ANNUAL REPORT AND ACCOUNTS 2015
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.
FinancialhighlightsandKPIs(1), (2), (3)
2011
2012
2013
2014
2015
At the end of 2015
Merlin operated:
Visitors
62.9m +0.3%
Revenue
£1,278m +2.3%
46.5
54.0
59.8
62.8
62.9
933
1,074
1,192
1,249
1,278
Underlying EBITDA
£402m -2.1%
Underlying operating profit
£291m -6.2%
296
346
390
411
402
222
258
290
311
291
Like for like revenue growth
+0.4%
Return on capital employed (4)
9.7% (2014:10.6%)
Basic EPS
16.8p (2014:16.0p)
Adjusted EPS
17.8p (2014:17.7p)
Non-financialKPIs(1), (5), (6), (7)
Customer satisfaction (5)
Staff engagement (6)
Health and safety (7)
2014
2015
✔
✔
✔
✔
✔
✘
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 2015 was £237 million (2014: £226 million).
(4) Return on capital employed is based on underlying operating profit after tax divided by average net operating assets.
(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 37 for further details).
(7) The accident at Alton Towers overshadowed all other Health and Safety measures and accordingly we did not achieve the measure we set ourselves.
2
Merlin Entertainments plc Annual Report and Accounts 2015 CONTENTS
STRATEGICREPORT
FINANCIALSTATEMENTS
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
ADDITIONALINFORMATION
SHAREHOLDER INFORMATION
FINANCIAL RECORD
GLOSSARY
107
108
109
110
111
112
113
155
157
162
163
164
FINANCIAL HIGHLIGHTS AND KEY
PERFORMANCE INDICATORS
CONTENTS
OUR STRATEGY AND BUSINESS MODEL
Merlin at a glance
Merlin’s brands
Strategy and global presence
Merlin’s growth drivers
2015 strategic developments
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
‘BEING A FORCE FOR GOOD’ - CORPORATE
SOCIAL RESPONSIBILITY THE MERLIN WAY
CORPORATEGOVERNANCE
2
3
4
4
6
8
10
12
14
16
20
24
28
32
36
40
46
51
CORPORATE GOVERNANCE STATEMENT
BOARD OF DIRECTORS
CORPORATE GOVERNANCE REPORT
HEALTH, SAFETY AND SECURITY
COMMITTEE REPORT
AUDIT COMMITTEE REPORT
DIRECTORS’ REMUNERATION REPORT
NOMINATION COMMITTEE REPORT
DIRECTORS’ REPORT
DIRECTORS’ RESPONSIBILITIES STATEMENT
INDEPENDENT AUDITOR’S REPORT
58
59
62
66
70
76
97
98
101
102
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 ‘2015’ mean the 52 week period ended 26 December 2015 and references to ‘previous year’ or ‘2014’ mean the 52 week period ended
27 December 2014.
• 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 2014 and 2015 on a constant currency basis using 2015 exchange rates and includes all businesses owned and opened before the start of 2014.
• 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 118 for further details).
• Percentages are calculated based on figures before rounding and are then rounded to one decimal place.
3
Merlin Entertainments plc Annual Report and Accounts 2015
OUR STRATEGY
and business model
OUR VISION IS TO BECOME THE
WORLDWIDELEADER 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,
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 32 to 35
Merlin Entertainments plc Annual Report and Accounts 2015 I
S
N
O
T
C
A
R
T
T
A
Y
A
W
D
M
I
Indoor attractions located in
city centres or resorts
MIDWAY
99 ATTRACTIONS
21 COUNTRIES
4 CONTINENTS
1-2 HOUR EXPERIENCE
44%(1)
6 GLOBAL CHAINABLE BRANDS. NEW BRAND
‘DREAMWORKS TOURS - SHREK’S ADVENTURE!’
LAUNCHED THIS YEAR
S
K
R
A
P
E
M
E
H
T
Outdoor attractions with rides and
shows, complemented with themed
accommodation
LEGOLAND
PARKS
6 ATTRACTIONS
34%(1)
5 COUNTRIES
3 CONTINENTS
1-3 DAY EXPERIENCE
LEGO THEMED ACCOMMODATION, RIDES,
SHOWS AND INTERACTIVE EXPERIENCES
3 NEW PARKS IN DUBAI, JAPAN AND
SOUTH KOREA UNDER DEVELOPMENT
22%(1)
RESORT
THEME
PARKS
6 ATTRACTIONS
UK, GERMANY, ITALY
1-3 DAY EXPERIENCE
ACCOMMODATION, RIDES, SHOWS AND
INTERACTIVE EXPERIENCES AROUND
A CENTRAL THEME
Footnotes:
(1) Based on 2015 revenue.
5
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
OUR STRATEGY
and business model
MERLIN’S BRANDS
MIDWAY
With 47 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.
13 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.
Each of our four Eye
observation attractions
offers the ultimate viewing
experience, unparalleled and
different every time, giving a
RevealingPerspective of
the location’s landscape
and iconic landmarks.
6
Madame Tussauds’ heritage
and the breathtaking artistry
of the figures at our 19 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.
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.
At ‘DreamWorks Tours -
Shrek‘s Adventure!’ guests
play their part in a unique
and interactive DreamWorks
experience, where the choices
they make decide the outcome.
At the heart of this are the
HilariousMisadventures
you experience in the
company of your favourite
DreamWorks characters.
Merlin Entertainments plc Annual Report and Accounts 2015 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, including highly themed
accommodation and based on
interactivity, imagination and family fun.
Alton Towers Resort is the
UK’s number one theme
park resort, set in 500 acres
of beautiful Staffordshire
countryside. Boasting two
themed hotels, ‘The Enchanted
Village’ lodges and an indoor
waterpark, it invites families,
teenagers and young adults
alike into a world of
Fantastical Escapism.
Wild Adventure is at the
heart of Chessington World
of Adventures 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.
Jousting, knights, princesses,
falconry, staged scenes by
Madame Tussauds and the
Castle Dungeon all make
Warwick the Ultimate
Castle experience.
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.
7
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 OUR STRATEGY
and business model
NORTH AMERICA ATTRACTIONS
Arizona
California
Charlotte
Dallas
Kansas City
Michigan New
Minnesota
Orlando New
Hollywood
Las Vegas
New York
Orlando New
San Francisco
Washington D.C.
California
Florida
Atlanta
Boston
Chicago
Dallas
Kansas City
Toronto
Westchester
San Francisco
Orlando New
UK ATTRACTIONS
Birmingham
Blackpool
Brighton
Great Yarmouth
Hunstanton
Loch Lomond
London
Manchester
Scarborough
Weymouth
and Skyline tower
Gweek
Oban
London
Blackpool
Blackpool
London
Alton
Chessington
Blackpool
Edinburgh
London
Warwick
York
Warwick
Windsor
Manchester
Chertsey
London New
Revenue by indoor
and outdoor attactions (1)
Visitors by
domestic / tourist (2)
Revenue by geography (1)
Outdoor 58%
Indoor 42%
Domestic 66%
Tourist 34%
UK 37%
Continental Europe 23%
North America 26%
Asia Pacific 14%
(1) Based on 2015 revenue. (2) Based on a sample of visitors answering the question ‘What is your home country?’.
Merlin Entertainments plc Annual Report and Accounts 2015 OURSTRATEGY ISTOCREATEAHIGHGROWTH,HIGHRETURN,
FAMILYENTERTAINMENTCOMPANYBASEDONSTRONGBRANDS
ANDAGLOBALPORTFOLIOTHATISNATURALLYBALANCED
AGAINSTTHEIMPACTOFEXTERNALFACTORS.
CONTINENTAL EUROPE ATTRACTIONS
Benalmadena
Berlin
Blankenberge
Bray
Gardaland
Hannover
Helsinki
Istanbul
Jesolo
Königswinter
Konstanz
München
Oberhausen
Paris
Porto
Scheveningen
Speyer
Timmendorfer
Strand
Amsterdam
Berlin
Vienna
Amsterdam
Berlin
Hamburg
Lake Garda
Berlin
Istanbul New
Oberhausen
Billund
Günzburg
Soltau
Key
Existing Merlin attractions
2015 new openings
ASIA PACIFIC ATTRACTIONS
Auckland
Bangkok
Busan
Melbourne
Mooloolaba
Shanghai
Sydney
Manly
Malaysia
Osaka New
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 2015Merlin Entertainments plc Annual Report and Accounts 2015 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.
10
H
T
W
O
R
G
E
T
A
T
S
E
G
N
T
S
X
E
I
I
Merlin Entertainments plc Annual Report and Accounts 2015
OUR STRATEGY and business model
11
T
N
E
M
P
O
L
E
V
E
D
S
S
E
N
S
U
B
W
E
N
I
MIDWAY ROLL OUT
Opening new Midway attractions
under one of our chainable global
brands. Merlin has opened 20(1)
new sites in the last three years.
(1) Includes Turkuazoo Aquarium which was a standalone
acquisition that has since been relaunched as a SEA LIFE.
NEW LEGOLAND
PARK DEVELOPMENTS
Opening new full scale LEGOLAND
parks. New parks are under
development in Dubai (2016),
Japan (2017) and South Korea (2018).
Merlin is exploring further potential
sites in North America and Asia.
STRATEGIC
ACQUISITIONS
Pursuing acquisition opportunities that
complement our strategic objectives.
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
OUR STRATEGY
and business model
2015 STRATEGIC DEVELOPMENTS
JANUARY
SEA LIFE Michigan
SEA LIFE Michigan opens, marking Merlin’s 46th
SEA LIFE around the world, and its seventh in
North America.
MARCH
Oblivion
Italy’s first dive-coaster - ‘Oblivion’ - opens at
the beginning of the season at Gardaland.
12
APRIL
Enchanted Village
125 lodge ‘Enchanted Village’ opens at Alton Towers,
complementing the resort’s existing two hotels.
LDC Osaka
Not to be confused with the full sized park opening in
Japan in 2017, the LEGOLAND Discovery Centre opens
in Osaka, marking Merlin’s third attraction in the country
and its second LDC.
LEGOLAND Japan
Ceremony held to celebrate the ground-breaking
of LEGOLAND Japan, to open in 2017.
MAY
LEGOLAND Florida Hotel
152 bedroom LEGOLAND Florida Hotel opens. Each
Merlin theme park now has on-site accommodation.
LEGO Friends
‘LEGO Friends’ themed area opens at LEGOLAND Windsor.
Orlando openings
A Merlin first, as we open a cluster of three attractions in
Orlando - Madame Tussauds, SEA LIFE and the Orlando
Eye - on the same day!
New Openings group
Announcement of the creation of the New Openings
group to support the acceleration of new openings.
Merlin Entertainments plc Annual Report and Accounts 2015 OUR STRATEGY and business model
JULY
LDC Istanbul
LDC Istanbul opens in the Forum shopping mall
alongside the aquarium acquired in 2013
(relaunched as a SEA LIFE in January 2015).
accesso®
Agreement signed with the accesso Technology Group
(accesso®) to roll out new ticketing systems across the
Merlin estate over three years.
Shrek’s Adventure!
Our new ‘DreamWorks Tours - Shrek’s Adventure!’
attraction - the first under this new brand - opens on
London’s South Bank in the heart of the existing
London cluster.
OCTOBER
China Media Capital Joint Venture
Announcement of agreement to set up joint venture with
China Media Capital to develop a LEGOLAND park in the
Shanghai area and other attractions in China.
NOVEMBER
Madame Tussauds New Delhi
Announcement of the planned opening of Merlin’s first
attraction in India - Madame Tussauds New Delhi - in 2017.
13
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 CHAIRMAN’S
Statement
SirJohnSunderland
Chairman
After a very successful first year following Merlin’s IPO in
November 2013, 2015 was a more difficult year for your
Company. The dominant event was the traumatic accident at
Alton Towers on 2 June. Up to that moment our customers
had enjoyed hundreds of millions of rides in complete safety.
Nevertheless on that day our procedures and training did not
prove adequate to the task of preventing this particular accident.
We immediately accepted responsibility and are of course
profoundly sorry for the trauma to those who were injured.
We have already announced the direct cause and have
introduced a series of enhanced and rigorous new protocols
to ensure there can be no repetition of this accident.
Safety and customer service have always been the foundation
upon which Merlin bases its appeal to our worldwide market.
This will continue to be the case, and ensuring the safety of
our customers will remain at the forefront of the Board’s
oversight agenda.
Since June visitor numbers at Alton Towers were well below
our original targets for the year. We announced to the market
in July the expected impact this would have on the Company’s
financial performance for the year, and these predictions have
been borne out.
Despite the great shadow cast by this incident, I am able to report
that business elsewhere in the Merlin empire performed satisfactorily.
There were the usual swings and roundabouts but overall our
performance delivered in line with the revised consensus.
Health,safetyandsecurity
Merlin has a strong safety culture that underpins the delivery
of millions of memorable experiences to our guests each year.
On 2 June the serious accident at Alton Towers was a reminder
of this imperative for the safety and security of our visitors to be
at the centre of everything we do. Our thoughts remain with
those injured and we will continue to support them in the
future in whatever way we can.
Our absolute focus is to make sure that, through continuous
improvement, such an accident cannot happen again. Merlin
has made specific improvements with regard to processes and
procedures on rides like ‘The Smiler’. We also continue to invest
in our Health and Safety teams and infrastructure around the
Group and will ensure this investment continues as the Group
grows. We have never been, nor will we ever be, complacent in
this area. Our Health, Safety and Security Committee report on
pages 66 to 69 provides more specific details on how we
approach this most important area.
Merlin Entertainments plc Annual Report and Accounts 2015 Tradingperformanceandstrategy
Our LEGOLAND Parks Operating Group had another strong
year after the record performance in 2014. The parks broadened
their demographic appeal with major investments in the ‘LEGO
Friends’ product, and expanded their themed accommodation
offering with the opening of a hotel at LEGOLAND Florida.
Midway Attractions delivered a solid performance overall,
albeit with specific regional challenges. Visitation to our London
attractions was impacted by the relative weakness of the Euro,
while travel restrictions affected trading in Hong Kong. Trading
in the Resort Theme Parks Operating Group was materially
impacted by the accident at Alton Towers, but we are
particularly pleased with the performance of Gardaland,
boosted by the opening of the ‘Oblivion’ dive-coaster,
and our accommodation offering across the parks.
Merlin’s strategic development has continued. We launched a
new ‘DreamWorks Tours’ brand, with the first attraction, based
on the ‘Shrek’ film franchise, opening in July in London. We also
announced a joint venture with China Media Capital to develop
Midway attractions and a LEGOLAND park in China, further
evidence of the opportunities we see in that growing market.
These specific developments add to our existing programme
of rolling out Midway attractions, developing new LEGOLAND
parks and creating destination resorts at our theme parks
through the provision of themed accommodation.
GovernanceandtheBoard
In January 2016 Andrew Carr, Merlin’s Chief Financial Officer,
announced his intention to retire. On behalf of the Board I
would like to thank him for the dedication he has shown
to the Group during the last 16 years. He has been a major
contributor to Merlin’s phenomenal growth during this period
and its successful transition to a public company. We have
recently announced that Anne-Francoise Nesmes will join in
August as Andrew’s successor. We look forward to working
with her as Merlin continues to grow.
At the Annual General Meeting (AGM) in May 2015, Dr. Gerry
Murphy and Rob Lucas (the representatives of our two pre-IPO
private equity shareholders Blackstone and CVC), stood down, as did
Miguel Ko who left us due to other full time executive commitments.
We thank them all for their valuable input. Following the 2015 AGM
we were fully compliant with the UK Corporate Governance Code.
I am very pleased that we have since appointed two new
Non-executive Directors. Trudy Rautio and Yun (Rachel) Chiang
bring with them wide experience in the major markets of the
USA and China across leisure and other industries.
Dividends
The Board will be recommending to the AGM in May that
we pay a final dividend of 4.4 pence per share in June. Taken
together with the interim dividend of 2.1 pence per share
paid last September, this will equate to a full year dividend
of 6.5 pence per share, up 4.8% on 2014.
CHAIRMAN’S Statement
I have yet again been
impressed by the leadership
and dedication of Merlin’s
management team and
our many thousands
of employees
Corporatesocialresponsibility(CSR)
In 2015 Merlin’s CSR activities were brought together under
one central theme of ‘Being a Force for Good’ to reinforce a
consistent global approach that reflects Merlin’s values.
Within sustainability and the environment all our businesses are
required to develop carbon reduction targets and sustainability
plans. Under marine and wildlife conservation we focus our
activities on protecting wildlife globally through rescue, breeding,
conservation and education, most notably though the activities
of our charity the SEA LIFE Trust. Merlin’s Magic Wand is our
own children’s charity that delivers magical experiences around
the world to children who are disadvantaged through sickness
or disability. It does this by arranging visits to our attractions;
by installing ‘magical spaces’ - themed areas at children’s homes
and hospitals; and through community outreach activities where
attraction teams ‘take the magic’ to local children’s organisations.
Finally, we have the long term aspiration of becoming industry
leaders for visitors affected by disability. Our accessibility
initiatives are therefore aimed at raising awareness and
delivering environments that provide access for everyone.
More details can be found on pages 51 to 57.
Ourpeople
In this most challenging of years, I have yet again been impressed
by the leadership and dedication of Merlin’s management team
and our many thousands of employees around the world.
I would like to thank all of them for their contribution.
As we move into 2016, I am confident that with their
continued commitment and our proven business model, we
are well placed to continue to deliver further growth in the
years ahead.
SirJohnSunderland
Chairman
24 February 2016
15
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
CHIEF EXECUTIVE’S
Report
NickVarney
Chief Executive Officer
Merlin Entertainments plc Annual Report and Accounts 2015 2015TRADINGSUMMARY
Visitors (m)
Revenue (£m)
EBITDA (£m)
Operating profit (£m)
Like for like revenue growth
Like for like EBITDA growth
2015
62.9
1,278
402
291
2014
62.8
1,249
411
311
CHIEF EXECUTIVE’S Report
Growth
Constant
CurrencyGrowth
0.3%
2.3%
(2.1)%
(6.2)%
3.9%
(1.1)%
(5.6)%
0.4%
(4.3)%
Despite specific challenges in 2015, revenue grew by 3.9% on a constant currency basis reflecting the strength in the underlying
brands and strategic growth drivers. The Group benefited from the continued strong performance in the LEGOLAND Parks
Operating Group and the positive contribution from new attractions and accommodation. This was offset to a degree by more
challenging market conditions in London and Hong Kong and the impact of the accident at Alton Towers on trading within the
Resort Theme Parks Operating Group.
These challenges, particularly the lower visitation at Alton Towers following the accident, created a drag on profitability, resulting
in Group EBITDA declining by 1.1% on a constant currency basis.
Whilst there will always be macro-economic or geo-political factors outside of our control, we remain confident in the strength
of the underlying business and the natural diversification that the growing portfolio creates.
Merlin remains well placed to deliver
exciting growth in one of the most dynamic
markets globally
This represents a substantial additional investment on top
of our already extensive HSS and engineering infrastructure
which we must remember has delivered hundreds of
millions of safe ride experiences over many years.
2015 has without doubt been the most difficult year in
Merlin’s history. The accident at Alton Towers in June and
the media coverage around it, led to a significant reversal of
the strong momentum we had seen in our UK Resort Theme
Parks business and consequent impact on overall Company
performance. More importantly, people we had a responsibility
to safeguard sustained serious injuries and ride safety processes
we believed robust on this occasion proved inadequate.
Our focus since June has therefore necessarily been on ensuring
we support those injured in every way we can while putting in
place extensive measures to ensure such an accident cannot
happen again. These measures are covered in more detail in
the Health, Safety and Security (HSS) Committee Report. In
addition, we continue to invest in further improvements to
both engineering and health and safety across the estate,
including additional compliance managers in all our theme
parks and a new Group engineering function.
The new ‘DreamWorks Tours - Shrek’s Adventure!’ attraction in London
17
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
CHIEF EXECUTIVE’S Report
Merlintoday
While never forgetting the incident at Alton Towers and
those affected by it we must nonetheless move forward. Merlin
Entertainments remains well placed to deliver exciting growth in
one of the most dynamic markets globally. In the world around
us macro trends are increasingly evident:
• The rapid growth of the middle classes in emerging
countries, notably China, who have an appetite to consume
high quality, branded, entertainment options and to travel; a
phenomenon contributing to high growth in international
tourism to ‘gateway cities’.
• An increasing focus on Intellectual Property (IP) as the key
ingredient to delivering compelling propositions and attractive
financial returns. This is fuelling ever greater partnerships
between brand/IP owners and delivery platforms such
as location based entertainment.
• The increasing trend in developed markets towards multiple
short breaks at home or abroad.
• The rapid and progressive move to an online and mobile
transaction model in most countries.
Within this evolving global environment it is worth restating
the competitive advantages which Merlin possesses:
• We hold global exclusivity for the LEGOLAND brand; the
only attraction based representation of the LEGO toy brand
which is now No. 1 internationally and one of the world’s
strongest IP’s in its own right.
• We are the only company to successfully operate the limited
dwell time, indoor, Midway format across multiple brands
and countries.
• We have the most extensive geographic footprint of any
company in our industry with the proven international roll
out potential of our LEGOLAND resorts and Midway brands.
• The addition of themed accommodation continues to deliver
the double benefit of positioning our theme parks as short
break resorts while yielding attractive returns in its own right.
• In Merlin Magic Making we have a unique
development resource which enables
value enhancing growth from both
the existing estate and new attractions.
We hold global
exclusivity for the LEGOLAND
brand; the only attraction
based representation of
the LEGO toy brand
18
Lookingahead
We continue to be confident in our strategy and the long term
growth trajectory of the business, focused around the core six
growth drivers. As we look to quicken the pace of expansion,
against the backdrop of the macro trends identified above,
we have set new strategic milestones out to 2020:
• 2,000 new accommodation rooms by the end of 2020
• 40 new Midway attractions by the end of 2020
• Four new LEGOLAND parks by the end of 2020
(including the three already announced)
The main geographic focus of this expansion will be North
America and Asia. Within the latter we regard China, Japan
and South Korea as priority markets.
LEGOLAND Water Park in Florida
With regard to our existing estate the planned capex cycles
are working well with a pipeline of innovative and compelling
propositions coming out of Merlin Magic Making. ‘Derren Brown’s
Ghost Train’ at THORPE PARK and ‘Galactica’, the fusion of
Virtual Reality into an existing roller coaster at Alton Towers,
are good examples which will be launching this year.
We also continue to develop new ways of exploiting the
synergies which arise from the Group’s scale. Over the next
few years the biggest focus of this will be on the ways in which
we can enhance the customer journey via imaginative use
of technology. The central aspect of this will be the accesso®
admissions/ticketing system, which started to roll out in 2015 after
successful pilots, augmented by on-site downloadable apps and
ibeacons to send visitors targeted messages. These new systems
are also facilitating the data capture which will enable us to
expand our CRM activities considerably in key markets meaning
we can communicate with our customers on an ongoing basis.
Merlin Entertainments plc Annual Report and Accounts 2015
Finally we are able to contemplate acquisitions and investments
which strengthen our strategic position. We have just announced
that Merlin is acquiring a minority stake in BIG BUS, the leading
global owner-operator of Hop On Hop Off City Tours. We see
significant synergies from this business with our own city centre
attractions and there is already a clear overlap in cities such
as London, New York, Hong Kong and San Francisco. This
investment will facilitate a closer working relationship on
the ground while enabling us to learn about a highly
complementary business.
TheSparkle
With the increasing importance of IP in all areas of
entertainment we have been working hard to establish a
network of core partnerships which have value to both our
existing estate and new developments business.
The relationship with the LEGO Group is well established and
2016/2017 will see major co-operation around the relaunched
LEGO NINJAGO brand with new rides and attractions at all parks
and LEGOLAND Discovery Centres. This will be supported by
the NINJAGO movie, scheduled for release by Warner Bros. in 2017.
Our partnership with DreamWorks Animation (DWA) is
also developing with new themed lands in 2016 in Gardaland
(Kung Fu Panda) and Heide Park (How to Train Your Dragon)
in addition to the new Midway brand ‘DreamWorks Tours -
Shrek’s Adventure!’ being piloted in London.
Beyond this, brand partnerships with specific IP’s such as
‘Star Wars’ (Madame Tussauds), ‘CBeebies’ (Alton Towers) and
‘Derren Brown’ (THORPE PARK) clearly demonstrate both
the direction of travel and Merlin’s favourable position.
CHIEF EXECUTIVE’S Report
With a clear strategy,
a strong development pipeline
and the brands and people
to deliver them, Merlin is well
placed to continue the magic
well into the future
Merlinpeople
After a challenging year we saw staff engagement at an all
time high and Merlin voted one of the best 25 big companies
to work for (for a second year in a row). We have a team that is
passionate about the business and able to produce consistently
high performances. This has yet again translated into increased
visitor satisfaction. Our people section covers this in much more
detail but suffice to say I am proud of and grateful to, in equal
measure, the fantastic people who work for Merlin.
Andfinally…
In the first half of 2015 I had the opportunity to visit five of
the ‘Merlin’s Magical Spaces’ installed at hospices and hospitals by
the Merlin’s Magic Wand Charity. These multisensory experiences
use Merlin’s brands and creativity to bring enjoyment to children
whose lives are often tragically affected by illness and who, for this
reason, cannot visit our attractions. The money for these projects
is raised by the Merlin team, our guests and our partners and of
all the things we do, this is the one of which we are most proud.
Merlin is first and foremost an entertainment company. We exist
to deliver memorable experiences to our millions of visitors and
are doing so on an increasingly diverse, international, stage. Our
market too is dynamic with an ever increasing interface between
screen based and location based content and rapidly growing
international tourism. With a clear strategy, a strong development
pipeline and the brands and people to deliver them, Merlin is
well placed to continue the magic well into the future.
NickVarney
ChiefExecutiveOfficer
24 February 2016
‘Star Wars’ at Madame Tussauds London
19
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
MIDWAY
Attractions
THE MIDWAY ATTRACTIONS OPERATING GROUP SAW FURTHER GROWTH
IN 2015 IN THE EXISTING ESTATE. THERE WERE STRONG PERFORMANCES
IN ASIA, PARTICULARLY IN MAINLAND CHINA, AND EUROPE, ALTHOUGH
LOWER VOLUMES IN OUR LONDON DIVISION AND TRAVEL RESTRICTIONS
INTO HONG KONG SUPPRESSED THE OVERALL RESULT. IN ADDITION, OUR
STRATEGIC MIDWAY ROLL OUT PROGRAMME CONTINUES APACE, WITH
SEVEN NEW ATTRACTIONS OPENED IN 2015 ACROSS FOUR COUNTRIES,
INCLUDING THE LAUNCH OF THE NEW ‘DREAMWORKS TOURS - SHREK’S
ADVENTURE!’ BRAND. WE TARGET OPENING 40 NEW ATTRACTIONS BY
THE END OF 2020.
Merlin Entertainments plc Annual Report and Accounts 2015 OPERATIONAL REVIEW - MIDWAY Attractions
2015
40.0
561
221
167
2014
38.1
529
214
167
Growth
4.9%
6.0%
1.2%(1)
(2.4)%(1)
Constant
CurrencyGrowth
7.5%
2.0%(1)
(1.9)%(1)
2.3%
Visitors (m)
Revenue (£m)
EBITDA (£m)
Operating profit (£m)
Like for like revenue growth
(1)
Excluding the effect of the change in allocation of central costs in 2015. Reference in the narrative below is made to these adjusted figures, unless otherwise stated. Further detail is provided on
page 50. Including this reallocation, reported EBITDA and operating profit growth were 3.0% and 0.0% respectively, and 3.8% and 0.4% respectively on a constant currency basis.
Tradingperformance
The Midway Attractions Operating Group trading was robust
in 2015, with continued growth in visitor numbers and revenue.
Revenues grew by 7.5% on a constant currency basis, driving
EBITDA growth of 2.0% and a decline in operating profit of
1.9%. Movements in foreign exchange rates adversely impacted
reported results, resulting in revenue growth of 6.0% and
operating profit 2.4% down against last year.
