a number of water and waste management initiatives that
have been developed to encourage sites and build on examples
of best practice across the Group, through 2015 and beyond.
We participate in the UK Carbon Reduction Commitment
(CRC) energy efficiency scheme and other applicable
environmental regulations globally.
One of our many recycling initiatives at SEA LIFE Sanctuary Hunstanton
55
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
CORPORATE Social Responsibility
Animal welfare
As well as being the leading global operator of aquariums through
our SEA LIFE brand, Merlin also runs zoos at the Chessington
World of Adventures Resort in the UK along with WILD LIFE
Sydney Zoo and WILD LIFE Hamilton Island in Australia.
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.
In 2012, Merlin acquired Shanghai Chang Feng Ocean World,
which has three Beluga Whales on display. In line with our publicly
stated policy on cetaceans in captivity, we are working hard with
Whale and Dolphin Conservation (WDC) to find and develop a
more natural environment for these animals. Whilst a number of
solutions are explored, their welfare is our top priority and we
have adapted their daily routine to focus on natural behaviour
and keep them sufficiently stimulated and healthy.
Breed, Rescue, Protect
Merlin actively engages our guests and employees in our
conservation and welfare work through our global ‘Breed, Rescue,
Protect’ initiative and promotes the protection of wildlife across
the globe by supporting projects and campaigns which make
a real difference.
SEA LIFE
Breed
2014 was another great year for the successful breeding of many
marine species across the SEA LIFE network with 65 different species
and 7,737 individual animals bred including a baby Gentoo Penguin,
christened Elsa, at the SEA LIFE London Aquarium and a Black Tip
Reef Shark in Günzburg, Germany amongst many other species.
Rescue
As part of our ‘Rescue Rehabilitation Release Programme’ we
have rescued many animals through our SEA LIFE network this
year. Our focus on releasing these where possible continued
with 108 seals and 43 turtles being released through the year.
As part of its ongoing rescue and release programme, in May
SEA LIFE Busan Aquarium rescued a Finless Porpoise, which is in
rehabilitation with the view to being released back to the wild.
Protect
In its first full year of operation, the SEA LIFE Trust has benefited
greatly from the support of SEA LIFE staff and guests around the
globe. The Trust launched its first public campaign in June, ‘Wipe
out Whaling’, a joint initiative with WDC calling for the EU to end
the transport of whale meat through European ports. With the
support of SEA LIFE, the Trust is gathering many thousands of
signatures to help bring an end to this unacceptable practice.
During 2014 the Trust committed funding to campaigns working
to develop a simple test to determine the illegal use of poison
to catch fish; and a project studying the undulate ray that will
help sustainable breeding and conservation of the species
(see Case Study on page 57).
56
2014 was another great
year for the successful breeding
of many marine species
We have raised significant funds across the globe in 2014 to
support future projects, and in 2015 the Trust will launch a new
global campaign focused on protecting marine habitats.
WILD LIFE
Chessington World of Adventures Resort continues its successful
breeding programmes with two Scimitar Horned Oryx, two Gentle
Lemurs, two Golden Headed Tamarins, one Saki Monkey, two Bolivian
Squirrel Monkeys and twelve Black-cheeked Lovebirds all being bred
during 2014. Our troop of Gentle Lemurs at Chessington represents
over 10% of the entire European collection, a critically endangered
species found in the wild in a shrinking area in Madagascar.
The Chessington Conservation Fund (CCF) also committed
to a number of projects:
• In partnership with the World Land Trust, CCF now sponsor
a ranger to protect the 128 acres of Ecuadorian rainforest
(equivalent in size to the Chessington Resort and purchased
in 2012) from illegal logging and the bush meat trade.
• CCF funded the purchase of an X-ray machine to help Ape
Action Africa in their efforts to rehabilitate orphaned gorillas
back to the wild. A case study of the importance of this
diagnostic health equipment was showcased on the BBC
programme ‘Operation Wild’ with Shufai the Gorilla.
• CCF worked with a new organisation in Zimbabwe, the
Dambari Wildlife Trust, providing identification equipment
including cameras to the rangers who actively patrol the
area which is frequented by both the threatened White
and Black Rhino.
WILD LIFE Sydney Zoo have supported a number of
conservation activities:
• A project with Sydney University to address a disease that
threatens the survival of the iconic Tasmanian Devil.
• Providing direct support in Queensland to charitable
wombat breeding facilities.
• Directly supporting the Rainforest Rescue
programme in northern Queensland’s
Daintree rainforest.
Merlin Entertainments plc Annual Report and Accounts 2014
ENDANGERED UNDULATE RAY PROTECTION
What’s this
all about?
What are
we doing?
How are we
doing it?
The undulate ray is a European species of skate which lives in coastal
waters from southern UK to the Mediterranean. There has been a sharp
decline in the wild population over the last decade, caused primarily by
overfishing, being caught as by-catch and habitat destruction. The undulate
ray is now classified as ‘Endangered’ and commercial fishing of the species
is now banned in the EU.
Our Animal Welfare and Development department has been leading a
breeding programme for the undulate ray over the last four years. In 2014
Merlin teamed up with the University of Manchester to research the
genetic picture of undulate rays in aquariums across the UK. We plan to
extend this essential activity across Europe, to understand how these
genetic pictures vary from area to area, both in captivity and in the wild.
By taking a wide variety of samples from undulate ray populations, including
from the wild, we test their genetic makeup. The rays are DNA sampled
much like you would see a ‘suspect’ being swabbed on an episode of ‘CSI’!
All the creatures are then released unharmed and the DNA information
we have collected is held in a database. This complex data is then analysed
so we can effectively create a large ‘family tree’ of the UK captive undulate
ray population. This will aid a deeper understanding of their genetic
structure and guide us in our mission to constructively influence the
species’ successful survival.
What will the
results be?
We will be the first in the world to have mapped the genetic makeup
of the species. The knowledge gained will be freely available for use across
the globe by fisheries management teams and Non-Governmental
Organisations. This will assist the management of wild populations
and help protect the long term future of this amazing creature.
CASE STUDY
57
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 CORPORATE Social Responsibility
Merlin’s Magic Wand
Merlin’s Magic Wand (MMW) forms a key element of Merlin’s
Corporate Social Responsibility commitment. Our very own
children’s charity delivers magical experiences around the world
to children who are disadvantaged through sickness and disability.
The charity arranges 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, which are local outreach
initiatives designed to take Merlin’s Magic to severely ill
children that live within the localities of Merlin attractions.
Merlin’s support for the charity continues through providing
tickets free of charge (which had a retail value of over
£1 million in 2014) and supporting the small charity team
by providing office accommodation, IT and HR support.
2014 was another record breaking year for MMW, providing over
64,500 memorable experiences to children and families around
the world. In 2014 every Merlin attraction that had been open
for more than four months welcomed children through MMW.
We are very proud of the 97% satisfaction rating we received
for their experience.
MMW completed six new projects in 2014 at children’s hospitals,
hospices and schools in the UK, Germany and Australia. We have
many more planned for 2015 including a LEGOLAND themed
play area for a children’s therapy centre in Chicago.
BEFORE
AFTER
A SEA LIFE themed bathroom at the Very Special Kids Hospice in Melbourne
Merlin teams around the world provide tremendous support to
the charity, raising awareness and funds, facilitating the MMW
visits and getting involved in ‘Taking the Magic to the Children’
projects. The dedication of employees can be highlighted from
the £330,000 raised by attraction teams during the year. Merlin
visitors around the world have also got behind the charity,
donating their change at attractions and joining in with events.
Corporate partners have shown their support for the charity this
year, raising over £110,000 at our gala dinner and annual cricket
day. We also continue to benefit from support from our major
shareholder base. Blackstone, the LEGO Foundation and CVC
have all contributed via events, partnership activity and/or
financial grants, and we are grateful in particular to CVC
for their ongoing support for the charity.
58
“We went to Alton Towers Resort and Skye absolutely
loved it! She went on all sorts of rides and loved
them all. Thank you, it was just what we needed.”
A Merlin’s Magic Wand visitor having a fun time at Alton Towers!
Disability
Our long term aspiration is to be seen as the company of choice
for visitors and staff with disability. We see this as an important
element of our ‘Being a Force for Good’ strategy and aim to drive
continuous improvements in this area. Our plan is to exceed
the legislative requirements in place in the various locations in
which we operate and, in the longer term, provide what will
be considered industry leading facilities and experiences.
To support our aims we are able to utilise valuable feedback
from our MMW visitors in order to deliver improvements and
inform future developments to our attractions and resorts.
We carry out a comprehensive annual survey of our MMW
guests and will be expanding this further in 2015.
A family enjoying our fully accessible LEGOLAND Florida Park
Merlin Entertainments plc Annual Report and Accounts 2014 All aspects of accessibility are being explored including
‘Changing Places’ toilet facilities, which are much larger facilities
with specialist equipment to accommodate the more severely
disabled. We have the first one of these facilities within a UK
theme park at the Chessington World of Adventures Resort.
We are also training front-line staff (including World Host
accreditation) and are making improvements to signage and
other communication in the attractions. In order to ensure
we are applying best practice we are taking advice from
other organisations including ‘Re-vitalise’ and ‘Whizz Kidz’.
Merlin makes no differentiation between able bodied and
disabled persons in terms of recruitment, training and career
progression. Furthermore, we make every effort to continue
the employment and training of those persons who become
disabled while employed by the Group.
Community Relations
Our attractions continue to forge partnerships with local
charities and other groups supporting disadvantaged people.
Some examples of these local initiatives are:
• Sites in the UK and USA offer opportunities through
programmes such as the Prince’s Trust and other local
initiatives for young, often disadvantaged people to gain work
experience and skills training with Merlin. The LEGOLAND
Windsor programme is run with the award winning ‘Ways
to Work’ organisation with the local council and provides
supported employment to individuals with learning difficulties.
• Madame Tussauds Hong Kong tickets were donated to Yan Oi
Tong, Yan Chai Hospital and the Hong Kong Federation of
Handicapped Youth in 2014.
• LEGOLAND Florida works with the charities ‘Give Kids the
World’ and the ‘Sunshine Foundation’s Dream Village’ which
both bring thousands of sick, disabled and underprivileged
children to Central Florida’s Theme Parks. In addition it is
very engaged with its immediate community, supporting
and sponsoring local events, free school trips for local
school children, Chambers of Commerce activities and
corporate fundraising.
• With the relaunch of Busan Aquarium as a SEA LIFE, we
collected all 1,163 of our former Busan Aquarium uniforms
and donated them to ‘OTCAN’ Charity (www.otcan.org), a
local non-profit organisation that distributes donated clothes
to children in need all over the world.
• The Christmas Carols Concert is a community event that
has taken place at Warwick Castle for the past 43 years.
The concert, which is regularly attended by over 2,500 local
residents raises money for three local charities. The Castle
provides the venue at no cost, sells tickets to the event
and gives significant operational support.
CORPORATE Social Responsibility
Merlin’s Magic Wand
forms a key element of Merlin’s
CSR commitment
Other areas
Procurement and sourcing
We recognise the responsibility we have to the workers in
our supply chain and seek to ensure our products are made in
an appropriate environment and the products we source are
produced in accordance with international laws and legislation.
We require all of our suppliers to sign the Merlin
Entertainments Standard Terms and Conditions of Purchase.
We will independently audit certain categories of suppliers, who
produce Merlin Entertainments branded products, against the
Merlin Social Audit Report. We commit to working with these
suppliers to ensure they achieve our standards. Strict sanctions
are applied when standards are not met.
We will enter into rebate and volume discount arrangements
with suppliers where appropriate but do not require suppliers
to make loyalty or ‘pay to stay’ type payments to the Group.
Our payment terms vary in different territories; standard
payment terms are 45 days.
Human Rights
Merlin has implemented a Human Rights Policy that sets out our
approach in this area. We are guided in this by the International
Labour Organisation Declaration on Fundamental Principles and
Rights at Work; and the OECD Guidelines for Multinational
Enterprises. The Policy notes that:
• We value diversity and have a commitment to equal
opportunity and intolerance of discrimination and harassment.
• We will not engage in child labour.
• We will not use forced or compulsory labour and have
policies in place regarding non-excessive working hours.
• We respect employees’ right to join, form or not to join
a labour union without fear of reprisal, intimidation or
harassment and will act in good faith when legally required
to enter into collective bargaining agreements.
• We operate in full compliance with local labour laws regarding
wages, benefits, holidays and rest breaks.
• We are committed to maintain a safe, secure and healthy
workplace for our employees.
• We will comply with all relevant legislation and where
appropriate and practicable, exceed these requirements
and apply best practice.
59
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
CORPORATE
Governance Statement
Introduction
Merlin has a premium listing on the London Stock Exchange.
As such it is subject to the UK Corporate Governance Code
(the Code), the Disclosure and Transparency Rules (the DTRs)
and the Listing Rules.
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
the Group. In this regard, Merlin takes account of the views of its
shareholders and institutional shareholder representative bodies.
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
Merlin does not yet fully comply with the recommendation of the
Code in that it stipulates that at least half the Directors, excluding
the Chairman, should be independent of the Group. With this
exception, as at the date of this Annual Report, Merlin is in
compliance with all relevant provisions of the Code, the DTRs
and the Listing Rules and has been compliant throughout the
accounting period. We expect to be fully compliant by the
time of the AGM.
The effectiveness reviews concluded that the Board and its
Committees were functioning well and that each participant
brought an independent perspective to the Board’s deliberations
with no individual or group of individuals exercising undue
influence. The reviews further concluded that the transition from
the private to public environment had gone smoothly, partly due
to the fact that Merlin had operated for a number of years prior
to IPO under a corporate governance structure which was
more aligned to that of a listed plc. The reviews recognised that
the composition of the Board was not settled and that further
changes were likely, both to reflect the reducing shareholdings
of Blackstone and CVC (two of the pre-IPO major shareholders)
and to ensure that the range of experience on the Board
remained aligned with the needs of the Group’s business as it
continued to develop. The reviews recommended a number
of ways in which the effectiveness of the Board could be
improved and these are being implemented.
Investor relations
The Company communicates with institutional and private
shareholders in a number of ways and has a dedicated investor
relations team to facilitate the exchange of information and
feedback between shareholders and shareholder representative
bodies and the Company. Details of major shareholders are
provided on page 65.
New appointment
As planned at the time of the IPO, and following a rigorous search
process using Spencer Stuart (an external search company with no links
to Merlin), Fru Hazlitt joined the Board with effect from 1 April 2014.
The Company has a formal reporting calendar in which existing
and potential investors are provided with regular information on
the financial and trading position of the Group. Merlin’s 2015
annual reporting calendar is set out on page 162.
Fair, balanced and understandable
As part of the Company’s commitment to maintaining high
standards of corporate governance, the Board has put in
place a process dedicated to ensuring that the Annual Report
and Accounts is presented in a way that is fair, balanced and
understandable. This process includes a review of all Board and
Committee meetings by the Company Secretary of any matters
for inclusion, as well as a series of specific reviews undertaken
by a dedicated Disclosure Committee of senior managers.
Evaluation of effectiveness
During the year externally facilitated evaluations were undertaken
in relation to the Board; the Remuneration Committee; the
Nomination Committee and the Health, Safety and Security
Committee. These were facilitated by Prism Cosec, who are
independent of the Company and also advise the Company on
company secretarial compliance matters. The Audit Committee
conducted an internal evaluation of its effectiveness.
60
The Company’s corporate website is regularly updated with news
and information, including its Annual Report and Accounts, which
set out our strategy and performance together with our plans for
future growth. Our presentations to analysts and shareholders
are also available on the Company website.
At our AGM all shareholders have the opportunity to discuss
and raise questions concerning the performance, trading and
development of Merlin and to vote on the resolutions proposed.
In addition, the Company has a programme of regular meetings
with current and potential institutional investors. This activity
is led by the CEO and the CFO, together with the Company’s
investor relations team. They report back regularly to the
Board so that the Non-executive Directors in particular
can appreciate and discuss the views of shareholders.
Merlin Entertainments plc Annual Report and Accounts 2014 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. He has been
Non-executive Chairman of the
Company throughout the year and
continues in this role as at the date
of this report.
Sir John is currently a Non-executive
Director of Barclays Bank PLC and
AFC Energy plc and an adviser to
CVC, which currently has a 5.50%
shareholding in the Company.
Sir John is also the Chairman of
Cambridge Education Group,
Chancellor of Aston University,
a member of the Council of
The University of Reading, and
an Associate Member of BUPA.
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.
Andrew is a qualified chartered
accountant and was appointed
Chief Financial Officer of Merlin
Entertainments in 1999. He has
been a Director of the Company
throughout the year and continues in
this role as at the date of this report.
Prior to Merlin, 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, the acquisitions
of LEGOLAND, Gardaland and
The Tussauds Group and the Listing
of Merlin Entertainments on the
London Stock Exchange.
Before joining Vardon Attractions,
Andrew trained, and was subsequently
head of a regional Corporate Finance
Department, at KPMG.
Nick has over 24 years’ experience
in the visitor attractions industry and
was appointed Chief Executive Officer
of Merlin Entertainments in 1999.
He has been a Director of the
Company throughout the year and
continues in this role as at the date
of this report.
Prior to Merlin, 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. In 2005 he initiated
the process which led to its acquisition
by Blackstone and subsequent rapid
expansion, taking the Company to
its 2013 Listing on the London
Stock Exchange.
Before joining Vardon Attractions,
Nick held senior positions within
The Tussauds Group (part of Pearson
plc), including Marketing Director of
Alton Towers and Head of Group
Marketing. He started his career in
FMCG marketing first with Rowntree
and then Reckitt & Colman.
61
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 BOARD of Directors
Charles Gurassa,
Senior Independent
Non-executive Director
Ken Hydon,
Non-executive Director
Ken was appointed a Non-executive Director and Chairman of
the Audit Committee of Merlin Entertainments in 2013. He has
been a Director of the Company throughout the year and
continues in this role as at the date of this report.
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.
Charles was appointed Senior Independent Non-executive
Director of Merlin Entertainments and Chairman of the
Remuneration Committee in 2013. He has been a Director
of the Company throughout the year and continues in this
role as at the date of this report.
Charles is currently the Senior Independent Director and
Deputy Chairman of easyJet plc and the Non-executive
Chairman of NetNames and Genesis Housing Association.
Charles has spent over 35 years in the travel and tourism
industry where his roles included Group Chief Executive of
Thomson Travel Group plc, Director Passenger and Cargo
Business at British Airways, Executive Chairman of TUI Northern
Europe and a Director of TUI AG. He was a Non-executive
Director of Whitbread plc from 2000 to 2009 and former
deputy Chairman of the National Trust. Charles is a
Trustee of the Migration Museum.
Miguel Ko,
Non-executive Director
Fru Hazlitt,
Non-executive Director
Fru was appointed a Non-executive Director of Merlin
Entertainments with effect from 1 April 2014 and continues
in this role as at the date of this report.
Fru Hazlitt was formerly Managing Director, Commercial, Online
and Interactive at ITV, and previously Chief Executive Officer of
Virgin Radio. Prior to that Fru spent six years at Yahoo! where her
roles included Managing Director, UK and Ireland, and Sales and
Marketing Director, Europe.
Miguel was appointed a Non-executive Director of Merlin
Entertainments in 2013. He has been a Director of the
Company throughout the year and continues in this role as
at the date of this report.
Miguel is currently Non-executive Chairman of Starwood Hotels
& Resorts Worldwide, Asia Pacific Division. He is a Director on
the Boards of Changi Airport Group, Samsonite International S.A,
Surbana Consultants Holding Pte Ltd, Formula One, Singbridge
Holdings Pte Ltd and also a Corporate Advisor of Temasek
International Advisors Pte Ltd. 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.
62
Merlin Entertainments plc Annual Report and Accounts 2014 BOARD of Directors
Søren Thorup Sørensen,
Non-executive Director
Dr. Gerry Murphy,
Non-executive Director
Søren was appointed a Non-executive Director of the Company
in 2013, representing KIRKBI. He has been a Director of the
Company throughout the year and continues in this role as
at the date of this report.
Gerry was appointed a Non-executive Director of the Company
in 2013, representing Blackstone. He has been a Director of
the Company throughout the year and continues in this role
as at the date of this report.
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 a number of Blackstone’s portfolio companies.
Before joining Blackstone in 2008, Gerry was CEO of Kingfisher
plc. 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.
Rob Lucas,
Non-executive Director
Rob was appointed a Non-executive Director of the Company in
2013, representing CVC. He has been a Director of the Company
throughout the year and continues in this role as at the date of
this report.
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.