Overall, the Operating Group continues to benefit from both
the consumers’ desire for high quality, branded, location based
entertainment, and the continuing growth in visitation to large
gateway cities, particularly from the burgeoning middle class in
emerging markets. However, the attractions are exposed to
fluctuations in inbound and domestic tourist flows which
have created some specific challenges in 2015.
The brand new
‘DreamWorks Tours - Shrek’s
Adventure!’ opened in
London in July
Existingestate
2015 revenue grew by 2.3% on a like for like basis, reflecting a
strong performance in Midway Asia, particularly in mainland
China, and Midway Europe. This was offset by specific
challenges in London and Hong Kong.
Our attractions in Shanghai continue to benefit from ongoing
market growth in the country, and were further boosted this year
by excellent new product, in particular at MT Shanghai where
we launched a new ‘Ice Age 4D’ experience (see ‘Focus on
China’ on page 23).
Our attraction in Hong Kong was however adversely impacted by
travel restrictions imposed on visitors from the neighbouring city
of Shenzhen. We continue to expect volumes to remain subdued
whilst this policy continues.
Midway Europe benefited from good new product and relatively
favourable weather over the summer season.
This was however offset by lower volumes in London, primarily
due to the persistent weakness of the Euro against Sterling
impacting both domestic city breaks and inbound tourism from
the key Eurozone region, with inbound tourist volumes flat in
January to November (source: VisitBritain).
Margins declined by 1.8%, excluding the effect of changes in the
allocation of costs across the Group, as a result of the dilutive
effect of new openings, and the investment in regional structures
and support functions across our developing markets as we
expand the estate in both North America and Asia. This was
compounded by the lower like for like revenue growth and
the relatively fixed cost nature of the Midway Attractions
Operating Group.
21
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
OPERATIONAL REVIEW - MIDWAY Attractions
The new LEGOLAND Discovery Centre in Osaka, Japan
Capitalinvestment
Our existing estate growth was underpinned by our strategy
of planned capital investment cycles, with each Midway attraction
having a ‘high year’ once every five years, followed by four
‘low’ years.
This year’s major high year capital projects included the new
‘Star Wars’ experiences at Madame Tussauds London and
Berlin, and ‘Ice Age 4D’ at MT Shanghai.
In the non-high capital investment years, many attractions receive
‘mobile features’ which we move around the estate to several
different locations over a period of years, thus maximising
capital efficiency.
Customersatisfaction
Our focus on customer service and investment in new products
and features has seen us enjoy continued excellent guest
satisfaction scores.
Existingestate-lookingahead
2016 will see significant further investment in the existing estate,
including a new ‘drop ride’ at MT Berlin, a 4D movie in Bangkok
at our MT attraction there, and penguins in SEA LIFE Sydney.
Newopenings-Midwayrollout
Our Midway roll out strategy continued apace in 2015, with
seven attractions opening throughout the year.
SEA LIFE Michigan was the first attraction to open, in January.
As is typical of new aquariums, the attraction opened very
strongly with excellent PR coverage and high penetration of the
local resident market. Our other North American openings
comprised a SEA LIFE, Madame Tussauds and ‘The Orlando Eye’
observation attraction in Orlando, Florida. Located on the
world-renowned ‘I-Drive’ this cluster of three attractions
opened on the same day - another first for Merlin!
22
Elsewhere, we also opened two LEGOLAND Discovery Centres,
in Osaka, Japan and in Istanbul, Turkey. The latter immediately
formed a cluster with the existing SEA LIFE Centre located in
the same shopping mall.
Finally, 2015 saw the launch of the new ‘DreamWorks Tours -
Shrek’s Adventure!’ attraction, opened alongside our existing
cluster of attractions on London’s famous ‘South Bank’. The new
brand concept has received a positive customer response,
which bodes well for further potential roll out.
Lookingahead
Our Midway roll out programme will see us open seven
attractions in 2016, including three in Asia - a Madame Tussauds
and a SEA LIFE Centre in Chongqing and the first LEGOLAND
Discovery Centre in China, to be opened in Shanghai.
Six of these attractions will be creating or adding to clusters,
where we have more than one attraction in the same location,
providing operating cost, marketing and cross-selling advantages.
New attractions in Arizona, Michigan, Istanbul and Shanghai will
be located alongside existing attractions; in Chongqing, China,
our two openings will create a new cluster from the outset.
‘The Orlando Eye’ observation attraction in Orlando, Florida
The 2016 opening schedule reflects our longer term ambition
of an even geographic spread of revenue across Europe,
the Americas and Asia Pacific, and also that our focus will
be primarily on cluster cities.
Longer term, we continue to see scope for 100+ new Midway
attractions across the world. By the end of 2020, we target
opening 40 new attractions, prioritising opportunities in the
Americas and Asia Pacific, continuing our cluster city focus.
Reinforcing our plans for growth in Asia, in October 2015, we
announced an agreement with China Media Capital which will
see us form a joint venture and accelerate our Midway roll out in
the region. In November we then announced plans for our first
business in India, Madame Tussauds New Delhi, scheduled to
open in early 2017.
Merlin Entertainments plc Annual Report and Accounts 2015 FOCUSONCHINA
China has been a major growth driver for Merlin in recent years, where we have continued
to increase brand awareness and drive product innovation. We have a strong pipeline of new
openings, supported by the recent announcement to partner with China Media Capital.
Underpinning this growth are the rapidly expanding number of middle class households, which
economic forecasts suggest could potentially increase from 47 million to 472 million over the
period 2010-20. We believe that in the fullness of time, our China Midway estate could expand
to over 30 attractions.
OurhistoryinChina
Acquisitions
Our transformational acquisition in 2007 of
The Tussauds Group brought with it Madame
Tussauds (MT) Shanghai and MT Hong Kong,
followed in 2012 by Chang Feng Ocean World,
a large aquarium in Shanghai then owned by
Living and Leisure Australia.
Our strategy to raise brand awareness and
increase visitor numbers at the MT’s has led to
several years of strong growth. In 2015 MT
Shanghai benefited from ‘high year’ investment
in a new ‘Ice Age 4D’ cinema, driving significant
increases in visitor numbers and revenue. MT
Shanghai continues to be one of the most
profitable attractions across the Merlin estate.
At Chang Feng Ocean World, our focus on
improving the guest experience through an
improved product offering has yielded great
results. This focus, on top of an already strong
level of visitation, brought good price and yield
growth. Both of our Shanghai attractions have
been buoyed by significant growth in
domestic tourism.
Organic expansion
In 2013 we opened MT Wuhan, focused on
the domestic market, followed in 2014 by
MT Beijing in a great location close to
Tiananmen Square.
Futuregrowth
2016 will see an MT and a SEA LIFE Centre
open in Chongqing, with the first LEGOLAND
Discovery Centre (LDC) in China also opening
in Shanghai. We have identified further sites and
will continue to roll out our MT, SEA LIFE and
LDC attractions.
Looking further ahead, we have entered into
a strategic agreement with China Media
Capital, a leading investor in the media and
entertainments industries, to explore wider
opportunities. We plan to work with them
initially to tailor our Dungeon brand to the
Chinese market and in turn leverage their
ownership of DreamWorks IP in China. We
hope this will see the development of other
‘DreamWorks Tours’ attractions in China, most
likely based upon the Kung Fu Panda character.
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 LEGOLAND
Parks
LEGOLAND PARKS ENJOYED ANOTHER EXCELLENT YEAR FOLLOWING THE
RECORD PERFORMANCE REPORTED IN 2014. THE POSITIVE UNDERLYING
MOMENTUM OF THE LEGOLAND BRAND CONTINUES, SUPPORTED BY THE
STRENGTH OF THE LEGO TOY BRAND AND OUR ONGOING INVESTMENT
ACROSS THE ESTATE. IN ADDITION, THE STRONG EARLY PERFORMANCE OF
THE NEW 152 ROOM FULLY THEMED HOTEL AT LEGOLAND FLORIDA HAS
PROVIDED FURTHER CONFIDENCE IN OUR ONGOING RESORT POSITIONING
STRATEGY. WE REMAIN ON TRACK TO OPEN THREE NEW LEGOLAND PARKS
OVER THE COURSE OF 2016 TO 2018 AND TARGET A FURTHER OPENING BY
THE END OF 2020.
Merlin Entertainments plc Annual Report and Accounts 2015 OPERATIONAL REVIEW - LEGOLAND Parks
2015
12.7
429
169
146
2014
12.7
386
142
120
Growth
(0.1)%
11.2%
18.6%(1)
21.8%(1)
Constant
CurrencyGrowth
10.6%
16.7%(1)
19.7%(1)
8.2%
Visitors (m)
Revenue (£m)
EBITDA (£m)
Operating profit (£m)
Like for like revenue growth
(1)
Excluding the effect of the change in allocation of central costs in 2015. Reference in the narrative below is made to these adjusted figures, unless otherwise stated. Further detail is provided on
page 50. Including this reallocation, reported EBITDA and operating profit growth were 19.3% and 22.6% respectively, and 17.4% and 20.5% respectively on a constant currency basis.
Tradingperformance
The positive momentum around the LEGOLAND brand
continued in 2015. The strength and product development of
the core toy brand, coupled with the continued investment in
compelling product across the LEGOLAND park estate and
impetus provided by the 2014 release of ‘The LEGO Movie’
have delivered another year of strong growth.
Overall revenue growth of 10.6% was driven predominantly
by growth in revenue per capita (RPC), supporting strong
conversion of revenue into profit, with EBITDA growth of
16.7% and operating profit growth of 19.7% for the year
(all at constant currency). At reported currencies, the results
from our two parks in North America benefited from the
translation impact of the strength of the US Dollar, leading
to revenue growth of 11.2%, converting into EBITDA growth
of 18.6% and operating profit growth of 21.8%.
Existingestate
Revenue grew by 8.2% on a like for like basis, despite the tough
comparatives created in 2014 which saw like for like revenue
growth of 13.2%. Growth in the prior year benefited from
increased visitation following the launch of ‘The LEGO Movie’
and the associated marketing and promotional opportunities that
this created. Although 2015 saw continued strong visitation, the
revenue performance was primarily driven by growth in RPC.
‘LEGO Friends’ at
LEGOLAND Windsor and Florida
proved highly popular, broadening
the customer demographic
This reflected the opportunity to close the pricing differential
with competitors in the North American market, coupled with
lower overall promotional activity compared to 2014, which
included promotions related to ‘The LEGO Movie’. Like for like
growth in EBITDA and operating profit was strong, reflecting the
RPC-led revenue growth and the non-recurrence of certain
remedial costs related to the LEGOLAND Windsor Hotel
which suppressed the 2014 result.
Capitalinvestment
LEGOLAND parks operate under a four year pre-determined
capital investment cycle whereby ‘high’ or ‘medium’ years are
typically followed by a ‘low’ year.
In 2015, the ‘high year’ investment was in LEGOLAND Windsor,
with a ‘medium’ year in LEGOLAND Florida. In both of these
parks, the new product was based around ‘LEGO Friends’, the
LEGO toy range targeted towards girls, with themed areas added,
including new ride and show content. This was complemented
with new ‘LEGO Friends’ themed rooms at our on-site hotels.
These investments were well received by our guests and helped
to broaden the customer demographic, with LEGOLAND
Windsor for example seeing a 2% increase in the number
of girls visiting compared to boys.
Resortpositioning
Our strategy of developing the parks as short break destinations
continued in 2015. In May we opened the fantastic new 152
room hotel at LEGOLAND Florida. The hotel benefited from
being the first on-site themed accommodation and delivered a
strong opening performance, both directly in the hotel and in its
contribution to park volumes (see page 27). We also ran a trial of
14 ‘giant-sized’ beer barrel chalets in LEGOLAND Deutschland.
This accommodation concept has proved extremely popular and
will be ‘rolled out’ further in 2016.
The strong performance of our existing accommodation, as well
as the success of the LEGOLAND Florida Hotel, provides us with
further confidence in our resort positioning strategy. We continue
to see significant further opportunity for accommodation
expansion at our existing resorts, as well as exploring options to
accelerate the accommodation strategy at any new parks.
25
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
OPERATIONAL REVIEW - LEGOLAND Parks
Customersatisfaction
It is a testament to the strength of the product and our excellent
staff that, in a year of continued growth, our already high guest
satisfaction score improved further in 2015.
Newopenings-developingnewLEGOLANDparks
2015 has seen continued progress on the three new
LEGOLAND parks currently being developed in Dubai
(2016), Japan (2017) and South Korea (2018).
Lookingahead
We will continue to make further investments across our estate,
providing guests with new, innovative and compelling features
at each of our parks, under our defined four year capital
investment cycles.
Our ‘high year’ investment in 2016 will be at LEGOLAND
Billund in Denmark. Opening early in the season, ‘NINJAGO -
The Ride’, will be a brand new, interactive ‘dark’ ride capitalising
on LEGO’s own NINJAGO brand. We will also open smaller
scale attractions using the same underlying concept in California
and Malaysia and plan to roll the product out to other parks
in future years.
It is the large and increasing scale of the Operating Group
that allows us to invest so effectively in this way. Many of our
investments, in both the existing estate and accommodation,
benefit from the Operating Group’s attractions being similar
in their core concept, design and construction. As we roll out
compelling new product for our guests at any given park,
we are able to capture and learn from the guest feedback,
operational improvements and efficiencies seen in prior
launches. Exploiting synergies in this way helps us to drive
growth with capital efficiency.
Further harnessing the strength of the LEGO brand and the
momentum created around ‘The LEGO Movie’, we will also be
launching ‘The LEGO Movie 4D A New Adventure’ throughout
our parks, beginning with Florida and California in the first
half of the year. Partnering with Warner Bros. and the LEGO
Group, the short, animated film will again feature our guests’
favourite characters such as Emmet and Wyldstyle.
Longer term, we will again seek to explore any potential
marketing and promotional opportunities around further
LEGO movies as they are launched, with further releases
expected over the coming years.
‘NINJAGO - The Ride’ at LEGOLAND California
26
LEGOLAND Dubai
LEGOLAND Dubai is on schedule to open in the fourth
quarter of 2016. Together with its associated waterpark, which
will be run as a ‘second gate’ attraction, the park will operate
under a management contract and be funded primarily by
Dubai Parks and Resorts. Similar to the operating model
used for LEGOLAND Malaysia, Merlin will earn fees for the
management of the park, including additional amounts based
upon performance, with no upfront or ongoing capital
investment obligation. The LEGOLAND park and waterpark
will be located as part of a wider resort, consisting of a number
of other complementary leisure attractions and hotels, including
‘motiongate™ Dubai’ and ‘Bollywood Parks™ Dubai’. The resort
is well located on the main highway connecting Dubai and Abu
Dhabi and is equidistant between the two city’s international
airports. The resort is expected to attract a range of visitors,
primarily from the Middle East and Indian sub-continent.
LEGOLAND Japan
LEGOLAND Japan is on schedule to open in the first half of 2017,
with construction well progressed. Opening under an ‘Operated
and Leased’ model, Merlin will invest approximately a third of the
overall cost. The balance of the funding will be met by KIRKBI, who
own 75% of the LEGO Group and are a 29.89% shareholder in
Merlin. Japan is the second largest theme park market in the world
and, given the level of LEGO brand awareness and the specific
‘young family’ target demographic, LEGOLAND Japan is expected
to be complementary to the existing parks in the region.
LEGOLAND Korea
Located on Jung-do island in Chuncheon, South Korea,
LEGOLAND Korea is expected to open in 2018. Similar to
LEGOLAND Japan, the park will operate under an ‘Operated
and Leased’ model with Merlin investing approximately
one-third of the total park cost.
Further developments
With the sustained success of the LEGO and LEGOLAND
brands we continue to pursue options for the roll out of further
LEGOLAND parks. In the fullness of time we firmly believe that
there is scope for over 20 parks worldwide. In addition to the
parks in Dubai, Japan and South Korea, we target one further
opening by 2020. This is likely to be in either North America
or China, where we are actively negotiating potential projects,
including a partnership with China Media Capital for a joint
venture in the Shanghai area, as announced in October 2015.
Furthermore, we see opportunity for accommodation at each
of the parks which have yet to open, with a range of possible
funding structures. Specifically, we have plans for
accommodation in both Japan and Dubai.
Merlin Entertainments plc Annual Report and Accounts 2015 LEGOLANDHOTELAT LEGOLAND FLORIDA RESORT
The 152 room LEGOLAND hotel at
LEGOLAND Florida Resort opened on
15 May 2015, representing the beginning of
this location’s resort positioning journey.
Located just 130 ‘kid steps’ from the theme
park entrance, the hotel is a fully immersive
LEGO experience, with each guest room
heavily LEGO themed. There are also themed
restaurants and live entertainment - we even
have special ‘VIP’ suites and a ‘Disco Elevator’ -
it is a truly magical experience!
Performance so far has been strong and we
saw occupancy levels of 98% in the key summer
period. We’re also delighted that the hotel has
created over 100 new jobs for the surrounding
local community, who have given us
fantastic support.
Looking forward, we see significant scope for
further accommodation at the site. In 2015, we
purchased adjacent, undeveloped land for the
resort’s second phase of accommodation, which
is expected to follow the holiday village style.
Existing expansion space provides opportunities
for still further accommodation. These could
include a ‘Castle’ hotel, lodges or ‘glamping’.
Each would have different levels of theming
and offer varying price points to ensure we
cater to as many guests as possible.
DID YOU KNOW?
There are more than 2,000 LEGO
models in the entire hotel created
out of more than two million
LEGO bricks!
This is the first LEGOLAND hotel
to have its own Model Shop where
guests can build exclusively with
Model Builders daily.
Behind reception is an entire wall
created out of more than 5,000
LEGO Minifigures.
Hotel guests are greeted by a
smoke-breathing LEGO dragon
created out of more than 445,000
LEGO bricks. Each wing spans
8 feet!
27
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 RESORT
Theme Parks
THE RESORT THEME PARKS OPERATING GROUP HAS HAD A CHALLENGING
YEAR IN 2015. DESPITE A POSITIVE START TO THE SEASON, THE OVERALL
PERFORMANCE WAS MATERIALLY IMPACTED BY THE ACCIDENT WHICH
TOOK PLACE AT ALTON TOWERS IN JUNE. OUTSIDE OF OUR UK DAY-VISIT
TRADING WE ARE PARTICULARLY PLEASED WITH THE PERFORMANCE AT
GARDALAND. IN ADDITION THE RESILIENCE OF OUR ACCOMMODATION
OFFERING THROUGHOUT THE YEAR GIVES US CONFIDENCE IN THIS
STRATEGY. OUR PRIMARY FOCUS SINCE THE ACCIDENT ON 2 JUNE HAS
BEEN WORKING TO ENSURE EVERY POSSIBLE LESSON IS LEARNT.
Merlin Entertainments plc Annual Report and Accounts 2015 OPERATIONAL REVIEW - RESORT Theme Parks
2015
10.2
285
47
18
2014
12.0
331
87
60
Growth
(14.2)%
(14.0)%
(49.2)%(1)
(75.0)%(1)
Constant
CurrencyGrowth
(10.2)%
(46.5)%(1)
(73.6)%(1)
(12.4)%
Visitors (m)
Revenue (£m)
EBITDA (£m)
Operating profit (£m)
Like for like revenue growth
(1)
Excluding the effect of the change in allocation of central costs in 2015. Reference in the narrative below is made to these adjusted figures, unless otherwise stated. Further detail is provided on
page 50. Including this reallocation, reported EBITDA and operating profit growth were (46.2)% and (70.7)% respectively, and (43.3)% and (69.0)% respectively on a constant currency basis.
As a result of this, and despite good trading in Gardaland, the
significant revenue shortfall at Alton Towers resulted in a
significant decline in EBITDA and operating profit. As a
result, EBITDA margins declined to 16.5%.
Capitalinvestment
Consistent with our strategy of deploying capital in the existing
estate according to a pre-determined four year cycle, 2015
saw a major investment at Gardaland. ‘Oblivion’ - a new dive-
coaster - opened at the start of the 2015 season,
receiving excellent guest feedback and helping contribute
to a good trading performance for the resort. Further
details are set out on page 31.
Resortpositioning
Our strategy of developing our resorts into short break
destinations continued in 2015. Alton Towers Resort saw the
launch of a new 125 lodge ‘Enchanted Village’ in April, which
complements the existing 391 rooms across two hotels
at the resort. Notwithstanding the challenging trading within the
day-visit market, this new accommodation offering performed
broadly in line with our expectations, and received excellent guest
feedback. The 2015 performance further benefited from the full
year impact of the new ‘Azteca’ hotel opened in August 2014 at
Chessington World of Adventures, and reinforces our continued
confidence in the strategy.
AltonTowersaccident
The Chairman’s Statement, Chief Executive’s Report, and Health,
Safety and Security Committee Report comment in detail on the
accident at Alton Towers. The review of the Resort Theme Parks
Operating Group which follows focuses on the implications on
operations and trading during the period.
Tradingperformanceofexistingestate
Revenue in the Resort Theme Parks Operating Group fell by
12.4% on a like for like basis, primarily reflecting the significant
decline in visitation at Alton Towers following the accident on
2 June. This led to a decline in EBITDA of 46.5% and operating
profit of 73.6% at constant currency. The reported trading results
of the attractions in Continental Europe were adversely impacted
by the translation impact of the weakening of the Euro against
Sterling. At reported foreign exchange rates, revenue fell by
14.0% and EBITDA and operating profit fell by 49.2% and
75.0% respectively.
The performance of the Operating Group was dominated by the
impact of the incident at Alton Towers and the resulting significant
decline in park visitation through the main trading season. Whilst
the majority of the impact was experienced at Alton Towers
Resort, this created a difficult day-visit theme park market across
the UK. As a result THORPE PARK, our other major rides park,
also experienced a decline in visitation.
Action was taken to limit the decline in volumes and refocus
marketing efforts towards younger families and the broader short
break appeal of the resort. However, this had limited effect over
the key summer trading period in the face of ongoing media
coverage of the incident.
Outside of the UK, Gardaland - Italy’s largest theme park - traded
well, benefiting from a major new ride investment.
Whilst our larger resorts typically have a significant element of
variable costs, the vast majority of these for the 2015 season
had been committed by the end of May.
The ‘Enchanted Village’ at Alton Towers Resort
29
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 OPERATIONAL REVIEW - RESORT Theme Parks
Customersatisfaction
We are pleased that, in a difficult year for the Resort Theme
Parks Operating Group, guest satisfaction scores remain high,
increasing slightly as a result of continued investment in new
products and features together with the exceptional staff
that helped deliver enjoyable days out to our guests.
Lookingahead
We will continue to invest in the Resort Theme Parks Operating
Group through our four year capital investment cycle in new and
compelling propositions, delivering fun, memorable days out to
our guests.
Our resort positioning strategy will take another step forward
in 2016 as we open a new 100 room ‘Adventure Hotel’ in
Gardaland, adjacent to the existing 247 room hotel. This
forms a major part of the resort’s ongoing strategy to increase
multi-day visits, and appeal more to the approximately three
million international visitors who already come to the Lake
Garda region of Italy. 2016 will also see us launch a new ‘glamping’
offering at Chessington World of Adventures, complementing the
existing 219 rooms currently offered through our two hotels at
that resort. At Warwick Castle, we will be opening the ‘Knight’s
Village’, where 28 themed lodges will complement our existing
successful medieval ‘glamping’ experience.
Beyond 2016, we see a strong pipeline of further
accommodation across each of our resorts as part of the
Group target to open 2,000 new rooms by the end of 2020.
These include a combination of further hotels, lodges, ‘glamping’,
and other exciting options for our guests to enjoy! Where
possible, we may also look to use Intellectual Property in
our accommodation projects in the same way that we have
for our existing estate investments.
We remain cautious on the outlook for Alton Towers in 2016,
given the challenging year we have experienced in 2015 and
the inherent uncertainty around customer behaviour. We are
confident in the resort’s opportunities and strength longer term.
We remain optimistic on the short term performance of
our European theme park resorts, as well as our
accommodation offerings.
The new ‘glamping’ offering at Chessington World of Adventures
30
‘Galactica’ at Alton Towers Resort
Intellectualpropertyandtechnology
We view the use of Intellectual Property (IP) and technology
as an increasingly important part of the Resort Theme Parks
growth strategy. It is an opportunity to generate marketing and
PR opportunities and grow first-time and repeat visitation
with good capital efficiency.
Across the RTP estate, we already benefit from the Group’s
excellent relationships with major IP owners, such as the BBC,
DreamWorks Animation, ITV and Rovio. 2016 will see further
significant developments with existing, and new, IP partners,
including Derren Brown at THORPE PARK.
We will launch new themed areas at Gardaland (Kung Fu Panda)
and Heide Park (How to Train Your Dragon) using DreamWorks
Animation IP. These new features will build on the expertise
gained from the ‘CBeebies Land’ themed area at Alton Towers
to both support visitation levels during the year of launch and, as
attractions targeted towards young families, to help broaden the
resorts’ demographics.
In the UK, our major high year capex project is at THORPE PARK
where we have partnered with Derren Brown - the acclaimed
British maestro of mind control - to create a world’s first
experience combining the unique talents of Derren to those
of the Merlin Magic Making creative team (see page 35).
Finally, at Alton Towers, we will use state-of-the-art, Virtual Reality
technology to create ‘Galactica’, a completely new ‘space travel’
experience. The use of technology in this way, alongside an
existing roller coaster, allows us to create a truly unique
experience for our guests with good capital efficiency.
Merlin Entertainments plc Annual Report and Accounts 2015 OBLIVION AT GARDALAND RESORT
2015 saw the launch of a new dive-coaster at Gardaland. At a total investment of over
€20 million, not only was this the first of its kind for the park, it was also the first for the
Italian theme park market!
It was not however a completely new ride for Merlin. The original ‘Oblivion’ ride, manufactured
by Bolliger & Mabillard, was opened at Alton Towers in March 1998. Bringing the ride into the
21st century, the original concept and brand were re-developed, fusing updated and refreshed
Intellectual Property with the latest in roller coaster technology.
The ride was launched at the start of the season with an excellent marketing and PR campaign,
which drove very high pre-launch awareness. Guest satisfaction KPIs were strong from launch, with
the ride enjoying excellent product scores. The strength of the ‘Oblivion’ brand has allowed us to
offer dedicated retail offerings which has helped drive secondary spend in the park. Furthermore,
the ride has delivered wider park benefits as the area around ‘Oblivion’ has been refreshed, with
noticeable uplifts in the number of guests enjoying our food and beverage, retail and other units
in the vicinity.
As a further sign of the ‘Oblivion’ brand strength - an internally-generated IP - and our ability to
capitalise on this through our resort positioning strategy, we also opened two new ‘Oblivion’
themed rooms at the Gardaland Hotel.
31
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 MERLIN MAGIC MAKING IS THE UNIQUE RESOURCE THAT SITS AT THE HEART
OF EVERYTHING MERLIN DOES. THIS SPECIALIST IN-HOUSE TEAM EMPLOYS
OVER 300 PEOPLE IN ITS BUSINESS DEVELOPMENT, CREATIVE, PRODUCTION
AND PROJECT MANAGEMENT TEAMS. MERLIN MAGIC MAKING 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
‘2016 IS SET TO BE EVEN BUSIER’
The Midway pipeline roll out was successfully delivered for
2015, with seven businesses opened across three continents.
2016 development is set to be even busier. We have already
secured seven new Midways scheduled to open this year, with
three in China, two in the USA and two in Europe, with our first
adventure in India also underway as we target a 2017 opening
for Madame Tussauds in New Delhi.
As we look to continue our growth in line with our strategy and
to capitalise on our new relationship with China Media Capital,
we have strengthened our Asia team.
32
CREATING THE MAGIC
Our Midway roll out continued apace in 2015, starting
with SEA LIFE Michigan and followed by the cluster of three
attractions in Orlando, two new LDC’s in Osaka and Istanbul
and, last but not least, the amazing new ‘DreamWorks Tours -
Shrek’s Adventure!’ in London.
Across our existing businesses, 2015 has been yet another huge
success, led by a new dive-coaster, ‘Oblivion’, in Gardaland and
two new ‘LEGO Friends’ lands in our LEGOLAND resorts.