63
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 CORPORATE
Governance Report
On this basis, the Board considers that although during 2014
it did not comply with the recommendation of the Code
concerning the balance of independent Non-executive Directors
on the Board, in practice the Board had an appropriate balance of
Directors and operated independently of any of its shareholders.
At the beginning of February 2015 Miguel Ko notified the
Company that he will not be standing for re-election at the
forthcoming Annual General Meeting. The Board intends that
Merlin will be fully compliant with the recommendations of the
Code (including in relation to Board composition) from the
date of the 2015 AGM.
Relationship agreements
The Company has entered into Relationship Agreements with
each of KIRKBI, Blackstone and CVC. Under these agreements:
• Each of these shareholders is entitled to appoint one Director
to the Board. In addition, while KIRKBI holds at least 10% of
the Company’s issued share capital, it may also appoint an
observer (in addition to a Non-executive Director) to the
Board (with the right to attend and speak but not vote).
• Each may appoint an observer (with the right to attend
and speak but not vote) to each of the Audit Committee,
Remuneration Committee and Nomination Committee for so
long as they (together with their respective affiliates) hold at
least 10% of the Company’s ordinary shares.
Underwriting agreement
Under an Underwriting Agreement entered into as part
of the IPO, KIRKBI, Blackstone and CVC agreed, subject to
certain customary exceptions, not to dispose of any shares in the
Company for a period of 180 days following the IPO. Under the
same agreement each of the Executive Directors, Non-executive
Directors and Merlin Entertainments Share Plan Nominee
Limited (on behalf of 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.
These restrictions expired during the year and none of the
pre-IPO major shareholders are presently under any obligation
to the Company restricting their ability to dispose of shares in
the Company.
Board membership and UK corporate governance code
Except as otherwise stated, as at the date of this Annual Report
the Company complies and the Company intends to continue
to comply with the Code. 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 Chairman was appointed in
December 2009. The Board considers that the Chairman was
independent on appointment and remains so. The Board does
not consider the subsequent introduction of CVC (to whom the
Chairman is an adviser) as a shareholder in July 2010 affected the
independence of the Chairman for the purposes of the Code.
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, for the purposes of the Code,
Charles Gurassa, Ken Hydon, Miguel Ko and Fru Hazlitt should
be regarded as independent Non-executive Directors and that
their appointments were in the best interests of shareholders.
Although Mr Gurassa previously served on the board of Tragus
Group Limited (previously a Blackstone portfolio company)
and Mr Ko served during the year 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 ensured that they made
a significant contribution to the work of the Board and its
Committees. Their contributions during the year have, in
the opinion of the other Directors, amply demonstrated
their independence.
Blackstone and CVC, along with KIRKBI, were the pre-IPO major
shareholders of Merlin and remain major shareholders. KIRKBI has
maintained its shareholding following the IPO and presently holds
29.89% of the issued share capital of the Company. Blackstone and
CVC have sold part of their holdings in the Company during the
year and, as at the date of this Annual Report, hold 9.35% and
5.50% of the issued share capital respectively.
The Non-executive Directors representing KIRKBI (Søren Thorup
Sørensen), Blackstone (Dr. Gerry Murphy) and CVC (Rob Lucas)
are not regarded as independent for the purposes of the Code.
64
Merlin Entertainments plc Annual Report and Accounts 2014
CORPORATE Governance Report
Major shareholdings
As at 24 February 2015, the latest practicable date prior to the
date of this Annual Report, the Company had been notified
pursuant to DTR5 of the following interests in 3% or more
of the Company’s total voting rights:
The Board has established Audit, Remuneration, Nomination and
Health, Safety and Security Committees with formally delegated
duties and responsibilities and written terms of reference. In
addition, from time to time, separate Committees may be set up
by the Board to consider specific issues when the need arises.
Name of
shareholder
Number of
ordinary
shares
% of issued
share capital
Nature of
holding
(Direct/
Indirect)
The Chief Executive Officer is responsible for day-to-day
operations and the development of strategic plans for
consideration by the Board. He is assisted in this by an
Executive Committee of senior managers. The Executive
Committee is not a formal committee of the Board.
KIRKBI Invest A/S
302,971,529
29.89
Direct
Blackstone Merlin
Holdings Limited
Lancelot Holdings
S.à r.l. (CVC)
Blackrock
Investment
Management
(UK) Limited
94,790,571
9.35
Direct
55,726,456
5.50
Direct
65,541,502
6.47
Indirect
The terms of reference of each of the Board and its
Committees are available on the Company’s corporate
website www.merlinentertainments.biz
The Directors of all Group companies, as well as the Board
and each of its Committees, also have access to the advice and
services of the Group Legal Director and Company Secretary
and other senior management, as well as external advice on,
inter alia, legal, accounting, remuneration, health and safety
and corporate governance matters. Appropriate induction
and subsequent training is provided to new members of
the Board and its Committees.
Board and its Committees
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 table below sets out the membership of the Board and
its Committees during the year, together with the number
of meetings held and each member’s attendance. The tables
overleaf contain further information in relation to the Board
and its Committees covering their respective responsibilities,
duties and Code compliance.
The Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Health, Safety
& Security
Committee (3)
Sir John Sunderland
Nick Varney
Andrew Carr
Charles Gurassa
Ken Hydon
Miguel Ko
Fru Hazlitt (2)
Søren Thorup Sørensen
Dr. Gerry Murphy
Rob Lucas
#9/9
9/9
9/9
9/9
9/9
9/9
5/9
9/9
9/9
8/9
N/A
N/A
N/A
5/5
#5/5
5/5
N/A
N/A
N/A
N/A
3/3
N/A
N/A
#3/3
3/3
3/3
2/3
N/A
N/A
N/A
#3/3
N/A
N/A
2/3
3/3
2/3
1/3
N/A
N/A
N/A
Table notes:
# Denotes Chairman.
(1) Number of meetings attended during the year / Total number of meetings held in the year.
(2) Fru Hazlitt has attended all five of the Board meetings; two out of three Remuneration Committee meetings; the only Nomination Committee meeting;
(3)
and two out of three Health, Safety and Security Committee meetings held following her appointment in April.
In addition to the Board members noted above, the Health, Safety and Security Committee also includes as members the managing director
of RTP and the director of health, safety and security. Both of these members attended all four meetings that took place in the year.
#4/4
4/4
4/4
4/4
N/A
N/A
2/4
N/A
N/A
N/A
65
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
CORPORATE Governance Report
The Board
Audit Committee
Principal
responsibilities
and duties
The Board has overall responsibility for
overseeing the management of the Company.
The Audit Committee assists the Board in discharging its
responsibilities in relation to financial reporting, external
and internal audits and controls.
• Financial reporting.
• Internal controls and risk management.
• Whistleblowing and fraud.
• Internal audit.
• External audit.
• Reporting to the Board on matters
within the Committee remit.
See the Audit Committee Report on pages 68 to 73 for
further details on the Committee’s activities in the year.
• Overseeing the Company’s strategy
and management.
• Determining the Company’s capital structure.
• Overseeing the Company’s financial reporting
and controls.
• Ensuring the Company maintains a sound system
of internal controls and risk management.
• Approval of the annual capital expenditure budget,
major capital projects and strategic transactions.
• Ensuring effective communication with shareholders
and managing investor relations.
• Considering and, if accepted, implementing
recommendations from Committees within their
respective remits, including:
• Appointments to the Board and Committees;
• Board and senior management remuneration;
• Succession planning;
• Changes to the Company’s share
incentive plans.
• Appointing Committees and agreeing their
Terms of Reference.
• Corporate governance matters and
reporting thereon.
• Approving major policies, including:
• Health and Safety policy;
• Fraud policy;
• Share Dealing policy.
• Approving the appointment of principal
financial and professional advisers.
• Approval of major litigation.
• Approval of Group insurance programme.
Number of
meetings
At least six times a year and as required or otherwise at
the request of one or more of the Directors.
At least three times during the financial year at appropriate
times in the audit cycle.
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.
In addition, it meets at such other times as the Board or
the Committee Chairman requires, or if requested by the
external auditors.
Code
compliance
We do not comply
The Code recommends that the Board of a UK
listed plc should comprise at least 50% independent
Non-executive Directors (excluding the Chairman).
Although during the year the Board did not comply with
this recommendation, as at the date of the 2015 Annual
General Meeting the Board expects to be compliant.
We comply
The Code recommends that an Audit Committee should
comprise at least three independent Non-executive Directors
and that at least one member should have recent and relevant
financial experience.
The Audit Committee consists of three independent
Non-executive Directors. Ken Hydon is a Fellow of the
Chartered Institute of Management Accountants, the
Association of Chartered Certified Accountants and the
Association of Corporate Treasurers and 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.
66
Merlin Entertainments plc Annual Report and Accounts 2014
CORPORATE Governance Report
Remuneration Committee
Nomination Committee
Health, Safety & Security Committee
The Remuneration Committee assists the
Board in discharging its responsibilities in
relation to remuneration.
The Nomination Committee assists the
Board in discharging its responsibilities in
relation to the composition of the Board.
• Setting the remuneration policy for
Executive Directors and the Chairman.
• Reviewing and making recommendations
to the Board on senior management
remuneration.
• Determining the individual remuneration
and benefits package of each of the
Executive Directors.
• Determining the fees of the Chairman.
• Reviewing the design of share incentive
plans for approval by the Board.
• Ensuring appropriate reporting on
remuneration matters in the Annual Report
and Accounts.
No Director may participate in discussions
relating to his own terms and conditions of
remuneration.
Non-executive Directors’ fees are determined
by the full Board.
See the Directors’ Remuneration Report on pages
74 to 92 for further details on the Committee’s
activities in the year.
• Reviewing the balance of skills, knowledge
and experience on the Board.
• Reviewing the size, structure and
composition of the Board.
• Considering and making recommendations
to the Board on retirements, re-elections
and appointments of additional and
replacement Directors and on membership
of Committees.
• Considering succession planning for both
Executive and Non-executive Directors
and the Chairman.
• Considering the time required for Directors
to fulfil their roles.
• Developing a policy on diversity and
reporting on progress thereon.
• Making appropriate recommendations to
the Board on matters within the remit of
the Committee.
See the Nomination Committee Report on
page 93 for further details on the Committee’s
activities in the year.
The Health, Safety and Security
Committee assists the Board in ensuring
that health, safety and security matters are
managed effectively and proactively
throughout the Group.
• Agreeing, implementing and monitoring the
Group’s health, safety and security policy.
• Reviewing the effectiveness of the Group’s
health and safety processes and controls.
• Reviewing the health and safety resources
available within the Group and the skills of
the health and safety management.
• Reviewing the adequacy of security
processes and controls.
• Reporting to the Board on matters within
the remit of the Committee.
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.
See the Risks and uncertainties section of this
Report on pages 42 to 47 for further details on
how the Group manages Health, Safety and
Security risks.
At least twice each year and at such other
times as the Board or the Committee
Chairman requires.
At least twice each year and at such other
times as the Board or the Committee
Chairman requires.
At least four times a year and at such other
times as the Board or the Committee
Chairman requires.
We comply
The Code recommends that a Remuneration
Committee should comprise at least three
independent Non-executive Directors.
The Committee consists of three independent
Non-executive Directors and the Chairman.
We comply
The Code recommends that a majority of
the members of the Nomination
Committee should be independent
Non-executive Directors.
N/A.
The Committee is chaired by the Chairman
of the Board and consists of the Chairman
of the Committee and three independent
Non-executive Directors.
67
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
AUDIT
Committee Report
STATEMENT FROM THE CHAIRMAN OF THE AUDIT COMMITTEE
We are also satisfied that management has responded well to
the auditors’ recommendations. Since writing my 2013 report we
have conducted an effectiveness review of the internal audit function
which contributed to our assessment that the function is effective.
An effectiveness review of the external auditors was completed
covering the quality of their work and independence which
resulted in positive feedback with some minor points to be
addressed. During 2014 the FRC, as part of its annual review of a
sample of audits by the main audit firms, reviewed certain aspects
of KPMG’s 2013 audit of Merlin. The FRC has provided a copy
of the report to me and I note it concluded that there were no
matters it wished to formally report on. In light of these reviews
and the Committee’s interactions with KPMG throughout the
year, we recommend they be reappointed at the AGM.
We have continued to keep abreast of guidance in relation to
audit retendering and rotation which has been subject to ongoing
changes. The UK authorities have recently requested comments
on their proposals on how the EU regulation should be adopted
and the UK Competitions and Markets Authority (CMA) has also
recently issued its requirements for mandatory audit tendering.
We are committed to ensuring the audit is tendered in line with
the UK’s regulations when they are finalised, probably requiring a
tender by 2023. Depending on how the UK chooses to adopt the
regulations, which have various options and reliefs, KPMG may
or may not be eligible to participate.
Our KPMG lead audit partner, Mark Summerfield, has reached
the end of his permitted tenure and is being replaced as Senior
Statutory Auditor by Hugh Green. We participated fully in Hugh’s
selection and believe he has substantial, relevant experience.
I would like to express my thanks to Mark for his significant
contribution over the years.
It has been a good year during which we have appreciated
the enthusiastic support of management.
Ken Hydon
Chairman of the Audit Committee
25 February 2015
Dear Shareholder
This report describes how the Audit Committee discharged its
duties during 2014. It is divided into the following four sections:
• How the Audit Committee operates.
• Risk management and the control environment.
• Where we focused in 2014.
• Responsibilities in respect of internal and external audit.
How the Audit Committee operates
The first part of the report focuses on how the Committee
operates under its terms of reference, which are available on
our website. In line with these terms, the Committee created
and delivered an annual plan that met all of the Committee’s
annual obligations.
Risk management and the control environment
The second part of the report presents our view of risk
management and the control environment, in particular how
we assess the overall structure of internal controls and risk
management within the organisation. Our terms of reference
include reviewing the Company’s overall risk management
systems and we are satisfied the Board has received regular
reports that covered all areas of risk.
Where we focused in 2014
The third part of the report explains the key areas we have
focused on in 2014, including determining the appropriateness
of significant or complex accounting matters that require the
greatest scrutiny. In finalising the annual financial statements we
focused in particular on the valuation of assets and impairment
and revenue recognition policies and processes. In addition we
considered treasury accounting matters. We have concluded
that the treatment in the accounts is appropriate, at all
times evaluating matters in the context of whether their
presentation is fair, balanced and understandable.
Responsibilities in respect of internal and external audit
The final section of the report explains the Committee’s
obligations in relation to audit, both internal and external. We
are satisfied with the internal audit team’s performance and
that they focused on the key accounting and financial control
matters around the Group, achieving a material coverage of
the Company’s revenue and assets.
68
Merlin Entertainments plc Annual Report and Accounts 2014 AUDIT Committee Report
How the Audit Committee operates
The 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 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’s performance
and independence.
• To report formally to the Board and make recommendations
where it is deemed necessary on matters within its terms of
reference, including a formal report to the Board on how it
has discharged its responsibilities.
The above obligations form the basis of an annual plan that
is agreed before the start of the year and reviewed at each
meeting. All elements of this plan were covered during the
course of the year.
These terms of reference were subject to a review in 2014
which resulted in the following minor changes:
• Confirmation of the Audit Committee’s role in relation to the
review and/or approval of the Group’s public statements.
• Amendments to reflect the Audit Committee’s obligations in
respect of risk management, following the changes made to
the internal risk management process in 2014 as described
in the Risks and uncertainties section on page 42.
Membership and meetings
Details of the membership and frequency and attendance at
meetings are outlined in the Corporate Governance Report on
pages 64 to 67. In addition to the permanent members, the CFO
and other key members of management routinely attend. The
Chairman and the CEO also frequently attend meetings and
others are invited to attend from time to time depending on the
matters under discussion. Private meetings are routinely held with
internal audit and KPMG. The Committee also meets privately.
Risk management and the control environment
The Board retains overall responsibility for the Company’s
internal controls and has overseen some evolution of the
Company’s risk management processes in 2014, building on the
thorough reviews and audits that took place in preparation for
the Listing in 2013.
As outlined in the Risks and uncertainties section on pages
42 to 47, the Group has separated risk management into three
components: Health, safety and security risk; Commercial and
strategic risk; and Financial process risk. The Board has delegated
direct responsibility for Financial process risk to the Committee.
The Audit Committee has a dual role in relation to internal
controls and risk management.
In assessing internal controls, the Committee first has an
obligation to assess the overall process of risk management in
place during the year. It considered the evolution of the process
described above during the first half of the year and towards the
end of 2014 it reviewed the overall process of risk management.
The Committee is satisfied that the Company has systems and
procedures in place to identify, evaluate and manage material
risks to the business.
Second, the Committee directly monitors the management of
the financial process risk of the Company. Management remain
responsible for establishing and maintaining adequate internal
controls over financial reporting. Such controls are designed to
manage, rather than eliminate, the risk of failure to achieve its
business objectives through the following structure:
• The first level of internal control comprises the delegated
authority limits and purchasing and sale price approval levels
in place across the Company.
• The second level of internal control is the frequent and
regular review processes the Company undertakes on its
trading performance along with its detailed capital investment
and strategic planning processes.
• The third level of assurance is gained from audit and self-
assessment, including quarterly self-certification by the heads
of finance of each of the business units; periodic internal audit
reviews, with the support of specialist experts as appropriate;
and the findings of the external auditors on the control
environment and financial statements. The outcomes of these
assurance activities are reviewed by management, the Audit
Committee and the Board.
69
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
Consideration of significant accounting matters
Following discussion with both management and the external
auditors, the Committee determined that the areas of most
significant judgement, which could give rise to misstatement
of the Group’s financial statements were:
• The valuation of assets and impairment.
• Revenue recognition.
These items were considered by the Audit Committee, at the
time they agreed the external auditor’s plan, when reviewing
the external auditor’s final audit findings, and in discussion with
relevant members of management. In addition, the Committee
considered treasury accounting matters, in the context of the
Group’s review of financing options during the year.
The valuation of assets and impairment is an important area of
significant judgement given that Merlin’s business involves opening
attractions in new and, to some degree, unproven locations. In
addition the Group operates existing businesses in geographically
and politically diverse areas. The Group has also made material
acquisitions in the past in various countries.
The Group has accumulated experience of opening many attractions
globally, but inevitably the performance of additional attractions,
particularly in new markets, can be difficult to predict accurately.
The exposure of existing attractions to macro-economic volatility
may indicate a 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.
Management provided a detailed paper to the Audit Committee,
explaining the methodology and judgements applied in order to
test the value of assets to determine if impairment is required.
Specifically the paper examined the basis by which the discount
rate was determined, before being applied to forecast cash flows.
Similarly the judgements made in order to calculate an asset’s
terminal value were also assessed in the paper. A combination
of discount rate, terminal value and forecast cash flows are
used to calculate the ‘value in use’.
AUDIT Committee Report
Audit plans and outcomes
The internal audit annual plan is developed in conjunction with
management and by assessing various risk factors before being
reviewed and approved by the Audit Committee ahead of the
start of each year.
The material findings of internal audit are reviewed by
management. Internal audit results and management responses
are presented at each meeting, with significant findings discussed
in more detail and challenged where appropriate. During
2014 our processes have been expanded such that the Audit
Committee now reviews management’s response to any ‘Priority
one’ internal audit points raised. Priority one matters relate to
findings where controls are found to be absent or inadequate
in areas which are considered susceptible to fraud or material
misstatement (at a local level); where there is any evidence of
deliberate falsification of documents; or where there is a
perceived risk of harm to guests or staff.
KPMG also present their view of Merlin’s control environment
at the December meeting, following their audit of such processes
in the fourth quarter.
These measures, combined with an assessment of discussions
with relevant stakeholders of the internal control systems,
satisfied the Committee in 2014 that a thorough process exists
within Merlin to assess the internal control environment, and
that financial process controls are in place to mitigate the risk
of a significant loss or fraud occurring.
Where we focused in 2014
As noted above the Committee operates to its annual work plan,
developed from its terms of reference. This plan is reviewed at
each meeting to account for any further items that may need to
be included as a response to matters arising. In addition we have
kept abreast of any updates in governance, legislation or guidance.
The detail below highlights some of the main areas that the
Committee focused on in 2014 and we are pleased to report
that the Committee had no cause for major disagreements
with management during the year.
Immersion in the business and operations
As part of the Board meeting calendar the Committee members
have had the opportunity in 2014 to visit several of the Group’s
major attractions across Europe and spend time with the local
management teams. We also undertook ‘deep dives’ into three
areas during the year: reviewing treasury operations; reviewing
tax operations; and reviewing how internal audit reports are
actioned across the Group.
70
Merlin Entertainments plc Annual Report and Accounts 2014 Management also provided the detail of each Operating Group’s
valuation both in terms of value in use, as described above,
and fair value less cost to sell. In accordance with accounting
standards, comparing the higher of these two valuations to their
carrying values determines whether any impairment is required.
Having reviewed the basis of management’s calculations and
the findings of the external audit on the valuation of assets and
impairment, the Committee is satisfied with the appropriateness
of the presentation in the financial statements and that no
impairment is required.
Revenue recognition was considered specifically during 2014
primarily in order to consider the potential impact of IFRS 15,
the new accounting standard on revenue from contracts with
customers, which will become effective from the 2017
accounting period.
Merlin’s revenue is generated by high volumes of low
value transactions across numerous jurisdictions globally.
Whilst there is limited judgement required in Merlin’s revenue
accounting policies compared to other sectors, the accuracy
of financial reporting requires robust internal controls over
cash reconciliations and the accurate cut-off of revenue at
the balance sheet date in the instance of advanced sales
or payment in arrears by trade customers.
There have been no material changes in revenue streams or
processes during 2014 and, as in previous years, the Audit
Committee has considered the internal controls in place,
including those over its revenue streams, and concludes
that they remain effective.
The Committee has further concluded that IFRS 15 is not
expected to materially alter the Company’s financial results.
Treasury accounting was examined by the Committee in the
context of management considering that there was an increasing
likelihood of refinancing the Group’s debt before the contractual
end date of the Group’s existing lending facility. Accordingly, the
amortisation of issue costs was accelerated. The Committee
reviewed analysis in respect of the contemplated refinancing
and management’s accounting paper, explaining the calculation
of the accelerated issue cost amortisation.
Following consideration of this analysis the Committee was
satisfied with the accounting for and disclosure of this matter.
AUDIT Committee Report
Accounting, tax and financial reporting
In addition to considering the material judgement areas, the
Committee assessed the main financial statements presented by
the Company during the year as well as items that they believe
are material to the integrity of the financial processes and output.
The Committee:
• Considered the half year and full year financial statements.
• Considered the liquidity of the Group, in particular in relation
to any covenants in place.
• Considered the appropriateness of preparing the half year and
full year accounts on a going concern basis.
• 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 the 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
requirement for ‘fair, balanced and understandable’ reporting.
During the year an effectiveness review of the Audit Committee
was undertaken. This was based on a questionnaire sent to
Committee members, all other attendees and the Board on
a broad range of matters including the Committee’s scope;
organisation and meetings; quality of debate and challenge and
leadership of the Committee. The results showed a broad
consensus that the Committee has been effective.
Whistleblowing systems and fraud mitigation
The Committee receives regular updates on whistleblowing,
including the quantity, source and nature of incidents reported.
Information is also provided on how matters are resolved.
Efforts have been made in 2014 to increase the awareness
of the Company’s whistleblowing procedures across the Group.
The Company has a good culture of encouraging its staff to
report incidents of poor practice, as evidenced by 71% of the
employees who completed the staff survey stating that they were
aware of the whistleblowing process. In order to enhance and
embed this culture further, an independent third party hotline
provider has been appointed and the hotline will be rolled out
across the Group by the middle of 2015. It will provide more
detailed reporting and highlight any trends that emerge.
The Company has had a fraud policy in place for some time.
This includes the provision of mandatory training for those staff
who are considered the most likely to be exposed to fraud risk.
In addition, there is a formal policy review and sign off process
undertaken by a wider community, including senior executives
and middle management. This process has been updated and
revised in 2014 following a periodic review of the fraud and
bribery risk register, with refresher training provided to
relevant staff.
71
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
AUDIT Committee Report
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 significant 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.
Responsibilities in respect of internal and external audit
As noted above the internal and external audit functions
represent an important part of the third level of assurance in
terms of maintenance of an effective internal control environment
within the Company. The Committee oversees both internal
and external audit to ensure they are independent and effective,
and further information is provided in the following sections as
to how the Committee satisfies itself of this independence
and effectiveness.
Internal audit
The Company has an internal audit function led by the Group
Internal Audit and Risk Management Director who is a member
of the Institute of Chartered Accountants in England and Wales.
He reports jointly to the Chairman of the Audit Committee
and the CFO. With 13 years’ experience in both finance and
operational roles within the Group, the Committee consider
him to have the appropriate experience to lead the function.
The internal audit function comprises a further four in-house
auditors, all of whom hold professional accounting qualifications.
This team will be expanded by one in 2015 in order to reflect
the increasing scale of the Company’s operations.
The internal audit function uses external support where
necessary, for example PricewaterhouseCoopers (PwC) has
provided specialist support to aid the audit of more complex
and technical areas, where the internal team did not have the
relevant skills. In 2014 PwC supported the audits of the
Group’s IT and treasury functions.
During the year, audits have been undertaken providing
coverage of approximately 70% of the Group’s revenue. In 2014,
in addition to the revenue generating locations, internal audits
were performed on the central IT function, treasury function,
central purchasing functions, centralised payroll processes, retail
product buying and procurement functions. This coverage is in
line with the plan approved by the Committee.
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. In 2014 an increased
focus has been placed on the level of progress made by
relevant management on audit findings.
A review of the effectiveness of internal audit was undertaken
based on a questionnaire at the end of 2014, the results of which
were presented to the Committee in February 2015. Members
and attendees of the Audit Committee meetings, along with the
senior finance community of the Company, were questioned on
a range of subjects including the governance and organisation
of the internal audit function, the approach of audit and the
effectiveness of their reports and conclusions. The survey results
showed that the internal audit function is considered professional
and diligent and its internal audits appropriately detailed.
Having considered comments made by management, external
auditors, the survey results and the quality of the internal audit
reporting and findings, the Committee concluded that the
internal audit function was effective.
External audit
KPMG LLP acted as the external auditors to the Company
throughout the year. The Committee is responsible for overseeing
the external auditors, including considering the scope of planned
work and the assessment of risk and materiality on which it is
based and, on behalf of the Board, approving the audit fee and
ensuring their independence.
Appointment and governance of the external auditors
The Committee is responsible for recommending the appointment,
reappointment or removal of the external auditors to the Board,
together with their remuneration and terms of their engagement.
Throughout 2014 the Company was also bound by a Facilities
Agreement which stipulated 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.
The Committee received and approved a presentation of the
audits planned to be performed in 2014 at the start of the year,
including an assessment of the risk approach taken in formulating
the priorities. Factors such as size of business, history of audit,
competence and stability of local management, material changes
to a business and relevance to the Group’s strategy were
factored into this prioritisation.
Having performed the role of Senior Statutory Auditor for five years,
Mark Summerfield will step down from this role at the conclusion
of the 2014 reporting cycle as part of KPMG’s rules in respect of
the maximum duration that one partner can perform in such a
role. The Committee has been involved in the selection of the new
KPMG partner and has approved the appointment of Hugh Green
to act in this position with effect from the 2015 financial year.
72
Merlin Entertainments plc Annual Report and Accounts 2014 In recommending the reappointment of external auditors at
the AGM, the Committee has considered the CMA Order, EU
Regulation and the UK Corporate Governance Code. These
regulations are at different stages of adoption and have several
important differences in how they are to be applied. We
understand that clarity on how the EU Regulations will be
implemented in the UK and therefore how they apply to
Merlin will be available during 2015.
Whilst the EU regulations and developments in the UK
Corporate Governance Code will set the maximum term for
the Company’s auditor, the Committee will continue to consider
if a shorter term would be appropriate as part of the annual
recommendation to the Board on the appointment of the
external auditors.
Remuneration and independence of external auditors
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 that are awarded to the auditors 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.
• Impacts their independence by creating a shared 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.
The Committee granted the CFO authority to approve the
following without prior approval:
• 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.
Management 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.
AUDIT Committee Report
Fees for non-audit services during the year amounted to £0.8
million (2013: £4.2 million). The 2013 figure was significantly
higher because of the incremental work performed by KPMG
in relation to the IPO process. 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.
The Committee is satisfied that the overall levels of audit-related
and non-audit fees, and the nature of services provided, are not
such that would compromise the objectivity and independence
of the external auditors.
Assessment of the work of the external auditors
The Committee has evaluated the performance, independence
and objectivity of KPMG and also reviewed their effectiveness as
external auditors. The assessment of their effectiveness was partly
by way of a survey initiated by the Committee on their 2013
audit, issued to Audit Committee members and other attendees,
along with senior finance personnel both at Merlin’s attractions
and at its head office. The survey covered 27 different aspects
of the audit and respondents were asked to award one of five
ratings against each aspect and provide additional comments.
The survey indicated widespread satisfaction with the services
provided by KPMG and the Committee were satisfied with
KPMG’s responses to points raised in the survey.
In addition, the effectiveness of the 2014 audit was assessed
over the year by reference to the following factors:
• The lead audit partner engagement, including the support
provided to the Audit Committee.
• The planning and scope of the audit including identification
of areas of audit risk and communication of any changes to
the plan, including changes in perceived audit risks.
• The quality of communication with the Committee, including
the regular reports on accounting and governance matters.
• The skills and experience of the wider audit team and their
execution of the audit, including the way they handled the key
accounting and audit judgements and communication of the
same with management and the Committee.
• Their reputation and standing, including their independence
and objectivity and their internal quality procedures.
• The quality of the formal report to shareholders.
We also considered the FRC’s Audit Quality Inspections Annual
Report 2013/14 and Public Report on the 2013 inspection of
KPMG. During 2014, the FRC undertook a review of certain
aspects of KPMG’s 2013 audit of Merlin. We discussed the
review with KPMG and noted that the report issued by the
FRC at the end of the review concluded there were no
significant findings to be formally reported.
After taking into account all of the above factors, the Committee
concluded that the external auditors were effective.
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DIRECTORS’
Remuneration Report
STATEMENT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE
Dear Shareholder
This year’s Remuneration Report is split into two sections:
• Statement from the Chairman of the Remuneration
Committee contains details of our remuneration principles
and of the key decisions reached by the Committee
during 2014.
• The Annual Report on Remuneration contains details of
pay received by Directors in 2014 and full details of how we
intend to implement our pay policy during 2015. The Annual
Report on Remuneration will be subject to an advisory
vote at the 2015 AGM.
For the reference of shareholders, an Annex to the Remuneration
Report contains the current Directors’ Remuneration Policy
(Policy) that was approved by a binding shareholder vote at the
2014 AGM in the exact form that it was included in the 2013
Remuneration Report. This Policy remains effective for the
forthcoming year.
Remuneration principles
A series of key principles underpin the Merlin remuneration structure
such that it should be: payments based on results and performance;
aligned to the long term success of the Company; consistent with
best practice; and incorporate widespread share ownership.
Performance orientated
• Rewarding performance is a core part of our ethos. About
75% 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 employees of
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.
Aligned to the long term success of the Company
Our pay structure encourages strong alignment between
the interests of our senior executives and the interests
of our shareholders.
• Senior executives receive regular awards of shares under the
Performance Share Plan (PSP) which are subject to the
achievement of challenging EPS and ROCE performance
targets. EPS and ROCE are key performance indicators
aligned to the Company’s strategic priorities.
• The business continues to see many global opportunities for
the successful deployment of capital and these measures are
designed to ensure that this is done in the most effective
manner to generate sustainable long term returns.
• For senior executives, there is greater emphasis on rewards
for delivery of longer term performance targets than
short term performance targets.
• Members of the Executive Committee are required to
build up and retain a significant holding of Merlin shares.
For Executive Directors, the requirement is to build a
holding of shares worth 200% of salary.
Consistent with best practice
• 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.
• For our employees, we have a high degree of
simplicity in our pay model.
Widespread share ownership
• Widespread share ownership is an integral part of Merlin’s
culture. We operate all-employee share plans that enable all of
our permanent employees to purchase a stake in our Company.
• These plans supplement the discretionary share plans for
senior executives (Deferred Bonus Plan and PSP) and
the Company Share Option Plan (CSOP) for
middle management.
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DIRECTORS’ Remuneration Report
Performance in 2014
The financial and operating performance of Merlin in 2014
is set out on pages 2 to 59 in the Strategic Report.
2014 was another successful year for Merlin. The Company grew
revenues by 4.8% (9.6% on a constant currency basis), driving an
increase in underlying EBITDA of 5.3% and generating operating
cash flow of £357 million. The Group continued to de-lever as a
result of its earnings growth and strong cash flow generation.
Performance exceeded expectations and hence profit related
bonuses became payable for those attractions that outperformed
and for the central functions. When combined with individual
performance measures this has resulted in a bonus of 100%
of maximum entitlement to the CEO and 95% to the CFO.
Pay decisions for 2015
The proposed pay structure for our Executive Directors for
2015 is outlined on pages 76 to 77. Key decisions made by the
Committee in relation to 2015 include:
• The award of a basic 2.0% salary increase for the Executive
Directors. This is consistent with the average increase
awarded to the Merlin UK workforce.
• The Committee have agreed the same basic structure to the
bonus plan as 2014 with individual objectives for the Executive
Directors appropriately reflecting Company priorities.
The Committee regularly reviews the existing remuneration
arrangements in light of evolving market and best practice.
As part of this process, during 2015, we will be reviewing the
impact of the revised UK Corporate Governance Code (2014).
In particular, we intend to undertake a detailed appraisal of
how withholding and recovery of incentive awards (‘malus’
and ‘clawback’ provisions) should be most effectively
incorporated in our incentive plans for the future.
I hope you will find this report to be clear and helpful in
understanding our remuneration practices and that you will be
supportive of the resolution relating to remuneration at the AGM.
As ever, the Committee welcomes any questions or comments
from shareholders.
Charles Gurassa
Chairman of the Remuneration Committee
25 February 2015
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DIRECTORS’ Remuneration Report
ANNUAL REPORT ON REMUNERATION
The Annual Report on Remuneration will be subject to an advisory shareholder vote at the 2015 Annual General Meeting.
UNAUDITED INFORMATION
Implementation of remuneration policy in 2015
This section provides an overview of how the Committee is proposing to implement our remuneration policy (as set out in the Annex
to this Remuneration Report) in 2015.
Base salary
An annual salary review was carried out by the Committee in September 2014. Following that review, the Committee approved
a basic 2% increase in Executive Director salaries effective from 1 October 2014. This increase is consistent with the average salary
increase awarded to the Company’s UK workforce for 2014/15.
Nick Varney
Andrew Carr
Salary at Listing
(13 November 2013)
Salary
1 October 2014
£570,000
£345,000
£581,400
£351,900
% increase
2.0%
2.0%
Pension and benefits
As in 2014, the Executive Directors will receive a Company contribution worth 25% of salary. Nick Varney will receive this contribution
as a cash allowance and Andrew Carr will receive a contribution to the Group Pension Plan up to the Annual Allowance and a cash
allowance in respect of the balance. They will also receive a standard package of other benefits consistent with those received in 2014.
Annual bonus
Key features of the annual bonus plan for 2015 remain consistent with the 2014 plan as follows:
• The maximum annual bonus potential will be 150% of salary for the CEO and 135% 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 withholding 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 2015 for Executive Directors will be determined as detailed below:
As a percentage of maximum bonus opportunity
Measure
Underlying operating profit
Personal objectives
Total
CEO
80%
20%
100%
CFO
80%
20%
100%
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 2015, 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.
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DIRECTORS’ Remuneration Report
Performance Share Plan
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.
The CEO and CFO will be amongst the participants in the PSP award to be granted in April 2015. Awards will be over shares worth,
at the date of grant, 250% of salary and 225% of salary for the CEO and CFO respectively.
Vesting of these awards will be subject to satisfaction of the following performance conditions measured over the three financial
years to December 2017.
• EPS performance condition - 10% of the award will vest for achieving a threshold growth target increasing to 50% vesting
for achieving a maximum growth target.
• ROCE performance condition - 12.5% of the award will vest for achieving a threshold level of average ROCE increasing
to 50% vesting for achieving a maximum level of average ROCE.
As explained elsewhere in this Annual Report, the Company has just secured new finance facilities that, once drawn, will replace the
existing facilities. Accordingly, the Remuneration Committee has elected to delay the setting of the specific threshold and maximum
EPS and ROCE targets until closer to the date of grant in April, in order to ensure that the targets are based on the most appropriate
business plan forecasts (adjusting for the impact of the new finance facilities) available to the Committee at that time.
The same principles as in the previous grant will apply and it is our intention to communicate the revised targets and their rationale
to shareholders once the impact of the new financing arrangements is clear.
The Committee will ensure that the agreed EPS and ROCE targets are detailed in the announcement to the Stock Exchange at the
time that the awards are granted.
Employee Share Plan
The first invitation to UK employees (including Executive Directors) to participate in the 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.
Invitations for the second award under each of these plans have commenced in February 2015.
Non-executive Director remuneration
The table below shows the fee structure for Independent Non-executive Directors for 2015 which is unchanged from 2014.
Independent Non-executive Director 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
2015
£50,000
£10,000
£10,000
£10,000
£250,000
There are no fees paid for membership of Board Committees nor to the shareholder representative Non-executive Directors.
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DIRECTORS’ Remuneration Report
AUDITED INFORMATION
The information provided in this section of the Remuneration Report up until the ‘Unaudited information’ heading on page 82 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 2014 (as Merlin was a newly
listed company during 2013, the prior year information is for the period from 13 November 2013 (Listing) until 28 December 2013).
All figures shown in £000
Executive Directors
Nick Varney
Andrew Carr
Non-executive Directors
Sir John Sunderland
Charles Gurassa
Ken Hydon
Miguel Ko
Fru Hazlitt (7)
Søren Thorup Sørensen
Dr. Gerry Murphy
Rob Lucas
All figures shown in £000
Executive Directors
Nick Varney
Andrew Carr
Non-executive Directors
Sir John Sunderland
Charles Gurassa
Ken Hydon
Miguel Ko
Fru Hazlitt (7)
Søren Thorup Sørensen
Dr. Gerry Murphy
Rob Lucas
2014 (Full year)
Salary
and fees (1)
Benefits (2)
Annual
bonus (3)
Long term
incentives (4)
Other (5)
Pension (6)
Total
573
347
250
70
60
50
38
-
-
-
20
18
-
-
-
-
-
-
-
-
859
444
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
3
-
-
-
-
-
-
-
-
143
87
-
-
-
-
-
-
-
-
1,598
899
250
70
60
50
38
-
-
-
2013 (from Listing date 13 November 2013)
Salary
and fees (1)
Benefits (2)
Annual
bonus (3)
Long term
incentives (4)
Other (5)
Pension (6)
Total
72
43
32
9
8
6
-
-
-
-
3
2
-
-
-
-
-
-
-
-
58
38
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
11
-
-
-
-
-
-
-
-
151
94
32
9
8
6
-
-
-
-
Notes to the table - methodology:
(1) Salary and fees - this represents the cash paid or receivable in respect of the period.
(2) Benefits - this represents the taxable value of all benefits paid or receivable in respect of the period. Executive Directors receive a company car or car allowance, phone costs,
income protection insurance, an annual medical, private medical insurance and life assurance of four times annual salary.
(3) Annual bonus - this is the total annual bonus earned in respect of the period. Two-thirds of this bonus is paid in cash and the remaining third is deferred in shares for
three years. Further details relating to the bonus are 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 and 2014.
(5) Other - this column relates to the value of the grant of options under the UK Sharesave Plan during 2014. The grant has been valued at 22.6% of the face value
of shares under option which is the IFRS 2 valuation for this award.
(6) Pension - Executive Directors receive a Company contribution worth 25% of salary. Nick Varney receives this contribution as a cash allowance and Andrew Carr receives this as a
contribution 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.
.(7) Fru Hazlitt joined the Board on 1 April 2014. Fees shown in the table are from that date to 27 December 2014.
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DIRECTORS’ Remuneration Report
Additional disclosures in respect of the single figure table
Annual bonus
Executive Directors are participants in the central bonus plan. The maximum annual bonus opportunity for the Executive Directors for
2014 was 150% of salary for the CEO and 135% of salary for the CFO. One third of any bonus earned is deferred into shares for three
years under The Merlin Entertainments plc Deferred Bonus Plan.
The maximum potential annual bonus that could be paid to Executive Directors in respect of 2014 performance was determined by
underlying operating profit performance. 20% of that potential bonus was additionally subject to satisfaction of individual objectives.
Performance measures and targets applying to the 2014 annual bonus are set out below.
Performance
measure
Proportion of
bonus determined
by measure
Underlying
operating profit
80%
Individual
objectives
20% (1)
Threshold
performance
£275.4m
(0% of bonus
payable)
Target
performance
Maximum
performance
Actual
performance
% of
maximum
bonus payable
£293.0m
(40% of bonus
payable)
£310.6m
(80% of bonus payable)
£310.8m
80%
Divided into two equal segments for each Director:
CEO: • Opening six new attraction developments and at
least 200 accommodation ‘keys’ in 2014 and securing
approval for six new attraction developments and
200 accommodation ‘keys’ in 2015.