Our creative and innovative pipeline looks even stronger as we
look forward into 2016. We have some amazing projects near
completion across the whole Group, including at THORPE PARK,
Alton Towers, SEA LIFE Sydney Aquarium and the LEGOLAND
parks in California and Billund.
‘WE HAVE PROACTIVELY TEAMED UP WITH
SOME OF THE BIGGEST IP HOLDERS IN
THE WORLD’
As Intellectual Property (IP) becomes even more prevalent
across the whole industry, we continue to strengthen our
portfolio, proactively teaming up with some of the biggest IP
holders in the world to produce some ground breaking ‘magic’.
DreamWorks Animation, the BBC, Derren Brown, LEGO,
Star Wars, and Horrible Histories are just the highlights
of the stellar line up we have in 2016.
We will look even further into these relationships and drive
new IP opportunities by proactively seeking out partners for
true co-creation. The next generation of these partnerships
can be seen with the new ‘Derren Brown Ghost Train’
experience at THORPE PARK (see page 35).
Oh…and in our spare time we have a couple of ideas on our
own IP front…watch this space!
MERLIN Magic Making
In 2016 we will see a
fully integrated Virtual Reality
roller coaster experience at
Alton Towers, which will lead
to a mesmerising visit to
‘outer space’
‘OUR UNIQUE BLEND OF MATCHING
TECHNOLOGIES OLD AND
NEW TOGETHER’
Technology continues to feature heavily in our thinking, with
our unique blend of technologies old and new, ensuring that
we produce innovative, exciting and immersive experiences
for our guests to enjoy. In 2016 we will see a fully integrated
Virtual Reality roller coaster experience at Alton Towers,
which will lead to a mesmerising visit to ‘outer space’, as well
as ground breaking ride technology being introduced into
our LEGOLAND parks.
33
Merlin Entertainments plc Annual Report and Accounts 2015 DELIVERING THE MAGIC
During a breathtaking 2015 we have been working on over 50
major projects, in eleven countries. These projects represent a
total capital investment of nearly £240 million - another record!
All of our Midway roll out businesses have started the build
process and our existing estate projects are nearing completion
for a great 2016.
Hotels development is in really good shape. In 2016 we will see
the launch of a new 100 room hotel in Gardaland and a further
‘Castle’ hotel launched at LEGOLAND Deutschland to
complement the existing offering.
We have further strengthened our projects team with a number
of key appointments in 2015, introducing more specialists to
ensure we can continue to successfully deliver the magic.
Overall 2015 has been a real success, 2016 is beginning to shape
up really well and we are looking forward to pushing ourselves
to new heights in our delivery to our guests.
In 2016 we will see
the launch of a new 100
room hotel in Gardaland
and a further ‘Castle’ hotel
launched at LEGOLAND
Deutschland
MERLIN Magic Making
PRODUCING THE MAGIC
To support our innovative thinking we are ensuring that our
technology stays at the forefront of our production processes.
In wax production we have been using 3D printing technology
to help us create ‘bodies’ for our figures and have used a variety
of 3D mapping techniques to improve the quality and quicken
the process of producing wax heads.
LEGO model demand continues to rise, with the opening of our
new parks in Dubai and Japan, our expansion of the LEGOLAND
Discovery Centre chain and the great new features we plan for
our existing LEGOLANDs. To meet this demand we are starting
to implement our ‘hub strategy’, where we plan to have three
main geographic production hubs (Asia, Europe, North America)
over the next few years. This starts with our brand new Merlin
Magic Making production hub in Florida that opens in the first
quarter of 2016 and the expansion of our very successful hub
in Malaysia.
Merlin Animal Welfare continues to be at the forefront of the
care and wellbeing of the wonderful creatures in our care. We
have new training programmes in place that are enhancing the
skills of our animal care teams and we are working with a number
of external conservation partners to make sure that we are
leading the industry when it comes to the collection and display
of animals. The team have been heavily involved in projects as
diverse as banning the use of cyanide in the wild to creating
sustainable animal collection methods.
34
Merlin Entertainments plc Annual Report and Accounts 2015 MERLIN Magic Making
DERRENBROWN’SGHOSTTRAINTHORPE PARK
What are
we doing?
How are we
doing it?
We are co-creating a world’s first entertainment experience - with
the well known Intellectual Property, Derren Brown. We have been
able to marry the mind bending talents of Derren to that of the
Merlin Magic Making creative team, to create a unique
entertainment that has not been seen before.
In the great Merlin Magic Making tradition, we are using a mix of
innovative technology, standard show-based entertainment and
new ride design, to create a visitor experience that will be absolutely
unique, not just to the theme park market, but to any entertainment
experience. Work on construction is completed and we are in
the process of adding that special magic that will deliver a world
class attraction.
What will the
results be?
Well…that would be telling! If you want to have your ‘socks blown
off ’, see you at THORPE PARK in 2016.
35
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 TEAM MERLIN
‘THE MERLIN WAY’ CAPTURES THE ESSENCE OF HOW TEAM MERLIN
ARE ALIGNED WITH OUR ULTIMATE GOAL OF DELIVERING MEMORABLE
EXPERIENCES TO OUR GUESTS. OUR PEOPLE STRATEGY UNDERPINS THIS
GOAL, DRIVING OUR AMBITION TO BE THE BEST COMPANY TO WORK FOR
IN OUR INDUSTRY; NURTURING OUR GLOBAL LEADERS; GIVING OUR
TEAM THE SKILLS TO BE THE BEST AT WHAT THEY DO; AND REWARDING
GREAT PERFORMANCE. OUR SUCCESS IS DEMONSTRATED BY THE
OUTSTANDING EMPLOYEE ENGAGEMENT SCORES RETURNED BY
OUR ANNUAL EMPLOYEE SURVEY.
Merlin Entertainments plc Annual Report and Accounts 2015 TEAM MERLIN
Employeeengagement
Merlin’s success rests with ‘Team Merlin’, our extraordinary
people who have an absolute passion for what they do,
delivering memorable experiences to our visitors.
Or as we put it, living ‘The Merlin Way’.
Other engagement initiatives
We continue to promote strong communications across all our
offices and attractions. These include quarterly team briefs from
the Executive team, attraction team briefs, newsletters and good,
old-fashioned noticeboards.
The Merlin Way values capture the
essence of Merlin. In short, ‘We LOVE
what we do’, ‘We CARE’… and we do
it all ‘FOR THE LOVE OF FUN’. These
values are the reason why so many of
our employees love working here to
keep on giving our visitors the most
magical, memorable experiences
every day, everywhere.
All our people can play a full part
at Merlin through a number of
schemes. These include:
• FOR THE LOVE OF FUN
- this encourages everybody
to embed their love of fun into
the way we work, so that it’s at
the heart of everything we do.
• STAR - our online global
recognition scheme where
employees can send ‘Stars’ to
recognise colleagues who live ‘The Merlin Way’, or just to say
‘Thank You’ for a job well done. In 2015, they sent more than
100,000 ‘Stars’ worldwide - the most ever!
• Spark an Idea - another online service that lets our colleagues
share their ideas, however big or small. For example, ‘Trading
Ambassadors’ at one LEGOLAND resort now put LEGO
Minifigures on their name badges to trade with visitors.
Our visitors love it - and it boosts our Minifigure sales, too!
• The Merlin Way Film Competition - this gives our people the
chance to make a short video demonstrating just how they
make ‘The Merlin Way’ come to life. This year Madame
Tussauds London beat more than 100 other entries
from across the globe!
Our People Strategy underpins how the Group meets its
objectives, keeping our people engaged and focused on our
customers. Wherever they work and whatever their role, our
job is to make sure that our people feel that they’re working for
the best - and certainly most magical - company in our sector.
Most importantly though it is our shared vision of doing it all
‘FOR THE LOVE OF FUN’!
Awards
The Sunday Times ‘25 Best Big
Companies to Work For’ survey
has ranked us 15th for 2015 and
we’re in the top 25 again for 2016.
We’re really proud! The Job Crowd
also named us as one of the top
five companies for graduates in
our sector.
‘The Wizard Wants to Know’
During the summer, we ran ‘The Wizard Wants to Know’, our
annual online employee survey. We invited everybody to tell us
what they think and to make suggestions - it’s our chance to find
out just how engaged our employees really are. We’re excited
that our people, everywhere, completed the survey, and thrilled
that again, 95% of our respondents said that they enjoy working
here. We think these scores are truly awesome!
Our employee engagement score is one of Merlin’s Key
Performance Indicators, measuring whether our teams think
we are a ‘Great Place to Perform’, a ‘Great Place for Customers’,
and a ‘Great Place to Work’. This year we’re really proud
that our engagement score has increased again and that it’s
way above our 80% target. We continue to believe that
‘The Merlin Way’ sits at the heart of these great results.
< The Merlin Way: our special potion of Merlin values that wins the
hearts and minds of our employees to deliver memorably fun
experiences to our guests.
37
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 TEAM MERLIN
Colleagues at LEGOLAND Billund making it FUN
Diversity
Our people are the single biggest reason for our success, so
we’re always striving to make life at Merlin better for all of them.
Diversity is a crucial part of this. We’ve designed our strategy to
give us the best people for every role, regardless of gender, race,
disability, sexual orientation, or any other factor. We want to
make sure that, wherever possible, everyone has the same
access to every opportunity. You can read more about our
disability work in our ‘Being a Force for Good’ section on page 54.
In 2015 we continued our work to promote gender diversity,
where our Women at Merlin (W@M) programme has been
a great success. It helps us give women the support and
opportunities they need to achieve their ambitions and
develop into senior roles. We have now expanded the
network by opening up some of our W@M workshops
and webinars to women working at lower grades across
the world. There are now 108 women making up 33% of
our senior leadership teams, while 3,925 or 49% of our
permanent colleagues are women.
Each of our Operating Groups has now set up Diversity
Development Plans. These don’t just focus on achieving a
gender balance, but on improving our diversity overall. To
support this, we’ve launched an ‘Unconscious Bias’ programme
for our senior leaders globally. It trains them to recognise and
avoid unconscious bias, so that Merlin remains an inclusive
place to work, where every single employee can flourish.
Colleagues at Falls Creek on the slopes!
38
Talentanddevelopment
Merlin’s future growth depends on recruiting and developing
the Team Merlin of the future. We’re an entertainment company,
dedicated to giving our guests unforgettable experiences, so we
seek out people who have a genuine love of fun and a natural
ability to inject magic into the lives of our guests whenever
they visit one of our attractions.
Once recruited, it’s our commitment to develop and promote
people within Merlin by offering amazing careers. We carefully
nurture their talents, providing them with training to do a great
job and supporting their development to enable them to take full
advantage of the fantastic opportunities available. We encourage
employees to move across disciplines, brands, and countries to
build their own unique careers like many hundreds of employees
before them. Fundamentally we believe Merlin offers a world of
opportunities; whatever they want from their next role, we
strive to offer it in Merlin!
Recruitment
As Merlin grows each year, we need an
ever greater variety of roles and skills
and offer an increasingly wide range of
opportunities. We have been working
closely with our recruiters to give them
the skills, knowledge and creativity they
need to find and select candidates who
have the right skills and attitudes for
long and successful careers with us.
Technology plays a key role in our hiring strategy and application
process so we continue to put special emphasis on our social
media activities and how we present our internal employer
brand and values to the outside world. In developing markets,
we continue to build relationships that will help us improve
our campaigns there.
‘Welcome to Team Merlin’ - our new induction
In 2015 we launched our brand new induction, ‘Welcome to
Team Merlin’. We’re now confident that, wherever in the world
our new people join us, they have a clear, consistent and fun
induction into our magical business. The induction has proved
hugely successful globally, with some outstanding feedback.
We also introduced our global ‘Senior Leader Induction’. This
brings together our new leaders from around the world for an
exciting five days. Sessions provide insights into the whole Merlin
business, our Operating Groups, Merlin Magic Making and other
key functions.
The induction gives our new leaders a fabulous opportunity to
network and a valuable chance to improve their understanding of
our strategy, ‘The Merlin Way’, and their role as a Merlin leader in
fulfilling our strategy and enhancing our culture.
Merlin Entertainments plc Annual Report and Accounts 2015 Training
Whether customer facing, in a management role or a support
function at any of our attractions, or in a position at one of our
corporate offices, our goal is to allow everyone to have the right
skills to be the best at what they do and fulfil their potential in
their career with Merlin. A key component of this is the wealth
of training we provide. Aside from the initial induction, there are
opportunities specific to an individual’s role and an abundance
of specialist training to further enhance their careers.
Accelerate
Accelerate is our fast track graduate programme which provides
tailored roles for Marketing and General Management positions
and is structured to support individuals at every step of their
Merlin career. This was demonstrated in 2015 when all of our
2013 intake moved into permanent roles and a number of
Accelerate alumni were promoted into senior positions across
the Group. Reflecting our global scale, the 2015 intake included
super-talented recruits from across the UK, North America,
Germany, China, Hong Kong, Japan, South Korea and Australia.
Leadership development programmes
We’ve got lots of other brilliant leadership development
programmes, including partnering with the IMD Business School
in Switzerland to provide our senior executives with exceptional
leadership development. Our flagship ‘XCalibre’ programme,
which we run with Kingston University is for leaders with bags
of potential. There’s the ‘Merlin Leadership Programme’, which
we run globally, as well as our ‘Bootcamps’ - development centres
specifically for our General Management, Finance and HR team
members. Bootcamps combine personal development and
competency assessment to help us identify and nurture the
talent already working here.
Merlin employee exchange programme
Originally launched in the UK, the Merlin Employee Exchange
Programme is now a global success story. Through job swaps
or placements, the programme gives our people the chance to
work in other attractions around the world. Linked to individual
employees’ Personal Development Plans and Merlin’s succession
planning strategy, this programme lets those involved develop
new skills, forge new relationships and benefit from new
experiences, all of which help prepare them for the next step
in their career. Nearly 60 placements took place in 2015.
TEAM MERLIN
And finally, at any time our teams can access Merlin’s School of
Magic, our online training resource run with the renowned
Ashridge Business School.
Compensationandbenefits
When you rely on your people as much as we do, it’s essential
to provide compensation and benefit programmes which are
competitive and which support our business and culture.
Share plans
We continue to make great
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 it’s an
important way of making
Team Merlin even more
committed to our success.
Early in the year we launched our second Employee Sharesave
offer. It gives our permanent colleagues a chance to build up a
holding of Merlin shares by saving over a three year period
and buying shares at a discount. This opportunity was spread
internally with a huge multi-media campaign, which included
videos from our CEO, webinars, face to face briefings, intranet
updates, posters and ‘table-top teasers’. We’re thrilled that,
so far, almost 38% of our permanent colleagues worldwide
have enrolled in the Sharesave plans.
We also made more than 400 share awards to colleagues at
executive, senior and middle management levels under our
long term incentive plans.
Other benefits initiatives
We continue to harmonise our local benefit structures
one country at a time and run a number of programmes to
support our teams. For example, we’ve increased our focus on
pensions (particularly in the UK), to reflect the age profile of
our employees and ensure we apply latest legislation. We’ve
also extended our employee healthcheck programme to
support the physical wellbeing of our people.
We’ve seen a big jump in the number of colleagues moving
to new countries to support our business growth, and things
haven’t slowed down this year! These moves have directly
supported our Midway and LEGOLAND attractions as they
step up their development. Our international mobility
programme is invaluable in helping us move our greatest
assets safely, securely and comfortably.
39
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 RISKS
and uncertainties
MERLIN CONTINUES TO EXERCISE A PROACTIVE APPROACH TO THE
MANAGEMENT OF POTENTIAL RISKS AND UNCERTAINTIES WHICH COULD
AFFECT THE HEALTH, SAFETY AND SECURITY 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, AND OVERSEEN BY THE BOARD AND ITS COMMITTEES. EMPHASIS IS
PLACED ON IDENTIFYING NEW RISKS THAT MAY AFFECT MERLIN IN THE FUTURE.
In September 2014, new or revised obligations were introduced by
the Financial Reporting Council in connection with the assessment
of risk management and internal controls by the Board. The most
notable of the changes were those that related to:
• The ongoing monitoring, review, assessment and reporting
of risk management and internal control effectiveness; and
• The statement required from the Directors that they have
a reasonable expectation that the Group will be able to
continue in operation over a specified assessment
period (the Viability Statement).
Merlin’s strategic business planning and risk management
processes had historically gone some way to meeting these
objectives and were extended in 2015 to meet the
obligations fully.
OverviewofMerlin’sapproachtoriskmanagement
Merlin separates risk and the management thereof into three
components. The Board retains overall responsibility for these
components, appointing specific Committees to oversee the
management of the risks in each category as follows:
Merlin continues to
exercise a proactive approach
to the management of
potential risks and
uncertainties
40
• Health, safety and security risk - overseen by the Health, Safety
and Security (HSS) Committee which comprises both Board
members and senior management representatives. Our HSS
Committee report on pages 66 to 69 provides more details
of our approach to HSS governance, management
and assurance.
• Commercial and strategic risk - overseen by the Group’s
Executive Committee (a non-Board committee), the
Commercial and Strategic Risk Management Committee
(CSRMC) comprises members of the Executive Committee
and is chaired by the CFO (a full Board member) with minutes
of the quarterly meetings provided to the Non-executive
Board members and a verbal update to the Board provided by
the Chairman. Annually, a detailed report of the discussions
and output of the Committee is provided to the Board.
• Financial process risk - overseen by the Audit Committee
which comprises Non-executive members of the Board.
Merlin Entertainments plc Annual Report and Accounts 2015
RISKS and uncertainties
Risk appetite
In fulfilling the Group’s strategy, proportionate and considered
commercial risks are taken to maximise profitable growth and
sustainable returns for its investors. The amount of risk the Group
is willing to take to achieve such commercial success must never
compromise the health, safety and security of guests, employees,
contractors, animals or other visitors and be aligned with the
Group’s policies on sustainability and the environment.
Health,safetyandsecurity(HSS)risk
We are continually working to identify and implement new
safety improvements and reduce risks. Our goal is to provide and
maintain the highest practical health, safety and security standards
across Merlin’s portfolio. We operate a positive and proactive
safety culture with an approach that complies with legislation,
meets or exceeds industry standards and above all safeguards
our guests, employees, visitors and contractors within our care.
To ensure there is effective governance, monitoring and
measurement of the Group’s appetite for risk, both quantitative
and qualitative measures are used. Quantitative measures include
defined financial and non-financial targets, whereas, qualitative
measures consider items such as reputational impact,
management effort or compliance with law and regulation.
In assessing the significant risks the Group faces, the risk appetite
parameters set by the Board fall into two distinct categories:
• Compliance risk - this covers the requirement to comply with
legislative or regulatory requirements in all territories where
the Group operates. It includes, but is not limited to, ride
safety, accounting practices or fraud and bribery, as well as
ensuring compliance with the Group’s values and ethical
principles. In these circumstances the Board is risk averse and
does not countenance any breaches in compliance obligations.
• Commercial risk - this covers the willing acceptance of a risk
to earn a commercial reward. The Group manages this type
of risk by employing an appropriate analysis of threats and
opportunities and structured review processes, independent
expert opinions and 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 commercial 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 identified above. The registers include a rating
of each risk, based on an assessment of likelihood and impact
after taking into account existing mitigating control measures
including front end processes, management oversight and
independent review. Where this assessment indicates a
high residual risk, additional actions are considered to further
mitigate the risk. Risk registers provide the basis for ongoing risk
management and all are formally reviewed at least once a year.
This review feeds into the annual strategic business planning cycle.
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.
Merlin’s Health, Safety and Environmental Management System
provides a systematic approach that combines appropriate
organisational structure, management commitment, planning,
policies, processes, monitoring, incident reporting, auditing,
reviewing, effective communications, and software that
effectively controls risk and delivers proactive maintenance
procedures plus robust systems of work.
Managers at every level are responsible for HSS matters,
supported by functional HSS specialists who provide advice and
help with all aspects of risk. Merlin’s managers are integral to the
effective planning, organisation, control, monitoring and review
of preventative and protective measures.
Commercialandstrategicrisk
The management of commercial and strategic risk is embedded
across the Group through a regular cycle of strategic and
operational reviews completed at attraction, regional and
divisional levels. 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.
During the year the CSRMC participated in an externally facilitated
workshop to consider whether any new or emerging industry or
macro risks ought to be added as key focus areas in 2016. Risks
that were added as a result of this process include the fast
changing technological developments the industry is undergoing.
The CSRMC also has oversight responsibility for the treatment
of animals in our care. To ensure that we meet the high standards
our stakeholders expect, the Group has a team dedicated to
animal welfare and development. This team of subject matter
experts is responsible for ensuring that the Group behaves in
an ethical way in the sourcing, transportation, care and display of
animals. The team works across the globe with regulatory bodies,
vets and conservationists to develop programmes that support
breeding rather than collection from the wild, delivering high
quality educational content and identifying improvements in
the already high standards we set for animal care.
41
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
RISKS and uncertainties
Financialprocessrisk
Financial processes within the Group are led and co-ordinated
by the central finance function. To manage financial process risks
we continually assess 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 and
reported to the Audit Committee.
Further assurance is gained from both the internal and external
audit processes. In 2015 the internal audit function, based on an
annual assessment of risk, provided audit coverage of material
central functions and attractions representing approximately
60% of attraction generated revenue, as well as central revenue
generating functions, such as e-commerce and call centres. These
activities seek to identify procedural weaknesses and provide a
structure to assess and report on management’s response. The
Group is also subject to external audit. Matters arising from
both audit functions are reported to the Audit Committee.
Businesscontinuityplanning
The Group has in place disaster recovery plans incorporating
escalation procedures and crisis management protocols. They
are regularly updated.
More broadly, business continuity plans exist to allow 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 Group has performed a review of these business continuity
processes following the accident at Alton Towers in line with its
standard response protocols. Findings from this review will be
implemented in 2016.
Principalrisks
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 the
strategic development of the Group.
The risk committees consider both gross and net risk, where
gross risk reflects the risk exposure and risk landscape before
considering the mitigations in place, and net risk reflects the
residual risk after mitigations. The gross risk movement from
prior year for each principal risk and uncertainty has been
assessed and is presented as follows:
No change in gross risk exposure
Stable
Increasing Increased gross risk exposure
Reduced Reduced gross risk exposure
42
Mitigations in place supporting the management of the risk to
a net risk position are also described for each principal risk
and uncertainty.
ViabilityStatement
In accordance with provision C.2.2 of the UK Corporate
Governance Code 2014, the Directors have assessed the viability
of the Group over a four year period, taking into account the
Group’s current position and the potential impact of the principal
risks documented on pages 43 to 45. Based on this assessment,
the Directors confirm that they have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period until December 2019.
The Group’s strategic planning process occurs annually on a
rolling basis, in the middle of the year, covering the current
year plus four further years. Accordingly the Directors have
determined that a four year period to December 2019 is an
appropriate period over which to provide its Viability Statement.
The strategic plan considers all elements of the Group’s growth
strategy. It focuses on capital investment in the existing estate,
where the review period matches or is in excess of the pre-
determined capital investment cycles; new business development
including the roll out of Midway attractions and the development
of committed new LEGOLAND parks; and the expansion of
our accommodation portfolio. The Group also considers strategic
acquisition opportunities and other uncommitted potential major
capital projects within the plan period to assess the availability
of appropriate funding.
The Board also carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its
growth drivers, future performance, solvency or liquidity as well
as the Group’s approach to risk management as set out in this
Strategic Report. The outputs from these reviews are then
used to perform liquidity and debt covenant headroom analysis,
including the downside sensitivity review based on principal risks.
While the review has considered all the principal risks identified
by the Group, severe but plausible events were focused on for
enhanced stress testing. The results take into account the controls
implemented by the Group as well as the availability and likely
effectiveness of specific mitigating actions that could be taken to
avoid or reduce the impact or occurrence of the identified
underlying risks. The diversification of the Group’s attractions
helps minimise the risk of serious business interruption for many
of its principal risks, for example extreme weather conditions or
changing economic and political environments. Also, our ability to
flex the cost base and the ability to rephase or delay capital
investment protects our viability in the face of macro events
or uncertainty not in the Group’s control.
Merlin Entertainments plc Annual Report and Accounts 2015 RISKS and uncertainties
Description
Health,safetyandsecurity(HSS)
Gross
risktrend Mitigatingfactors
Ride and
attractions
safety
Health and safety is one of Merlin’s
Key Performance Indicators.
Stable
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.
• 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
often involve work by sub-contractors. Poor
workmanship or unreliable delivery could impact
the Group’s safety and growth expectations.
Stable
• Contractor selection and approval procedures.
• Major contracts are managed by qualified project
managers and are subject to strict tendering processes.
• Contractor performance is monitored by in-house
project management teams.
Terrorism
A terrorist attack on, or sabotage of, a ride or
attraction could cause harm to one or more
individuals, as well as impacting guest confidence.
A terrorist attack on a city in which the Group
operates could impact on people’s confidence
to visit that city.
Pandemic
A material macro event such as the spread of a
worldwide pandemic could impact visitation in
one or more of the Group’s geographies.
Infrastructure
safety
The failure of one of the Group’s buildings or
other structural elements, through fire, flood,
power failure, substandard build quality or
degradation, could cause harm to an individual
or animal. This could lead to an adverse impact
on the public’s confidence in the Group’s brands.
Increasing
• Detailed security protocols.
• Regularly tested major incident management plans.
• Co-operation with local and national security forces.
• Availability of appropriate insurance cover.
Increasing
• Regularly tested major incident management plans.
Stable
• External independent review processes.
• Competent and trained operational and engineering staff,
monitoring and inspecting facilities in accordance with a
planned maintenance and inspection regime.
43
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 RISKS and uncertainties
Description
Commercialandstrategic
Gross
risktrend Mitigatingfactors
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.
Stable
• 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.
• Monitoring public and social media for concerns in order
to take any requisite action.
Staff engagement is one of Merlin’s
Key Performance Indicators.
Increasing
Merlin is a people business. The increasing cost of
attracting and retaining motivated, customer
service orientated staff could impact guest
satisfaction and future expansion.
• 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.
• Annual employee survey to monitor employee
engagement and to identify opportunities to develop
HR policies and processes.
Stable
• Increased hedging as a result of further diversification of
People
availability and
expertise
Foreign
exchange rates
impacting
international
tourism
Animal welfare
Availability and
delivery of new
sites and
attractions
Changes in exchange rates can have a positive or
adverse impact on inbound tourism. If exchange
rates work against a country in which the Group
generates a high proportion of its revenue this
can adversely impact visitation.
Growth would be impacted if animals were lost
to disease or other welfare issues.
Stable
Stable
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 could
not be obtained.
Competition
Competition for leisure time and new entrants to
the market could reduce opportunities for growth.
Stable
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.
Increasing
Such systems and associated technical
developments necessary to meet consumer
expectations are integral to the success of the
Group’s operations and financial reporting integrity.
The Group remains conscious of the increasing
threat of cybercrime and speed by which new
technology can act as a business interrupter.
the Group’s operations globally.
• Ability to proportionally upweight marketing activity
towards either domestic or international audiences
depending on tourism trends.
• 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.
• Experienced site search and business development teams,
working several years in advance to maintain a strong
pipeline of expansion opportunities.
• Sites regularly update their development masterplans and
teams work closely on fostering links with local
communities and planning authorities.
• The introduction of a dedicated New Openings team in
2015 expands the Group’s resources to support its roll
out strategy.
• Diversification to reduce reliance on individual
attractions or locations.
• Ongoing investment in sites to ensure continued
appeal to visitors.
• 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.
• Increasing resilience of the Group’s IT stability and security
through an expanded use of secured hosting partners and
penetration testing regimes.
• Further measures put in place to mitigate the increasing
threat of cyber security risk.
Weather /
seasonality
Individual attraction performance can be
affected by particularly adverse weather at
key trading periods.
Stable
• Increased 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.
44
Merlin Entertainments plc Annual Report and Accounts 2015 RISKS and uncertainties
Description
Gross
risktrend Mitigatingfactors
Financialprocess
Anti-bribery and
corruption
An incident of bribery or corruption could lead
to prosecution and fines and could cause
reputational damage to the Company.
Liquidity /
Cash flow risk
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.
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.