• Customer satisfaction (3)
CFO: • Achieving an underlying EBITDA margin in 2014 of 32.9%
• Achieving an underlying effective cash tax rate in 2014 of 21.6%
See footnote 2
20% (CEO)
TOTAL
15% (CFO)
100% (CEO)
95% (CFO)
(1) The maximum annual bonus payout that can be received as a result of individual objectives is scaled back to the extent that the underlying operating profit target is not fully satisfied.
(2) Following the year end, the Committee assessed performance against the individual objectives for each Director. For the CEO, the Committee determined that the development pipeline and
customer satisfaction objectives had been fully satisfied and that the maximum portion of his bonus subject to these objectives should be paid. For the CFO, the Committee determined that the
EBITDA margin and cash tax rate objectives had been partially satisfied and that 75% of the portion of his bonus subject to these objectives should be paid.
(3) The target relating to customer satisfaction is regarded as commercially sensitive by the Board.
Scheme interests awarded during the financial year
Performance Share Plan awards
There was no grant to the Executive Directors under the Performance Share Plan during 2014.
UK Sharesave awards
The Executive Directors participated in the 7 February 2014 grant of options under the Sharesave Plan on the same terms as other
UK employees. Details relating to their participation in this grant are set out below. No performance conditions apply to these options.
Nick Varney
Andrew Carr
Type of award
Share Option
Share Option
Maximum
number of shares
3,036
3,036
Face value
Options exercisable
£8,997
£8,997
1 April 2017 -
30 September 2017
Each option is exercisable at an exercise price of £2.9635. The option exercise price represents a 20% discount to the average
closing price of a share (£3.7043) on the three dealing days prior to the invitation to participate in the Company’s Plan which was
13 January 2014. The face value of options in the above table is based on the aforementioned share price.
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DIRECTORS’ Remuneration Report
Payments to past Directors
There were no payments to past Directors during 2014.
Payments for loss of office
There were no payments for loss of office to Directors during 2014.
Statement of Directors’ shareholding and share interests
A shareholding requirement of 200% of base salary applies to the Executive Directors. Both of the current Executive Directors had a
shareholding that surpassed that requirement at 27 December 2014.
Executive Directors are expected to achieve the shareholding requirement primarily by retaining at least 50% 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 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.
Value of shareholding at
27 December 2014 as a
% of salary (Shareholding
requirement target)
Shares
owned outright
at 27 December 2014
Interests in share incentive
schemes, awarded without
performance conditions at
27 December 2014 (1)
Interests in share incentive
schemes, awarded subject
to performance conditions
at 27 December 2014 (2)
Number of shares
4,401% (200%)
3,182% (200%)
-
-
-
-
-
-
-
-
6,477,823
2,835,123
531,044
31,746
31,746
158,730
31,746
-
-
-
3,036
3,036
564,168
308,425
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Director
Nick Varney (3)
Andrew Carr (3)
Sir John Sunderland
Charles Gurassa
Ken Hydon
Miguel Ko
Fru Hazlitt
Søren Thorup Sørensen
Dr. Gerry Murphy
Rob Lucas
Notes to the table:
(1) This relates to shares awarded under the UK Sharesave plan in February 2014.
(2) This relates to shares awarded under the PSP in November 2013. Further details relating to this grant are summarised below.
(3) For the purposes of determining Executive Director shareholdings, the individual’s salary and the share price as at 27 December 2014 has been used (£3.95).
Between 27 December 2014 and the date of this report there were no changes in the shareholdings outlined in the above table.
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Merlin Entertainments plc Annual Report and Accounts 2014 DIRECTORS’ Remuneration Report
Outstanding awards under the PSP
Date of
grant
Date of
vesting
Maximum
number of
shares
Face
value (%
of salary)
Dividend
equivalent
shares*
Performance condition
Performance
period
Nick
Varney
12 November
2013
1 April
2017
560,952
310%
3,216
Andrew
Carr
12 November
2013
1 April
2017
306,667
280%
1,758
EPS: 10% vests for 7% p.a. cumulative
growth increasing to 50% vesting for
14% p.a. cumulative growth
ROCE: 12.5% vests for average ROCE
of 9% increasing to 50% vesting for
average ROCE of 13%
29 December
2013 -
31 December
2016
*
In accordance with the PSP rules, the Committee has determined that an additional award of shares will 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 (calculated on the assumption that dividends are reinvested in Company shares on a
cumulative basis). The figures in the table above relate to assumed reinvestment of the dividends paid during 2014.
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DIRECTORS’ Remuneration Report
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 27 December
2014 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.
Merlin Entertainments
FTSE 250
115
104
100
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£130
£125
£120
£115
£110
£105
£100
£95
£90
126
108
Listing
(13 November
2013)
2013 year end
(28 December
2013)
2014 year end
(27 December
2014)
The table below summarises the CEO single figure for total remuneration, annual bonus payouts and PSP vesting levels as a percentage
of maximum opportunity over this period.
2013 from Listing*
2014 full year
CEO single figure of remuneration £000
151
Annual bonus payout (as a % of maximum opportunity)
n/a (no maximum limit applied in 2013)
1,598
100%
PSP vesting outturn (as a % of maximum opportunity)
n/a (no award vested in 2013)
n/a (no award vested in 2014)
*
From Listing on 13 November 2013 to 28 December 2013.
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Merlin Entertainments plc Annual Report and Accounts 2014
DIRECTORS’ Remuneration Report
Percentage change in remuneration of the CEO
Prior to November 2013, Merlin was a private company and its remuneration structure, particularly for senior executives, was
significantly different to the structure adopted since Admission.
Given this change in structure during 2013, the Committee does not believe 2013 CEO and employee remuneration is comparable with
2014 CEO and employee remuneration. However, for information purposes, the accompanying table reflects the key changes in CEO
and employee remuneration since Admission.
Salary increase (1)
Benefits increase / decrease (2)
Annual bonus increase (3)
CEO
+2.0%
Average for all UK employees
+2.0%
-24%
+0%
n/a
n/a
(1) As Merlin was not a listed company for the whole of 2013, the Remuneration Committee believes the statutory requirement to show year-on-year change in salary between 2013 and 2014
would not be appropriate. The data shown here represents the first post-Admission salary settlement for the CEO and the average award for UK employees that was effective 1 October 2014.
The Remuneration Committee believes that the UK workforce is the most appropriate comparator for this analysis for the UK based CEO.
(2) The CEO benefits movement has been calculated using a pro-rated figure for 2013. The decrease in benefits arises from reduced cost of health insurance benefits and car provision.
(3) The specific structure of the 2013 annual bonus was designed and agreed in the context of Merlin being a private company. Post Admission, the 2014 annual bonus was significantly restructured
so as to reflect standard listed company practice. Given this significant reshaping of the bonus plan, the Committee does not believe that 2013 and 2014 annual bonuses are comparable.
Relative importance of the spend on pay
This chart 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.
m
£
350
300
250
200
150
100
50
0
+£15m (5.0%)
+£20m
+£21m (7.1%)
312
297
311
290
Employee costs
20
0
Distributions to
shareholders
Underlying
operating profit
(see page 104)
2013
2014
83
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
DIRECTORS’ Remuneration Report
Consideration by the Directors of matters relating to Directors’ remuneration
The Committee has been chaired throughout the year by Charles Gurassa. The Committee has comprised the Chairman of the Board
and the independent Non-executive Directors.
The Committee met three times during 2014. 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 some of these meetings 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 the drafting of the remuneration report, shareholder
consultation and market practice. Deloitte was paid £45,595 in fees during 2014 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 tax advice to the Company during the year.
Shareholder voting on 2013 remuneration report
At the 2014 Annual General Meeting, strong shareholder support was received for our resolutions on remuneration as summarised below.
Approval of the Policy Report
896.7m (99.4%)
5.2m (0.6%)
Approval of the Annual Report on Remuneration
905.9m (99.8%)
2.3m (0.2%)
7.3m
0.9m
Votes for
Votes against
Votes withheld
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
The Annual Report on Remuneration section of this Remuneration Report will be submitted for an advisory shareholder vote
at our Annual General Meeting to be held on 14 May 2015.
On behalf of the Board
Charles Gurassa
Chairman of the Remuneration Committee
25 February 2015
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Merlin Entertainments plc Annual Report and Accounts 2014 DIRECTORS’ Remuneration Report
ANNEX TO THE REMUNERATION REPORT - POLICY REPORT
For the reference of shareholders, this Annex to the Remuneration Report sets out our Directors’ Remuneration Policy (Policy) that
was approved by a binding shareholder vote at the 2014 AGM in the exact form that it was included in the 2013 Remuneration Report.
This Policy applies 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.
Purpose and link
to strategy
Fixed pay
Operation
Maximum Opportunity
Performance conditions (1)
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.
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.
None
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 a company car
or car allowance, phone costs, income
protection insurance, an 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.
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.
None
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Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 DIRECTORS’ Remuneration Report
Purpose and link
to strategy
Pension
To provide market
competitive retirement
benefits.
Variable pay
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.
Executive Directors receive a
contribution of up to 25% of salary to
the Group Pension Plan and/or as a cash
allowance in lieu of pension.
None
The maximum award that can be made
under the central bonus plan is 150%
of salary.
Each year the Remuneration Committee
determines the maximum bonus
opportunity for individual Executive
Directors within this limit.
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.
Annual bonus (2), (3)
To link reward to key business
targets for the forthcoming
year and to individual
contribution.
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.
Additional alignment with
shareholders’ interests
through the operation of
bonus deferral.
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.
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Merlin Entertainments plc Annual Report and Accounts 2014 DIRECTORS’ Remuneration Report
Operation
Maximum Opportunity
Performance conditions (1)
Purpose and link
to strategy
Performance Share
Plan (PSP) (3), (4)
To link reward to key business
targets for the longer term
and to retain executives.
The maximum annual award permitted
under the PSP is shares with a market
value (as determined by the Committee)
of 350% of salary.
Each year the Remuneration Committee
determines the actual award level for
individual Executive Directors within
this limit.
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).
All Employee Share Plan
(UK Sharesave Scheme)
(3), (5)
To create staff alignment with
the Group and promote a
sense of ownership.
Tax-approved monthly savings scheme
facilitating the purchase of shares
through share options at a discounted
exercise price by all eligible
UK employees.
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.
Executive Directors are eligible to
participate on the same basis as
other employees.
Company Share Option
Plan (CSOP) (3)
Executive Directors will
only receive CSOP awards in
exceptional circumstances.
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.
Annual awards of options over shares
worth up to 100% of salary at grant
(or, if the Remuneration Committee
determines that special circumstances
exist, 200% of salary).
Individuals who are
promoted to the Board
may have outstanding
awards under this plan.
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.
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% of the
portion of the PSP
award determined by
that measure will vest.
Vesting then increases on
a sliding scale to 100%
for achieving a stretching
maximum performance
target.
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.
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.
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Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 DIRECTORS’ Remuneration Report
Notes to the 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
appropriate, provided that any such variation or waiver is fair, reasonable and not
materially less difficult to satisfy than the original condition (in its opinion). In the
event that the Committee were to make an adjustment of this sort, a full
explanation would 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 Remuneration Committee based on relevant reference points, including, for
Group financial targets, the Company’s business plan and are designed to be
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
justifies such an adjustment, adjust; and (b) amend the terms of awards granted
under the share schemes referred to above in accordance with the rules of the
relevant plans (which were summarised for shareholders in the Company’s IPO
Prospectus). Share awards may be settled by the issue of new shares or by the
transfer of existing shares. In line with prevailing best practice at the time this Policy
Report is approved, any issuance of new shares is limited to 5% of share capital over
a rolling ten year period in relation to discretionary employee share schemes and
10% of share capital over a rolling ten year period in relation to all employee
share schemes.
(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 the Company. In particular, our use of earnings and return on total investment
measures is designed to reward management for delivery of key financial measures
of Company success that should result in sustainable value creation. Targets are
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
Scheme). An Executive Director based in the USA or overseas may be eligible
to participate in one of these schemes instead of the UK Sharesave Scheme.
The 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 out above where the terms of the payment were agreed: (a) before the policy
came into effect; or (b) at a time when the relevant individual was not a Director
of the Company and, in the opinion of the Committee, the payment was not in
consideration for the individual becoming a Director of the Company. For these
purposes ‘payments’ includes the Committee satisfying awards of variable
remuneration and, in relation to an award over shares, the terms of the
payment 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 2014
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)
• 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).
Minimum performance (Variable pay)
• No payout under the annual bonus.
• No vesting under the PSP.
Performance in line with expectations (Variable pay)*
• 50% of the maximum payout under the annual bonus.
• 50% vesting under the PSP.
Maximum performance (Variable pay)*
• 100% of the maximum payout 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% of salary) and maximum permitted PSP award
(350% 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% 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% of salary and 280% of salary respectively) was lower than the scheme maximum.
4,000
3,500
3,000
2,500
0
0
0
£
2,000
1,500
1,000
500
0
3,591
55%
24%
2,166
46%
20%
741
100%
34%
21%
PSP
Annual Bonus
Fixed Pay
2,174
55%
24%
21%
1,311
46%
20%
34%
449
100%
Minimum
Meeting
expectations
Maximum
Minimum
Meeting
expectations
Maximum
CEO
CFO
89
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
DIRECTORS’ Remuneration Report
Approach to recruitment remuneration
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% 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.
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 appointee’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.
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Merlin Entertainments plc Annual Report and Accounts 2014
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
Notice period
Termination payment
Policy
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 10% of the Company’s share capital. The Company has the right to remove these Directors should the relevant
shareholding fall below 10% 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 at 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 table overleaf summarises the treatment of share awards for leavers and on a change of control in share plans under which
Executive Directors could hold awards.
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.
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Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
DIRECTORS’ Remuneration Report
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.
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 dis-apply
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.
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.
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.
UK Sharesave
Scheme /
Overseas
Sharesave
Scheme
US Employee
Stock Purchase
Plan
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.
92
Merlin Entertainments plc Annual Report and Accounts 2014 NOMINATION
Committee Report
STATEMENT FROM THE CHAIRMAN OF THE NOMINATION COMMITTEE
Dear Shareholder
This report describes the activities of the Nomination Committee
during 2014. The Committee met three times during the year
and we focused our attention on Board appointments, succession
planning and diversity.
Board appointments
One of the primary objectives of the Nomination Committee
during the year has been to address the final elements of the
composition of the Board arising from its transition from
private to public markets.
Succession planning
The Board and Nomination Committee have undertaken detailed
succession planning reviews during 2014, focused on Executive
Director positions as well as other senior manager roles
within the Group. This has identified key individuals already
in the Group, for whom high level training and development
opportunities have been established and implemented. We
have also discussed the Group’s senior management structure
and how that might evolve as Merlin continues its international
expansion. The Group has already recruited well during 2014
in specific senior management roles to enhance certain
activities and build the future talent pipeline.
Early in the year the Committee confirmed the previously
announced appointment of Fru Hazlitt who joined the Company
in April 2014. Her extensive experience in the entertainment
industry is a valuable addition to our Board and will bring a
diversity of knowledge and perspective to our deliberations.
As a result of the work undertaken during 2014, the Board and
Nomination Committee have a clear line of sight on what issues
need to be addressed and of the plans management has in place.
We are encouraged by the depth of talent available within the
Group as cover for all our key positions.
We have also continued to focus on the process of recruiting
further independent Non-executive Directors. This is intended to
ensure full Code compliance by the time of the Annual General
Meeting (AGM) in May 2015, and also takes into account the
reduction in shareholdings of Blackstone and CVC in the period
following the IPO with the consequential potential impact on
the future composition of the Board.
Diversity
Merlin’s policy is for our leaders to have a diversity of thinking,
experience, gender, country of origin and cultural background.
We believe a diverse Board and management team is more in
touch with our customers, employees and investors. While we
have not established diversity targets or measures at this time this
policy is reflected in the approach we are taking to recruitment
at senior manager and Board level.
Sir John Sunderland
Chairman of the Nomination Committee
25 February 2015
To assist us we have engaged Spencer Stuart, an independent
executive search consultancy already familiar with Merlin and
our strategic intentions. Reflecting our ambitions for growth,
our search has an Asian and North American geographical
emphasis and will ensure we benefit from first-hand leisure
industry experience to develop a Board with a wider skill set
and appropriate leaders for each of our Committees.
Shortly after the year end Miguel Ko confirmed that he will
step down as a Non-executive Director and will not put himself
forward for re-election at the 2015 AGM, having taken a full time
executive position in Asia. Miguel joined the Board shortly before
Merlin’s IPO in November 2013 and has made a wise and
valuable contribution to Merlin, in particular through his
knowledgeable insights into the Asian leisure markets. On
behalf of the Board, I would like to express our thanks.
93
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 DIRECTORS’
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.
Disclosure
Section title
Relationship Agreements
(additional details)
Corporate
Governance Report
Page(s)
64 to 67
Certain information required to be included in the Directors’ Report
is included in other sections of this Annual Report and Accounts.
Internal Controls
Audit Committee
Report
68 to 73
These sections provide an overview of the strategy, development
and performance of the Company’s business in the year ended
and as at 27 December 2014 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.
The following sections are therefore incorporated by reference
into this Directors’ Report:
• The Strategic Report on pages 2 to 59.
• The Corporate Governance Statement on page 60.
• The section entitled ‘Board of Directors’ on pages 61 to 63.
• The Corporate Governance Report on pages 64 to 67.
• The Audit Committee Report on pages 68 to 73.
• The Directors’ Remuneration Report on pages 74 to 92.
• The Nomination Committee Report on page 93.
The Company is required to provide disclosures and information
in relation to a number of additional matters which are covered
elsewhere in this Annual Report and Accounts. These matters
and cross-references to the relevant sections of this Annual
Report are shown in the following table:
Disclosure
Section title
Pages
Future Developments
Strategic Report
2 to 59
Research and
Development
Employee diversity
and engagement
Merlin Magic Making
34 to 37
Team Merlin
38 to 41
Greenhouse Gas
Emissions
Corporate Social
Responsibility
54 to 59
Disabled persons
Corporate Social
Responsibility
54 to 59
94
Financial Instruments
Share Capital and
Movements therein
Note 5.4 to
the Accounts
Note 5.7 to
the Accounts
Subsidiary and Associated
Undertakings
Note 6.8 to
the Accounts
134
143
152
Directors
The names of the persons who, at any time during the financial
year, were Directors of the Company are:
Name
Sir John Sunderland
Nick Varney
Andrew Carr
Charles Gurassa
Ken Hydon
Miguel Ko
Fru Hazlitt
Søren Thorup Sørensen
Dr. Gerry Murphy
Rob Lucas
Each of the Directors, other than Fru Hazlitt, was appointed prior
to the start of the financial year. Fru Hazlitt was appointed with
effect from 1 April 2014. Each Director in post at the time
offered themselves for re-election at the first Annual General
Meeting of the Company and their re-election was approved
by shareholders. All Directors remained in office at the end of
the financial year. Miguel Ko has notified the Company that he
does not propose to stand for re-election at the 2015 AGM.
Merlin Entertainments plc Annual Report and Accounts 2014 DIRECTORS’ Report
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.
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.
Related parties
The only material agreements with related parties during the
year are as follows:
• LEGOLAND Licence and Co-operation Agreement (LCA):
This agreement was entered into on 24 August 2005 with
KIRKBI and sets out the rights granted to the Group to use
the LEGO and LEGOLAND brands 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 to KIRKBI for
the use of the rights. 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.
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.
• Relationship Agreements with each of KIRKBI, Blackstone
and CVC: more details are provided in the Corporate
Governance section of this Annual Report on page 64.
• Underwriting Agreement: more details are provided in the
Corporate Governance section of this Annual Report
on page 64.
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 during the year but the Company has
purchased Directors’ and Officers’ Liability Insurance during the
year, which provides cover for liabilities incurred by Directors
in the performance of their duties or powers.
No amount was paid under any Director’s indemnity or the
Directors’ and Officers’ Liability Insurance 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 a 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. 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.
All Directors will stand for re-election on an annual basis,
in line with the recommendations of the Code.
Specific details relating to KIRKBI, Blackstone and CVC and their
rights to appoint Directors are set out in the Corporate
Governance section of this report on page 64.
Share capital and related matters
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
Annual Report is fully paid). 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.
Specific details under an Underwriting Agreement that relate
to KIRKBI; Blackstone; the Executive Directors; Non-executive
Directors; and Merlin Entertainments Share Plan Nominee Limited
(on behalf of senior management shareholders) are set out in the
Corporate Governance section of this report on page 64.
95
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
DIRECTORS’ Report
Change of control
The only other significant agreement to which the Company is
a party that takes effect, alters or terminates upon a change of
control of the Company following a takeover bid, is a 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. This 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 Agreement the right to accelerate outstanding
loans, terminate commitments and enforce their security.
As described below, subsequent to the year end the Group
secured a new £1,300 million banking facility that, once drawn,
will replace the existing debt facilities. The new unsecured
facilities also contain similar change of control provisions.
Further details on the Group’s banking facilities are shown
in note 5.2 to 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
An interim dividend of 2.0 pence per share was paid on
25 September 2014 to shareholders on the Register on
29 August 2014. A final dividend for the year ended
27 December 2014 of 4.2 pence per share will be
recommended for payment to shareholders. The final
dividend will be proposed to shareholders for approval
at the next Annual General Meeting of the Company.
Political donations
No political donations were made during the year.
Reduction of capital
On 26 February 2014 the Company reduced its share capital
by means of a court sanctioned reduction of capital. The effect
of the reduction of capital was to increase available reserves
for distribution by way of dividends to shareholders in the
amount of £3,183 million.
Subsequent events
Subsequent to the year end, the Group has secured a new
£1,300 million banking facility that, once drawn, will replace
the existing debt facilities.
96
The new senior unsecured facilities will comprise circa £1,000
million in floating rate term debt, with maturities in 2018 and
2020, along with an increased £300 million revolving credit facility.
The reduction in drawn term debt will be funded through the
use of circa £130 million of the Group’s existing cash balance.
The increased revolving credit line will ensure that the Group has
adequate committed liquidity facilities to support our seasonality
and strategic growth objectives. Under the new facilities we
will be required to comply with certain financial and
non-financial covenants.
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 cash
funds and 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 2015 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 25 February 2015.
For and on behalf of the Board
Colin N. Armstrong
Group Company Secretary
25 February 2015
Merlin Entertainments plc
Registered number 08700412
Merlin Entertainments plc Annual Report and Accounts 2014 DIRECTORS’
Responsibilities Statement
The Directors are also responsible for preparing a Strategic
Report, Directors’ Report, Directors’ Remuneration Report
and Corporate Governance Statement.
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 they hereby
exclude) 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 Group 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 Company financial statements (which have been
prepared in accordance with applicable UK GAAP), give a true
and fair view of the state of affairs of the Company.
• 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
25 February 2015
Andrew Carr
Chief Financial Officer
25 February 2015
Directors’ responsibilities statement
The Directors are responsible for preparing the Annual Report
and the Group and Company financial statements in accordance
with applicable law and regulations.
The Directors are required to prepare Group and Parent
Company financial statements for each financial year. For this
purpose, the Company is the Parent Company of the Group.
The Group financial statements are required to be prepared in
accordance with International Financial Reporting Standards as
adopted by the EU (Adopted IFRS) and applicable law. However,
the Directors are permitted to, and have elected to, prepare
the Company financial statements in accordance with generally
accepted accounting principles in the UK (UK GAAP).
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 Company and of the profit or loss of the
Group and Company for that period. In preparing each of the
Group and 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 Adopted IFRS.
• For the Company financial statements, state whether
applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained
in the Company financial statements.
• Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the 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.
97
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
INDEPENDENT
Auditor’s Report
TO THE MEMBERS OF MERLIN ENTERTAINMENTS PLC ONLY
Opinions and conclusions arising from our audit
1 Our opinion on the financial statements is unmodified
We have audited the financial statements of Merlin
Entertainments plc for the 52 week period ended 27 December
2014 set out on pages 104 to 161. 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
27 December 2014 and of the Group’s profit for the 52
week period 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 Accounting Standards; 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.
2 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.
Carrying value of non-current assets £2,414 million
(2013: £2,344 million)
Refer to pages 70 to 71 (Audit Committee Report) and pages
125 to 126 (accounting policy and financial disclosures).
• The risk - A history of business combinations and the capital
intensive nature of the business model means that the Group
has significant balances of goodwill, intangible assets and
property, plant and equipment. There is a risk the future
performance of the assets may not lead to their carrying
values being recoverable in full.
H
C
A
O
R
P
P
A
T
D
U
A
R
U
O
I
Materiality
• £15.5 million, representing 6.9%
of profit before tax.
Scope
• 84% of total profits before tax
arise in audited components.
• all other components are subject
to specified audit procedures or
analysis at an aggregated level.
Key risks
• valuation of non-current assets; and
• revenue recognition.
This risk is prevalent as there is inherent uncertainty in
estimating their recoverable value, principally arising in the
inputs used in both forecasting (for example the expected
change in visitation and revenues arising from new projects)
and discounting future cash flows, and assessing an
appropriate earnings multiple (for use in the estimation
of Fair Value less Costs to Sell and sensitivity assessments).
This uncertainty arises partly due to the unpredictable impact
of factors such as competition, the weather, and the political
and economic environment on trading performance; but
also as the Group’s new attractions are often in
unproven locations.
A combination of the significance of the asset balances and
the inherent uncertainty in the assumptions supporting the
valuations of goodwill, brands and any assets showing
impairment indicators, means that an assessment of the
carrying value of non-current assets is one of the key
judgemental areas that our audit concentrated on.
98
Merlin Entertainments plc Annual Report and Accounts 2014
INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only
• Our response - Our audit procedures included, among
others, an analysis of the Group’s previous ability to forecast
cash flows accurately and challenging the reasonableness of
current forecasts. These current forecasts include assumptions
such as the expected change in visitation and revenues arising
from new projects. Our challenge included an assessment
of the Group’s assumed effect of such projects, including a
comparison of this expected change against the past results of
similar projects carried out by the Group at other attractions;
thereby allowing us to assess the level of the risk inherent in
the current cash flow forecasts.
The data used by the Group to determine its earnings
multiple and calculate its discount rates was benchmarked
against market data, including publicly available analysts’ reports
and peer comparisons. We performed a sensitivity analysis
of the earnings multiple, discount rates and forecast cash
flows to show the effect of possible downside scenarios and
considered the resulting headroom across the valuations, as
well as 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 appropriately reflected the risks inherent
in the valuation of non-current assets.
Revenue recognition £1,249 million (2013: £1,192 million)
Refer to page 71 (Audit Committee Report) and page
112 (accounting policy).
• The risk - Merlin’s revenues come from a number of different
channels, such as admissions ticketing income, spend in
attractions on items such as food and drink, annual passes and
hotel revenues. These revenues arise across a large estate of
sites that due to the different jurisdictions in which the Group
operates, and the Group’s decentralised nature, use a number
of different revenue systems or system configurations, many
of which require manual processes to transfer data to the
main finance system.
Manual, rather than automated, processes across multiple
decentralised income systems increase the risk of error.
Such errors could arise through the under or over recording
from outputs from these systems, or due to the need for
the separate recording and appropriately timed release of
deferred revenue, which arises when tickets are either bought
in advance or bought to allow access to multiple attractions.
Although the low value of individual transactions mean
an individual error would be both difficult to detect
and insignificant, the high volume of transactions mean
systemic failure could lead to errors that aggregate
into material balances.
• Our response - As described in ‘Our application of materiality
and an overview of the scope of our audit’ we selected sites
for audit to ensure appropriate coverage of key financial
measures, including revenue.
At certain sites we performed testing of the general IT control
environment of the systems used to record revenue, followed
by testing of the processes to assess the completeness and
accuracy of revenue entries arising from these systems.
Alternatively, at other sites, we performed testing of the
design, implementation and operating effectiveness of
manual controls supporting these systems, including
reconciliations of till records to revenue entries in the
accounting records.
This controls testing was supported by substantive
audit procedures including, amongst others, performing
reconciliations of total cash received to revenue recorded,
predictive analytical procedures (taking into account factors
such as trends in seasonality, changes in pricing and visitation),
confirmation of the appropriate timing of sales cut-off through
journals testing; and substantive testing of deferred and
accrued revenue balances through testing back to ticketing
system records, corroboration of ticket usage terms to
underlying contracts and predictive analytical procedures
based on revenue movements.
In 2013 we reported on certain risks that arose as a result of the
Group’s IPO. Without the recurrence of these risks, our focus on
revenue recognition was a proportionately larger part of our
work for 2014 and so is reported here, despite the nature of
the revenue streams and the inherent risks associated with
them not changing significantly from the previous year.
99
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only
3 Our application of materiality and an overview of the scope of our audit
Scope of our work
8%
8%
84%
Profit and losses before
tax (absolute)
15%
15%
70%
Revenue
13%
20%
67%
Assets
Key
Audit
Specified-risk focused audit procedures
Analysis at an aggregated level
The materiality for the Group financial statements as a whole
was set at £15,500,000 for 2014. This was determined with
reference to a benchmark of profit before tax, of which it
represents 6.9%. In 2013, materiality was determined with
reference to a benchmark of revenue. Following the Group’s
IPO at the end of 2013, which led to a significant reduction in
the level of debt and therefore the amount of interest paid, we
consider that profit before tax better aligns with the principal
considerations of the shareholders of the Company, so for 2014
we changed our benchmark measure accordingly.
We agreed with the Audit Committee that we would report all
corrected and uncorrected misstatements identified through our
audit with a value in excess of £775,000, in addition to other
audit misstatements below that threshold that we believe
warranted reporting on qualitative grounds.
We audited 84% of the total profits and losses that made up
Group profit before tax, 70% of total Group revenue and 67%
of total Group assets. This included the audit, for group reporting
purposes, of the financial information of certain components,
audit procedures on certain total Group account balances that
present individual risks, specifically interest expenses, and assets
arising on consolidation. The components containing these Group
account balances were not individually financially significant and
therefore did not require an audit for group reporting purposes.
Audits for group reporting purposes, including those performed
by the Group audit team, were performed at components in the
following locations: UK, USA, Australia, Denmark, Germany, Italy
and Hong Kong.
100
The remaining 16% of total profits and losses that made up
Group profit before tax, 30% of total Group revenue and 33%
of total Group assets was represented by a large number of
smaller reporting components, as the majority of attractions sit
within their own statutory entity and there are a large number
of intermediary holding companies. None of these components
individually represent more than 3.2% of any of the total profits
or losses that made up Group profit before tax, total Group
revenue or total Group assets. We obtained further coverage
by performing specified risk-focused audit procedures over the
reasonableness over the financial result and position at 15 of
these reporting components. For the remaining components,
analysis at an aggregated level was performed to re-examine
our assessment that there were no significant risks of material
misstatement within these.
The Group audit team carried out audits for group reporting
purposes of the financial information of components covering
47% of the total profits and losses that made up Group profit
before tax, including the only individually financially significant
component, Merlin Attractions Operations Limited. The Group
audit team also undertook all audit procedures of certain total
Group account balances as mentioned above, gaining coverage
over a further 15% of the total profits and losses that made up
Group profit before tax. The largest component audited by a
component audit team represented 8% of the total profits
and losses that made up Group profit before tax.
Merlin Entertainments plc Annual Report and Accounts 2014 INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only
Materiality of the Group Financial Statements
Profit before tax
£226 million
Materiality
£15.5 million
£15.5 million Whole Group Financial
Statements materiality
£4 million
Range of materiality at
components (£0.75 million
to £4 million)
£0.775 million Misstatements to be reported
to the Audit Committee
The audits undertaken for group reporting purposes at the
key reporting components of the Group 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.
Detailed audit and specified procedure instructions were sent
to key component auditors. These instructions covered the
significant audit areas that should be addressed 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. The Group audit team
visited three key component locations in Italy, Hong Kong and
Florida, which included assessing the audit risk and strategy.
Teleconferences were also held with these component auditors
and all key reporting components that were not visited. During
these meetings, the findings reported to the Group audit
team were discussed in more detail; with any further work
required by the Group audit team then performed by
the component auditor.
4 Our opinion on other matters prescribed by the
Companies Act 2006 is unmodified
In our opinion:
• the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with
the Companies Act 2006.
• 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.
• information given in the Corporate Governance Statement
set out on pages 60 to 67 with respect to internal control
and risk management systems in relation to financial
reporting processes and about share capital structures
is consistent with the financial statements.
101
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only
5 We have nothing to report in respect of the matters on
which we are required to report by exception
Under the Listing Rules we are required to review:
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; or
• a Corporate Governance Statement has not been
prepared by the Company.
• the Directors’ statement, set out on page 96, in relation to
going concern; and
• the part of the Corporate Governance Statement on page 60
relating to the Company’s compliance with the ten provisions
of the 2012 UK Corporate Governance Code specified for
our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities
Statement set out on page 97, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. 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/auditscopeukco2014a, 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
25 February 2015
102
Merlin Entertainments plc Annual Report and Accounts 2014
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
NOTES TO THE ACCOUNTS
SECTION 1 - BASIS OF PREPARATION
SECTION 2 - RESULTS FOR THE YEAR
2.1
2.2
2.3
2.4
PROFIT BEFORE TAX
EXCEPTIONAL ITEMS
TAXATION
EARNINGS PER SHARE
SECTION 3 - BUSINESS COMBINATIONS
SECTION 4 - OPERATING ASSETS AND LIABILITIES
4.1
4.2
4.3
4.4
4.5
PROPERTY, PLANT AND EQUIPMENT
GOODWILL AND INTANGIBLE ASSETS
IMPAIRMENT TESTING
WORKING CAPITAL
PROVISIONS
SECTION 5 - CAPITAL STRUCTURE AND FINANCING
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
NET DEBT
BORROWINGS
LEASE OBLIGATIONS
DERIVATIVE FINANCIAL INSTRUMENTS
FINANCE INCOME AND COSTS
FINANCIAL RISK FACTORS AND FAIR VALUE ANALYSIS
EQUITY AND CAPITAL MANAGEMENT
SHARE-BASED PAYMENT TRANSACTIONS
SECTION 6 - OTHER NOTES
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
INVESTMENTS
EMPLOYEE BENEFITS
RELATED PARTY TRANSACTIONS
CONTINGENT LIABILITIES
NEW STANDARDS AND INTERPRETATIONS
ULTIMATE PARENT COMPANY INFORMATION
SUBSEQUENT EVENTS
SUBSIDIARY AND JOINT VENTURE UNDERTAKINGS
FINANCIAL STATEMENTS
Table of contents
104
105
106
107
108
109
111
111
114
115
119
120
121
121
123
125
127
129
130
130
130
132
134
135
136
143
144
147
147
147
149
150
151
151
151
152
103
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 CONSOLIDATED INCOME STATEMENT
For the 52 weeks ended 27 December 2014 (2013: 52 weeks ended 28 December 2013)
2014
2013
Note
2.1
2.1
2.1
2.1
4.1, 4.2
5.5
5.5
2.3
Underlying
trading
£m
Exceptional
items (3)
£m
1,249
(181)
1,068
(312)
(62)
(83)
(200)
411
(100)
311
2
(64)
249
(70)
179
-
-
-
-
-
-
-
-
-
-
-
(23)
(23)
6
(17)
Revenue
Cost of sales
Gross profit
Staff expenses
Marketing
Rent
Other operating expenses
EBITDA (1)
Depreciation and amortisation
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit for the year (2)
Earnings per share
Basic and diluted earnings per share (p)
2.4
Underlying
trading
£m
Exceptional
items (3)
£m
1,192
(170)
1,022
(297)
(63)
(80)
(192)
390
(100)
290
1
(105)
186
(24)
162
-
-
-
-
-
-
(30)
(30)
-
(30)
20
(4)
(14)
(3)
(17)
Total
£m
1,249
(181)
1,068
(312)
(62)
(83)
(200)
411
(100)
311
2
(87)
226
(64)
162
16.0
Total
£m
1,192
(170)
1,022
(297)
(63)
(80)
(222)
360
(100)
260
21
(109)
172
(27)
145
15.1
(1) EBITDA - this is defined as profit before finance income and costs, taxation, depreciation and amortisation and is after taking account of attributable profit after tax of joint ventures.
(2) Profit for the year for 2014 and 2013 is wholly attributable to the owners of the Company.
(3) Details of exceptional items are provided in note 2.2.
104
Merlin Entertainments plc Annual Report and Accounts 2014 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 52 weeks ended 27 December 2014 (2013: 52 weeks ended 28 December 2013)
Profit for the year
Other comprehensive income
Items that cannot be reclassified to profit and loss
Defined benefit plan remeasurement gains and losses
Recognition of the assets and liabilities of the defined
contribution section of the defined benefit scheme
Items that may be reclassified to profit and loss
Exchange differences on the retranslation of net assets of foreign operations
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 (1)
Note
2014
£m
162
2013
£m
145
6.2
6.2
5.5
2.3
(1)
(1)
(2)
(23)
7
(9)
-
(25)
(27)
135
-
-
-
(8)
(8)
5
(1)
(12)
(12)
133
(1) Total comprehensive income for 2014 and 2013 is wholly attributable to the owners of the Company.
105
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 27 December 2014 (2013: 28 December 2013)
Non-current assets
Property, plant and equipment
Goodwill and 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
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
2014
£m
1,410
942
6
7
49
2013
£m
1,321
961
3
3
56
2,414
2,344
26
60
1
285
372
24
64
6
264
358
2,786
2,702
5
12
226
27
4
274
6
9
223
21
11
270
1,131
1,179
84
23
50
5
156
1,449
1,723
1,063
1,059
4
1,063
85
23
37
4
160
1,488
1,758
944
940
4
944
The financial statements were approved by the Board of Directors on 25 February 2015 and were signed on its behalf by:
Nick Varney
Chief Executive Officer
Andrew Carr
Chief Financial Officer
106
Merlin Entertainments plc Annual Report and Accounts 2014
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 52 weeks ended 27 December 2014 (2013: 52 weeks ended 28 December 2013)
Share
capital
£m
Share
premium
£m
Note
At 30 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
5.7
5.7
1
-
-
-
8
1
Capital
reserve
£m
737
-
-
-
4
-
-
-
2,979
(2,987)
200
-
At 28 December 2013
10
3,183
(2,250)
Profit for the year
Other comprehensive
income for the year net
of income tax
Total comprehensive
income for the year
Equity dividends
Capital restructure
Equity-settled
share-based transactions
At 27 December 2014
5.7
5.7
5.8
5.7
-
-
-
-
-
-
10
-
-
-
-
-
-
-
-
(3,183)
2,250
-
-
-
-
Trans-
lation
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Total
parent
equity
£m
Non-
controlling
interest
£m
Total
equity
£m
(68)
-
(17)
(17)
-
-
(85)
-
(16)
(16)
-
-
-
(7)
-
5
5
-
-
(2)
-
(9)
(9)
-
-
-
(54)
145
613
145
-
(12)
145
133
-
(7)
84
162
-
194
940
162
(2)
(27)
160
(20)
933
4
135
(20)
-
4
4
-
-
-
-
-
4
-
-
-
-
-
-
617
145
(12)
133
-
194
944
162
(27)
135
(20)
-
4
(101)
(11)
1,161
1,059
4
1,063
107
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 CONSOLIDATED STATEMENT OF CASH FLOWS
For the 52 weeks ended 27 December 2014 (2013: 52 weeks ended 28 December 2013)
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortisation
Finance income
Finance costs
Taxation
Working capital changes
Changes 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 investments
Acquisition of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Equity dividends paid
Proceeds from bank loans
Financing costs
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
108
Note
2014
£m
2013
£m
162
100
(2)
87
64
411
(4)
4
411
(54)
357
2
-
(3)
(192)
(193)
-
(20)
-
-
(58)
-
(70)
(148)
16
264
5
285
145
100
(21)
109
27
360
30
(3)
387
(22)
365
1
(6)
-
(152)
(157)
194
-
102
(11)
(93)
(39)
(236)
(83)
125
142
(3)
264
4.1, 4.2
5.5
5.5
2.3
3.1
5.1
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 1 BASIS OF PREPARATION
52 weeks ended 27 December 2014
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) and with those parts of the Companies Act 2006 applicable to companies
reporting under 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 27 December 2014 (2013: 52 weeks ended 28 December 2013). The consolidated financial
statements are prepared on the historical cost basis except for derivative financial instruments and certain investments which are
measured at their fair value.
Additional analysis of other operating expenses has been provided in the consolidated income statement. This has not resulted in any
restatement of the 2013 consolidated income statement.
The consolidated financial statements are presented in 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 £162 million (2013: £145 million) and continues to
generate cash with operating cash inflows of £357 million (2013: £365 million). As highlighted in note 5.2, the Group is funded by
a bank loan facility, due for renewal in 2019. Subsequent to the year end, the Group has secured a new £1,300 million banking facility
that, once drawn, will replace the existing debt facilities (see note 6.7). The Group’s forecasts show that it is expected to be able to
operate within the terms of both the existing and proposed facilities.