Interest
rate risk
In addition to equity, Merlin continues to finance
its operations through cash flow and long term
debt. As a significant amount of the debt is at
floating rates it is exposed to interest rate
fluctuations which could impact on
financial performance.
Stable
• Global fraud and bribery training programme in place
alongside a fraud policy sign off for all staff.
• 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.
Reducing
• The Group has a £300 million multi-currency revolving
credit facility to assist with seasonal cash flow
requirements as necessary.
• Short term cash flow forecasts are updated frequently in
order to ensure liquidity for business operations on an
ongoing basis.
• Forecasts cover at least four 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.
• The continued expansion of the Group outside of
Northern Europe reduces the exposure to any one
peak trading period.
Stable
• Interest rate swap arrangements in place to fix the
majority of the debt, all of which are hedge accounted.
Foreign
exchange
translation risk
Merlin generates its main profits in Sterling,
Euros and US Dollars and has long term debt in
these currencies.
Increasing
Merlin reports its results in Sterling and is
therefore subject to translation risk from
exchange rate fluctuations when reporting its
consolidated results.
• 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.
• Treasury policies in place and reviewed annually
with regular reviews of currency exposures.
• Broad match of borrowings in the currencies
of underlying profits.
• Currency exposures hedged where appropriate.
Credit risk
Merlin has limited credit risk with its customers,
the vast majority of whom pay in advance or at
the time of their visit.
Stable
• Counterparty credit ratings are regularly monitored and
there is no significant concentration of credit risk with
any single counterparty.
Merlin has relationships with a number of banks
and is therefore inherently exposed to some
credit risk.
45
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 GROUP
Financial Review
AndrewCarr
Chief Financial Officer
Merlin Entertainments plc Annual Report and Accounts 2015 GROUP Financial Review
Growth
£m
Changeat
actualrate%
Changeat
constantrate%
3.9%
(1.1)%
(5.6)%
29
(9)
(20)
21
1
-
1
7
2.3%
(2.1)%
(6.2)%
32.6%
0.3%
-
0.4%
43.2%
2015
£m
1,278
402
291
(41)
250
(70)
180
(10)
2.3x
2014
£m
1,249
411
311
(62)
249
(70)
179
(17)
2.3x
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
Tradingperformance
Despite the challenging trading conditions experienced in 2015,
Merlin has delivered a robust set of financial results. Underlying
profit before tax of £250 million was in line with 2014, and with
£325 million of operating cash flow, the business remains highly
cash generative. We continue to invest for the long term - in
both our existing and new attractions.
Total revenue grew by 3.9% in 2015 on a constant currency
basis, reflecting our like for like businesses combined with the
contribution of new Midway attractions and accommodation.
Like for like revenue grew by 0.4%, with strong growth in the
LEGOLAND Parks Operating Group offset by challenging trading
in Resort Theme Parks (RTP). Movements in foreign exchange
rates reduced the reported results however, resulting in revenue
growth of 2.3% to £1,278 million. Further detail on the impact
of foreign exchange movements is provided on the next page.
Visitor numbers grew by 0.3% during the year, reflecting the
continued strong performance in LEGOLAND off the back of a
record year in 2014 and the benefit of new attractions, offset by
a sharp decline in RTP and a lower Midway Attractions like for
like performance.
Revenue per capita (RPC) was £18.31, in line with the prior
year (2014: £18.15). This was driven by general underlying
price increases and mix improvements, with proportionally
higher visitation in the LEGOLAND parks which bring higher
average spend levels. This was offset by adverse net foreign
exchange translation impacts. Our focus continues to be on
revenue maximisation rather than specific volume or RPC targets.
Reported EBITDA fell by £9 million, or 2.1%, to £402 million.
EBITDA declined by 4.3% on a like for like basis and by
1.1% including the contribution of new attractions and
accommodation, on a constant currency basis.
Merlin’s operating model is such that increased revenues at
existing attractions should flow through to operating profit less
incremental expenditure on a number of variable costs, such as
direct cost of sales, incremental labour costs and variable rents.
Similarly, if an attraction experiences significant unplanned
reductions in revenue, some costs may be variable but a
proportion of costs will be relatively fixed. 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 2015, EBITDA margins fell by 1.4% to 31.5%, as a result of the
lower like for like revenue growth, the significant decline in RTP
revenue and a cost base that can only be flexed to a limited
degree in the short term. Additionally, the dilutive impact of new
openings has further dampened the Group margin. A number of
one-off central cost savings were made during the year, including
savings in variable remuneration. This resulted in a reduction in
central costs of 12.7%, excluding the effect of the change in
allocation of costs to the three Operating Groups
(see page 50 for more details).
Operating profit declined by £20 million, or 6.2%. This reflected
both the decline in EBITDA and an increase in the depreciation
and amortisation charge from £100 million to £111 million,
reflecting our continued capital investment across the estate.
Table notes:
(1)
(2)
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 118.
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 108 to 161 and those areas requiring significant judgement in the preparation of the financial
statements are summarised on page 114.
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 115 to 117.
47
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
GROUP Financial Review
Financecosts
Net underlying finance costs reduced by £21 million to
£41 million (2014: £62 million). In March 2015 the Group
completed a refinancing of its core debt facilities which provided
further flexibility for the Group and significantly reduced the
cost of debt finance (see note 2.3 to the financial statements).
More details on the refinancing are set out on the next page.
Underlyingprofitbeforetax
Underlying profit before tax of £250 million was in line with the
prior year. This was consistent with the revised expectations we
announced for the year on 27 July 2015 in the light of challenging
trading conditions following the accident at Alton Towers.
Taxation
An underlying tax charge of £70 million is equivalent to an
effective tax rate of 27.9% (2014: 28.0%) of underlying profit
before tax. The difference between the reported effective
tax rate and the UK standard weighted tax rate of 20.3% is
mainly due to the different tax rates that apply in the various
jurisdictions we operate in around the world. Further detail
is provided in note 2.4 to the financial statements.
Exceptionalitems
There were no exceptional costs impacting EBITDA or
operating profit in 2015 or 2014.
Exceptional finance costs of £13 million were incurred in the
period. The Group restructured its interest rate swaps as part of
a wider refinancing of the debt facilities and as a result recycled
£14 million through the income statement that had previously
been hedge accounted through equity. This was then offset
by foreign exchange gains of £1 million, also as part of the
refinancing. Tax on exceptional items amounted to a credit
of £3 million (2014: credit of £6 million).
Foreignexchangeratesensitivity
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 2014 revenues
of re-translating them at 2015 foreign exchange (FX) rates.
Operating profits would be similarly impacted.
Currency
USD
EUR
AUD
Other
2014
average
FXrates
2015
average
FXrates
%age
movement
inFXrates
Revenue
impact£m
1.66
1.24
1.82
1.54
1.39
2.04
7.4%
(11.5)%
(11.9)%
22
(26)
(9)
(6)
(19)
Reductionin2014revenuesat2015FXrates
48
Merlin’s refinancing
provided further flexibility for
the Group and significantly
reduced the cost of
debt finance
Earningspershare(EPS)
Basic earnings per share was 16.8p (2014: 16.0p).
Adjusted earnings per share, which excludes the impact of
exceptional items, was 17.8p (2014: 17.7p).
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
2015
£m
170
10
180
2014
£m
162
17
179
1,014
1,014
16.8p
17.8p
16.0p
17.7p
Dividend
The Company has adopted a progressive dividend policy with a
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 strategic growth drivers.
In September 2015 we paid an interim dividend of 2.1 pence
per share and the Board is recommending a final dividend of
4.4 pence per share. This equates to a full year dividend of
6.5 pence per share.
When making proposals for the payment of dividends, the
Directors consider the resources available to the Company
and its subsidiaries. Specifically they have taken account of
the Company’s significant distributable profits, as well as
the liquidity of the Group.
Merlin Entertainments plc Annual Report and Accounts 2015
GROUP Financial Review
Cashflow
EBITDA
Working capital and other movements
Tax paid
2015
£m
402
(18)
(59)
Netcashinflowfromoperatingactivities
325
2014
£m
411
-
(54)
357
Capital expenditure
(215)
(192)
Other investing activities
Interest paid, net of interest received
Dividends paid
Netcashinflowbeforerefinancing
andrepaymentofborrowings
Refinancing and repayment of borrowings
Netcash(outflow)/inflowfortheyear
(5)
(41)
(64)
-
(137)
(137)
(3)
(56)
(20)
86
(70)
16
Merlin continues to be highly cash generative, with a net
operating cash flow after tax of £325 million (2014: £357 million).
This reflects EBITDA less £18 million of working capital and other
outflows, primarily relating to the payment of 2014 performance
related bonuses, together with tax payments in the year of
£59 million.
Capital expenditure of £215 million was incurred, comprising
£125 million on the existing estate and £90 million on new
attractions and accommodation.
Consistent with Merlin’s strategy, our capital investment
programme creates new rides, themed areas or features for
the existing businesses, following the specific investment cycles
laid down for each Operating Group.
In addition to the £125 million invested in the existing estate, we
have invested £40 million in new accommodation offerings across
our theme park resorts, including the ‘Enchanted Village’ lodges
at Alton Towers and the new LEGOLAND Florida Hotel. The
Group invested £44 million opening new Midway attractions.
Seven new attractions were opened in 2015 and we plan to
open a further seven in 2016.
Capital expenditure of £6 million was incurred in respect of the
new LEGOLAND parks currently under development in Japan
and South Korea.
All major capital projects are appraised both operationally and
financially and Merlin sets clear project return targets to assist in
assessing their viability and to ensure appropriate prioritisation.
Other investing activities of £5 million reflected an increased
investment in LEGOLAND Malaysia.
Refinancing and repayments of borrowings totalled £137 million.
Surplus cash reserves were used to make a net repayment of
£110 million of term debt as part of the refinancing (set out
below). Payments of £27 million were made in respect of the
refinancing and restructuring of the related interest rate swaps.
Net interest paid of £41 million (2014: £56 million) has reduced
reflecting lower finance costs following the refinancing in
March 2015.
Dividends paid in the year of £64 million comprise the final
dividend for 2014 of £43 million together with the interim
dividend for 2015 of £21 million (2014: £20 million).
Netdebt
Further detail is provided in note 4.1 to the financial statements.
Interest-bearing loans and borrowings
2015
£m
1,007
2014
£m
1,136
Less: cash and cash equivalents
(152)
(285)
Finance leases
Net debt
Leverage on net debt to
underlying EBITDA
855
82
937
851
84
935
2.3x
2.3x
Leverage on net debt at the year end equates to 2.3x underlying
EBITDA (2014: 2.3x), reflecting broadly similar levels of both
EBITDA and net debt for each reporting period.
Loanfacilities
In March 2015 Merlin completed a refinancing of its core
debt facilities. The new committed facilities are:
• Bank facilities from twelve relationship banks in the form of
£648 million of floating rate term debt in a combination of
US Dollars, Euro and Sterling to mature in March 2020.
• A £300 million multi-currency revolving credit facility from
the same twelve banks.
• The Group’s inaugural bond in the form of €500 million
(£367 million) seven year notes with a coupon rate of
2.75% to mature in March 2022.
In connection with the refinancing, fixed charges over shares in
certain Group companies and certain intra-Group receivables
were released. The new facilities are senior and unsecured. This
transition to unsecured facilities reflects the re-positioning of the
Merlin credit profile as one more expected of a listed business.
49
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 GROUP Financial Review
These landmark transactions confirmed investors’ confidence
in the Group’s strategy, allowing Merlin to diversify sources of
finance in line with its business plan, while benefiting from long
term resources at an attractive cost.
In addition to the term debt a new multi-currency revolving
facility of £300 million (2014: £150 million) was made available.
This facility, in conjunction with the Group’s cash balance of
£152 million (2014: £285 million), is available to finance working
capital requirements and capital investment. At 26 December
2015 all of these facilities remained available and £nil had been
drawn down from the revolving facility (2014: £nil).
Merlin is required to comply with certain financial and non-
financial covenants in the bank facilities, including a requirement
to maintain certain ratios of EBITDA to both net finance costs
and net debt. We are also required to comply with certain
non-financial covenants in the €500 million notes. All covenant
requirements were satisfied throughout the year.
Further detail is provided in note 4.2 to the financial statements.
Netassets
Net assets increased by £86 million from £1,063 million in
2014 to £1,149 million in 2015.
The consolidated statement of financial position on page 110
shows an increase in property, plant and equipment of
£85 million from £1,410 million to £1,495 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 account for the majority of the reported
reduction in intangible assets from £942 million to £923 million.
Working capital movements of £11 million related to the
payment of 2014 performance related remuneration and other
timing differences. Further detail is provided in note 3.4 to the
financial statements. Net debt has remained broadly flat. The net
pensions liability also remained flat at £5 million (2014: £5 million).
Returnoncapitalemployed(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. For 2015 minor amendments
were made to the ROCE calculation.
The profit measure used in calculating ROCE is based on
underlying operating profit after tax; the change to the tax rate
applied reflects the more stabilised tax position following the IPO.
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. From 2015 we
use average net assets in this calculation to better match the
deployment of capital to the period over which the related
income is earned. ROCE in 2015 was 9.7% (2014: 10.6%)
largely reflecting the decline in underlying operating profit.
Had the changes not been made the reported ROCE for
2015 would have been 9.5%.
AllocationofGroupcosts
As announced via RNS on 15 January 2016, Merlin has
revised the way in which certain costs incurred by the Group
are allocated to its three Operating Groups. This change will
apply for the 2015 full year results and all subsequent periods.
Overall Group reported profitability is not affected. The
effect included in reported 2015 EBITDA is as follows:
Midway Attractions
LEGOLAND Parks
Resort Theme Parks
Central costs
Grouptotal
2015
£m
4
1
2
(7)
-
The £170 million profit for the year was reduced by amounts
totalling £24 million within other comprehensive income. This
primarily reflected exchange losses arising on the retranslation
of net assets denominated in foreign currencies offset by the
recycling of interest rate swaps referred to previously. In
addition we paid dividends of £64 million.
Summary
I am pleased with the robust financial results the Group has
reported for 2015, despite the extremely challenging trading
conditions. 2015 has seen us further strengthen the Company’s
financial structure with the refinancing, and the platform for
future growth remains sound.
Further detail is provided in the notes to the financial
statements on pages 113 to 154.
AndrewCarr
ChiefFinancialOfficer
24 February 2016
50
Merlin Entertainments plc Annual Report and Accounts 2015 BEING A FORCE FOR GOOD
Corporate Social Responsibility - The Merlin Way
A KEY ELEMENT OF ‘THE MERLIN WAY’ 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:
MERLIN’S MAGIC WAND CHILDREN’S CHARITY; SUSTAINABILITY AND THE
ENVIRONMENT; MARINE & WILDLIFE CONSERVATION; AND ACCESSIBILITY -
DELIVERING ENVIRONMENTS THAT PROVIDE ACCESS FOR ALL.
51
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 WE BELIEVE IN MAKING A POSITIVE
DIFFERENCE, IN A MERLIN WAY.
Our very own children’s charity Merlin’s Magic
Wand (MMW) has delivered a record number of
magical experiences for children around the world
who are disadvantaged through sickness and disability.
MMW thrives due to the engagement and support of
Merlin employees, guests and partners. To find out more
about the great work the charity does, visit its website at
www.merlinsmagicwand.org or follow our Facebook page.
Edinburgh Dungeon actor meets patient
at the Royal Hospital for Sick Children
COMMUNITY OUTREACH
We have visited hundreds of children in hospital to bring smiles
to them. The Merlin Magic has enabled them to be children
first and patients second.
Children have had visits from SEA LIFE mascots, Master
Model builders and even a dog trained in sign language!
MAGICAL VISITS - DAYS OUT
During 2015 every single Merlin attraction has hosted a MMW
visit. In total we provided over 75,000 tickets with a retail value
of over £1 million.
It is so rare
to get a photo of
my son with him
smiling. I was
in tears
52
Merlin Entertainments plc Annual Report and Accounts 2015
FORCE FOR GOOD Corporate Social Responsibility - The Merlin Way
WE TAKE THE MAGIC TO THE CHILDREN WHEN THEY CAN’T COME TO US!
MERLIN’S
MAGIC
SPACES
SINCE 2010 MERLIN HAS CREATED 17 MAGICAL SPACES... AND COUNTING!
The children were
so excited when they saw
their new Merlin’s Magic
Wand play area
53
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
FORCE FOR GOOD Corporate Social Responsibility - The Merlin Way
Accessibility
It is our aim to provide experiences and environments that are
accessible to all. We want to provide industry leading facilities and
experiences. The cornerstones of our approach are:
CommunityRelations
As well as through our MMW activities, each attraction continues
to forge partnerships in the local community, for example with
local charities and other groups supporting disadvantaged people.
Guest Information
• We will provide clear, accurate, consistent and accessible
information to enable visitors to make informed choices.
Accessible Environments
• We will make our environments as accessible as possible,
continually improving our estate.
Team Engagement
• We will ensure employees have the tools and training to
deliver memorable experiences to accessibility
challenged guests.
We make no differentiation between able bodied and disabled
persons in terms of recruitment, training and career progression.
We will make every effort to continue the employment and
training of those persons who become disabled while
employed by the Group.
SEA LIFE Brighton work with a local community initiative ‘Gully’s
Days Out’ to provide tickets to young people with additional needs.
Over 100 foster children enjoyed a day out at SEA LIFE Bangkok
in June 2015.
LEGOLAND Windsor is proud to be an active member of the
local community - as a key partner for the local children’s hospice
for which we host a Christmas party and offer magical visits for
the children; providing LEGOLAND Annual Passes to foster
children; and offering free workshops in local libraries.
LEGOLAND Florida were able to provide foster children
with a duffle bag, carefully and lovingly decorated to help these
children carry their prized possessions from home to home.
Our Dallas cluster have been involved with a whole range of
local community initiatives, from helping celebrate World Turtle
Day at the SEA LIFE Centre, to helping out with the annual
‘Texas Trash Off ’.
It is our aim to
provide experiences and
environments that are
accessible to all
54
Merlin Entertainments plc Annual Report and Accounts 2015
FORCE FOR GOOD Corporate Social Responsibility - The Merlin Way
Marineandwildlifeconservation
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.
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.
SEALIFE
The SEA LIFE Trust has again enjoyed fantastic support from
SEA LIFE staff and visitors the world over. With this support,
the Trust was able to campaign against whaling, for better
protection for sharks and to reduce marine litter.
• Over 105,000 people have signed the ‘Wipe Out Whaling’
petition as part of the campaign to help bring an end to
the transport of whale meat through Europe.
• In just one weekend in September, SEA LIFE staff and
volunteers cleaned over 33km of beach, river and lakeside,
removing over 1.4 tonnes of litter!
• Our staff supported the Trust by holding fundraising events in
July - walking, rowing, running, cycling and kayaking over 7,500
miles in the process - that’s the equivalent of crossing the
Atlantic twice!
In 2016 the focus for the Trust is on habitat protection. SEA LIFE
sites will be working with the Trust to fund projects helping to
protect local habitats and wildlife across the globe. To find out
more about the Trust and the conservation projects we are
supporting, just visit www.sealifetrust.org.
WILDLIFE
Chessington Zoo’s breeding programmes had a busy year,
including two firsts for Chessington - the birth of two Blesbok
Antelope and a Southern Three-banded Armadillo. Other
successes include five Sitatunga calves, two Squirrel monkey
babies and a Humbolt Penguin chick in their brand new walk-
through enclosure. The Chessington Conservation Fund
expanded its support in Ecuador to enable the expansion of a
rainforest nature reserve by a massive 137 acres. This area was
at a specific risk of destruction by silica and gold mining so this
purchase has safeguarded this important nature hotspot.
WILD LIFE Sydney Zoo is part of several managed species
programmes including the national ‘Save the Tasmanian Devil’
breeding programme. ‘Adopt an animal’ packages are also sold for
koalas, wombats, bilbies, cassowaries and Tasmanian devils with all
proceeds going to the WILD LIFE Conservation Fund (WLCF).
55
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 FORCE FOR GOOD Corporate Social Responsibility - The Merlin Way
Sustainabilityandtheenvironment
Strategy and governance
Merlin’s strategy on sustainability and the environment is
to manage resources responsibly. Ultimate responsibility
for this strategy rests with the CEO, with management
teams responsible for implementation at local
and regional levels.
We promote a culture
of environmental awareness
and responsibility
Environment and energy management
We have specific budgets set aside to implement
environmentally focused initiatives and an annual ‘Environmental
Award’ to recognise the great work done at 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, EU Energy Efficiency
Directives (ESOS UK) and other applicable environmental
regulations globally.
Environmental policy
We recognise that our operations impact upon
the environment and that effective management
of this impact is essential for sustainable business
success. We are committed to regular monitoring,
auditing and review of our activities and identifying
opportunities for sustainable environmental
improvement, in line with our strategic business
goals and in order to minimise the potentially
harmful effects of such activity.
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 the
Group sustainability team.
Promote communication of our environmental
sustainability initiatives.
Encourage business partners to carry out
their activities in an environmentally
responsible manner.
Further develop our excellent standards on
managing marine habitat and wildlife.
Manage impacts on biodiversity.
Implement practical and cost-effective water,
waste and energy conservation and pollution
control measures to minimise environmental
impacts associated with the Group’s operations.
Encourage regular investments in
environmental initiatives.
Measure, monitor and make public our annual
carbon emissions, with a carbon reduction
target of at least 2% year on year.
Work with stakeholders to minimize the
impact of our products and services.
Strive to continually improve our environmental
performance and ensure our strategic business
growth is sustainable.
56
Solar powered cars at LEGOLAND Florida
Merlin Entertainments plc Annual Report and Accounts 2015
FORCE FOR GOOD Corporate Social Responsibility - The Merlin Way
Greenhouse gas (GHG) reporting
The Company is required to annually report its carbon
dioxide emissions in tonnes emitted. During the year DEFRA
released updated carbon factors, reflecting a significant drop
in the purchased UK electricity carbon factor when compared
to 2014. This, taken with other technical revisions made, is
estimated to have contributed 2% to the savings noted above.
Reportboundaries
Consistencywith
financialstatements
Methodology
Financial control - All facilities under
the Group’s direct financial control
have been included.
This report covers the twelve month
period from 1 December 2014 to
30 November 2015 in comparison
to our financial year of January to
December 2015.
The WRI / WBCSD Greenhouse Gas
Protocol: A Corporate Accounting and
Reporting Standard (Revised Edition)
applying emissions factors from
DEFRA (2015).
Intensityratio
Emissions per £1 million of revenue
Scope1
Scope2
LocalisedBased
Scope2
MarketBased
18,980 tonnes of CO2 equivalent
(2014: 17,436 tonnes)
123,277 tonnes of CO2 equivalent
(2014: 125,989 tonnes)
(2,292) tonnes of CO2 equivalent
(2014: nil)
GroupGrossand
Netemission
139,965 tonnes of CO2 equivalent
(2014: 143,425 tonnes)
Intensitybaseline
(revenue)
£1,278 million
(2014: £1,249 million)
Emissions
intensity
110 tonnes of CO2 equivalent per
£1 million of revenue (2014: 115 tonnes)
Table notes:
•
•
•
•
Scope 1 refers to direct emissions (natural gas, LPG, heating oil, refrigerants, diesel, petrol).
Scope 2 refers to indirect emissions (purchased electricity, purchased heat and steam).
Scope 2 market based offsets are renewable energy certificates purchased
in the USA.
Our base year (2014) emissions intensity value has been adjusted from 113 tonnes
of CO2 per £1 million of revenue, as previously reported, to 115 tonnes of CO2 per
£1 million of revenue in line with our carbon recalculation policy, largely due to the
inclusion of refrigerants which were not reported in 2014.
• Our annual target is to reduce our carbon emission intensity by 2% year on year.
Procurementandsourcing
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,
which captures the Group’s policies in areas such as fraud, bribery
and child labour. We will independently audit certain categories
of suppliers who produce Merlin Entertainments branded
products. We commit to working with 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.
HumanRights
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.
We value diversity
and have a commitment
to equal opportunity
57
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
CORPORATE
Governance Statement
Our 2014 Effectiveness Review made a number of
recommendations, including reviewing the balance and
composition of the Board, continuing our focus on succession
planning for Executive Directors and facilitating greater dialogue
between the Board and senior management, in particular in
relation to strategy. All of the recommendations from the 2014
Effectiveness Review were specifically addressed during the year.
Some further recommendations arose from the 2015
Effectiveness Review, including formalising the training made
available to Directors. This recommendation has already been
actioned with a programme of Director training sessions
having been introduced for 2016.
Investorrelations
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 62.
The Company undertakes regular meetings in which existing
and potential investors are provided with information on the
financial and trading position of the Group. 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. During the year the Chairman
and the Company Secretary also met with many of our leading
shareholders to ensure full and mutually constructive dialogue.
Merlin’s 2016 financial calendar is set out on page 162.
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.
Introduction
Merlin has a premium Listing on the London Stock Exchange
and 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).
Statementofcompliance
Merlin was fully compliant throughout the accounting period
with all relevant provisions of the Code, the DTRs and the Listing
Rules, with the exception of the provisions relating to Board
composition for the period prior to the 2015 AGM.
Boardcomposition
The Board has undergone a number of changes during the year
including the departure of Miguel Ko (Non-executive Director),
Dr. Gerry Murphy (Blackstone Representative Director) and
Rob Lucas (CVC Representative Director) at the AGM, followed
by the appointment as Non-executive Directors of Trudy Rautio
in October and of Yun (Rachel) Chiang effective January 2016,
which together have led to an increase in Board diversity. Trudy
and Rachel were appointed after rigorous search processes using
Spencer Stuart and Russell Reynolds respectively, both of which
are external search companies with no links to Merlin.
Fair,balancedandunderstandable
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.
Evaluationofeffectiveness
During the year externally facilitated evaluations were
undertaken, as required every three years, in relation to the
Board and its Committees, as well as of the internal audit function
and the external auditors. These were facilitated by Prism Cosec,
who are independent of the Company and also advise the
Company on company secretarial compliance matters.
58
Merlin Entertainments plc Annual Report and Accounts 2015 BOARD
of Directors
59
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 BOARD of Directors
1
2
3
4
5
6
7
8
9
The members of the Board during the year and at the date of this report are as follows:
Sir John Sunderland,
Chairman
1
Nick Varney,
Chief Executive Officer
2
Andrew Carr,
Chief Financial Officer
3
Sir John was appointed Chairman of
Merlin Entertainments in December
2009. He has been Chairman of the
Company throughout the year and
continues in this role as at the date
of this report.
Sir John is currently Chairman of
Cambridge Education Group, Chancellor
of Aston University and an Associate
Member of BUPA. He is also an adviser
to CVC Capital Partners.
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 and President of the Food
and Drink Federation from 2002 to 2004.
Sir John was a Non-executive Director of
the Rank Group from 1998 to 2006 and
a Director of the Financial Reporting
Council from 2004 to 2011.
Sir John was a Non-executive Director of
Barclays Bank PLC from 2005 to 2015 and
of AFC Energy plc from 2012 to 2015.
60
Nick has over 25 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 (then a 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.
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. As previously announced,
Andrew will retire at the end of October
2016 and Anne-Francoise Nesmes will be
appointed to the Board as Chief Financial
Officer in August, allowing for an
appropriate transition period.
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.
Merlin Entertainments plc Annual Report and Accounts 2015 Yun (Rachel) Chiang,
Non-executive Director
4
Rachel was appointed a Non-executive
Director of Merlin Entertainments with
effect from 1 January 2016 and continues
in this role as at the date of this report.
She has extensive experience of the
Asian consumer and property markets,
having held a number of senior executive
and non-executive roles in the region.
Rachel is currently Partner and founding
member of the private equity activities of
Pacific Alliance Group (PAG), one of the
region’s largest Asia-focused alternative
investment managers with over $11
billion in funds under management across
Private Equity, Real Estate and Hedge
Funds. She currently holds Non-executive
positions with Hong Kong-listed Sands
China (a majority-owned subsidiary of
Las Vegas Sands) and Hong Kong-listed
Pacific Century Premium Developments
(PCPD) which specializes in the
development and management of
premium property and infrastructure
projects in the Asia Pacific region.
Charles Gurassa,
Senior Independent
5
Non-executive Director
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 the Non-executive Chairman
of Channel 4 and Genesis Housing
Association, Deputy Chairman at EasyJet
plc and a trustee of English Heritage and
the Migration Museum. He is a former
Chairman of Virgin Mobile plc, LOVEFiLM,
Phones4U, MACH, Tragus, NetNames,
Parthenon Entertainments and Alamo/
National Rent a Car and former Deputy
Chairman of the National Trust.
His executive career included roles
as Chief Executive of Thomson Travel
Group plc, Executive Chairman TUI
Northern Europe, Director TUI AG
and as Director, Passenger & Cargo
business at British Airways. He is a former
Non-executive Director at Whitbread plc,
trustee of the children’s charity Whizz-Kidz
and a member of the development board
of the University of York.
Fru Hazlitt,
Non-executive Director
6
Fru was appointed a Non-executive
Director of Merlin Entertainments in 2014.
She has been a Director of the Company
throughout the year and continues in this
role as at the date of this report.
Fru was formerly Managing Director,
Commercial, Online and Interactive at
ITV, and previously Chief Executive
Officer at GCap Media plc and 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.
She is now a Governor of Downe House
School and has also served as a Non-
executive Director on the Boards of
Betfair Plc and Woolworths Plc.
Ken Hydon,
Non-executive Director
7
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. Previously,
he was CFO of Vodafone Group Plc. Ken
was also a Non-executive Director of
Tesco Plc from 2004 to 2013, a Non-
executive Director of Royal Berkshire
NHS Foundation Trust from 2005 to
2012 and a Non-executive Director of
Pearson Plc from 2006 to 2015.
BOARD of Directors
Trudy Rautio,
Non-executive Director
8
Trudy was appointed a Non-executive
Director of Merlin Entertainments
with effect from 1 October 2015
and continues in this role as at the
date of this report.
Trudy retired on 1 May 2015 from
the position of Chief Executive Officer
of Carlson, a privately held global
hospitality and travel company. Trudy
had been a senior executive with
Carlson since 1997, having served as
Executive Vice President and Chief
Financial and Administrative Officer
of Carlson preceding her appointment
as CEO.
Prior to joining Carlson, Trudy served as
Senior Vice President and Chief Financial
Officer of Jostens, Inc., and served as
Vice President of Finance for
Minneapolis-based Pillsbury Co.
Trudy is the Chair of The Rezidor
Hotel Group Board, and also serves
on the Board of Directors for Cargill,
The Donaldson Company, Inc., and
Securian Holding Company.
Søren Thorup Sørensen,
Non-executive Director
9
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.
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
Chairman of Topdanmark A/S and holds
Non-executive Director positions at
LEGO A/S, TDC A/S and Falck
Holding A/S.
61
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
CORPORATE
Governance Report
BoardmembershipandUKcorporategovernancecode
As at the date of this Annual Report and Accounts 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 Chairman is an
adviser to CVC, who were a shareholder in the Company from
July 2010 until March 2015. The Board does not consider that this
has had any effect on 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, Fru Hazlitt, Trudy Rautio and Rachel
Chiang 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 (formerly a portfolio company of Blackstone,
which was a shareholder in the Company until March 2015) and
Mr Ko served during his tenure as a Director of the Company
on the board of Formula One (Delta Topco Limited), a CVC
portfolio company, the other Directors have concluded that
these relationships did not have any effect on the independence
of those Directors.
Blackstone and CVC, along with KIRKBI, were the pre-IPO
major shareholders of Merlin. Blackstone and CVC ceased to
hold any shares in the Company in March 2015, while KIRKBI
presently holds 29.89% of the issued share capital of
the Company.
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.
Dr. Gerry Murphy and Rob Lucas stepped down as Directors at
the conclusion of the 2015 AGM.
Accordingly, the Board considers that from the conclusion
of the 2015 AGM, the Company was in full compliance with
the recommendation of the Code concerning the balance of
independent Non-executive Directors on the Board.
Relationshipagreements
The Company has entered into Relationship Agreements
with each of KIRKBI, Blackstone and CVC. The Relationship
Agreements with Blackstone and CVC (which were described
in the Annual Report and Accounts for the year ended
27 December 2014) terminated when they ceased to hold any
shares in the Company. The Relationship Agreement with KIRKBI
remains in force. Under the KIRKBI Relationship Agreement:
• KIRKBI 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 to the
Board (with the right to attend and speak but not vote).
• KIRKBI 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 KIRKBI (together with its respective affiliates) holds at
least 10% of the Company’s ordinary shares.
Majorshareholdings
As at 23 February 2016, the latest practicable date prior to the
date of this Annual Report and Accounts, the Company had been
notified pursuant to DTR5 of the following interest in 3% or
more of the Company’s total voting rights:
Nameof
shareholder
Numberof
ordinary
shares
%ofissued
sharecapital
Natureof
holding
(Direct/
Indirect)
KIRKBI Invest A/S
302,971,529
29.89
Direct
62
Merlin Entertainments plc Annual Report and Accounts 2015 CORPORATE Governance Report
BoardanditsCommittees
The Chairman is responsible for the effective running of the
Board and for overseeing 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 Board has established Health, Safety and Security, Audit,
Remuneration, and Nomination 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.
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.
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/General Counsel 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 members of
the Board and its Committees.
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.
Numberofmeetingsheld(1)
Sir John Sunderland
Nick Varney
Andrew Carr
Charles Gurassa
Ken Hydon
Fru Hazlitt
Trudy Rautio
Søren Thorup Sørensen
Miguel Ko (4)
Dr. Gerry Murphy (4)
Rob Lucas (4)
Health,Safety
andSecurity
Committee(2)
TheBoard
Audit
Committee
Remuneration
Committee
Nomination
Committee
9
#9
9
9
9
9
9
1(3)
9
4
5
4
4
#4
4
4
4
N/A
4
N/A
N/A
N/A
N/A
N/A
4
N/A
N/A
N/A
4
#4
2(5)
N/A
N/A
2(6)
N/A
N/A
4
3(7)
N/A
N/A
#4
3(7)
4
N/A
N/A
1
N/A
N/A
3
#3
N/A
N/A
3
3
3
1(3)
N/A
1(6)
N/A
N/A
Table notes:
# Denotes Chairman.
(1)
Number of meetings attended during the year during term of respective Director. Rachel Chiang joined the Board effective 1 January 2016 and is therefore not included
within this analysis.
In addition to the Board members noted above, the Health, Safety and Security Committee also includes as members the managing directors of both the Resort Theme Parks
and Midway Attractions Operating Groups and the director of health, safety and security. These members attended all four meetings that took place in the year.
(2)
(3) Trudy Rautio has attended each of the Board and Nomination Committee meetings held following her appointment in October.
(4) Miguel Ko, Dr. Gerry Murphy and Rob Lucas all stood down as Directors at the conclusion of the 2015 AGM.
(5) Fru Hazlitt has attended each of the two Audit Committee meetings held following her appointment to this Committee.
(6) Miguel Ko attended each of the two Audit Committee meetings and the only Nomination Committee meeting held prior to standing down at the AGM.
(7) Sir John Sunderland and Ken Hydon did not formally attend one of the Remuneration Committee meetings, instead tabling their comments to its Chairman in advance.
63
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
CORPORATE Governance Report
TheBoard
Health,SafetyandSecurityCommittee
Principal
responsibilities
andduties
TheBoardhasoverallresponsibilityforoverseeing
themanagementoftheCompany.
• 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
TheHealth,SafetyandSecurityCommitteeassiststhe
Boardinensuringthathealth,safetyandsecuritymatters
aremanagedeffectivelyandproactivelythroughout
theGroup.
• Recommending to the Board, implementing and monitoring
the Group’s health, safety and security policy.
internal controls and risk management.
• 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.
See the Health, Safety and Security Committee Report on pages
66 to 69 for further details on how the Group manages
Health, Safety and Security risks.
• 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; and
• 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; and
• Share dealing policy.
• Approving the appointment of principal financial
and professional advisers.
• Approval of major litigation.
• Approval of Group insurance programme.
Numberof
meetings
At least six times a year and as required or otherwise at the
request of one or more of the Directors.
At least four times a year and at such other times as the
Board or the Committee Chairman requires.
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.
Code
compliance
Wecomply
N/A
The Code recommends that the Board of a UK listed plc
should comprise at least 50% independent Non-executive
Directors (excluding the Chairman).
From the conclusion of the 2015 AGM the Board has
complied with this recommendation.
64
Merlin Entertainments plc Annual Report and Accounts 2015
CORPORATE Governance Report
AuditCommittee
RemunerationCommittee
NominationCommittee
TheAuditCommitteeassiststheBoardin
dischargingitsresponsibilitiesinrelationto
financialreporting,externalandinternal
auditsandcontrols.
• Financial reporting.
• Internal controls.
• Whistleblowing and fraud.
• Internal audit.
• External audit.
• Reporting to the Board on matters within
the Committee’s remit, including the risk
management process.
• Considering the processes supporting
the assessment of the Group’s longer term
solvency and liquidity which underlie the
Viability Statement.
See the Audit Committee Report on pages 70 to
75 for further details on the Committee’s activities
in the year.
TheRemunerationCommitteeassiststhe
Boardindischargingitsresponsibilitiesin
relationtoremuneration.
TheNominationCommitteeassiststhe
Boardindischargingitsresponsibilitiesin
relationtothecompositionoftheBoard.
• Setting the remuneration policy for
• Reviewing the balance of skills, knowledge
Executive Directors and the Chairman.
• Reviewing and making recommendations
and experience on the Board.
• Reviewing the size, structure and
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
76 to 96 for further details on the Committee’s
activities in the year.
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
97 for further details on the Committee’s activities
in the year.
At least three times during the financial year
at appropriate times in the audit cycle.
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.
In addition, it meets at such other times as the
Board or the Committee Chairman requires,
or if requested by the external auditors.
Wecomply
Wecomply
Wecomply
The Code recommends that a Remuneration
Committee should comprise at least three
independent Non-executive Directors.
The Committee consists of four independent
Non-executive Directors and the Chairman.
The Code recommends that a majority of the
members of the Nomination Committee
should be independent Non-executive
Directors.
The Committee is chaired by the Chairman of
the Board and consists of the Chairman of the
Committee and three independent Non-
executive Directors.
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 four
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.
65
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
HEALTH, SAFETY AND SECURITY
Committee Report
STATEMENT FROM THE CHAIRMAN OF THE HEALTH, SAFETY AND SECURITY COMMITTEE
Dear Shareholder
The Health, Safety and Security (HSS) of our guests, our
employees and the people who work in partnership with us
are of paramount importance to Merlin. We have an absolute
commitment to continuously achieve the highest practical safety
standards. We will never compromise our commitment to health,
safety and security or become complacent in this area.
Following the traumatic accident at Alton Towers in June our
immediate focus was to further strengthen our policies and
processes. The Group undertook a full investigation following
the accident and as a result added further safety protocols.
On re-opening, ‘The Smiler’ ride will incorporate extensive
new safety measures, enhanced training and additional levels
of supervisory procedures.
Continuousimprovement
Aligned with our philosophy of continuous improvement, we
have continued to invest in and develop our HSS and engineering
activities and control structures, ensuring we capture learning
points and apply them across our Operating Groups.
Through the course of the year, we have invested significantly
in senior staff across each of the Operating Groups as well as
making enhancements to local working protocols and upgraded
software systems.
TheBoardandHSSCommittee
The HSS Committee assists the Board in ensuring that HSS
matters are managed effectively and proactively throughout
the Group.
This report describes the work of the HSS Committee and how
it discharges its duties, together with details of the Group’s HSS
management systems, policies and processes.
Lookingforward
Looking forward we will continue to challenge, monitor and
support the whole of the Merlin business in their HSS efforts.
We have a strong history of delivering millions of safe
experiences to our guests and this comes in no small
measure from our strong safety culture.
SirJohnSunderland
ChairmanoftheHealth,SafetyandSecurityCommittee
24 February 2016
TheroleoftheHSSCommittee
The HSS governance structure is illustrated below:
PLC Board
HSS Committee
of the PLC Board
Executive Committee
Operating Groups
& Business Units
Operating Groups
HSS Committees
Group HSS
Department
Lead HSS
Professionals
Attractions / Sites
Attraction / Department
HSS Forums
HSS Professionals &
Representatives
66
Merlin Entertainments plc Annual Report and Accounts 2015 HEALTH, SAFETY AND SECURITY Committee Report
The Group operates a
positive and proactive safety
culture, its priority being to
safeguard guests, employees
and contractors
The HSS Committee reports to the Board, operating under
specific terms of reference (available on the Company’s website).
It has three areas of focus:
• To set, monitor adherence to, and recommend improvements
in, the Group’s policiesandprocedures for ensuring the
health, safety and security of guests, employees, suppliers
and operating assets.
• To monitor the Group’s processes for identifyingand
managingrisks.
• To monitor the skills,effectivenessandlevelsofresource
within the Group’s HSS team.
The HSS Committee comprises the Chairman, three independent
Non-executive Directors, the CEO, the CFO, the managing
directors of Resort Theme Parks and Midway Attractions and
Merlin’s Group Health, Safety and Security Director. Details of the
frequency of and attendance at meetings is outlined on page 63.
The Committee receives advice from Health, Safety and Security
professionals and is updated on industry best practice. Issues
discussed at the HSS Committee are shared with the Board.
HSSmanagement
The Group has a well developed approach to HSS management,
in line with HS(G)65 - the Health and Safety Executive (HSE)
endorsed business model for effective safety management in
the United Kingdom.
The Group operates a positive and proactive safety culture, its
priority being to meet or exceed industry and legal standards
and above all safeguard guests, employees and contractors.
Procedures and practices are constantly reviewed to identify
where there are opportunities to implement new safety
improvements and reduce risks.
HSS management system
The Group’s HSS Policy and health and safety management
systems set mandatory obligations for standards and performance
across all attractions and operations.
The requirements and policies set out in the Group’s Global
Health and Safety Manual are well established, providing a robust
framework for delievering safe operations and enable monitoring
for compliance and continual improvement.
The role of operational management
Operational management are responsible for and integral to HSS
matters, supported by functional HSS specialists. Two key safety
management activities are as follows:
• Risk registers - attraction management prepare detailed HSS
risk registers that assist in the management of effective safety
risk control by identifying and assessing all significant or
material risks. The Group’s principal HSS risks identified
through these processes are summarised on pages 40 to 45.
• Action plans - every attraction is required to prepare an
annual HSS action plan, driven by the results of its risk register,
safety inspections and audits, near-miss/incident investigations
and employee surveys. Appropriate control measures are
then implemented.
Rideandattractionsafety
All of Merlin’s rides are managed for safety through their life cycle
and the Group seeks to comply with all applicable national or
local legislation and industry standards.
Operational and engineering processes cover areas such as; codes
of safe working practices; new ride pre-use inspection and testing;
emergency plans and procedures; as well as regular inspection,
maintenance and refurbishment. A more detailed insight into the
role of a ride engineer during a typical annual cycle is provided
on page 69.
Constructionsafetyandcontractorselection
Merlin recognises its responsibility to ensure that high standards
of health and safety are maintained on all of its construction
projects across the world.
When considering a new location or product, local legal
requirements are carefully researched. During the design phase
of a project any higher risk activity which might be required
during construction, such as the need to work at height, is
identified and minimised. The Group ensures that the importance
of safe construction practice is recognised and adopted by
its commercial partners or landlords.
67
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
HEALTH, SAFETY AND SECURITY Committee Report
Extensive health and safety training programmes, regular
refresher training and specific personal development needs are
implemented. These are tailored to particular job roles, based on
risk assessment findings. As a minimum, all employees receive
HSS induction training and regular safety briefings.
Communication to senior management is actively facilitated and
employees are regularly consulted about risks and preventative
or protective measures.
Monitoringperformance
HSS performance is regularly reviewed by each attraction,
each Operating Group’s senior leadership team and the HSS
Committee, using a blend of leading and lagging
performance indicators.
All attractions in Merlin are subjected to routine health and safety
audits, conducted by health and safety professionals independent
of the attraction being assessed. These audits seek to evaluate
compliance with Merlin’s Global Health and Safety Manual and
associated safety policies. Any non-compliance or improvement
opportunities identified then require remedial action. These
audits complement regional and attraction initiated safety
inspections and audits that take place during the course of
each year.
Continuousimprovement
Merlin’s safety arrangements help deliver safe ride experiences to
millions of visitors each year. Nonetheless, the Group will never
become complacent and where improvements are identified will
seek to implement them immediately. To ensure that HSS and
engineering activities and control structures are commensurate
with the Group’s increasing scale, and to support the next phase
of growth, specialist teams have been expanded as follows:
• New senior HSS management roles to directly support
the Resort Theme Parks and LEGOLAND Parks Operating
Groups, with updated reporting structures.
• A new senior HSS role to support each of the Operating
Groups and focus exclusively on the development and
implementation of HSS training and assurance programmes
across the Group.
• A new Group engineering function to provide ‘best in class’
engineering support; ensure consistent groupwide engineering
standards and processes; and practical compliance
assurance programmes.
• New, dedicated Training and Compliance Manager roles to
reside within the engineering departments at each of our
theme parks.
A contractor’s health and safety performance is one of the key
elements considered during a tendering process. Contractors are
asked to explain and verify their health and safety management
systems and practices as well as providing details about how they
will comply with both local legal requirements and the Group’s
policies and standards.
The Group ensures that projects have sufficient resources and
timescales to enable their completion without compromising
health and safety, capturing and acting on regular feedback on
any health and safety issues, incidents or challenges.
FoodSafetyandHygiene
The Group recognises its duty to ensure that exposure of visitors,
employees and contractors on its sites to food related illnesses
must be avoided. The Group seeks to meet or exceed any
national or local legal requirements, adopting the best practice
approach associated with the international Hazard Analysis
and Critical Control Point (HACCP) system.
The Group has a detailed and prescriptive Food Safety Manual
that provides clear and consistent direction for each attraction
on how to address food safety and hygiene risks. The manual is
applicable to all Merlin sites and the content of the manual
must be adhered to at all times.
All attractions are regularly independently assessed by food safety
specialists for compliance against the requirements of the Food
Safety Manual. Typically, theme parks are audited twice per year,
with Midway attractions audited at least annually.
Security
Attractions maintain both active and passive security protocols in
order to maintain the integrity of physical boundaries, together
with the operations and assets that sit within those boundaries.
Security risk assessments help ensure that the appropriate
technology, techniques and resources commensurate to
the national or local threat level are used.
As the types of threats and risks evolve the Group works closely
with local police and governmental security agencies to ensure
appropriate intelligence is shared and attraction based security
protocols remain suitable, proportional and robust.
HSSandemployees-‘ProtectingtheMagic’
HSS initiatives are regularly communicated to maintain employee
awareness, encourage real team engagement and a sense of
ownership across the business, including initiatives such as:
• ‘SixSpellsforSafety’ - introduced early in 2015, these
demonstrate simple ways to operate safely and securely
and are displayed on posters and banners at sites around
the world.
• ‘ProtectingtheMagic’ intranet site - a new one-stop
location containing HSS documentation, a brand new
induction film and an engaging safety quiz.
68
Merlin Entertainments plc Annual Report and Accounts 2015 FOCUSON MERLIN ENGINEERING
Merlin’s rides are kept running safely as a result of our rigorous approach to safety management. Key to
this are our engineers - highly trained, qualified and technically competent professionals, typically with
core mechanical and/or electrical skills.
Each engineer undergoes ride specific training and must demonstrate an excellent level of knowledge
and competence before they are permitted to perform the activities we outline below. Their individual
performance is then continually assessed through shadowing, performance monitoring and auditing.
Daily Inspections are completed for safety critical
elements of each ride, for example the integrity of
passenger restraint systems, brakes and emergency
devices. On completion, the ride will be signed off
as safe for use and handed over to the operations
team to carry out pre-opening checks.
Each ride undergoes Planned Maintenance,
running in parallel to the daily inspections. With the
frequency and type of work specific to each ride,
these routines can be completed either out of park
operating hours or during the day, for example
where a ride vehicle is relocated to the maintenance
workshop for its scheduled examination and service.
Predictive Maintenance is carried out during
operating hours, assessing a ride’s functionality
and performance. Ride engineers will use their
experience and the latest technology to monitor
and evaluate ride performance, looking either at the
overall operation of the ride, or certain equipment
used within it, checking for example running speed,
noise, vibration and operating temperatures.
Reactive Tasks often relate to ride stoppages
which can occur for numerous reasons throughout
the day, for example guest behaviour resulting in
the activation of an emergency stop or a fault
condition being reported by the ride’s computer
control system.
Attending engineers will be competent in all relevant
technical aspects of the ride and will investigate
the cause and undertake corrective action. Safety
inspections and checks will then be followed to
allow the ride to be put back into operation.
Shutdown Preparation involves planning for
‘In-service Inspection’ and ‘Annual Maintenance’
activities, undertaken while the ride is shut
down and taken out of service.
It is typically done in early autumn for those parks
that have a closed season or on a rotational basis
where the park remains open throughout the year.
A rigorous programme of work sets out the level of
‘strip down’ and ‘non-destructive testing’ required, as
well as whether such activities are to be undertaken
in-house or with third party specialist assistance.
In-service Inspections require an independent and
competent Inspection Body (IB) to annually check
the condition and suitability of a ride for continuing
safe use. This includes thorough examination of all
safety critical components. The in-house engineering
team’s responsibility during this process is to strip
down each ride and prepare safety critical
components ready for independent inspection
and non-destructive testing.
Annual Maintenance takes place alongside the
In-service Inspections, with the engineering team
carrying out work on each ride in line with
manufacturer’s recommendations, replacing
components where required.
On completion of the In-service Inspection, annual
maintenance and function testing processes a
Declaration of Operational Conformity (or safety
certificate) will be issued if the IB is satisfied with the
condition of the ride. This will typically be valid for
twelve months. There can be minor variances to this
process depending on the location of the attraction.
Our engineers review ride performances regularly,
working with the ride manufacturer and the IB to
make Reliability Improvements, enhancing reliability,
productivity and asset life. After these reviews, it
may be decided that an adjusted schedule of
planned maintenance is required to maintain
optimum performance.
69
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 AUDIT
Committee Report
STATEMENT FROM THE CHAIRMAN OF THE AUDIT COMMITTEE
Dear Shareholder
I am pleased to present the 2015 report of the Audit Committee
(the Committee) and to be able to confirm, on behalf of the
Board, that we believe the Annual Report and Accounts, taken
as a whole, are fair, balanced and understandable.
The Committee remains engaged in maintaining the integrity
of the Company’s financial reporting, internal control framework
and risk management process. During the year the Committee
delivered a detailed programme of work to ensure that it
continues to meet the increasing depth of review and reporting
that is now required of Audit Committees. An external
assessment of the Committee was undertaken during the
year which found it to be effective.
Following updates to the UK Corporate Governance Code, the
Committee spent time ensuring that the additional requirements
introduced were met by the Company. Particular focus was given
to enhancements to the Company’s risk management processes,
and systems of internal control, including any learnings from its
internal investigation into the accident at Alton Towers. The
Committee is satisfied that the Company has appropriate
systems and procedures in place to identify, evaluate and
manage material risks to the business.
The Committee also spent time considering the processes
supporting the assessment of the Group’s longer term solvency
and liquidity which underlie the new Viability Statement.
Following this we agreed the stress testing parameters of the
Group’s principal risks and that the appropriate period over
which the assessment should be made for the Viability Statement
was that of the Group’s business plan, which covers the current
year and the next four years.
The Group’s principal risks and uncertainties are set out on pages
40 to 45. The Committee has reviewed these and is comfortable
the Company has addressed them appropriately within its
ongoing operating model and priorities.
With respect to financial reporting, as in previous years, the
two areas determined to be of most significance in preparing
the Group’s financial statements are the valuation of assets
including impairment, and revenue recognition.
The Committee recognises that independent and effective auditors
are an essential component of the overall control framework.
A new Group Internal Audit and Risk Management Director has
been appointed following an internal promotion of the previous
director. The internal audit plan is risk based and we are satisfied
with the content and quality of both reporting and management
responses. An external assessment conducted during the year
found the internal audit department to be effective.
In 2015 Hugh Green replaced Mark Summerfield as the KPMG
Senior Statutory Auditor, Mark having reached the end of his
permitted tenure. The Committee is pleased with the smooth
transition, a point supported by a review of KPMG’s effectiveness
in late 2015. This review covered KPMG’s mindset and culture,
skills and knowledge, judgement and quality control measures.
The feedback received was positive with only minor points to be
addressed. We have also kept abreast of the latest regulations
on auditor rotation; we expect that a retender will be required
no later than 2023 and will bear in mind the next KPMG
partner rotation after the 2019 audit is concluded.
The CFO plays a critical role in maintaining financial reporting
quality and we are therefore pleased that, with the recently
announced appointment of Anne-Francoise Nesmes, we have
found someone well qualified to be Andrew Carr’s successor.
Priorities for 2016 include continuing to deliver incremental
improvements to the already effective risk management and
control frameworks and monitoring the implementation of the
Group’s new admissions systems, through which the Group will
ultimately transact a significant proportion of its revenues.
From the date of the 2015 AGM Fru Hazlitt joined the Audit
Committee following Miguel Ko stepping down from the Board.
As we move into 2016 I am delighted that Trudy Rautio and
Rachel Chiang have been appointed to the Audit Committee,
adding to the valuable contribution provided by Charles Gurassa
and resulting in a Committee with deep financial, sector and
international business experience. We have also appreciated the
enthusiastic support of management throughout the year.
KenHydon
ChairmanoftheAuditCommittee
24 February 2016
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Merlin Entertainments plc Annual Report and Accounts 2015 AUDIT Committee Report
TheroleoftheAuditCommittee
The Audit Committee has received delegated authority from
the Board as set out in its written terms of reference (available
on the Company’s website). Its primary responsibilities, subject
only to minor changes in the year, 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 the 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 and internal
control environment.
• To oversee the performance and independence of the
external auditors.
• To report formally to the Board and make recommendations
where it is deemed necessary on matters within its terms of
reference, including a report to the Board on how it has
discharged its responsibilities.
• To consider the processes supporting the assessment of the
Group’s longer term solvency and liquidity which underlie
the Viability Statement.
The above obligations form the basis of an annual programme
of work agreed before the start of the year and reviewed at
each meeting to consider the inclusion of any further items that
may need to be added in response to matters arising. In addition,
the Committee is kept abreast of any updates in governance,
legislation or guidance. All elements of the programme were
covered during the course of the year.
Membership and meetings
Details of the membership, their qualifications and the frequency
and attendance at meetings are outlined in the Corporate
Governance section on pages 62 to 65. In addition to the
permanent members, the CFO and other key members of
management routinely attend. The Chairman and the CEO are also
invited to attend meetings as observers 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 after each Committee meeting.
Effectiveness review
During the year an external 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 the
Committee to be effective.
Riskmanagementandthecontrolenvironment
The Board retains overall responsibility for the Company’s
internal controls and, as outlined in the Risks and uncertainties
section on pages 40 to 45, separates the Company’s oversight
of risk management into three risk components: Health, safety
and security; Commercial and strategic; and Financial process.
The Board has delegated to the Committee responsibility for
overseeing the overall risk management process and specifically
monitoring financial risk. The Audit Committee therefore has a
dual role in relation to internal controls and risk management.
In assessing internal controls, the Committee reviewed the overall
risk management process in place during the year. At the end of
the year it examined the Company’s risk organisation, how this
has been practically implemented including the depth and
effectiveness of reviews, and the methodology by which risk
matters raised are brought to the attention of the Board, all
intensified by the Alton Towers accident.
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.
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Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 AUDIT Committee Report
Audit plans and outcomes
The internal audit annual plan is developed in conjunction
with management, the focus being driven by the results of an
assessment of various risk factors, before being reviewed and
approved by the Committee.
Internal audit results and management responses are presented
at each Committee meeting, with significant findings discussed in
more detail and challenged where appropriate. The Committee
continues to review management actions in response to
significant findings and look at the root cause of consistent
themes emerging across the Company, requesting ‘deep dive’
assessments of the financial control environment as necessary.