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
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. The Group controls an entity when it is exposed to, or has rights to, variable returns
through its involvement with the entity and has the ability to affect those returns through its power over the entity. 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.
109
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 1 BASIS OF PREPARATION (continued)
52 weeks ended 27 December 2014
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 area involves a higher degree of judgement or complexity and is explained in more detail in the
related note:
• Impairment testing (note 4.3).
During the year the following specific item also involved a higher degree of judgement or complexity:
• Treasury accounting - consideration of the likelihood of refinancing the Group’s debt before the contractual end date of the
Group’s existing lending facility (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.
110
Merlin Entertainments plc Annual Report and Accounts 2014
SECTION 2 RESULTS FOR THE YEAR
52 weeks ended 27 December 2014
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 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. Segment operating profit is included below for information purposes.
Information regarding the results of each operating segment is included below.
2014
Segment revenue
Segment profit, being segment EBITDA
Segment depreciation and amortisation
Segment operating profit
2013
Segment revenue
Segment profit, being segment EBITDA
Segment depreciation and amortisation
Segment operating profit
Midway
Attractions
£m
LEGOLAND
Parks
£m
Resort Theme
Parks
£m
529
214
(47)
167
386
142
(22)
120
331
87
(27)
60
Midway
Attractions
£m
LEGOLAND
Parks
£m
Resort Theme
Parks
£m
524
212
(48)
164
352
127
(21)
106
314
81
(27)
54
Segment
results
£m
1,246
443
(96)
347
Segment
results
£m
1,190
420
(96)
324
Reconciliation to statutory items included in the consolidated income statement
2014
Segment results
Other items (1)
Exceptional items (note 2.2)
Total per consolidated income statement
2013
Segment results
Other items (1)
Exceptional items (note 2.2)
Total per consolidated income statement
Revenue
£m
1,246
3
-
1,249
Revenue
£m
1,190
2
-
1,192
EBITDA
£m
Depreciation
and amortisation
£m
Operating
profit
£m
443
(32)
-
411
(96)
(4)
-
(100)
347
(36)
-
311
EBITDA
£m
Depreciation
and amortisation
£m
Operating
profit
£m
420
(30)
(30)
360
(96)
(4)
-
(100)
324
(34)
(30)
260
(1) Other items include Merlin Magic Making, head office costs and various other costs, which cannot be directly attributable to the
reportable segments.
111
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 27 December 2014
2.1 Profit before tax (continued)
Geographical areas
While each Operating Group is managed on a worldwide basis, part of our strategy is to diversify geographically across the four regions
shown below. The information presented 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
2014
£m
Non-current
assets
2014
£m
Revenues
2013
£m
Non-current
assets
2013
£m
490
318
274
167
811
794
429
325
466
307
247
172
778
829
373
305
1,249
2,359
1,192
2,285
49
6
2,414
56
3
2,344
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, accommodation revenue, retail, food and beverage sales and sponsorship.
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.
112
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 27 December 2014
2.1 Profit before tax (continued)
Cost of sales
Cost of sales of £181 million (2013: £170 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.
Operating expenses
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
Share-based payments
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)
2014
15,567
1,760
17,327
2013
14,573
1,712
16,285
2014
£m
266
4
32
10
312
2014
£m
1.2
0.3
0.4
0.4
-
2.3
2013
£m
255
-
32
10
297
2013
£m
1.0
0.3
1.1
0.3
2.9
5.6
(1) Other assurance services in 2013 included £1.0 million in relation to the half year audit undertaken as part of the IPO process.
(2) These costs were included within other operating expenses - exceptional items in 2013 (see note 2.2).
(3) Services relating to corporate finance transactions in 2013 included fees incurred as part of the IPO process.
113
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 27 December 2014
2.2 Exceptional items
Accounting policy
Due to their nature, certain one-off and non-trading items have been classified separately as exceptional items 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 items
The following items are exceptional and have been shown separately on the face of the consolidated income statement:
Within other operating expenses:
Costs in respect of IPO (1)
Acquisition costs (2)
Exceptional items included within EBITDA and 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)
Loss on re-measurement of financial liabilities measured at amortised cost (4)
Exceptional items before income tax
Exceptional items income tax (credit)/charge (5)
Exceptional items for the year
2014
£m
2013
£m
-
-
-
-
-
23
23
23
(6)
17
28
2
30
(20)
4
-
(16)
14
3
17
(1) Certain professional and advisory fees were 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 was recognised directly in equity.
(2) Directly attributable acquisition and subsequent integration costs were incurred in respect of the acquisitions in 2013 described in
note 3.1. These are separately presented as they are not part of the Group’s underlying operating expenses.
(3) 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. Further details are provided in note 5.5.
(4) The loss on re-measurement of financial liabilities at amortised cost has been separately presented as this item represents an
adjustment to the expected amortisation period of previous loan issuance costs and therefore is not part of the Group’s underlying
finance cost. Further details are provided in note 5.2.
(5) The exceptional items income tax charge reflects the tax effect of the exceptional items above.
114
Merlin Entertainments plc Annual Report and Accounts 2014
SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 27 December 2014
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 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
2014
£m
2013
£m
56
3
59
4
(1)
2
5
64
26
(1)
25
4
-
(2)
2
27
115
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 27 December 2014
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
2014
%
21.5%
2.5%
(1.9%)
7.1%
(0.4%)
(0.5%)
(2.0%)
2.1%
28.4%
2014
£m
226
48
6
(4)
16
(1)
(1)
(5)
5
64
2013
%
23.0%
9.8%
(9.9%)
10.6%
0.1%
1.0%
(16.9%)
(2.0%)
15.7%
2013
£m
172
40
16
(17)
18
-
2
(29)
(3)
27
During 2013 a number of financing changes occurred which lowered the Group’s ongoing finance cost. These included the restructuring
of debt facilities, the settlement of interest rate swaps and the repayment of debt following the IPO, which led to an increased certainty
over the availability of future taxable profits in the UK. This resulted in the recognition of deferred tax assets in the UK arising largely
from unclaimed capital allowances.
Sensitivity analysis was performed when the assets were 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. No significant
sensitivities were noted in respect of the deferred tax assets recognised during 2014.
The effective tax rate (ETR) in 2014 and in particular 2013 was affected by the recognition of deferred tax assets, referred to above.
Excluding the effect of this recognition, the ETR would be 30.4% (2013: 32.6%). This ETR has reduced from 2013 to 2014 due to a
reduction in tax due in overseas jurisdictions. The ETR based on underlying trading, excluding exceptional items, was 28.0% in 2014
(2013: 12.7%).
Recognised directly in equity through the statement of other comprehensive income
Within other comprehensive income a tax charge totalling £nil (2013: £1 million) has been recognised relating to foreign exchange
differences relating to the net investment in foreign operations.
116
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 27 December 2014
2.3 Taxation (continued)
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
2014
£m
2013
£m
30
31
-
-
61
(12)
49
40
26
-
3
69
(13)
56
Liabilities
Net
2014
£m
(114)
(7)
(47)
-
(168)
12
(156)
2013
£m
(112)
(13)
(48)
-
(173)
13
(160)
2014
£m
(84)
24
(47)
-
(107)
-
(107)
2013
£m
(72)
13
(48)
3
(104)
-
(104)
Other short term temporary differences primarily relate to financial assets and liabilities and 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 (liabilities)/assets
29 December
2013
£m
Recognised in
income
£m
Recognised
in other
comprehensive
income
£m
Effect of
movements
in foreign
exchange
£m
27 December
2014
£m
(72)
13
(48)
3
(104)
(10)
8
-
(3)
(5)
-
2
-
-
2
(2)
1
1
-
-
(84)
24
(47)
-
(107)
In 2014 movements in net deferred tax liabilities recognised in income in respect of property, plant and equipment were principally
due to tax allowances utilised in the UK and USA. Net deferred tax asset movements in other short term temporary differences
were primarily due to increases in financial assets and liabilities, principally in the UK.
117
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 27 December 2014
2.3 Taxation (continued)
Movement in deferred tax during the previous year
30 December
2012
£m
Recognised in
income
£m
Recognised
in other
comprehensive
income
£m
Effect of
movements
in foreign
exchange
£m
28 December
2013
£m
(83)
19
(49)
13
(100)
10
(3)
1
(10)
(2)
-
(2)
-
-
(2)
1
(1)
-
-
-
(72)
13
(48)
3
(104)
Property, plant and equipment
Other short term temporary differences
Intangible assets
Tax value of loss carry-forwards
Net tax liabilities
In 2013 net deferred tax liabilities in respect of property, plant and equipment decreased because previously unrecognised deferred tax
assets were recognised in the year, offset by amounts utilised in the period. The previously unrecognised deferred tax assets related
primarily to unclaimed capital allowances on UK property, plant and equipment where their recoverability was reassessed based on
expected profitability of the business given the financing changes which occurred during the year. The movement in net deferred tax
assets in respect of other short term temporary differences primarily related to movements in various accruals and prepayments.
The movement in deferred tax assets due to losses was as a result of the use of losses in the USA.
Unrecognised deferred tax assets
Property, plant and equipment
Other short term temporary differences
Intangible assets
Tax value of loss carry-forwards
Net tax assets
2014
£m
2013
£m
4
23
3
51
81
7
30
4
55
96
The unrecognised deferred tax assets relating to loss carry-forwards include £1 million (2013: £nil) which expire within five years and
£nil (2013: £1 million) which expire within ten years. The remaining losses and other timing differences do not expire under current
tax legislation.
The tax losses arose in jurisdictions which are not expected to generate taxable profits in the foreseeable future and therefore there
is currently no expectation that the losses will be recognised.
118
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 27 December 2014
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 in issue 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 in issue 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 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 items net of tax (see note 2.2)
Adjusted profit attributable to ordinary shareholders
Basic weighted average number of shares
Dilutive potential ordinary shares
Diluted weighted average number of shares
2014
£m
162
17
179
2013
£m
145
17
162
2014
2013
1,013,746,032
957,880,691
434,077
-
1,014,180,109
957,880,691
Share incentive schemes (see note 5.8) are treated as dilutive to earnings per share when, at the balance sheet date, the awards are
both ‘in the money’ and would be issuable had the performance period ended at that date. Accordingly, the PSP has a dilutive effect as
the performance measures have been partially achieved, whereas the DBP is not dilutive as the awards have not yet been issued, and
the CSOP is not dilutive as the options are ‘out of the money’ after accounting for the value of services rendered in addition to the
option price.
For 2013, the PSP performance period had not commenced and the CSOP was ‘out of the money’, therefore no awards were
treated as dilutive.
Earnings per share
Basic and diluted earnings per share on profit for the year
Exceptional items net of tax
Adjusted and diluted earnings per share on adjusted profit for the year
2014
Pence
16.0
1.7
17.7
2013
Pence
15.1
1.8
16.9
119
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 3 BUSINESS COMBINATIONS
52 weeks ended 27 December 2014
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.
2014
The Group undertook no business combinations during 2014.
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% 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:
Acquirees' net assets at the acquisition date:
Property, plant and equipment
Bank loans
Net identifiable assets and liabilities
Goodwill
Consideration, being cash paid at acquisition
Fair values
at acquisition
£m
6
(5)
1
5
6
The goodwill on these transactions was 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.
120
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 4 OPERATING ASSETS AND LIABILITIES
52 weeks ended 27 December 2014
4.1 Property, plant and equipment
Accounting policies
Property, plant and equipment (PPE) are stated at cost less accumulated depreciation and impairment losses.
Where components of an item of PPE have different useful lives, they are accounted for separately.
The initial cost of PPE includes all costs incurred in bringing the asset into use and includes external costs for the acquisition,
construction and commissioning of the asset, internal project costs (primarily staff expenses) and capitalised borrowing costs.
New sites
Capital expenditure on new attractions includes all the costs of bringing the items of PPE within that attraction into use ready for
the opening of the attraction. Pre-opening costs are only capitalised to the extent they are required to bring PPE into its working
condition. Other pre-opening costs are expensed as incurred.
On inception of a lease for a new site, 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.
Existing sites
Subsequent expenditure on items of PPE in our existing estate can be broadly split into two categories:
• Capital expenditure which adds new items of PPE to an attraction or which extends the useful life of, or enhances existing items of
PPE is accounted for as an addition to PPE. Examples of such expenditure include new rides or displays and enhancements to rides
or displays, which increase the appeal of our attractions to visitors.
• Expenditure which is incurred to maintain the items of PPE in a safe and useable state and to maintain the useful life of items of PPE
is charged to the income statement as incurred. Examples of such expenditure include regular servicing and maintenance of
buildings, rides and displays and ongoing repairs to items of PPE.
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
Leasehold buildings
Plant and equipment
50 years
20 - 50 years
5 - 30 years
121
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 27 December 2014
4.1 Property, plant and equipment (continued)
Property, plant and equipment
Land and
buildings
£m
Plant and
equipment
£m
Under
construction
£m
812
-
9
2
(5)
63
(19)
862
29
3
(1)
37
(11)
919
139
28
1
(5)
(2)
161
26
1
(1)
-
187
673
701
732
774
6
34
(1)
(11)
73
(14)
861
46
2
(3)
57
(9)
954
247
67
3
(11)
(3)
303
69
3
(3)
(5)
367
527
558
587
90
-
106
-
-
(136)
2
62
123
-
-
(94)
-
91
-
-
-
-
-
-
-
-
-
-
-
90
62
91
Cost
Balance at 30 December 2012
Acquisitions through business combinations (note 3.1)
Additions
Movements in asset retirement provisions
Disposals
Transfers
Effect of movements in foreign exchange
Balance at 28 December 2013
Additions
Movements in asset retirement provisions (note 4.5)
Disposals
Transfers
Effect of movements in foreign exchange
Balance at 27 December 2014
Depreciation
Balance at 30 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
Depreciation for year - owned assets
Depreciation for year - leased assets
Disposals
Effect of movements in foreign exchange
Balance at 27 December 2014
Carrying amounts
At 30 December 2012
At 28 December 2013
At 27 December 2014
122
Total
£m
1,676
6
149
1
(16)
-
(31)
1,785
198
5
(4)
-
(20)
1,964
386
95
4
(16)
(5)
464
95
4
(4)
(5)
554
1,290
1,321
1,410
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 27 December 2014
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 current or prior year. No residual values are typically considered.
The Group leases buildings and plant and equipment under finance lease agreements secured on those assets. At 27 December 2014
the net carrying amount of leased buildings was £18 million (2013: £19 million) and the net carrying amount of leased plant and
machinery was £34 million (2013: £37 million). Further details in respect of leases and lease obligations are provided in note 5.3.
Capital commitments
At the year end the Group has a number of outstanding capital commitments amounting to £50 million (2013: £35 million), for which
no provision has been made. These commitments are expected to be settled within two financial years of the reporting date.
In addition to the contractual commitments disclosed above, the Group intends to invest circa £53 million in LEGOLAND Japan
and circa £57 million in LEGOLAND Korea over the period from 2014 to 2017, as previously announced.
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 such 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)
123
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 27 December 2014
4.2 Goodwill and intangible assets (continued)
Goodwill and intangible assets
Cost
Balance at 30 December 2012
Acquisitions through business combinations (note 3.1)
Additions
Effect of movements in foreign exchange
Balance at 28 December 2013
Additions
Effect of movements in foreign exchange
Balance at 27 December 2014
Amortisation
Balance at 30 December 2012
Amortisation for the year
Effects of movements in foreign exchange
Balance at 28 December 2013
Amortisation for the year
Effect of movements in foreign exchange
Balance at 27 December 2014
Carrying amounts
At 30 December 2012
At 28 December 2013
At 27 December 2014
Intangible assets
Goodwill
£m
Brands
£m
Other
£m
949
5
-
(12)
942
-
(17)
925
173
-
1
174
-
(3)
171
776
768
754
190
-
-
1
191
-
(5)
186
12
-
-
12
-
-
12
178
179
174
25
-
1
(1)
25
1
-
26
9
1
1
11
1
-
12
16
14
14
Total
£m
1,164
5
1
(12)
1,158
1
(22)
1,137
194
1
2
197
1
(3)
195
970
961
942
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 impairment charges have been made in the year (2013: £nil).
Goodwill
Goodwill is allocated to the Group’s operating 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
124
2014
£m
530
38
186
754
2013
£m
531
39
198
768
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 27 December 2014
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
2014
£m
2013
£m
26
15
10
8
59
45
32
15
11
12
115
174
26
16
10
8
60
48
32
15
12
12
119
179
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. 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.
125
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 27 December 2014
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
In accordance with accounting standards the recoverable amount of an asset is 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
Timing and quantum of future
capital and maintenance
expenditure
Long term growth rates
Discount rates to reflect
the risks involved
Sensitivity analysis
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.
EBITDA is forecast by an analysis of both projected revenues and costs. 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.
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.
A growth rate of 2.5% (2013: 2.5%) 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 9.4% and 13.1% (2013: 9.4% and 12.6%), derived
from the Group’s post-tax weighted average cost of capital of between 7.4% and 9.7% (2013: 7.4% and 9.3%).
Impairment reviews and calculation of recoverable amounts are typically sensitive to changes in key assumptions,
particularly relating to discount rates and EBITDA growth. At 27 December 2014 if the estimated EBITDA
levels used in the value in use calculations had been 1% lower or the discount rate used been 0.1% higher
no impairment charges would have arisen.
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.
No impairment losses were recorded in 2014 or 2013. 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.
126
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 27 December 2014
4.4 Working capital
Accounting policies
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is measured using 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
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
Over 60 days overdue
2014
£m
6
20
26
2013
£m
6
18
24
Current assets
Non-current assets
2014
£m
16
17
27
60
2013
£m
12
25
27
64
2014
£m
2013
£m
-
-
7
7
2014
£m
10
4
1
1
16
-
-
3
3
2013
£m
6
4
2
-
12
127
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 27 December 2014
4.4 Working capital (continued)
Trade and other payables
Trade payables
Accruals
Deferred income
Other payables
Current liabilities
Non-current liabilities
2014
£m
31
115
69
11
226
2013
£m
28
116
68
11
223
2014
£m
2013
£m
-
2
-
21
23
-
3
-
20
23
Accruals
Accruals comprises balances in relation to both operating and capital costs incurred at the balance sheet date but for which an
invoice has not been received and payment has not yet been made.
Deferred income
Deferred income comprises revenues received or invoiced at the balance sheet date which relate to future periods. The main
components of deferred income relate to advanced ticket revenues in respect of online bookings and annual pass purchases;
pre-booked accommodation; and certain sponsorship and similar arrangements.
128
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 4 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 27 December 2014
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.
Asset retirement
provisions
£m
Other
£m
Total
£m
Provisions
Balance at 29 December 2013
Provisions made during the year
Utilised during the year
Unwinding of discount
Balance at 27 December 2014
2014
Current
Non-current
2013
Current
Non-current
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. These leases are typically of a duration of between ten and 60 years.
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. As a result of
changes in circumstances during the year, certain provisions were reclassified from current to non-current.
There are no anticipated future events that would be expected to cause a material change in the timing or amount of outflows
associated with the provisions.
30
5
-
1
36
-
36
36
-
30
30
18
2
(2)
-
18
4
14
18
11
7
18
48
7
(2)
1
54
4
50
54
11
37
48
129
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING
52 weeks ended 27 December 2014
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
2014
£m
285
(1,136)
(851)
-
(84)
(935)
2013
£m
264
(1,185)
(921)
-
(85)
(1,006)
Restricted funds of £6 million (2013: £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 determines that a different date should
be adopted for the purposes of the effective interest rate calculations, the resulting adjustment is recognised as a gain or loss on
re-measurement and presented separately in the income statement.
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.
130
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.2 Borrowings (continued)
Interest-bearing loans and borrowings
Secured bank loans
Bank interest payable
Current
Non-current
Total
2014
£m
2013
£m
-
5
5
-
6
6
2014
£m
1,131
-
2013
£m
1,179
-
2014
£m
1,131
5
2013
£m
1,179
6
1,131
1,179
1,136
1,185
Terms and debt repayment schedule
This table provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. The principal value
is the amount of debt owing at the end of the accounting period. The carrying value is measured at amortised cost, and presents the
principal value as adjusted for any prepaid loan issue costs that are being amortised over the term of the facility.