Significant findings relate to areas where controls are found to be
absent or inadequate in areas which are considered susceptible
to fraud or material misstatement (at a local level) or where
there is any evidence of deliberate falsification of documents.
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 that in 2015 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
substantial loss or fraud occurring.
Significantissuesconsideredin2015
Detailed below are some of the main areas that the
Committee focused on in 2015. We are pleased to report
that the Committee had no cause for disagreement with
management during the year on these matters.
Accounting, tax and financial reporting
In addition to considering the material financial reporting matters
noted below and in the table opposite, the Committee assessed
the 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, including the consideration of:
• The half year and full year financial statements.
• Disclosures in the Annual Report and Accounts in relation
to internal control, risk management process and the work
of the Committee.
• The tax position of the Group, in particular the effective
tax rate and the recognition of deferred tax assets.
• Key assumptions in relation to the Company’s defined
benefit pension schemes.
• Treasury accounting matters arising from the Company’s
refinancing in the year.
• Technical updates, in particular in relation to the requirements
of and changes to the Code.
• The Audit Committee’s report in the context of the
Code’s requirement for ‘fair, balanced and
understandable’ reporting.
72
Going concern and viability review
The Committee considered the Group’s going concern review,
especially the appropriateness of the key judgements, assumptions
and estimates underlying the budgets that underpin the review
and a review of compliance with key financial covenants. The
Committee also considered the key risks identified by the Group
and the mitigating internal controls, together with how the risks
have been addressed in the going concern assessment.
This process enabled the Committee, on behalf of the Board, to
assess whether any material residual risks remained that could
pose a significant threat to the viability of the business as a whole.
The Committee also assessed over what period such a viability
review would be appropriate and agreed with the four year
outlook period used. The impact of those risks that could affect
the future viability of the Group over the next four years was
then reviewed as was the resilience of the Group to the
occurrence of these risks, in severe yet plausible scenarios.
As a result of this analysis, the disclosures detailed in the
Viability Statement, on page 42, were approved by the Board.
Whistleblowing systems and fraud/bribery mitigation
The Committee receives regular updates on whistleblowing,
including the quantity, source and nature of incidents reported
and how matters are resolved. Efforts have continued in 2015
to increase the awareness of the Company’s whistleblowing
procedures. Internal audit results have confirmed that the
external hotline has been effectively rolled out, adding a further
route by which issues can be independently raised, supplementing
the existing local ‘profit protection’ teams. The Company has a
good culture of encouraging its staff to report incidents of poor
practice. 84% of the employees who completed the annual staff
survey in 2015 agreed they were aware of the whistleblowing
options. The Company revised and reissued its fraud and bribery
policy in 2015. This includes the provision of mandatory training
for those staff who are considered most likely to be exposed
to such risk.
Misstatements
Management reported to the Committee that they were not
aware of any material misstatements made intentionally to
achieve a particular presentation. The external auditors reported
to the Committee any misstatements that they had found in the
course of their work and that 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 with 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.
Merlin Entertainments plc Annual Report and Accounts 2015 AUDIT Committee Report
Consideration of significant accounting matters
Following discussion with both management and the external auditors, the Committee determined the areas of most significance, which
could give rise to misstatement of the Group’s financial statements. These are set out below. These items were considered by the
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.
Matterconsidered
Summary
The valuation of assets and impairment
This is an area of significant judgement given that
the Group is involved in opening attractions in new
and, to some degree, unproven locations. Existing
businesses operate in geographically or politically
diverse areas and in the past the Group has made
material acquisitions resulting in significant balances
of goodwill and intangible assets.
The Group has accumulated experience of
opening many attractions around the world, 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 or material
adverse events, such as the accident at Alton
Towers, may indicate a need for an impairment
assessment. These factors make forecasting the
returns from the existing estate and acquired
businesses similarly uncertain.
Valuations are performed based on discounted
future cash flow 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.
Revenue recognition
Revenue is generated by high volumes of low value
transactions in numerous jurisdictions across the
world. During the year the Company announced
its plan to roll out the accesso® admissions system
across the Group. This system will ultimately
generate a significant proportion of the Group’s
revenue transactions.
Whilst there is limited judgement required in
Merlin’s revenue accounting policies compared to
some other sectors, the accuracy of financial
reporting relies on 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.
IFRS 15, the new accounting standard on revenue
from contracts with customers, which will become
effective from the 2018 accounting period, could
potentially have an impact on the Group’s
financial results.
Management provided detailed papers to the Audit Committee, explaining the
methodology and judgements applied to test the value of assets and to determine if an
impairment adjustment was required. These papers examined the basis by which discount
rates were determined, as well as the judgements made to calculate an asset’s terminal
value. A combination of discount rate, terminal value and forecast cash flows are used
to calculate the ‘value in use’.
The papers considered the valuation of goodwill at an Operating Group level, individual
brands and specific property, plant and equipment. For each of these categories, in
accordance with accounting standards, as well as ‘value in use’, ‘fair values’ were provided
using an appropriate EBITDA multiple. Comparing the higher of these two valuations to
their carrying values determined if any impairment was required. This paper specifically
analysed the impact of the accident at Alton Towers on the expected future earnings
of the attraction and the Resort Theme Parks Operating Group, as well as detailing
the results of sensitivity analysis performed.
The papers also set out the disclosures proposed for the Annual Report and
Accounts, taking account of the procedures noted above and the findings reported to
the Committee.
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 the adequacy of
the disclosures, and that no impairment is required.
The roll out of the new admissions system commenced during the year under the
guidance of a senior steering group, chaired by the Group’s Chief Information Officer.
The steering group includes a number of the Group’s senior finance team, including the
Group CFO. The project roll out team includes finance resource that is responsible for
designing and implementing appropriate financial processes and controls.
The project was at an early stage in 2015, initially focused on a number of the Group’s
smaller attractions, representing a very small percentage of the Group’s revenues. As the
new system is increasingly used across the estate during 2016, it will be a key focus for
the Committee.
The Committee has concluded that IFRS 15 is not expected to materially alter the
Group’s financial results.
Other than as noted above, there have been no material changes in revenue streams or
processes during 2015. As in previous years, the Audit Committee has considered the
internal controls in place, including those over revenue streams, and concludes that
they remain effective.
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Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 AUDIT Committee Report
Responsibilitiesinrespectofinternalandexternalaudit
As noted above the internal and external audit functions represent
an important part of the third line of defence in terms of
maintaining 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’s internal audit function is led by an appropriately
qualified Group Internal Audit and Risk Management Director.
Through 2015 he reported jointly to the Chairman of the Audit
Committee and the CFO and the Committee consider him to
have the appropriate experience to lead the function. During
the year it was indicated that he would move to another role
within the Company in early 2016 and the Audit Committee
chair participated in the recruitment of his replacement. The
Committee is satisfied that the appropriate focus, skills and
experience were in place throughout 2015, a view supported
by the results of the external effectiveness review performed
towards the end of the year. The Committee is also confident
that the new Group Internal Audit and Risk Management
Director has the relevant skills and experience to fulfil the
obligations of the role. The transition took place in January 2016.
The internal audit function comprises six in-house auditors,
including the Group Internal Audit and Risk Management
Director, four of whom hold professional accounting qualifications
and two who are part qualified and actively working towards full
qualification. When necessary external support is used. For
example PricewaterhouseCoopers (PwC) provided specialist
support to the audit of the Company’s IT strategic roadmap
and risks as the internal team did not have the relevant skills.
The Committee received and approved a presentation of the
audits planned to be performed in 2015 at the start of the year,
including an assessment of the risk approach taken in formulating
the priorities. Factors such as size and location of business, history
of audit findings, competence and stability of local management,
material changes to a business and relevance to the Group’s
strategy were factored into this prioritisation.
During the year, audits have been undertaken in operations
representing coverage of approximately 60% of the Group’s
revenue. In 2015, in addition to the revenue generating locations,
internal audits were performed over the effectiveness of central
marketing procedures, admissions and web booking systems,
central profit protection systems and bribery and fraud mitigation
procedures. The coverage is in line with the plan approved by
the Committee.
74
The internal audit reports are reviewed by management with
significant findings also reviewed by the Company’s Executive
Committee. Any such findings are also discussed at the Audit
Committee, along with recommendations and actions planned
by management.
An external review of the effectiveness of internal audit was
undertaken during the year and the results of the review
were presented to the Committee in December. 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, their audit approach and the
effectiveness of their reports and conclusions. The survey results
showed that the internal audit function is considered professional,
diligent and its internal audits appropriately detailed.
Having considered comments from management, external
auditors, the survey results and the quality of the internal audit
reporting and findings, the Committee concluded that the
internal audit function is effective.
External audit
KPMG LLP were the Company’s external auditors throughout
the year. The Committee is responsible for overseeing the work
of 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 making a recommendation
to the Board on the appointment, reappointment or removal of
the external auditors, together with their remuneration and
terms of their engagement.
Having performed the role of Senior Statutory Auditor for five
years, Mark Summerfield stepped down from this role at the
conclusion of the 2014 reporting cycle. Hugh Green took over
the position for the 2015 audit and the Committee has been
pleased with the smooth transition. An effectiveness survey of
KPMG in late 2015 also concluded that a range of stakeholders
acknowledged that the transition had been smooth.
In recommending the reappointment of external auditors
at the AGM, the Committee has considered the latest EU
Audit Reforms guidance. Following consultation between the
Department for Business, Innovation and Skills (BIS) and the
Financial Reporting Council (FRC), it is now expected that Merlin
will be required to retender its audit no later than for the 2023
financial year and will bear in mind the next KPMG partner
rotation after the 2019 audit has concluded. The Committee has
considered whether a retender in 2016 would be appropriate as
part of its annual recommendation to the Board on the
appointment of the external auditors.
Merlin Entertainments plc Annual Report and Accounts 2015 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 the
most appropriate party to perform those services.
• 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. The Committee has determined that ‘non-audit fees’
should be no higher than 70% of ‘audit and audit-related
fees’; this level will continue to be monitored. The Committee
continues to monitor the implementation of the EU directive by
the UK Government which will, in future, place certain restrictions
around non-audit services performed by the auditors.
Fees for non-audit services during the year amounted to £0.8
million (2014: £0.8 million). This represents a ratio of 58%. 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.
AUDIT Committee Report
Assessment of the performance of the external auditors
Following consideration of the FRC’s Practice Aid on Audit
Quality, the Committee has evaluated the performance,
independence and objectivity of KPMG. One part of this
evaluation was an effectiveness assessment, facilitated by an
external party. This assessment was conducted by way of a series
of questionnaires issued to, and interviews with, Audit Committee
members and other attendees, and senior finance personnel both
at Merlin’s attractions and at its head office. The survey covered
KPMG’s mindset and culture, skills and knowledge, judgement
and quality control aspects of the audit.
The survey indicated widespread support of the quality of the
KPMG audit and the Committee were satisfied with KPMG’s
responses to points raised in the survey.
In addition, the effectiveness of KPMG’s 2015 audit was assessed
over the year by reference to the following factors:
• The performance of Hugh Green in his first year as Senior
Statutory Auditor, including his understanding of our business
and the impact on the Annual Report and Accounts.
• The robustness and perceptiveness of KPMG’s handling of
key accounting and audit judgements.
• 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.
After taking into account all of the above factors, the Committee
concluded that the external auditors were effective.
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Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
DIRECTORS’
Remuneration Report
STATEMENT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE
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.
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 2015.
• Annual Report on Remuneration contains details of
pay received by Directors in 2015 and full details of how we
intend to implement our pay policy during 2016. The Annual
Report on Remuneration will be subject to an advisory vote
at the 2016 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.
Remunerationprinciples
A series of key principles underpin the Merlin remuneration
structure: payments should be based on results and performance;
pay should be aligned to the long term success of the Company,
and consistent with best practice; widespread share ownership
should be encouraged.
Performance orientated
• Rewarding performance is a core part of our ethos.
About 80% of our permanent employees participate in a
bonus plan and over 325 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.
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Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’ Remuneration Report
RetirementofCFO
As a Committee, we recognise our responsibility to ensure that
pay decisions relating to departing Directors are determined
fairly both for shareholders and for the departing individuals.
As outlined in our announcements in January and February,
Andrew Carr has decided to retire and will step down as a Board
Director on 1 August 2016. Andrew will continue to work for
the Company until 31 October 2016 in order to provide
transitional support to the new CFO.
Andrew will receive no further payments following cessation of
employment and will not be eligible for future bonus or LTIP
awards and accordingly he will not be a participant in either
the 2016 annual bonus plan or the 2016 PSP award. Andrew’s
outstanding deferred bonus share award will vest upon cessation
of employment in accordance with our standard policy for good
leavers. His outstanding PSP awards will be time pro rata reduced
upon cessation of employment and will remain subject to the
existing performance conditions measured over the full three
year performance period.
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.
CharlesGurassa
ChairmanoftheRemunerationCommittee
24 February 2016
Performancein2015
The financial and operating performance of Merlin in 2015 is
set out on pages 2 to 57 in the Strategic Report.
2015 was a challenging year for Merlin. The Company grew
revenues by 2.3% (3.9% on a constant currency basis) but,
reflecting the lower levels of like for like revenue growth and
the significant decline in revenue in the Resort Theme Parks
Operating Group, underlying operating profit decreased by
£20 million, or 5.6% on a constant currency basis.
As a result of financial performance falling below expectations
the threshold for payment of profit-related bonus was not met.
As a consequence neither the CEO nor CFO will receive a
bonus in relation to 2015 performance.
Paydecisionsfor2016
The proposed pay structure for the Executive Directors for
2016 is outlined on pages 78 to 79. Key decisions made by
the Committee in relation to 2016 include:
• In order to be compliant with the revised UK Corporate
Governance Code, the Committee has strengthened the
existing provisions relating to the withholding and recovery
of incentive awards (‘malus’ and ‘clawback’ provisions) so
that they can potentially be applied to any element of the
Executive Directors’ variable pay awarded in respect of
2016. Further details of these provisions are outlined in
the ‘Implementation of remuneration policy in 2016’ section
of the Annual Report on Remuneration.
• Both Executive Directors asked not to be considered for an
increase in their salaries as part of the review to be effective
from 1 January 2016. The average salary increase for the
Merlin UK workforce effective 1 January 2016 is 1.5%.
• The Committee has agreed the same basic structure to the
bonus plan as 2015 with individual objectives for the Executive
Directors appropriately reflecting Company priorities.
• The Committee has also maintained the same basic structure
for the PSP with unchanged threshold and maximum
performance conditions.
• Following the announcement of the retirement of the current
CFO, Andrew Carr, and the appointment of Anne-Francoise
Nesmes the remuneration arrangements for Anne-Francoise
are set out on page 79 and those for Andrew are set
out as follows.
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ANNUAL REPORT ON REMUNERATION
The Annual Report on Remuneration will be subject to an advisory shareholder vote at the 2016 Annual General Meeting.
UNAUDITED INFORMATION
Implementationofremunerationpolicyin2016
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 2016 for the current Executive Directors. The remuneration arrangements for the new
CFO, Anne-Francoise Nesmes, are set out on page 79.
Base salary
Salary details for the current Executive Directors are set out below.
Nick Varney
Andrew Carr
Salary
1October2014
Salary
1October2015
£581,400
£351,900
£581,400
£351,900
%increase
Zero
Zero
Pension and benefits
As in 2015, the current 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 minimum Annual
Allowance of £10,000 and a cash allowance in respect of the balance. To the extent that a cash allowance is paid this is reduced by the
corresponding amount of employer National Insurance Contributions. They will also receive a standard package of other benefits
consistent with those received in 2015.
Annual bonus
The structure of the annual bonus plan for 2016 remains broadly consistent with the 2015 plan. Key features are as follows:
• The maximum annual bonus potential will be 150% of salary for the CEO and 135% 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.
• Bonus payments and deferred share awards will be subject to potential withholding or clawback during the three year period following
the award of the bonus in exceptional circumstances of evidence coming to light of misconduct justifying summary dismissal or of a
material misstatement of the financial accounts or an error in the calculation of the extent of payment or vesting of an incentive.
The annual bonus for 2016 for Executive Directors will be determined as detailed below:
Asapercentageofmaximumbonusopportunity
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 2016, 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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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 will be amongst the participants in the PSP award to be granted in April 2016. Awards will be over shares worth, at the date
of grant, 250% of salary for the CEO. Vesting of these awards will be subject to satisfaction of the following performance conditions
measured over the three financial years to December 2018. Owing to planned retirement the CFO will receive no award under the
PSP in 2016.
EPSperformancecondition(50%ofaward)
ROCEperformancecondition(50%ofaward)
Adjusted EPS growth
% of award vesting
Average ROCE
% of award vesting
Below threshold
Threshold
<7% p.a.
cumulative growth
7% p.a.
cumulative growth
0%
Below threshold
10%
Threshold
<9%
9%
0%
12.5%
Between threshold
and maximum
7% - 14% p.a.
cumulative growth
10% to 50%
on sliding scale
Between threshold
and maximum
9% - 13%
12.5% to 50% on
sliding scale
Maximum
14% p.a.
cumulative growth
50%
Maximum
13%
50%
Adjusted EPS is defined on page 164.
ROCE is defined on page 165.
Adjusted EPS growth will be calculated by comparing Adjusted EPS for the 2018 financial
year with Adjusted EPS for the 2015 financial year.
Average ROCE will be calculated as an average of ROCE for the 2016, 2017 and 2018
financial years.
PSP awards will be subject to potential withholding or clawback during the five year period following the date of award in exceptional
circumstances of evidence coming to light of misconduct justifying summary dismissal or of a material misstatement of the financial
accounts or an error in the calculation of the extent of payment or vesting of an incentive.
Employee Share Plan
Invitations to UK employees (including Executive Directors) to participate in the Employee Sharesave Plan (UK Sharesave Plan) were
issued in 2014 and 2015. Similar invitations were issued to relevant employees under the US Employee Stock Purchase Plan and the
Overseas Sharesave Plan.
Invitations for the next award under each of these plans commenced in February 2016.
New CFO pay arrangements
Anne-Francoise Nesmes will commence employment with Merlin on 1 August 2016. Her pay arrangements will be in line with our
policy and will comprise:
• Salary of £385,000 fixed until October 2017.
• Pension contribution worth 25% of salary plus a standard benefits package including relocation support.
• Annual bonus potential of up to 135% of salary paid in a mixture of cash and deferred shares as outlined above. In 2016, Ms Nesmes
will have a time pro-rated bonus potential.
• Annual PSP awards. The Committee’s current policy is that Ms Nesmes will receive an annual PSP award of shares worth 225% of
annual salary, consistent with the award policy for her predecessor. Her first PSP award will be granted in September 2016 shortly
after she commences employment with Merlin.
• Twelve month notice period.
For completeness, there are no buy-out arrangements to compensate for forfeited long term incentive awards.
In line with the Merlin shareholding requirement, Ms Nesmes will be expected to retain at least 50% of vested share awards
(after selling sufficient shares to satisfy tax liabilities) until she holds Merlin shares worth at least 200% of her salary.
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Non-executive Director remuneration
The table below shows the fee structure for Independent Non-executive Directors for 2016. 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 fee for UK-based Non-executive
2016
£50,000
Basic fee for overseas-based Non-executive
£50,000 plus a travel allowance of £1,000 per Board meeting attended in person
Senior Independent Director additional fee
Audit Committee Chairman additional fee
Remuneration Committee Chairman additional fee
Chairman of the Board all-inclusive fee
£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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AUDITED INFORMATION
The information provided in this section of the Remuneration Report up until the ‘Unaudited information’ heading on page 86 is subject to audit.
Singletotalfigureofremuneration
The following table sets out the total remuneration for Executive Directors and Non-executive Directors for 2015 with prior year
comparatives for 2014.
Allfiguresshownin£000
Executive Directors
Nick Varney
Andrew Carr
Non-executive Directors
Sir John Sunderland
Charles Gurassa
Ken Hydon
Miguel Ko (7)
Fru Hazlitt
Trudy Rautio (8)
Søren Thorup Sørensen
Dr. Gerry Murphy (7)
Rob Lucas (7)
Allfiguresshownin£000
Executive Directors
Nick Varney
Andrew Carr
Non-executive Directors
Sir John Sunderland
Charles Gurassa
Ken Hydon
Miguel Ko
Fru Hazlitt (9)
Søren Thorup Sørensen
Dr. Gerry Murphy
Rob Lucas
2015
Salary
andfees(1)
Benefits(2)
Annual
bonus(3)
Longterm
incentives(4)
Other(5)
Pension(6)
Total
581
352
250
70
60
21
50
14
-
-
-
21
17
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2014
-
-
-
-
-
-
-
-
-
-
-
3
3
-
-
-
-
-
-
-
-
-
128
82
-
-
-
-
-
-
-
-
-
733
454
250
70
60
21
50
14
-
-
-
Salary
andfees(1)
Benefits(2)
Annual
bonus(3)
Longterm
incentives(4)
Other(5)
Pension(6)
Total
573
347
250
70
60
50
38
-
-
-
20
18
-
-
-
-
-
-
-
-
859
444
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
3
-
-
-
-
-
-
-
-
127
81
-
-
-
-
-
-
-
-
1,582
893
250
70
60
50
38
-
-
-
Notes to the table - methodology:
(1) Salary and fees - this represents the cash paid or receivable in respect of the period.
(2)
(3)
(4)
(5)
(6)
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.
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 2015 bonus are disclosed below.
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 2014 and 2015.
Other - this column relates to the value of the grant of options under the UK Sharesave Plan. The grant has been valued, for the 2014 and 2015 grants respectively, at 22.6% and
29.8% of the face value of shares under option which is the IFRS 2 valuation for these awards.
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 benefit received by the Directors in respect of the
period. The 2014 figures have been amended to reflect the reduction in cash amount paid for the corresponding amount of employer National Insurance Contributions.
(7) Miguel Ko, Dr. Gerry Murphy and Rob Lucas stepped down from the Board on 14 May 2015. Fees shown for Miguel Ko are from 28 December 2014 to 14 May 2015.
(8) Trudy Rautio joined the Board on 1 October 2015. Fees shown in the table are from that date to 26 December 2015.
(9) 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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Additionaldisclosuresinrespectofthesinglefiguretable
Annual bonus
Executive Directors are participants in the central bonus plan. The maximum annual bonus opportunity for the Executive Directors for
2015 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 2015 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 2015 annual bonus are set out below.
In 2015 no bonus was payable to employees under the central bonus plan, including the Executive Directors, since the financial
threshold for payment of bonus was not achieved.
Performance
measure
Proportionof
bonusdetermined
bymeasure
Underlying
operating profit
80%
Threshold
performance
£310.6 million
(0% of bonus
payable)
Target
performance
Maximum
performance
£330.4 million
(40% of bonus
payable)
£350.2 million
(80% of bonus
payable)
Actual
performance
% of
maximum
bonuspayable
£291.5 million
0%
Individual
objectives
20% (1)
Following the year end, the Committee assessed performance
against the individual objectives for each Director for 2015.
CEO: The CEO met the majority of his personal objectives which
covered a range of areas from delivering new openings, new
accommodation rooms, customer satisfaction targets and
securing future sites.
CFO: The CFO met the majority of his personal objectives which
covered a range of areas including delivering new finance
facilities and implementing new systems.
0% as
threshold
profit target
was not
achieved
TOTAL
0% (CEO)
0% (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.
Schemeinterestsawardedduringthefinancialyear
Performance Share Plan awards
An award was granted under the PSP to selected senior executives, including the Executive Directors, on 2 April 2015. This award is
subject to the performance conditions described below and will vest on 2 April 2018.
Typeofaward
Maximum
numberof
shares
Facevalue
(£) (1)
Facevalue
(%ofsalary)
Thresholdvesting
(%ofaward)
Endof
performance
period
Nick Varney
Performance
shares
328,846
£1,453,500
250%
For EPS element
10% of award (max 50%)
30 December 2017
Andrew Carr
Performance
shares
179,134
£791,772
225%
For ROCE element
12.5% of award (max 50%)
(1)
The maximum number of shares that could be awarded has been calculated using the closing share price on 1 April 2015 of £4.42 and is stated before the impact of reinvestment of
the dividends paid since grant.
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Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’ Remuneration Report
EPSperformancecondition(50%ofaward)
ROCEperformancecondition(50%ofaward)
Adjusted EPS growth
% of award vesting
Average ROCE
% of award vesting
Below threshold
Threshold
‘Mid-point’
Maximum
<7% p.a.
cumulative growth
7% p.a.
cumulative growth
10.5% p.a.
cumulative growth
14% p.a.
cumulative growth
0%
Below threshold
10%
Threshold
27.5%
‘Mid-point’
50%
Maximum
<9%
9%
11%
13%
0%
12.5%
27.5%
50%
Based on Adjusted EPS as defined in the 2014 Annual Report and Accounts.
Based on ROCE as defined in the 2014 Annual Report and Accounts.
Adjusted EPS growth will be calculated by comparing Adjusted EPS for the 2017 financial
year with Adjusted EPS for the 2014 financial year.
Average ROCE will be calculated as an average of ROCE for the 2015, 2016
and 2017 financial years.
UK Sharesave awards
The Executive Directors participated in the 17 March 2015 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
Typeofaward
Share Option
Share Option
Maximumnumber
ofshares
Facevalue(£)
Optionsexercisable
2,780
2,780
£8,999
£8,999
1 April 2018 -
30 September 2018
Each option is exercisable at an exercise price of £3.2371. The option exercise price represents a 20% discount to the average closing
price of a share (£4.0463) on the three dealing days prior to the invitation to participate in the Company’s Plan which was 16 February
2015. The face value of options in the above table is based on the aforementioned exercise price.
Deferred Bonus Plan awards
The Executive Directors’ annual bonuses are delivered two-thirds in cash and one-third in shares under the Deferred Bonus Plan.
On 25 March 2015, the Executive Directors received an award of shares under the Deferred Bonus Plan relating to the 2014 annual
bonus. The value of these shares was included in the annual bonus figure in the 2014 single total figure of remuneration. No further
performance conditions apply to these shares.
Nick Varney
Andrew Carr
Typeofaward
Deferred shares
Deferred shares
Maximumnumber
ofshares(1)
Facevalue(£)
Vestingdate
64,364
33,308
£286,420
£148,220
25 March 2018
25 March 2018
(1)
The maximum number of shares awarded has been calculated using the closing share price on 24 March 2015 of £4.45 and is stated before the impact of reinvestment of the
dividends paid since grant.
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Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’ Remuneration Report
PaymentstopastDirectors
There were no payments to past Directors during 2015.
Paymentsforlossofoffice
There were no payments for loss of office to Directors during 2015.
StatementofDirectors’shareholdingandshareinterests
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 26 December 2015.
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.
Numberofshares
Valueofshareholdingat26
December2015asa%of
salary(Shareholding
requirementtarget)
Shares
owned
outrightat
26December2015
5,014% (200%)
3,625% (200%)
-
-
-
-
-
-
6,477,823
2,835,123
531,044
31,746
31,920
31,746
11,250
-
Director
Nick Varney (3)
Andrew Carr (3)
Sir John Sunderland
Charles Gurassa
Ken Hydon
Fru Hazlitt
Trudy Rautio
Søren Thorup Sørensen
Interestsinshareincentive
schemes,awardedwithout
performanceconditionsat
26December2015
Interestsinshare
incentiveschemes,
awardedsubjectto
performanceconditions
at26December2015(2)
Deferred
Sharesave Bonus(1)
5,816
5,816
65,346
33,816
-
-
-
-
-
-
-
-
-
-
-
-
PSP
906,636
494,997
-
-
-
-
-
-
Notes to the table:
(1)
In accordance with the Deferred Bonus Plan rules, the Committee has determined that an additional award of shares will be made in respect of shares which vest under Deferred
Bonus Plan awards to reflect the value of dividends which would have been paid on those shares during the deferral period (calculated on the assumption that dividends are
reinvested in Company shares on a cumulative basis). The total number of shares shown in this table includes 982 shares and 508 shares for Nick Varney and Andrew Carr
respectively which relate to assumed reinvestment of the dividends paid since grant on Deferred Bonus Plan awards.
(2) Further details relating to the PSP grants are summarised below.
(3) For the purposes of determining Executive Director shareholdings, the individual’s salary and the share price as at 26 December 2015 has been used (£4.50).
Between 26 December 2015 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 2015 DIRECTORS’ Remuneration Report
Outstanding awards under the PSP
Dateofgrant
Dateof
vesting
Maximum
numberof
shares
Facevalue
(%ofsalary)
Dividend
equivalent
shares(1)
Performance
condition
Endof
performance
period
Nick
Varney
12 November
2013
1 April 2017
560,952
310%
11,822
Andrew
Carr
12 November
2013
1 April 2017
306,667
280%
6,463
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%
December 2016
Dateofgrant
Dateof
vesting
Maximum
numberof
shares
Facevalue
(%ofsalary)
Dividend
equivalent
shares(1)
Performance
condition
Endof
performance
period
Nick
Varney
Andrew
Carr
2 April 2015
2 April 2018
328,846
250%
5,016
2 April 2015
2 April 2018
179,134
225%
2,733
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%
December 2017
(1)
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 since grant.
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Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’ Remuneration Report
UNAUDITED INFORMATION
The information provided in this section of the Remuneration Report is not subject to audit.
PerformancegraphandCEOremunerationtable
The chart below compares the Total Shareholder Return performance of the Company over the period from Listing to 26 December
2015 to the performance of the FTSE 350 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.
)
n
i
l
r
e
M
(
e
c
i
r
P
r
e
f
f
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e
h
t
t
a
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
l
a
V
)
0
5
3
E
S
T
F
(
g
n
i
t
s
i
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f
o
e
t
a
d
e
h
t
n
o
/
£150
£145
£140
£135
£130
£125
£120
£115
£110
£105
£100
£95
£90
115
101
100
Merlin Entertainments
FTSE 350
146
126
103
103
Listing
(13 November
2013)
2013 year end
(28 December
2013)
2014 year end
(27 December
2014)
2015 year end
(26 December
2015)
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(1)
151
n/a (no maximum
limit applied in 2013)
2014
1,582
100%
2015
733
0%
n/a (no award
vested in 2013)
n/a (no award
vested in 2014)
n/a (no award
vested in 2015)
CEO single figure of remuneration £000
Annual bonus payout
(as a % of maximum opportunity)
PSP vesting outturn
(as a % of maximum opportunity)
(1) From Listing on 13 November 2013 to 28 December 2013.
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Merlin Entertainments plc Annual Report and Accounts 2015
DIRECTORS’ Remuneration Report
PercentagechangeinremunerationoftheCEO
The table below indicates the change in the CEO’s remuneration between 2014 and 2015 and the change in average remuneration for
other UK employees between 2014 and 2015. The Remuneration Committee believes that the UK workforce is the most appropriate
comparator for this analysis for the UK based CEO.
Salaryincrease(1)
Benefitsincrease/decrease(2)
Annualbonusincrease/decrease(3)
CEO
0%
Average for all UK employees
+ 1.5%
+ 5%
+ 1%
- 100%
- 89%
(1) The CEO’s salary was increased by 2% effective 1 October 2014. There has been no further increase since that time.
(2) The CEO’s increase in benefits of 5% reflects the increased cost of company car provision (£1,000).
(3) For comparative purposes the annual bonus % for the CEO is compared to the average for the participants in the central bonus plan.
Relativeimportanceofthespendonpay
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.
400
350
300
250
m
£
200
150
100
50
0
+£15m4.8%
+£44m214.9%
-£20m(6.2%)
327
312
311
291
64
20
Employee costs
Distributions to
shareholders
Underlying
operating profit
(see page 108)
2014
2015
87
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’ Remuneration Report
ConsiderationbytheDirectorsofmattersrelatingtoDirectors’remuneration
The Committee has been chaired throughout the year by Charles Gurassa. The Committee has comprised the Chairman of the Board,
the Chairman of the Committee, Ken Hydon, Fru Hazlitt and Miguel Ko (until he stepped down from the Board on 14 May 2015).
The Committee met four times during 2015. The CEO, CFO, Group HR Director, Group Compensation & Benefits Director, Deputy
Company Secretary, Søren Thorup Sørensen 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 £47,915 in fees during 2015 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 indirect tax advice to the Company during the year.
Shareholdervotingon2014remunerationreport
At the 2015 Annual General Meeting, strong shareholder support was received for our resolutions on remuneration as summarised below.
Approval of the Annual Report on Remuneration
815 million (98%)
17 million (2%)
0.3 million
Votesfor
Votesagainst
Voteswithheld
Externalboardappointments
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.
AnnualGeneralMeeting
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 19 May 2016.
On behalf of the Board
CharlesGurassa
ChairmanoftheRemunerationCommittee
24 February 2016
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Merlin Entertainments plc Annual Report and Accounts 2015 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.
Policytable
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.
Purposeandlink
tostrategy
Fixedpay
Operation
Maximumopportunity
Performanceconditions(1)
Basesalary
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 2015Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’ Remuneration Report
Purposeandlink
tostrategy
Pension
To provide market
competitive retirement
benefits.
Variablepay
Operation
Maximumopportunity
Performanceconditions(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.
Annualbonus(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 2015 DIRECTORS’ Remuneration Report
Operation
Maximumopportunity
Performanceconditions(1)
Purposeandlink
tostrategy
PerformanceShare
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).
AllEmployeeSharePlan
(UKSharesaveScheme)
(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.
CompanyShareOption
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 2015Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’ Remuneration Report
Notes to the table:
(1)
(2)
(3)
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 was to make an adjustment of this sort, a full explanation
would be provided in the next Remuneration Report..
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.
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)
(5)
(6)
(7)
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.
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.
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.
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.
Differencesinpolicyfrombroaderemployeepopulation
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-executiveDirectors
Purposeandlinktostrategy
Operation
Opportunity
Non-executiveDirector(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 2015 DIRECTORS’ Remuneration Report
Illustrationsofapplicationofremunerationpolicy
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.
Assumedperformance
Assumptionsused
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
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Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’ Remuneration Report
Approachtorecruitmentremuneration
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 buy out 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 2015 DIRECTORS’ Remuneration Report
Servicecontracts
Key terms of the current Executive Directors’ service agreements and Non-executive Directors’ letters of appointment (other than
Non-executive Directors whose appointment is in respect of their position as representatives of the pre-IPO major shareholders) are
summarised in the table below. It is envisaged that any future appointments would have equivalent contractual arrangements unless
otherwise stated in this Policy Report.
Provision
Policy
Notice period
Executive Directors - twelve months’ notice by either the Company or the Executive Director.
Termination payment
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.
Policyonpaymentforlossofoffice
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.
ConsiderationofemploymentconditionselsewhereintheGroup
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.
Considerationofshareholders’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 2015Merlin Entertainments plc Annual Report and Accounts 2015 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.
Goodleaver
categories
Treatmentfor
goodleaver
Treatment
forany
otherleaver
Treatmentonachange
ofcontrol/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
BonusPlan
Performance
SharePlan
Company
ShareOption
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.
UKSharesave
Scheme/
Overseas
Sharesave
Scheme
USEmployee
StockPurchase
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.
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Merlin Entertainments plc Annual Report and Accounts 2015 NOMINATION
Committee Report
STATEMENT FROM THE CHAIRMAN OF THE NOMINATION COMMITTEE
Dear Shareholder
This report describes the activities of the Nomination Committee
during 2015. The Committee met three times during the year
and focused its attention on Board appointments, succession
planning and diversity.
Boardappointments
One of the primary objectives of the Nomination Committee
during the year has been to address the composition of the
Board following the departure of the Representative Directors
of Blackstone and CVC, having regard to the key markets of the
USA and Asia Pacific region in which a significant part of the
Group’s strategic development is focused.
Successionplanning
The Board and Nomination Committee have undertaken detailed
succession planning reviews during 2015, 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.
A number of important changes to the management structure
were implemented during the year, including the creation of a
New Openings group focused on developing and opening new
attractions globally. We continue to discuss the Group’s senior
management structure and how that might evolve as Merlin
continues its international expansion.
Following the announcement of the proposed departure of
Miguel Ko at the 2015 AGM, the Nomination Committee sought
to identify further Non-executive Directors with particular
knowledge and experience of the USA and Asia Pacific markets.
As a result Trudy Rautio was appointed as a Non-executive
Director with effect from 1 October 2015. Trudy’s extensive
knowledge of the US leisure market will be a valuable addition to
the Board. The appointment of Rachel Chiang as a Non-executive
Director with effect from 1 January 2016, with her significant
experience of the Asia Pacific market, further strengthened
the Board, in particular in relation to this important area of
development focus.
The Nomination Committee is satisfied that management have
implemented credible and effective succession planning across its
senior management and has a management structure which is
appropriate to its strategy.
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. This policy
is reflected in the approach we are taking to recruitment
at senior manager and Board level.
As a result of the Board changes during the year, the Board is
now fully compliant with the Board composition provisions of the
Code and reflects a wider diversity of skills, regional knowledge
and backgrounds.
SirJohnSunderland
ChairmanoftheNominationCommittee
24 February 2016
Reflecting these changes to the Board, a number of updates have
been made to the membership of the Committees, effective after
the Nomination Committee meeting on 24 February 2016. Fru
Hazlitt has stepped down from the Audit Committee. In addition
to both Trudy Rautio and Rachel Chiang joining the Audit
Committee, Trudy joined the Remuneration Committee and
Rachel joined the Health, Safety and Security Committee.
With effect from 24 February 2016, the Nomination Committee
will consist of Sir John Sunderland, Charles Gurassa, Fru Hazlitt
and Ken Hydon.
97
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’
Report
Introduction
This section of the Annual Report and Accounts includes
additional information required to be disclosed under the
Companies Act 2006, the DTRs, the Code and the Listing Rules.
Certain information required to be included in the Directors’
Report is included in other sections of this Annual Report
and Accounts.
These sections provide an overview of the strategy, development and
performance of the Company’s business in the year ended and as at
26 December 2015 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 57.
• The Corporate Governance Statement on page 58.
• The section entitled ‘Board of Directors’ on pages 59 to 61.
• The Corporate Governance Report on pages 62 to 65.
• The Health, Safety and Security Committee Report
on pages 66 to 69.
• The Audit Committee Report on pages 70 to 75.
• The Directors’ Remuneration Report on pages 76 to 96.
• The Nomination Committee Report on page 97.
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 and Accounts are shown in the following table:
Disclosure
Sectiontitle
Relationship
Agreements
(additional details)
Corporate Governance
Report
Pages
62 to 65
Internal Controls
Audit Committee Report
70 to 75
Financial Instruments Note 4.3 to
the Accounts
Share Capital and
Movements therein
Note 4.5 to
the Accounts
Subsidiary and
Associated
Undertakings
Note 5.8 to
the Accounts
135 to 138
141 to 142
150 to 154
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
Disclosure
Sectiontitle
Future Developments
Strategic Report
Pages
2 to 57
Søren Thorup Sørensen
Dr. Gerry Murphy
Research and
Development
Employee diversity
and engagement
Greenhouse Gas
Emissions
Disabled persons
Merlin Magic Making
32 to 35
Team Merlin
36 to 39
‘Being a Force for Good’ -
Corporate Social
Responsibility The Merlin Way
51 to 57
‘Being a Force for Good’ -
Corporate Social
Responsibility The Merlin Way
51 to 57
98
Rob Lucas
Trudy Rautio
Miguel Ko, Dr. Gerry Murphy and Rob Lucas were Directors from
the start of the financial year until the conclusion of the 2015
AGM. Trudy Rautio was appointed a Director with effect from
1 October 2015.
Rachel Chiang was subsequently appointed a Director with effect
from 1 January 2016.
Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’ Report
Each Director in post at the time of the AGM (other than
Miguel Ko, Dr. Gerry Murphy and Rob Lucas) offered themselves
for re-election at the 2015 AGM of the Company and their
re-election was approved by shareholders. All Directors (other
than Miguel Ko, Dr. Gerry Murphy and Rob Lucas) remained
in office at the end of the financial year.
Directors’indemnitiesandinsurance
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.
AppointmentandremovalofDirectors
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 and their rights to appoint
Directors are set out in the Corporate Governance section
on page 62.
Sharecapitalandrelatedmatters
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
and Accounts 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.
AmendmenttotheCompany’sArticlesofAssociation
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.
PowerofDirectorsinrespectofsharecapital
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.
Relatedparties
The only material agreements with related parties during the
year were 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: the Blackstone and CVC Relationship Agreements
ended when they ceased to be shareholders in March 2015;
more details on the KIRKBI Relationship Agreement are
provided in the Corporate Governance section on page 62.
There were no contracts of significance during the year to which
the Company, or any of its subsidiary undertakings, is a party and
in which a Director is or was materially interested.
99
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’ Report
Changeofcontrol
The only other significant agreements 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, are:
(i) a Multi-currency Facilities Agreement entered into by the
Group dated 25 February 2015 which replaced the Group’s
existing debt facilities. 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, after a
negotiation period, give the lenders under the Agreement
the right to accelerate outstanding loans and terminate
commitments. The outstanding senior unsecured facilities
comprise approximately £648 million in floating rate term
debt and a £300 million revolving credit facility, both to
mature in 2020.
(ii) an Indenture dated as of 19 March 2015 in relation to an
issue of €500 million 2.75% fixed rate notes due in 2022
(the notes) under which, in the event of a change of control
of the Company and a ratings event, the holders of the
notes may have the right to require that those notes be
repurchased at 101% of their principal nominal amount
plus any accrued and unpaid interest.
Further details on the Group’s banking facilities are shown in
note 4.2 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.
BranchesoutsidetheUK
Merlin Entertainments plc has no branches outside the UK.
Dividend
An interim dividend of 2.1 pence per share was paid on
24 September 2015 to shareholders on the Register on 14 August
2015. A final dividend for the year ended 26 December 2015
of 4.4 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.
Politicaldonations
No political donations were made during the year.
Subsequentevents
On 24 February 2016 the Group invested $34.4 million
(£24.6 million) in Big Bus Tours Group Holdings Limited, the
leading global owner-operator of Hop On Hop Off City Tours.
The consideration will be settled in cash and will provide Merlin
with a minority equity holding and an investment in loan notes.
Goingconcern
The Directors consider that the Group has adequate financial
resources to continue operating for the next twelve months 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.
The process followed by the Group in the preparation of the
Viability Statement is set out in the Risks and uncertainties
section on page 42.
Auditinformation
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-appointmentofauditors
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 2016 Annual General Meeting.
Approvalofannualreport
The Strategic Report, Corporate Governance Statement and
Report and the Directors’ Report were approved by the Board
on 24 February 2016.
For and on behalf of the Board
ColinN.Armstrong
GroupCompanySecretary
24 February 2016
MerlinEntertainmentsplc
Registered number 08700412
100
Merlin Entertainments plc Annual Report and Accounts 2015 DIRECTORS’
Responsibilities Statement
Directors’responsibilitiesstatement
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. The
Company has elected to prepare the Company financial
statements in accordance with UK Accounting Standards
including FRS 101 ‘Reduced Disclosure Framework’.
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.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the
preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
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 Group’s position
and 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
of the Group.
• For the Company financial statements, state whether
• The Company financial statements (which have been
prepared in accordance with applicable UK Accounting
Standards), give a true and fair view of the state
of affairs of the 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.
NickVarney
ChiefExecutiveOfficer
24 February 2016
AndrewCarr
ChiefFinancialOfficer
24 February 2016
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.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
101
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
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 26 December
2015 set out on pages 108 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
26 December 2015 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,
including FRS 101 Reduced Disclosure Framework; 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
The context for our audit is that there has been:
• a generally stable environment in which the Group has
operated, though parts of the Resort Theme Parks business
have been affected by a major accident at Alton Towers in the
year, which increased the risk over carrying values of certain
associated assets;
• no significant changes to the Group’s strategy and operations
that our audit has had to consider. The accesso® admissions
system has not had a significant bearing on our audit this
year; and
• a slight, but not significant lowering in our assessed materiality
given the increasing public profile of the Group.
In arriving at our audit opinion above on the financial statements
the risks of material misstatement that had the greatest effect on
our audit, in decreasing order of significance were as set out
below. While these risks are the same as in the prior year, we
have noted changes in the nature and emphasis of these risks
and in our responses to them below.
102
H
C
A
O
R
P
P
A
T
D
U
A
R
U
O
I
Materiality
• £14.3 million, representing 6.0%
of profit before tax.
Scope
• 75% 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.
Carrying value of non-current assets £2,475 million
(2014: £2,414 million): Risk vs 2014:
Refer to page 73 (Audit Committee Report) and pages 129 to
131 (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 that the future
performance of these assets may lead to their carrying values
not being recoverable in full. When impairment testing is
required there are inherent uncertainties in estimating the
value of assets to the business through discounted cash flows.
These uncertainties arise principally in the inputs used in
forecasting future cash flows (for example expected changes
in visitation at existing attractions, particularly where there
have been recent changes in the overall offering, new
and ongoing promotions or planned customer
experience improvements).
Merlin Entertainments plc Annual Report and Accounts 2015
INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only
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.
Additionally and specifically in relation to the Resort Theme
Parks goodwill, events during the year at Alton Towers have
meant that previous trading patterns have been disrupted and
greater uncertainty exists over forecasting visitor numbers.
The reduced EBITDA since June 2015 and the risk that a
return to previous levels of performance may not be achieved
immediately has reduced valuation headroom. This increases the
risk over this asset’s valuation. There is also uncertainty around
the most appropriate rate at which to discount these expected
future cash flows.
Revenue recognition £1,278 million (2014: £1,249 million):
Risk vs 2014:
Refer to page 73 (Audit Committee Report) and page 116
(accounting policy).
• The risk - Merlin’s revenues come from a number of different
channels, such as admissions ticketing income, annual passes,
spend in attractions on items such as food and drink and
accommodation revenues. These revenues arise across a
large portfolio 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 finance systems.
•
Our response - Our audit procedures included, amongst
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 activities such as new and ongoing promotions and
customer experience improvements, as well as the response
to specific events, including the accident at Alton Towers.
Our challenge of the forecasts included an assessment of the
Group’s assumptions around these activities, including a
comparison of expected changes against the past results of
similar activities carried out by the Group. In addition, specific
to Alton Towers, we considered historic peer group data for
incident recovery rates and their applicability to Merlin’s
business model and visitor market. We corroborated major
assumed cost reductions to detailed plans and wherever
possible contractual agreements. This allowed 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 were supported by our valuation
specialists in this work. We performed a sensitivity analysis of
the long term growth rate, 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.
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
of 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 means
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. 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 journal 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 by
checking the specific posting of revenue for days either
side of the period end; and substantive testing of deferred
and accrued revenue balances through agreeing back to
ticketing system records and checking underlying calculations,
corroboration of ticket usage terms to underlying contracts
and predictive analytical procedures based on
revenue movements.
103
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
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
12%
18%
13%
16%
7%
12%
2015
Assets 72%
PBT 75%
Revenue 75%
15%
8%
8%
13%
Scoping and
Coverage
15%
20%
2014
Assets 67%
PBT 84%
Revenue 70%
Key
Audits for group reporting purposes
Specified risk-focused audit procedures
Analysis at aggregated group level
All PBT percentages represent profits and losses before tax as calculated on an absolute basis, meaning the coverage is the proportion tested of total profits
added to total losses of individual components.
Our coverage of profits has decreased year on year as the results
at some larger sites (particularly Alton Towers) has reduced their
relative contribution.
The remaining 25% of total profits and losses that made up
Group profit before tax, 25% of total Group revenue and 28% of
total Group assets was represented by a large number of smaller
reporting components. None of these components individually
represent more than 4.4% 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
of the financial result and position at 17 of these reporting
components covering a further 7% of total profits or losses that
made up Group profit before tax. We have refined our scoping
compared to the approach we have followed in the past to
include more Midway attractions as, although each site tends to
be relatively small, this is an area where the Group is growing via
the roll out of new attractions. We adjusted the sites selected for
these procedures during the course of our work in response to a
change in perceived risk resulting from findings of Merlin’s Internal
Audit function. 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 components.
The materiality for the Group financial statements as a whole
was set at £14,300,000 for 2015 (2014: £15,500,000). This was
determined with reference to a benchmark of profit before tax,
of which it represents 6.0% (2014: 6.9%). This is lower than the
benchmark percentage used in 2014, because our view of the
increasing public profile of the Group meant we considered a
lower percentage to be appropriate. We initially planned a higher
materiality using 6.0% of budgeted profits and then lowered this
in line with the Group’s revised profit expectations following the
Alton Towers accident, adjusting our audit procedures accordingly.
We agreed with the Audit Committee that following this revision
to materiality, we would report all corrected and uncorrected
misstatements identified through our audit with a value in
excess of £715,000 (2014: £750,000), in addition to other audit
misstatements below that threshold that we believe warranted
reporting on qualitative grounds.
We audited 75% (2014: 84%) of the total profits and losses that
made up Group profit before tax, 75% (2014: 70%) of total
Group revenue and 72% (2014: 67%) of total Group assets.
This included the audit, for group reporting purposes, of the
financial information of certain components. It also included audit
procedures on finance costs and assets arising on consolidation;
the total of these balances were audited at group level. 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, Hong Kong and China.
104
Merlin Entertainments plc Annual Report and Accounts 2015 INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only
Profit before tax
£237 million
Materiality
£14.3 million
£14.3 million Whole financial
statements materiality
The Group audit team carried out audits for group reporting
purposes of the financial information of components covering
39% 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 6% of the total profits and losses that made up
Group profit before tax. The largest component audited by a
component audit team represented 12% of the total profits
and losses that made up Group profit before tax.
£4.5 million
Range of component
materiality (£0.44 million
to £4.5 million)
£0.715 million Misstatements reported
to the Audit Committee
Materiality of the Group financial statements
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 £440,000 to £4,500,000 having regard to the
mix of size and risk profile of the Group across components.
Detailed audit and specified procedure instructions were sent to
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 Hong Kong, China and Australia, 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.
105
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only
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.
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
• information given in the Corporate Governance Statement
we require for our audit; or
set out on pages 58 to 65 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.
• a Corporate Governance Statement has not been prepared
by the Company.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 100, in relation
5 We have nothing to report on the disclosures of
to going concern and longer term viability; and
principal risks
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
• the Directors’ statement of longer term viability on page 42,
concerning the principal risks, their management, and, based
on that, the Directors’ assessment and expectations of the
Group continuing in operation over the four years to 2019; or
• the disclosures in note 1.1 of the financial statements
concerning the use of the going concern basis of accounting.
6 We have nothing to report in respect of the matters on
which we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you
if, based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains a
material inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is
otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our audit and the Directors’
statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s position and 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.
• the part of the Corporate Governance Statement on page
58 relating to the Company’s compliance with the eleven
provisions of the 2014 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 101, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. A description of
the scope of an audit of financial statements is provided
on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate. This report is made
solely to the Company’s members as a body and is subject
to important explanations and disclaimers regarding
our responsibilities, published on our website at
www.kpmg.com/uk/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.
Hugh Green (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
Gateway House, Tollgate
Chandlers Ford
Southampton
SO53 3TG
24 February 2016
106
Merlin Entertainments plc Annual Report and Accounts 2015 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
2.5
PROFIT BEFORE TAX
EXCEPTIONAL ITEMS
FINANCE INCOME AND COSTS
TAXATION
EARNINGS PER SHARE
SECTION 3 - OPERATING ASSETS AND LIABILITIES
3.1
3.2
3.3
3.4
3.5
PROPERTY, PLANT AND EQUIPMENT
GOODWILL AND INTANGIBLE ASSETS
IMPAIRMENT TESTING
WORKING CAPITAL
PROVISIONS
SECTION 4 - CAPITAL STRUCTURE AND FINANCING
4.1
4.2
4.3
4.4
4.5
4.6
NET DEBT
INTEREST-BEARING LOANS AND BORROWINGS
FINANCIAL RISK MANAGEMENT
LEASE OBLIGATIONS
EQUITY AND CAPITAL MANAGEMENT
SHARE-BASED PAYMENT TRANSACTIONS
SECTION 5 - OTHER NOTES
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
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
108
109
110
111
112
113
115
118
118
120
124
125
127
129
131
133
134
134
135
139
141
142
145
145
147
148
149
149
149
150
107
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 CONSOLIDATED INCOME STATEMENT
For the 52 weeks ended 26 December 2015 (2014: 52 weeks ended 27 December 2014)
2015
2014
Note
2.1
2.1
2.1
2.1
3.1, 3.2
2.3
2.3
2.4
Underlying
trading
£m
Exceptional
items (3)
£m
1,278
(193)
1,085
(327)
(68)
(87)
(201)
402
(111)
291
5
(46)
250
(70)
180
-
-
-
-
-
-
-
-
-
-
1
(14)
(13)
3
(10)
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)
2.5
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)
Total
£m
1,278
(193)
1,085
(327)
(68)
(87)
(201)
402
(111)
291
6
(60)
237
(67)
170
16.8
Total
£m
1,249
(181)
1,068
(312)
(62)
(83)
(200)
411
(100)
311
2
(87)
226
(64)
162
16.0
(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 2015 and 2014 is wholly attributable to the owners of the Company.
(3) Details of exceptional items are provided in note 2.2.
108
Merlin Entertainments plc Annual Report and Accounts 2015 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 52 weeks ended 26 December 2015 (2014: 52 weeks ended 27 December 2014)
Profit for the year
Other comprehensive income
Items that cannot be reclassified to the consolidated income statement
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 the consolidated income statement
Exchange differences on the retranslation of net assets of foreign operations
Exchange differences relating to the net investment in foreign operations
Cash flow hedges - effective portion of changes in fair value
Cash flow hedges - reclassified to profit and loss
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
2015
£m
170
2014
£m
162
5.2
5.2
2.2
2.4
(1)
-
(1)
(36)
3
(2)
14
(2)
(23)
(24)
146
(1)
(1)
(2)
(23)
7
(9)
-
-
(25)
(27)
135
(1) Total comprehensive income for 2015 and 2014 is wholly attributable to the owners of the Company.
109
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 26 December 2015 (2014: 27 December 2014)
Non-current assets
Property, plant and equipment
Goodwill and intangible assets
Investments
Other receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Total assets
Current liabilities
Interest-bearing loans and borrowings
Derivative 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
3.1
3.2
5.1
3.4
2.4
3.4
3.4
4.1
4.2
3.4
3.5
4.2
4.4
3.4
3.5
5.2
2.4
4.5
2015
£m
1,495
923
11
11
35
2014
£m
1,410
942
6
7
49
2,475
2,414
30
76
2
152
260
26
60
1
285
372
2,735
2,786
4
1
235
22
4
266
5
12
226
27
4
274
1,003
1,131
82
24
51
5
155
1,320
1,586
1,149
1,145
4
1,149
84
23
50
5
156
1,449
1,723
1,063
1,059
4
1,063
The financial statements were approved by the Board of Directors on 24 February 2016 and were signed on its behalf by:
Nick Varney
Chief Executive Officer
Andrew Carr
Chief Financial Officer
110
Merlin Entertainments plc Annual Report and Accounts 2015
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 52 weeks ended 26 December 2015 (2014: 52 weeks ended 27 December 2014)
Hedging
reserve
£m
Retained
earnings
£m
Total
parent
equity
£m
Non-
controlling
interest
£m
Total
equity
£m
Share
capital
£m
Share
premium
£m
Capital
reserve
£m
Note
At 29 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
Profit for the year
Other comprehensive
income for the year net
of income tax
Total comprehensive
income for the year
Equity dividends
Equity-settled
share-based transactions
At 26 December 2015
4.5
4.5
4.6
4.5
4.6
4.5
-
-
-
-
-
-
10
-
-
-
-
-
10
-
-
-
-
-
-
-
-
(3,183)
2,250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Trans-
lation
reserve
£m
(85)
-
(16)
(2)
-
(9)
84
162
940
162
(2)
(27)
(16)
(9)
160
135
-
-
-
-
-
-
(20)
933
4
(20)
-
4
(101)
(11)
1,161
1,059
-
-
170
170
(34)
(34)
-
-
(135)
11
11
-
-
-
(1)
(24)
169
(64)
4
146
(64)
4
4
-
-
-
-
-
-
4
-
-
-
-
-
944
162
(27)
135
(20)
-
4
1,063
170
(24)
146
(64)
4
1,270
1,145
4
1,149
111
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 Note
2015
£m
2014
£m
170
111
(6)
60
67
402
(19)
1
384
(59)
325
1
(5)
(215)
(219)
(64)
1,002
(14)
(42)
(13)
(1,112)
(243)
(137)
285
4
152
162
100
(2)
87
64
411
(4)
4
411
(54)
357
2
(3)
(192)
(193)
(20)
-
-
(58)
-
(70)
(148)
16
264
5
285
3.1, 3.2
2.3
2.3
2.4
5.1
4.5
2.2
4.1
4.1
CONSOLIDATED STATEMENT OF CASH FLOWS
For the 52 weeks ended 26 December 2015 (2014: 52 weeks ended 27 December 2014)
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 investments
Acquisition of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Equity dividends paid
Proceeds from bank loans
Financing costs
Interest paid
Settlement of interest rate swaps
Repayment of borrowings
Net cash outflow from financing activities
Net (decrease)/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
112
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 1 BASIS OF PREPARATION
52 weeks ended 26 December 2015
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 Financial Reporting Standard 101
Reduced Disclosure Framework (FRS 101).