Currency
Nominal
interest rate
Year of
maturity
GBP
EUR
USD
AUD
3.75%
3.26%
3.41%
5.90%
2019
2019
2019
2019
Secured bank loan
Secured bank loan
Secured bank loan
Secured bank loan
Bank interest payable
2014
2013
Principal
value
£m
Carrying
amount
£m
Principal
value
£m
Carrying
amount
£m
409
332
319
73
1,133
412
378
329
90
1,209
408
332
318
73
1,131
5
1,136
401
368
323
87
1,179
6
1,185
In 2013 the Group entered into an amendment of its existing bank facility that extended the contractual date of repayment from July
2017 to July 2019. The Group accounted for this amendment on a continuation basis, reflecting management’s judgement that this
was a non-substantive change to the existing facility. The terms of the Group’s borrowings provided no clear commercial incentive or
contractual commitment to repay them over a specific period that was shorter than the contractual life of the facility. Accordingly, the
Group calculated its effective interest rate and estimated the period for amortisation of financing costs based on that contractual term.
The Group determined at 27 December 2014 that a more reliable estimate could be formed of the likelihood and timeframe for an
earlier refinancing. This was determined following reviews undertaken by management and external advisors of refinancing options.
As a result the Group has accelerated the amortisation of financing costs and the resulting adjustment has been recognised as a loss
on re-measurement and separately presented in the income statement as an exceptional charge of £23 million (see note 2.2).
Subsequent to the year end, the Group has secured a new banking facility that, once drawn, will replace the existing debt facilities
(see note 6.7).
The existing 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.
131
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
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. All other leases are classified as operating 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. This therefore excludes the potential impact of future performance or rent increases based on
inflationary indices.
Lease arrangements
The Group’s most significant lease arrangements relate to a sale and leaseback transaction undertaken during 2007, involving the
property, plant and equipment of certain attractions within the Midway Attractions and Resort Theme Parks Operating Groups.
The leases are accounted for as finance or operating leases depending on the specific circumstances of each lease and the nature of
the attraction. For certain of the sites an individual lease agreement is split for accounting purposes as a combination of finance and
operating leases, reflecting the varied nature of assets at the attraction. During 2012 the Group undertook a further sale and
leaseback transaction of the LEGOLAND Windsor Hotel. This is being accounted for as an operating lease.
Each of these sale and lease back 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.
The Group also enters into operating leases for sites within the Midway Attractions Operating Group and central areas. These are
typically of a duration between ten and 60 years, with rent increases determined based on local market practice. In addition to a fixed
rental element, rents within the Midway Attractions Operating Group can also contain a performance related element, typically based on
turnover at the site concerned. Options to renew leases exist at these sites in line with local market practice in the territories concerned.
The key contractual terms in relation to each lease are considered when calculating the rental charge over the lease term. The potential
impact on rent charges of future performance or increases based on inflationary indices are each excluded from these calculations.
There are no significant operating restrictions placed on the Group as a result of its lease arrangements.
Lease costs and commitments
During 2014 £86 million (2013: £83 million) was recognised as an expense in the income statement in respect of operating leases.
Of this £12 million (2013: £11 million) was contingent on performance.
The lease commitments in the following tables run to the end of the respective lease term and do not include possible lease renewals.
Where relevant, the lease commitments noted do not include the potential impact of future performance or rent increases based on
inflationary indices.
132
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.3 Lease obligations (continued)
The tables below set out the total future lease obligations of 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:
Future
minimum lease
payments
2014
£m
Present value
of minimum
lease payments
2014
£m
Future
minimum lease
payments
2013
£m
Interest
2014
£m
Present value
of minimum
lease payments
2013
£m
Interest
2013
£m
Less than one year
Between one and five years
More than five years
6
26
254
286
6
25
171
202
-
1
83
84
6
26
259
291
Finance lease liabilities
Finance lease liabilities
Currency
Nominal
interest rate
Year of
maturity
GBP
EUR
5.64%
9.11%
2042
2042
6
26
174
206
2014
£m
54
30
84
-
-
85
85
2013
£m
54
31
85
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
2014
£m
76
297
1,326
1,699
2013
£m
74
291
1,380
1,745
The Group has also entered into lease agreements as part of the developments of LEGOLAND Japan and LEGOLAND Korea which
are being developed under the Group’s ‘operated and leased’ model. Following the opening of the parks in 2017, the Group’s local
operating company in each territory will lease the site and park infrastructure from each of the development partners for a period
of 50 years. The leases will be accounted for as finance or operating leases depending on the specific circumstances of each lease
and the nature of the assets at the attractions.
133
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
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 and foreign exchange contracts
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 its interest rate swaps 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%. 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.
2014
£m
2013
£m
-
-
1
1
4
1
1
6
Other financial assets
Derivative financial instruments
Hedge accounted interest rate swaps
Non-hedge accounted interest rate swaps
Non-hedge accounted foreign exchange contracts
134
Merlin Entertainments plc Annual Report and Accounts 2014
SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.4 Derivative financial instruments (continued)
Other financial liabilities
Derivative financial instruments
Hedge accounted interest rate swaps
Non-hedge accounted interest rate swaps
Non-hedge accounted foreign exchange contracts
2014
£m
2013
£m
11
-
1
12
8
1
-
9
The Group’s exposure to interest rate, liquidity, foreign currency and credit risks is disclosed in note 5.6.
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
2014
£m
2013
£m
2
-
2
1
20
21
135
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.5 Finance income and costs (continued)
Finance costs
In respect of liabilities not held at fair value
Interest expense on financial liabilities measured at amortised cost
Loss on re-measurement of financial liabilities measured at amortised cost (notes 2.2 and 5.2)
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
2014
£m
2013
£m
62
23
2
-
-
87
102
-
1
4
2
109
Capitalised borrowing costs amounted to £2 million in 2014 (2013: £2 million), with a capitalisation rate of 4.2% (2013: 6.8%).
Tax relief on capitalised borrowing costs amounted to £1 million in 2014 (2013: £1 million).
Recognised in consolidated statement of other comprehensive income
Foreign currency translation differences relating to the net investment in foreign operations amounted to a profit of £7 million in 2014
(2013: loss of £8 million). They 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 27 December 2014 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, over the next three
years an average of 55% (2013: 70%) 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
136
Carrying amount
2014
£m
(84)
(11)
(95)
285
(1,131)
(846)
2013
£m
(85)
(4)
(89)
264
(1,179)
(915)
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.6 Financial risk factors and fair value analysis (continued)
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.
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 interest rate swaps. This assumes a shift in the yield curve of +/- 50 basis points (bp)
(2013: 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
2014
Profit
or loss
£m
-
-
Equity
£m
(9)
9
2013
Profit
or loss
£m
-
-
Equity
£m
(14)
14
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)
2014
£m
(6)
5
1
-
2013
£m
(5)
5
1
1
A decrease of 50bp would result in a loss of £1 million (2013: loss 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. As at the balance sheet date the Group had access to a revolving credit facility of £150 million (2013: £150 million) in addition
to its existing borrowings to meet any shortfalls.
At 27 December 2014, the Group had cash and cash equivalents of £285 million (2013: £264 million) together with this revolving credit
facility, which can be used to meet its contractual cash flows.
137
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.6 Financial risk factors and fair value analysis (continued)
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.
2014
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
Non-hedge accounted foreign exchange contracts
Contractual
cash flows
£m
0 to <1
year
£m
1 to <2
years
£m
2 to <5
years
£m
5 years
and over
£m
(1,324)
(202)
(31)
(20)
-
(1)
(1,578)
(42)
(6)
(31)
(8)
-
(1)
(88)
(45)
(6)
-
(8)
-
-
(59)
(1,237)
(19)
-
(4)
-
-
-
(171)
-
-
-
-
(1,260)
(171)
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
Non-hedge accounted foreign exchange contracts
Contractual
cash flows
£m
0 to <1
year
£m
1 to <2
years
£m
2 to <5
years
£m
5 years and
over
£m
(1,462)
(206)
(28)
(25)
(1)
-
(1,722)
(45)
(6)
(28)
(5)
(1)
-
(85)
(45)
(6)
-
(1)
-
-
(52)
(139)
(20)
-
(19)
-
-
(178)
(1,233)
(174)
-
-
-
-
(1,407)
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 on the following page.
138
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.6 Financial risk factors and fair value analysis (continued)
2014
Cash and cash equivalents
Trade receivables
Secured bank loans
Finance lease liabilities
Derivatives
Trade payables
2013
Cash and cash equivalents
Trade receivables
Secured bank loans
Finance lease liabilities
Derivatives
Trade payables
Sterling
£m
202
7
(408)
(54)
(2)
(9)
(264)
Sterling
£m
220
6
(401)
(54)
5
(10)
(234)
Euro
£m
8
2
(332)
(30)
(5)
(12)
(369)
Euro
£m
8
2
(368)
(31)
(2)
(9)
(400)
US Dollar
£m
Australian
Dollar
£m
Other
£m
47
3
(318)
-
(4)
(3)
(275)
3
1
(73)
-
-
(1)
(70)
25
3
-
-
-
(6)
22
US Dollar
£m
Australian
Dollar
£m
Other
£m
11
2
(323)
-
(6)
(3)
(319)
4
1
(87)
-
-
(2)
(84)
21
1
-
-
-
(4)
18
Total
£m
285
16
(1,131)
(84)
(11)
(31)
(956)
Total
£m
264
12
(1,179)
(85)
(3)
(28)
(1,019)
The Group treats certain external and intercompany loans as net investment hedging instruments. These hedge the impact of foreign
exchange movements that would otherwise occur on both external and intercompany borrowings where the balance is not in the
currency of the individual entity concerned. At 27 December 2014 the Group had hedged the following loans:
Sterling denominated loans
Euro denominated loans
US Dollar denominated loans
Other
2014
£m
17
320
96
17
450
2013
£m
17
251
149
-
417
Translation movements on these loans are shown in other comprehensive income, see note 5.5.
Foreign currency sensitivity analysis
The following tables show the sensitivity to a 10% 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 +/- 10% 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 10% strengthening/weakening of Sterling against
foreign currencies to which the group is exposed. The analysis assumes that all other variables remain constant.
139
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.6 Financial risk factors and fair value analysis (continued)
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
Foreign exchange
contracts
£m
2
5
-
-
(1)
-
-
6
4
4
(2)
(1)
1
-
1
7
Profit or (loss) impact
Secured
bank loans
£m
Foreign exchange
contracts
£m
2
5
-
-
(2)
-
-
5
3
-
(1)
(1)
1
1
-
3
Profit or (loss) impact
Secured
bank loans
£m
Foreign exchange
contracts
£m
(2)
(5)
-
-
1
-
-
(6)
(5)
(5)
2
2
(1)
(1)
(1)
(9)
Cash
£m
-
(1)
-
-
-
-
-
(1)
Cash
£m
-
-
-
-
-
-
-
-
Cash
£m
-
1
-
-
-
-
-
1
Total
£m
6
8
(2)
(1)
-
-
1
12
Total
£m
5
5
(1)
(1)
(1)
1
-
8
Total
£m
(7)
(9)
2
2
-
(1)
(1)
(14)
2014
Euro
US Dollars
Danish Kroner
Hong Kong Dollars
Australian Dollars
Singapore Dollars
Japanese Yen
2013
Euro
US Dollars
Danish Kroner
Hong Kong Dollars
Australian Dollars
Singapore Dollars
Japanese Yen
10% weakening of Sterling
2014
Euro
US Dollars
Danish Kroner
Hong Kong Dollars
Australian Dollars
Singapore Dollars
Japanese Yen
140
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.6 Financial risk factors and fair value analysis (continued)
2013
Euro
US Dollars
Danish Kroner
Hong Kong Dollars
Australian Dollars
Singapore Dollars
Japanese Yen
Profit or (loss) impact
Cash
£m
Secured bank
loans
£m
Foreign exchange
contracts
£m
-
-
-
-
-
-
-
-
(2)
(5)
-
-
1
-
-
(6)
(4)
-
1
1
(1)
(1)
-
(4)
Total
£m
(6)
(5)
1
1
-
(1)
-
(10)
A 10% 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 £4 million following a 10% strengthening of the relevant functional currency and would be a profit of £3 million following 10%
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 very limited credit risk with its
customers, the vast majority of whom pay in advance or at the time of their visit, however there are 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.
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
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. For finance leases the market rate of
interest is determined by reference to similar lease agreements.
141
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.6 Financial risk factors and fair value analysis (continued)
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 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
2014
Carrying
amount
£m
(11)
-
6
33
285
Fair
value
£m
(11)
-
6
33
285
2013
Carrying
amount
£m
(4)
1
3
37
264
Fair
value
£m
(4)
1
3
37
264
(1,131)
(1,128)
(1,179)
(1,217)
(84)
(31)
(933)
(84)
(31)
(930)
(85)
(28)
(991)
(85)
(28)
(1,029)
Fair value hierarchy
The Group analyses financial instruments carried at fair value by utilising one of the three following valuation methods:
• 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 27 December 2014 the Group had £11 million (2013: £3 million) of derivative financial liabilities classified as Level 2.
At 27 December 2014 the Group had £6 million (2013: £3 million) of investments classified as Level 3. These are a £3 million investment
made in 2014 in the consortium company developing LEGOLAND Korea and an investment in IDR Resorts Sdn. Bhd (IDR) acquired
for £3 million in 2013, as disclosed in note 6.1. IDR and its subsidiaries are deemed to be related parties as the Group is committed to
subscribing for share capital in IDR which together with its subsidiaries owns LEGOLAND Malaysia (see note 6.3).
There have been no transfers between levels in 2014 (2013: 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.
142
Merlin Entertainments plc Annual Report and Accounts 2014
SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
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
2014
Number
2013
Number
2014
£m
2013
£m
On issue and fully paid at beginning of year
1,013,746,032
156,767,050
Cancelled in the year
Bonus issue
Issued in the year
-
-
-
(10,868,759)
804,101,709
63,746,032
On issue and fully paid at end of year
1,013,746,032
1,013,746,032
10
-
-
-
10
1
-
8
1
10
Issue of new shares
2014
There was no issuance of new shares in 2014.
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.
143
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.7 Equity and capital management (continued)
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.
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.
An interim dividend of 2.0 pence per share was paid on 25 September 2014 (2013: nil). The Directors of the Company propose a final
dividend of 4.2 pence per share for the year ended 27 December 2014 (2013: nil).
Capital reserve
Balances arose 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 represented the difference between the value of the equity
structure of the previous and new parent companies.
On 26 February 2014 the Company reduced its share capital by means of a court sanctioned reduction of capital, which resulted in an
increase in available reserves for distribution by way of dividends to shareholders in the amount of £3,183 million. When the capital
position of the parent company was rearranged the capital reserve was adjusted appropriately such that the equity balances presented
in the Group accounts best reflect the underlying structure of the Group’s capital base.
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.
144
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.8 Share-based payment transactions (continued)
Equity-settled schemes
The Group operates four employee share incentive schemes: the Performance Share Plan (PSP), the Company Share Option Plan
(CSOP), the All Employee Sharesave Plan (AESP) and the Deferred Bonus Plan (DBP) as set out in the Directors’ Remuneration Report
and the tables below. A summary of the rules for the schemes and the performance conditions attaching to the PSP are given in the
Directors’ Remuneration Report.
Analysis of share-based payment charge
PSP
CSOP
AESP
2014
£m
2013
£m
2
1
1
4
-
-
-
-
The charge in respect of the DBP is £nil (2013: £nil). Awards over shares worth £2 million (2013: £nil) will be made under the DBP in
March 2015 based on the share price prevailing at that time. The awards will vest in March 2018.
Analysis of awards
Date of grant
Exercise
price (£)
Period when
exercisable
November 2013 - September 2014
-
2017 - 2024
November 2013 - September 2014
3.15 - 3.77
2016 - 2024
January 2014 - February 2014
2.96 - 3.17
2016 - 2017
PSP
CSOP
AESP
Total
Average
remaining
contractual
life (years)
9.3
9.0
2.7
Number
of shares
2014
Number
of shares
2013
3,611,209
3,633,489
2,305,252
2,298,375
3,180,962
-
9,097,423
5,931,864
The weighted average exercise prices (WAEP) over the year were as follows:
PSP
CSOP
AESP
Number
WAEP (£)
Number
WAEP (£)
Number
WAEP (£)
Granted during the year
At 28 December 2013
Granted during the year
Forfeited during the year
At 27 December 2014
Exercisable at end of year
At 28 December 2013
At 27 December 2014
3,633,489
3,633,489
120,577
(142,857)
3,611,209
-
-
-
-
-
-
-
-
-
2,298,375
2,298,375
206,850
(199,973)
2,305,252
-
-
3.15
3.15
3.64
3.17
3.19
-
-
-
-
3,555,062
(374,100)
3,180,962
-
-
n/a
n/a
2.98
2.99
2.98
-
-
145
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 5 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 27 December 2014
5.8 Share-based payment transactions (continued)
The fair value per award granted and the assumptions used in the calculations for the significant grants in 2013 and 2014 are as follows:
Scheme
Date of grant
Exercise
price (£)
Share price
at grant
date (£)
Fair
value per
award (£)
Expected
dividend
yield
Expected
volatility
Award life
(years)
Risk free
rate
PSP
CSOP
AESP
12 November 2013
12 November 2013
13 January 2014
7 February 2014
-
3.15
3.17
2.96
3.15
3.15
3.73
3.54
3.15
0.97
0.70
0.84
n/a
0.8%
0.7%
0.7%
n/a
30%
20%
22%
3.4
4.9
2.2
3.3
1.1%
1.7%
0.8%
1.2%
A description of the key assumptions used in calculating the share-based payments is as follows:
• The binomial valuation methodology is used for the PSP and CSOP schemes. The Black-Scholes model is used to value the AESP.
• 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.
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 be 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 (2013: £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
2014
-
-
-
-
-
Number
2013
19,283,150
1,320,725
(603,875)
(20,000,000)
-
146
Merlin Entertainments plc Annual Report and Accounts 2014 6.1 Investments
At beginning of year
Additions
At end of year
SECTION 6 OTHER NOTES
52 weeks ended 27 December 2014
2014
£m
3
3
6
2013
£m
-
3
3
2014
During the year the Group made a £3 million investment in the consortium company developing LEGOLAND Korea. The investment
is accounted for at fair value and is not consolidated.
2013
In November 2013 the Group acquired 16,350,300 shares in IDR Resorts Sdn. Bhd. (IDR) for the consideration of £3 million. IDR
is accounted for at fair value and is not consolidated. IDR and its subsidiaries are deemed to be related parties as the Group is
committed to subscribing for share capital in IDR which together with its subsidiaries owns LEGOLAND Malaysia (see note 6.3).
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 (2013: £10 million).
Defined benefit pension schemes
The principal scheme that the Group operates is a closed scheme for certain former UK employees of The Tussauds Group, which was
acquired in 2007. The 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 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.
The most recent full actuarial valuation of the scheme was carried out as at 1 January 2013. As a result, the Group agreed to pay deficit
reduction contributions of £455,500 per annum until 2018, together with an additional one-off payment of £350,000 to be paid before
1 March 2014.
The Group expects £1 million in contributions to be paid to its defined benefit schemes in 2015. The weighted average duration of
the defined benefit obligation at 27 December 2014 was 22 years.
147
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 6 OTHER NOTES (continued)
52 weeks ended 27 December 2014
6.2 Employee benefits (continued)
The assets and liabilities of the schemes are:
Equities
Corporate bonds and cash
Property
Fair value of scheme assets
Present value of defined benefit obligations
Net pension liability
Movement in the net pension liability
At 30 December 2012
Transfers out
Net interest
Remeasurement gain/(loss)
At 28 December 2013
Net interest
Contributions by employer
Benefits paid
Remeasurement gain/(loss)
Recognition of defined contribution section assets and liabilities
At 27 December 2014
2014
£m
23
5
-
28
(33)
(5)
2013
£m
11
5
1
17
(21)
(4)
Present value
of scheme
assets
£m
Present value of
defined benefit
obligations
£m
Net pension
liability
£m
15
-
1
1
17
1
1
(1)
2
8
28
(20)
1
(1)
(1)
(21)
(1)
-
1
(3)
(9)
(33)
(5)
1
-
-
(4)
-
1
-
(1)
(1)
(5)
The amount recognised in the income statement was £nil (2013: £nil). The amount recognised in the statement of comprehensive
income was a loss of £2 million (2013: £nil).
The closed Tussauds Group scheme operated a defined contribution section underpinned by a minimum level of benefit. Recent
experience has indicated that this minimum level of benefit is now giving rise to a deficit; consequently the assets and liabilities
of the defined contribution section of the scheme have been recognised in the year.
148
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 6 OTHER NOTES (continued)
52 weeks ended 27 December 2014
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
2014
3.9%
3.5%
3.2%
2013
4.6%
3.7%
3.4%
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.
6.3 Related party transactions
Identity of related parties
The Group has related party relationships with its pre-IPO major shareholders, key management personnel, joint ventures and IDR
Resorts Sdn. Bhd.
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, or was partly funded by, 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 27 December 2014, are as follows:
2014
KIRKBI Invest A/S
Blackstone Capital Partners
CVC Capital Partners
LEGO Group
2013
KIRKBI Invest 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
2
-
-
-
1
1
-
-
-
-
-
-
-
-
1
1
7
-
-
37
44
7
1
1
37
46
2
-
-
2
4
1
-
-
1
2
149
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 6 OTHER NOTES (continued)
52 weeks ended 27 December 2014
6.3 Related party transactions (continued)
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 27 December 2014 are: parties related to KIRKBI
Invest A/S £49 million (2013: £56 million); funds advised by parties related to Blackstone Capital Partners £33 million (2013: £36 million);
and funds advised by parties related to CVC Capital Partners £10 million (2013: £31 million).
Interest is paid and accrued on the same terms as the rest of the banking syndicate as described in note 5.2.
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 and their immediate relatives control 2.1% (2013: 2.6%) 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
2014
£m
7.7
0.5
0.8
9.0
2013
£m
4.2
0.4
0.2
4.8
The comparative figures for 2013 reflect the fact that the Group was under private ownership until the Listing in November of that
year. Consequently they are not directly comparable with the 2014 figures. In particular, the Board structure changed on Listing with
a number of new Non-executive Director positions put in place. In addition the reward structure changed, with a different balance
between ongoing salary and share-based long term incentive plans.
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. At 27 December 2014 and 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
27 December 2014, are as follows:
Sales to related party
Amounts owed by related party
6.4 Contingent liabilities
2014
£m
5
3
2013
£m
2
3
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 (2013: £1 million).
150
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 6 OTHER NOTES (continued)
52 weeks ended 27 December 2014
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:
• 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.
EU endorsed IFRS and interpretations with effective dates after 27 December 2014 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 2015 or after. The Group does not expect any significant impact on its consolidated financial statements from these amendments.
• IAS 19 (Amendment) ‘Employee benefits’ - defined benefit plans: employee contributions.
• IFRS 2 (Amendment) ‘Share-based payment’ - definition of ‘vesting condition’.
• IFRS 3 (Amendment) ‘Business combinations’ - classification and measurement of contingent consideration and scope exclusion
for the formation of joint arrangements.
• IFRS 8 (Amendment) ‘Operating segments’ - disclosures on the aggregation of operating segments.
• IFRS 13 (Amendment) ‘Fair value measurement’ - measurement of short term receivables and payables and scope of
portfolio exception.
• IAS 16 (Amendment) ‘Property, plant and equipment’ and IAS 38 (Amendment) ‘Intangible assets’ - restatement of accumulated
depreciation (amortisation) on revaluation.
• IAS 24 (Amendment) ‘Related party disclosures’ - definition of ‘related party’.
During the year the IASB issued IFRS 15 ‘Revenue from contracts with customers’, which will become effective from the 2017
accounting period. The Group’s revenue is generated by high volumes of low value transactions, thereby requiring limited judgement
on accounting for revenue compared to other industry sectors. The Group considers that the implementation of this new standard
will not have any significant impact on the consolidated financial statements.
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
Subsequent to the year end, the Group has secured a new £1,300 million banking facility that, once drawn, will replace the existing debt facilities.
The new senior unsecured facilities will comprise circa £1,000 million in floating rate term debt, with maturities in 2018 and 2020,
along with an increased £300 million revolving credit facility and lower average margins. The reduction in drawn term debt will be
funded through the use of circa £130 million of the Group’s existing cash balance. The increased revolving credit line will ensure that
the Group has adequate committed liquidity facilities to support our seasonality and strategic growth objectives. Under the new
facilities we will be required to comply with certain financial and non-financial covenants.
151
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
SECTION 6 OTHER NOTES (continued)
52 weeks ended 27 December 2014
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
LEGOLAND Discovery Centre Melbourne 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
152
Country of
incorporation
Class of
share held
Ownership
2014
Ownership
2013
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
-
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
-
Ordinary
-
Ordinary
Ordinary
-
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
-
Ordinary
Ordinary
-
Ordinary
Ordinary
Ordinary
-
Ordinary
-
-
Ordinary
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
57.0%
65.0%
100.0%
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%
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%
Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 6 OTHER NOTES (continued)
52 weeks ended 27 December 2014
6.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
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
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 (Beijing) Company Limited
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 (1)
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
Country of
incorporation
Class of
share held
Ownership
2014
Ownership
2013
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Austria
Austria
Belgium
Canada
China
China
China
China
China
Denmark
Denmark
France
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Ireland
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Japan
Ordinary
Ordinary
Ordinary
Ordinary
-
Ordinary
Ordinary
-
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
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%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
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%
99.9%
99.9%
100.0%
100.0%
100.0%
(2) 49.4%
90.4%
100.0%
(2) 49.4%
90.4%
100.0%
153
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 6 OTHER NOTES (continued)
52 weeks ended 27 December 2014
6.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
Merlin Entertainments (Japan) Limited
Merlin Entertainments Group Luxembourg 3 S.à r.l. (3)
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
Merlin Entertainments Singapore Pte. Ltd
Aquaria Twenty-One Co. Ltd
Busan Aquaria Twenty One Co. Ltd
LEGOLAND Korea LLC
(formerly Merlin Entertainments (Korea) LLC)
SLCS SEA LIFE Centre Spain S.A.
Merlin Entertainments (Thailand) Limited
Siam Ocean World Bangkok Co Ltd
Istanbul Sualti Dunyasi Turizm 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
KZ China Holdco Limited (formerly Tussauds Finance Limited)
KZ Mexico Holdco Limited
(formerly Tussauds Intermediate Holdings Limited)
LEGOLAND US Holdings Limited
LEGOLAND Windsor Park Limited
London Aquarium (South Bank) Limited
London Dungeon Limited
154
Country of
incorporation
Class of
share held
Ownership
2014
Ownership
2013
Japan
Luxembourg
Luxembourg
Luxembourg
Malaysia
Malaysia
Malaysia
Netherlands
Netherlands
Netherlands
Netherlands
New Zealand
New Zealand
Portugal
Singapore
South Korea
South Korea
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
South Korea
Ordinary
Spain
Thailand
Thailand
Turkey
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
-
-
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
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%
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%
60.0%
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 2014 SECTION 6 OTHER NOTES (continued)
52 weeks ended 27 December 2014
6.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
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
SEA LIFE Centres Limited
SEA LIFE Trust Trustees Limited
(formerly 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 Group (UK) Pension Plan Trustee Limited
Tussauds Holdings Limited
Tussauds Hotels Limited
Tussauds Limited
Tussauds Theme Parks Limited
Warwick Castle Limited
Wizard AcquisitionCo Limited
Wizard BondCo Limited
Wizard EquityCo Limited
Wizard NewCo Limited
Country of
incorporation
Class of
share held
Ownership
2014
Ownership
2013
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
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%
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%
155
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SECTION 6 OTHER NOTES (continued)
52 weeks ended 27 December 2014
6.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
Lake George Fly LLC
LEGOLAND California LLC
LEGOLAND Discovery Center Arizona LLC
LEGOLAND Discovery Center Boston LLC
LEGOLAND Discovery Centre (Dallas) LLC
LEGOLAND Discovery Centre (Meadowlands) LLC
LEGOLAND Discovery Center Michigan 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 Meadowlands LLC
SEA LIFE Michigan LLC
SEA LIFE Minnesota LLC
SEA LIFE Orlando LLC
SEA LIFE US LLC
The Tussauds Group LLC
Joint venture
SEA LIFE Helsinki Oy
Pirate Adventure Golf Limited
Country of
incorporation
Class of
share held
Ownership
2014
Ownership
2013
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Ordinary
-
-
-
-
-
-
-
-
-
-
-
-
Finland
UK
Ordinary
Ordinary
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%
50.0%
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%
100.0%
100.0%
100.0%
-
100.0%
100.0%
100.0%
100.0%
100.0%
50.0%
50.0%
(1) LL Datterselskab af december 2012 ApS was merged with LEGOLAND ApS during the year.
(2) 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.
(3) Merlin Entertainments Group Luxembourg 3 S.à r.l. is held by the Company. All other subsidiaries are held by
intermediate subsidiaries.
156
Merlin Entertainments plc Annual Report and Accounts 2014 MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
Company Balance Sheet at 27 December 2014 (2013: 28 December 2013)
Fixed assets
Investment in subsidiary undertaking
Current assets
Amounts owed by group 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
2014
£m
2013
£m
iii
iv
v
vi
vii
vii
3,111
3,107
58
-
58
(2)
56
78
1
79
(4)
75
3,167
3,182
10
-
3,157
3,167
10
3,183
(11)
3,182
The notes on pages 158 to 161 form part of these financial statements.
The parent Company financial statements were approved by the Board of Directors on 25 February 2015 and were signed on its behalf by:
Nick Varney
Chief Executive Officer
Andrew Carr
Chief Financial Officer
157
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014
NOTES TO THE 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.
These financial statements have been prepared for the 52 weeks ended 27 December 2014 (2013: 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 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.
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
158
Merlin Entertainments plc Annual Report and Accounts 2014 NOTES TO THE MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
(continued)
ii Employees
The average number of employees of the Company during the period was seven (2013: 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
74 to 92. Two Directors accrued benefits under defined contribution schemes during the year (2013: two).
iii Investment in subsidiary undertaking
Cost and carrying value
At 20 September 2013
Additions
At 28 December 2013
Capital contributions to subsidiaries
At 27 December 2014
Shares in
subsidiary
undertaking
£m
-
3,107
3,107
4
3,111
Where subsidiary undertakings incur charges for share-based payments in respect of share options and awards granted by the Company,
a capital contribution in the same amount is recognised as an investment in subsidiary undertakings with a corresponding credit to
shareholders’ equity.
The subsidiary undertaking at 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.
iv Amounts owed by group undertakings
Amounts owed by group undertakings comprise funds loaned by the Company to fellow group undertakings.
These funds are repayable on demand.
v Creditors: amounts falling due within one year
Other creditors
Accruals and deferred income
2014
£m
-
2
2
2013
£m
2
2
4
159
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 NOTES TO THE MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
(continued)
vi Called up share capital
Ordinary shares of £0.01 each
At beginning of the period
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
At beginning of the period
Incorporation
Redeemed
At end of the period
2014
Number
2014
£m
2013
Number
2013
£m
1,013,746,032
10
-
-
-
-
-
-
-
-
-
-
-
1
156,767,049
(10,868,759)
804,101,709
63,746,032
-
-
1
-
8
1
1,013,746,032
10
1,013,746,032
10
-
-
-
-
-
-
-
-
-
1
(1)
-
-
-
-
-
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.
160
Merlin Entertainments plc Annual Report and Accounts 2014 NOTES TO THE 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
Profit for the year
Equity dividends
Capital restructure
Share incentive schemes:
Movement in reserves for
employee share schemes
At 27 December 2014
Share
capital
£m
Share
premium
£m
-
-
1
8
1
10
-
-
-
-
10
-
-
-
2,983
200
3,183
-
-
(3,183)
-
-
Merger
reserve
£m
-
-
2,991
(2,991)
-
-
-
-
-
-
-
Profit and
loss
£m
-
(4)
-
-
(7)
(11)
1
(20)
3,183
4
Total
£m
-
(4)
2,992
-
194
3,182
1
(20)
-
4
3,157
3,167
On 26 February 2014 the Company reduced its share capital by means of a court sanctioned reduction of capital, which resulted
in an increase in available reserves for distribution by way of dividends to shareholders in the amount of £3,183 million.
The profit after tax for the period in the accounts of Merlin Entertainments plc is £1 million (2013: loss after tax of £4 million).
The Directors of the Company propose a final dividend of 4.2 pence per share.
161
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 SHAREHOLDER Information
Share listing
The Company’s shares are listed on the London Stock Exchange.
Share register and registrars
The Company’s share register is maintained and administered
in the UK by Computershare Investor Services PLC
(Computershare) at the following address:
Computershare
Investor Services PLC
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
Telephone:
+44 (0)870 703 6259
Investor Centre:
www.investorcentre.co.uk/contactus
Website:
www.computershare.com
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:
• Update dividend mandate bank instructions and review
dividend payment history.
• Update member details and address changes.
• 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.
Dividends
An interim dividend of 2.0 pence per share was paid on 25
September 2014 to shareholders on the Register on 29 August 2014.
A final dividend for the year ended 27 December 2014 of 4.2
pence per share will be recommended to shareholders for
approval at the 2015 Annual General Meeting of the Company.
Dividend Re-Investment Plan
The Company is proposing to introduce a Dividend
Re-Investment Plan (DRIP) which will allow holders of ordinary
shares, who choose to participate, to use their cash dividends
to acquire additional shares in the Company which will be
purchased on their behalf by the DRIP administrator. Further
information in relation to the DRIP will be sent to shareholders
in advance of the 2015 Annual General Meeting.
Financial calendar
The principal dates in our financial calendar for 2015 are
as follows:
Shareholder communications
We 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).
Annual General Meeting (AGM)
The AGM of the Company will be held on 14 May 2015 at
LEGOLAND Windsor Resort Hotel, Winkfield Road, Windsor,
Berkshire SL4 4AY at 11.00am. The Notice of AGM will be
sent to shareholders separately.
Registered in
England and Wales
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
Company secretary
Colin N. Armstrong
Investor relations director
Alistair Windybank
External auditors
KPMG LLP
Dukes Keep, Marsh Lane
Southampton
SO14 3EX
United Kingdom
Telephone
+44 (0)23 8020 2000
Preliminary Announcement of Results
Trading Update
Annual General Meeting
Interim Results Announcement
Trading Update
Pre-Close Trading Update
26 February
14 May
14 May
30 July
17 September
1 December
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
162
Merlin Entertainments plc Annual Report and Accounts 2014
FINANCIAL Record
2014
£m
2013
£m
2012
£m
2011
£m
2010
£m
1,249
1,192
1,074
411
311
311
226
1,410
942
285
1,131
1,063
357
(4)
16
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
946
306
232
230
96
1,112
970
60
1,178
555
292
3
(4)
801
256
198
158
26
951
917
67
1,061
505
183
6
(18)
Results
Revenue
Underlying EBITDA
Underlying operating profit
Operating profit
Profit before tax
Consolidated statement of financial position
Property, plant and equipment
Intangible assets
Cash and cash equivalents
Non-current interest-bearing
loans and borrowings
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
163
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 GLOSSARY
Key terms
Blackstone
Capex
Cluster
Definition
This is one of the three pre-IPO major shareholders of the Company.
Capital Expenditure.
A group of attractions located in a city close to one another.
Constant currency growth
Using 2014 exchange rates.
CVC
EBITDA
EPS
Exceptional items
This is one of the three pre-IPO major shareholders of the Company.
Profit before finance income and costs, taxation, depreciation and amortisation and after taking
account of attributable profit after tax of joint ventures.
Earnings per share.
Due to their nature, certain one-off and non-trading items have been classified as exceptional in
order to draw them to the attention of the reader and to show the underlying business
performance more accurately.
Existing estate (EE)
EE comprises all attractions other than new openings.
High-year
Year of high spend in capital investment cycle of an attraction.
IP
IPO
KIRKBI
KPI
LDC
Lead price
Like for like (LFL)
Listing
LLP
Intellectual Property.
Initial Public Offering.
This is one of the three major pre-IPO major shareholders of the Company.
Key Performance Indicator.
LEGOLAND Discovery Centre attractions. These are part of the Midway Attractions Operating
Group.
Face value of a ticket, which may then be discounted.
2014 LFL growth refers to the growth between 2013 and 2014 on a constant currency basis
using 2014 exchange rates and includes all businesses owned and operated before the start
of 2013.
Listing on the London Stock Exchange.
LEGOLAND Parks Operating Group.
Merlin Magic Making (MMM)
MMM 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.
164
Merlin Entertainments plc Annual Report and Accounts 2014 GLOSSARY
Key terms
Definition
Merlin’s Magic Wand (MMW)
MMW forms a key element of Merlin’s Corporate Social Responsibility commitment.
Our very own children’s charity delivers magical experiences around the world to
children who are disadvantaged through sickness and disability.
Midway or Midway Attractions
The Midway Attractions Operating Group and/or the Midway Attractions within it. Midway
Attractions are typically smaller, indoor attractions located in city centres or resorts.
MT
Madame Tussauds attractions. These are part of the Midway Attractions Operating Group.
New Business Development (NBD)
NBD relates to attractions that are newly opened or under development for future opening,
together with the addition of new accommodation at existing sites. New openings can include
both Midway attractions and new theme parks. NBD combines with the existing estate to give
the full estate of attractions.
ROCE
ROIC
RPC
RTP
SLC
Second Gate
Shrek’s Adventure!
Turkuazoo
Underlying
Visitors
Return on Capital Employed. The profit measure used in calculating ROCE is based on
underlying operating profit after taking account of a normalised long term effective 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.
Return on Invested Capital. Incremental EBITDA divided by the capital invested.
Revenue per Capita, defined as Visitor Revenue divided by number of visitors.
Resort Theme Parks Operating Group.
SEA LIFE Centre aquarium attractions. These are part of the Midway Attractions
Operating Group.
A visitor attraction at an existing resort with a separate entrance and for which additional
admission fees are charged.
This is a new attraction opening in 2015, and a potential Midway brand. It is part of the Midway
Attractions Operating Group.
Turkuazoo Aquarium was a standalone acquisition that has since been rebranded to a
SEA LIFE Centre. This is part of the Midway Attractions Operating Group.
Underlying information presented excludes exceptional items that are classified separately within
the financial statements.
Represents all individual visits to Merlin owned or operated attractions.
Wizard Wants to Know (WWTK)
WWTK is our annual online employee survey.
165
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 NOTES
166
Merlin Entertainments plc Annual Report and Accounts 2014 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. OUR AIM IS TO DELIVER MEMORABLE EXPERIENCES TO MILLIONS OF VISITORS
ACROSS OUR GROWING PORTFOLIO OF MIDWAY ATTRACTIONS AND THEME PARKS. WE ARE DRIVEN
BY SIX GROWTH DRIVERS AND OUR UNIQUE CREATIVE AND PRODUCTION RESOURCE ‘MERLIN
MAGIC MAKING’ WHICH SITS AT THE HEART OF EVERYTHING WE DO.
Financial highlights and KPIs (1), (2), (3)
2010
2011
2012
2013
2014
Visitors
62.8m +4.9%
Revenue
£1,249m +4.8%
At the end of
December 2014,
Merlin operated:
41.0
46.5
54.0
59.8
62.8
801
933
1,074
1,192
1,249
Underlying EBITDA
£411m +5.3%
Underlying operating profit
£311m +7.1%
256
296
346
390
411
198
222
258
290
311
Like for like revenue growth
+7.1%
Return on capital employed
10.6% (2013:10.2%)
Non- financial KPIs (1), (5), (6), (7)
Customer satisfaction (5)
Staff engagement (6)
Health and safety (7)
Basic EPS
16.0p (2013:15.1p (4))
Adjusted EPS
17.7p (2013:16.9p (4))
2013
2014
✔
✔
✔
✔
✔
✔
Footnotes (see page 3 for further footnotes to this Annual Report and Accounts):
(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) Group profit before tax for 2014 was £226 million (2013: £172 million).
(4) The 2013 EPS figures were affected by capital changes arising as part of the IPO in November 2013.
(5) Source - customer satisfaction surveys: measure is based on 90%+ rating as ‘satisfied’ or ‘very satisfied’.
(6) Source - annual employee surveys: measure is based on 80%+ rating for ‘staff engagement’ (see page 39 for further details).
(7) Source - internal health and safety reports: measure is based on a reduction in ‘business related incidents’ per 100,000 visits.
© MARVEL
Star Wars © & ™ Lucasfilm Ltd.
Shrek © DreamWorks Animation LLC.
LEGO, the LEGO logo, the Brick and Knob configurations, the Minifigure, Legends of Chima
and LEGOLAND are trademarks of the LEGO Group ©2015 The LEGO Group.
London Eye conceived and designed by Marks Barfield Architects.
Operated by London Eye Management Services Limited, a Merlin Entertainments Group Company.
The Madame Tussauds images shown depict wax figures created and owned by Madame Tussauds.
2
167
Merlin Entertainments plc Annual Report and Accounts 2014Merlin Entertainments plc Annual Report and Accounts 2014 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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ANNUAL REPORT AND ACCOUNTS 2014