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 26 December 2015 (2014: 52 weeks ended 27 December 2014). 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.
The consolidated financial statements are presented in Sterling.
All values are stated in £ million (£m) except where otherwise indicated.
Going concern
The Group reported a profit for the year of £170 million (2014: £162 million) and generated operating cash inflows of £325 million
(2014: £357 million). Following a refinancing in March 2015, extending maturities and diversifying the Group’s sources of funding, the
Group is now funded by bank facilities due for repayment in 2020 and fixed rate notes due for repayment in 2022. The Group has
access to a £300 million revolving credit facility to support its liquidity needs of which £nil was drawn down at the year end. The
Group’s forecasts show that it is expected to be able to operate within the terms of these facilities. Further details of these facilities
are provided in note 4.2.
After reviewing the Group’s statement of financial position, available facilities, cash flow forecasts and trading budgets and making
appropriate enquiries, the Directors believe the Group to be operationally and financially robust and have a reasonable expectation
that the Group has adequate resources to continue in operational existence for the next twelve months. 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, 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.
113
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
SECTION 1 BASIS OF PREPARATION (continued)
52 weeks ended 26 December 2015
1.1 Basis of preparation (continued)
Foreign currency
Foreign currency transactions are translated 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.
In this regard the impairment testing (note 3.3) involves a higher degree of judgement or complexity and is explained in more detail in
the related note.
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 5.5.
114
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 2 RESULTS FOR THE YEAR
52 weeks ended 26 December 2015
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.
Midway Attractions
£m
LEGOLAND
Parks
£m
Resort Theme
Parks
£m
Segment results
£m
2015
Segment revenue
Segment profit, being segment EBITDA (1)
Segment depreciation and amortisation
Segment operating profit (1)
2014
Segment revenue
Segment profit, being segment EBITDA (1)
Segment depreciation and amortisation
Segment operating profit (1)
561
221
(54)
167
529
214
(47)
167
429
169
(23)
146
386
142
(22)
120
285
47
(29)
18
331
87
(27)
60
1,275
437
(106)
331
1,246
443
(96)
347
Reconciliation to statutory items included in the consolidated income statement
2015
Segment results
Other items (1), (2)
Total per consolidated income statement
2014
Segment results
Other items (1), (2)
Total per consolidated income statement
Revenue
£m
EBITDA
£m
Depreciation and
amortisation
£m
Operating profit
£m
1,275
3
1,278
1,246
3
1,249
437
(35)
402
443
(32)
411
(106)
(5)
(111)
(96)
(4)
(100)
331
(40)
291
347
(36)
311
(1) During 2015 the Group has revised how certain costs are internally allocated to its three Operating Groups. There has been no
change to the operating segments or their composition. This change does not affect the 2014 figures. The effect has been to increase
the 2015 reported segment EBITDA and operating profit in Midway Attractions, LEGOLAND Parks and Resort Theme Parks by
£4 million, £1 million and £2 million respectively, with an equivalent increase in costs of £7 million reported within ‘Other items’
in the tables above.
(2) Other items include Merlin Magic Making, head office costs and various other costs, which cannot be directly attributed to
the reportable segments.
115
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 26 December 2015
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
Revenue
Revenues
2015
£m
Non-current
assets
2015
£m
Revenues
2014
£m
Non-current
assets
2014
£m
467
300
336
175
851
764
481
333
490
318
274
167
811
794
429
325
1,278
2,429
1,249
2,359
35
11
2,475
49
6
2,414
Accounting policy
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 current and previous years is not material.
Cost of sales
Cost of sales of £193 million (2014: £181 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.
116
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 26 December 2015
2.1 Profit before tax (continued)
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:
2015
16,980
1,841
18,821
2014
15,567
1,760
17,327
Wages and salaries
Share-based payments (note 4.6)
Social security costs
Other pension costs
Auditor’s remuneration
Audit of these financial statements
Audit of financial statements of subsidiaries
Other assurance services
Other services relating to taxation
2015
£m
279
4
34
10
327
2015
£m
1.2
0.3
0.4
0.4
2.3
2014
£m
266
4
32
10
312
2014
£m
1.2
0.3
0.4
0.4
2.3
117
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 26 December 2015
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 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 finance income and costs
Foreign exchange gain (1)
Cash flow hedges - reclassified to profit and loss (1)
Loss on re-measurement of financial liabilities measured at amortised cost (2)
Exceptional items before income tax
Income tax credit on exceptional items above
Exceptional items for the year
2015
£m
2014
£m
(1)
14
-
13
(3)
10
-
-
23
23
(6)
17
(1) As part of the refinancing undertaken during the year (see note 4.2), the Group incurred net exceptional financing costs of
£13 million. The Group restructured its interest rate swaps as part of a wider refinancing of the debt facilities, and paid a net
£13 million to cash settle certain swaps. In respect of these swaps, £14 million had previously been hedge accounted through equity
and was therefore recycled through the income statement. This was then offset by foreign exchange gains of £1 million as part of the
wider refinancing. These have been separately presented in order to better present the underlying finance cost for the Group.
Further details of the Group’s borrowings are presented in note 4.2.
(2)
The Group determined at 27 December 2014 that a more reliable estimate could be formed of the likelihood and timeframe for
an earlier refinancing of its existing bank facilities than the contractual repayment date of July 2019. This was determined following
reviews undertaken by management and external advisors of refinancing options. As a result the Group accelerated the amortisation
of financing costs and the resulting adjustment was recognised as a loss on re-measurement and separately presented in the income
statement as an exceptional charge as it was not part of the Group’s underlying finance cost.
2.3 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.
118
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 26 December 2015
2.3 Finance income and costs (continued)
Finance income and costs
Finance income
Underlying trading
In respect of assets not held at fair value
Interest income
Other
Net foreign exchange gain
Exceptional items
Other
Net foreign exchange gain (note 2.2)
Finance costs
Underlying trading
In respect of liabilities not held at fair value
Interest expense on financial liabilities measured at amortised cost
Other interest expense
Exceptional items
In respect of liabilities not held at fair value
Loss on re-measurement of financial liabilities measured at amortised cost (note 2.2)
In respect of liabilities held at fair value
Cash flow hedges - reclassified to profit and loss (note 2.2)
2015
£m
2014
£m
2
3
5
1
6
2
-
2
-
2
2015
£m
2014
£m
44
2
46
-
14
14
60
62
2
64
23
-
23
87
Capitalised borrowing costs amounted to £2 million in 2015 (2014: £2 million), with a capitalisation rate of 3.2% (2014: 4.2%). Tax relief
on capitalised borrowing costs amounted to £nil in 2015 (2014: £1 million).
119
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 26 December 2015
2.4 Taxation
Accounting policies
The tax charge for the year is recognised in the income statement and the statement of comprehensive income, according to the
accounting treatment of the related transaction. The tax charge comprises both current and deferred tax.
Current tax is the expected tax payable on the taxable income for the year, using tax rates substantively enacted at the end of the
reporting period, and any adjustment to tax payable in respect of previous periods.
Deferred tax is provided on certain temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and taxation purposes respectively. The following temporary differences are not provided for: the initial recognition
of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business
combination; and differences relating to investments in subsidiaries and joint ventures to the extent that they will probably not reverse
in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of
the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period.
After considering forecast future profits, deferred tax assets are recognised where it is probable that future taxable profits will be
available against which those assets can be utilised.
2015
£m
2014
£m
60
(4)
56
7
-
4
11
67
56
3
59
4
(1)
2
5
64
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
120
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 26 December 2015
2.4 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
2015
%
20.3%
3.8%
(1.9)%
7.6%
-
(0.1)%
(1.6)%
-
28.1%
2015
£m
237
48
9
(4)
18
-
-
(4)
-
67
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
The effective tax rate (ETR) reflects updates to the headline UK rate, including the effect on the measurement of deferred tax.
The difference between the reported ETR of 28.1% and the UK standard weighted tax rate of 20.3% is mainly due to the different tax
rates that apply in the various jurisdictions the Group operates in around the world.
The ETR based on underlying trading, excluding exceptional items, was 27.9% in 2015 (2014: 28.0%).
Recognised directly in equity through the statement of other comprehensive income
Foreign exchange translation differences relating to the net investment in foreign operations
Effective portion of changes in fair value of cash flow hedges
Total tax expense in statement of other comprehensive income
2015
£m
2014
£m
1
1
2
-
-
-
121
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 26 December 2015
2.4 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
2015
£m
2014
£m
21
32
-
3
56
(21)
35
30
31
-
-
61
(12)
49
Liabilities
Net
2015
£m
(123)
(6)
(47)
-
(176)
21
(155)
2014
£m
(114)
(7)
(47)
-
(168)
12
(156)
2015
£m
(102)
26
(47)
3
(120)
-
(120)
2014
£m
(84)
24
(47)
-
(107)
-
(107)
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
28 December
2014
£m
Recognised in
income
£m
Recognised
in other
comprehensive
income
£m
Effect of
movements
in foreign
exchange
£m
26 December
2015
£m
(84)
24
(47)
-
(107)
(18)
4
-
3
(11)
-
(2)
-
-
(2)
-
-
-
-
-
(102)
26
(47)
3
(120)
In 2015 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 movements in financial assets and liabilities, accruals and prepayments in the USA.
122
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 26 December 2015
2.4 Taxation (continued)
Movement in deferred tax during the previous year
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)
Property, plant and equipment
Other short term temporary differences
Intangible assets
Tax value of loss carry-forwards
Net tax (liabilities)/assets
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.
Unrecognised deferred tax assets
Property, plant and equipment
Other short term temporary differences
Intangible assets
Tax value of loss carry-forwards
Net unrecognised tax assets
2015
£m
2014
£m
3
16
1
47
67
4
23
3
51
81
The unrecognised deferred tax assets relating to loss carry-forwards include £1 million (2014: £1 million) which expire within five years
and £1 million (2014: £nil) 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 utilised.
123
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 2 RESULTS FOR THE YEAR (continued)
52 weeks ended 26 December 2015
2.5 Earnings per share
Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year.
Diluted earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the year 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 year 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
2015
£m
170
10
180
2014
£m
162
17
179
2015
2014
1,013,746,032
1,013,746,032
1,720,789
434,077
1,015,466,821
1,014,180,109
Share incentive plans (see note 4.6) are treated as dilutive to earnings per share when, at the reporting date, the awards are both ‘in the
money’ and would be issuable had the performance period ended at that date.
In 2015, the PSP has a dilutive effect as the performance measures have been partially achieved, whereas the DBP, CSOP and AESP are
dilutive as certain option tranches are ‘in the money’, after accounting for the value of services rendered in addition to the option price.
In 2014 the PSP had a dilutive effect as the performance measures had been partially achieved, whereas the DBP was not dilutive as the
awards had not yet been issued, and the CSOP was not dilutive as the options were ‘out of the money’ after accounting for the value of
services rendered in addition to the option price.
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
2015
Pence
16.8
1.0
17.8
2014
Pence
16.0
1.7
17.7
124
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 3 OPERATING ASSETS AND LIABILITIES
52 weeks ended 26 December 2015
3.1 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.
Assets acquired through business combinations
At the time of a business combination PPE is separately recognised and valued. Given the specialised nature of the PPE 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 below. Residual values
are based on industry specific indices.
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 3.5.
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 operational 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. No residual values are typically considered.
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
125
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 26 December 2015
3.1 Property, plant and equipment (continued)
Property, plant and equipment
Land and
buildings
£m
Plant and
equipment
£m
Under
construction
£m
862
29
3
(1)
37
(11)
919
25
3
(6)
53
(17)
977
161
26
1
(1)
-
187
28
1
(6)
-
210
701
732
767
861
46
2
(3)
57
(9)
954
42
-
(10)
88
(16)
1,058
303
69
3
(3)
(5)
367
78
3
(10)
(8)
430
558
587
628
62
123
-
-
(94)
-
91
151
-
-
(141)
(1)
100
-
-
-
-
-
-
-
-
-
-
-
62
91
100
Total
£m
1,785
198
5
(4)
-
(20)
1,964
218
3
(16)
-
(34)
2,135
464
95
4
(4)
(5)
554
106
4
(16)
(8)
640
1,321
1,410
1,495
Cost
Balance at 29 December 2013
Additions
Movements in asset retirement provisions
Disposals
Transfers
Effect of movements in foreign exchange
Balance at 27 December 2014
Additions
Movements in asset retirement provisions (note 3.5)
Disposals
Transfers
Effect of movements in foreign exchange
Balance at 26 December 2015
Depreciation
Balance at 29 December 2013
Depreciation for the year - owned assets
Depreciation for the year - leased assets
Disposals
Effect of movements in foreign exchange
Balance at 27 December 2014
Depreciation for year - owned assets
Depreciation for year - leased assets
Disposals
Effect of movements in foreign exchange
Balance at 26 December 2015
Carrying amounts
At 29 December 2013
At 27 December 2014
At 26 December 2015
126
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 26 December 2015
3.1 Property, plant and equipment (continued)
PPE was tested for impairment in accordance with the Group’s accounting policy, as referred to in note 3.3. No impairment charges
have been made in the current or prior year.
The Group leases buildings and plant and equipment under finance lease agreements secured on those assets. At 26 December 2015
the net carrying amount of leased buildings was £16 million (2014: £18 million) and the net carrying amount of leased plant and
equipment was £30 million (2014: £34 million). Further details in respect of leases and lease obligations are provided in note 4.4.
Capital commitments
At the year end the Group has a number of outstanding capital commitments in respect of capital expenditure at its existing attractions
and for Midway attractions that are under construction. These are expected to be settled within two financial years of the reporting
date. These amount to £32 million (2014: £50 million) for which no provision has been made.
In addition, at year end foreign exchange rates, the Group is expecting to invest a further £98 million in LEGOLAND Japan and
LEGOLAND Korea over the period from 2016 to 2018.
3.2 Goodwill and intangible assets
Accounting policies
Goodwill represents the difference between the cost of an acquisition and the fair value of the identifiable net assets acquired less 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 finite 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)
127
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 26 December 2015
3.2 Goodwill and intangible assets (continued)
Goodwill and intangible assets
Cost
Balance at 29 December 2013
Additions
Effect of movements in foreign exchange
Balance at 27 December 2014
Additions
Effect of movements in foreign exchange
Balance at 26 December 2015
Amortisation
Balance at 29 December 2013
Amortisation for the year
Effects of movements in foreign exchange
Balance at 27 December 2014
Amortisation for the year
Effect of movements in foreign exchange
Balance at 26 December 2015
Carrying amounts
At 29 December 2013
At 27 December 2014
At 26 December 2015
Intangible assets
Goodwill
£m
Brands
£m
Other
£m
942
-
(17)
925
-
(19)
906
174
-
(3)
171
-
(2)
169
768
754
737
191
-
(5)
186
-
(4)
182
12
-
-
12
-
-
12
179
174
170
25
1
-
26
3
(1)
28
11
1
-
12
1
(1)
12
14
14
16
Total
£m
1,158
1
(22)
1,137
3
(24)
1,116
197
1
(3)
195
1
(3)
193
961
942
923
Intangible assets are tested for impairment in accordance with the Group’s accounting policy, as referred to in note 3.3. As a result of
these tests, no impairment charges have been made in the year (2014: £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
128
2015
£m
524
37
176
737
2014
£m
530
38
186
754
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 26 December 2015
3.2 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
2015
£m
2014
£m
26
15
10
8
59
42
32
15
10
12
111
170
26
15
10
8
59
45
32
15
11
12
115
174
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.
3.3 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.
129
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 26 December 2015
3.3 Impairment testing (continued)
For assets that are in continuing use but 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 which 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, being the current year and four
future years, are used as the basis for these calculations, with cash flows beyond the four year outlook period 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 rate
Discount rates to reflect
the risks involved
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% (2014: 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 9.1% and 12.7% (2014: 9.4% and 13.1%), derived
from the Group’s post-tax weighted average cost of capital of between 7.2% and 9.4% (2014: 7.4% and 9.7%).
Sensitivity analysis
Impairment reviews are often sensitive to changes in key assumptions. Sensitivity analysis has therefore been performed on the
calculated recoverable amounts considering incremental changes in the key assumptions of EBITDA, discount rate and long term growth
rate in relation to value in use calculations.
When reviewing the outputs of the sensitivity analysis, particular focus is given to material amounts where headroom is more limited.
As in prior years, this solely relates to goodwill attributed to the Resort Theme Parks Operating Group (RTP) where the headroom is
£55 million. The Midway Attractions and LEGOLAND Parks Operating Groups, as well as individual brands, show considerable
headroom and are not sensitive to even significant changes in any of the key assumptions.
130
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 26 December 2015
3.3 Impairment testing (continued)
For RTP, where recoverable amount was based upon value in use, testing was performed on forward looking data extracted from the
Group’s strategic plan. As this plan was prepared before the accident at Alton Towers in June, revised amounts have been included in
the four year outlook period reflecting significant cost saving initiatives implemented at Alton Towers during 2015, as well as to consider
future performance of the Operating Group including, but not limited to, the anticipated recovery in trading for Alton Towers in 2016
and beyond.
In undertaking sensitivity analysis for RTP, consideration has been given to increases in discount rates and movements in EBITDA. It has
also specifically considered the short and long term downside risks to EBITDA at Alton Towers. These calculations do not take account
of further potential operational cost or capital expenditure controls which would be possible were they required.
At the year end the Directors consider that the forecasts used reflect the current best estimate of future trading in RTP. It is noted
however that the calculations are inherently sensitive to the pace of the recovery at Alton Towers. While in the short term a delay in
the pace of the recovery would be highly unlikely to affect valuations by a substantial amount, longer term shortfalls that affect the
outlook for the fourth year of the plan (which drive the terminal value) would have a more significant impact. If EBITDA for RTP as a
whole were forecast to be 6% lower than currently anticipated for 2020, headroom would be absorbed in full. While it is not impossible
for such a shortfall to occur, the Directors do not consider it to be probable based on the strength of the product development,
diversity across the businesses in RTP and our proven track record in scaling our cost base to respond to changing demand.
Discount rates have been derived from market data. As these rates are intended to be long term in nature they are expected to be
reasonably stable in the short term, however market discount rates could increase in future. If the discount rate used across RTP had
been higher by a factor of 6%, headroom would have been absorbed in full. The Directors have formed their best estimate of the
discount rate and do not consider that such a move in the rate is appropriate, but it is not impossible that a different view of
discount rates could be required in the future.
The long term growth rate, which is applied to the cash flows of the final year in the business plan, 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. The Directors do not consider it probable that this rate will prove to be inappropriate in the future, but note
that if circumstances caused the rate to lower to 1.7%, headroom would be absorbed in full.
3.4 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
2015
£m
7
23
30
2014
£m
6
20
26
131
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 26 December 2015
Ageing of trade receivables
The ageing analysis of trade receivables, net of allowance for uncollectible amounts, is as follows:
3.4 Working capital (continued)
Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Neither past due nor impaired
Up to 30 days overdue
Between 30 and 60 days overdue
Over 60 days overdue
Trade and other payables
Trade payables
Accruals
Deferred income
Other payables
Current assets
Non-current assets
2015
£m
20
25
31
76
2014
£m
16
17
27
60
2015
£m
-
-
11
11
2015
£m
10
8
1
1
20
2014
£m
-
-
7
7
2014
£m
10
4
1
1
16
Current liabilities
Non-current liabilities
2015
£m
41
108
72
14
235
2014
£m
31
115
69
11
226
2015
£m
2014
£m
-
2
-
22
24
-
2
-
21
23
Accruals
Accruals comprise balances in relation to both operating and capital costs incurred at the reporting 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 reporting 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.
132
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
52 weeks ended 26 December 2015
3.5 Provisions
Accounting policy
Provisions are recognised when the Group has legal or constructive obligations as a result of past events and it is probable that
expenditure will be required to settle those obligations. They are measured at the Directors’ best estimates, after taking account of
information available and different possible outcomes.
If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Provisions
Balance at 28 December 2014
Provisions made during the year
Utilised during the year
Unused amounts reversed
Unwinding of discount
Effect of movements in foreign exchange
Balance at 26 December 2015
2015
Current
Non-current
2014
Current
Non-current
Asset retirement
provisions
£m
Other
£m
Total
£m
36
3
-
-
1
-
40
-
40
40
-
36
36
18
3
(3)
(2)
-
(1)
15
4
11
15
4
14
18
54
6
(3)
(2)
1
(1)
55
4
51
55
4
50
54
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.
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.
133
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING
52 weeks ended 26 December 2015
4.1 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 4.2)
Finance leases (note 4.4)
Net debt
28
December
2014
£m
285
(1,136)
(851)
(84)
(935)
Net
cash flows
£m
Non-cash
movement
£m
Effect of
movements
in foreign
exchange
£m
26
December
2015
£m
(137)
124
(13)
-
(13)
-
(3)
(3)
-
(3)
4
8
12
2
14
152
(1,007)
(855)
(82)
(937)
Restricted funds of £nil (2014: £6 million) are included in cash and cash equivalents.
4.2 Interest-bearing loans and borrowings
Accounting policy
Interest-bearing loans and borrowings are initially recognised at fair value less attributable fees. These fees are then amortised through
the income statement on an effective interest rate basis over the expected life of the loan (or over the contractual term where there is
no clear indication that a shorter life is appropriate). If the Group subsequently determines that the expected life has changed, the
resulting adjustment to the effective interest rate calculation is recognised as a gain or loss on re-measurement and presented
separately in the income statement.
Interest-bearing loans and borrowings
2015
£m
640
-
363
-
-
2014
£m
-
1,131
-
-
-
1,003
1,131
4
1,007
5
1,136
Non-current
Floating rate bank facilities due 2020
Floating rate bank facilities due 2019 (repaid March 2015)
€500 million fixed rate notes due 2022
£300 million floating rate revolving credit facility due 2020
£150 million floating rate revolving credit facility due 2019 (cancelled March 2015)
Current
Interest payable
134
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 26 December 2015
4.2 Interest-bearing loans and borrowings (continued)
In 2015 the Group refinanced its long term debt.
The new committed facilities are:
• Bank facilities comprising £250 million, $540 million and €50 million floating rate term debt to mature in March 2020. The relevant
floating interest rates are LIBOR, the USD benchmark rate and EURIBOR, which were 0.59%, 0.57% and (0.13)% respectively at
26 December 2015. The margin on the bank facilities is dependent on the Group’s adjusted leverage ratio and is currently 2.0%.
• A £300 million multi-currency revolving credit facility. The margin on this facility is also dependent on the Group’s adjusted leverage
ratio and would currently be at a margin when drawn of 1.75% over the same floating interest rates.
• A bond in the form of €500 million seven year notes with a coupon rate of 2.75% to mature in March 2022.
These new facilities enabled the repayment of the existing secured facilities due to mature in 2019. The fees related to the new facilities
are being amortised to the maturity of the debt as the debt is currently expected to be held for its full term.
All 2014 facilities were secured by fixed charges over the shares in certain Group companies and certain intra-group receivables.
This security was released in 2015. The borrowings under the new bank facilities (including the revolving credit facility) and the
€500 million bonds are unsecured but guaranteed by the Company and certain of its subsidiaries.
4.3 Financial risk management
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 other short term liquid investments such as money market funds. In some jurisdictions bank cash pooling
arrangements are in place to optimise the use of cash.
As at the reporting date the Group had £152 million of cash and cash equivalents (2014: £285 million) and a £300 million revolving
credit facility, of which £nil was drawn down (2014: £150 million of which £nil drawn down), in order to meet its obligations and
commitments that will fall due.
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.
0 to <1
year
£m
1 to <2
years
£m
2 to <5
years
£m
5 years
and over
£m
Contractual
cash flows
£m
2015
Floating rate bank facilities due 2020
€500 million fixed rate notes due 2022
Finance lease liabilities
Trade payables and derivatives
2014
Floating rate bank facilities due 2019
Finance lease liabilities
Trade payables and derivatives
(17)
(10)
(6)
(45)
(78)
(42)
(6)
(40)
(88)
(17)
(10)
(6)
(4)
(37)
(45)
(6)
(8)
(59)
(685)
(31)
(19)
(8)
(743)
(1,237)
(19)
(4)
(1,260)
-
(382)
(162)
-
(544)
-
(171)
-
(171)
(719)
(433)
(193)
(57)
(1,402)
(1,324)
(202)
(52)
(1,578)
135
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 26 December 2015
4.3 Financial risk management (continued)
Interest rate risk
The Group is exposed to interest rate risk on both interest bearing assets and liabilities. The Group has a policy of actively managing its
interest rate risk exposure using a combination of fixed rate debt and interest rate swaps.
At 26 December 2015 the Group had €500 million of fixed rate debt. Taken together with the floating rate bank facilities, that have
been swapped to a fixed rate using interest rate swaps (the accounting of which is set out below), in aggregate 75% (2014: 80%) of the
year end interest-bearing loans and borrowings is at a fixed rate for a weighted average period of 5.2 years (2014: 2.1 years).
Interest rate swaps are recognised at fair value which is determined by reference to market rates. It is the estimated amount that the
Group would receive or pay to exit the swap, taking into account current interest rates, credit risks and bid/ask spreads. Following
initial recognition, changes in fair value are recognised immediately in the income statement, except where the Group adopts
hedge accounting.
When hedge accounting, the Group formally documents the relationship between the hedging instruments and hedged items. It makes
an assessment, at inception and 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 life of the hedge. The effective portion of
changes in fair value is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective
portion of changes in fair value 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. 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. All interest rate swaps held by the Group are hedge accounted.
Sensitivity analysis
Based on the net debt position as at 26 December 2015, taking into account interest rate swaps, each 100 basis points (bp) fall or rise in
market interest rates would result in an increase or decrease in net interest paid of £nil (2014: £1 million). This has been calculated by
applying the interest rate change to the Group’s variable rate cash, borrowings and derivatives.
Foreign currency risk
As the Group operates internationally the performance of the business is sensitive to movements in foreign exchange rates. The Group’s
potential currency exposures comprise transaction and translation exposures:
Transaction exposures
The revenue and costs of the Group’s operations are denominated primarily in the currencies of the relevant local territories.
Any significant cross-border trading exposures are hedged by the use of forward foreign exchange contracts.
Translation exposures
The Group’s results, as presented in Sterling, are subject to fluctuations as a result of exchange rate movements. The Group does
not hedge this translation exposure to its earnings but, where material, may carry out net asset hedging by borrowing in the same
currencies as the currencies of its operating units. The Group’s debt is therefore denominated in Euros, US Dollars and Sterling
and at 26 December 2015 consisted of €550 million, $540 million and £250 million.
Gains or losses arise on the retranslation of foreign currency denominated borrowings designated as effective net investment hedges of
overseas net assets. These are offset in equity by corresponding gains or losses arising on the retranslation of the related hedged foreign
currency net assets. The Group also 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.
The Group ensures that its net exposure to foreign currency balances is kept to a minimal level by using foreign currency swaps to
exchange balances back into Sterling or by buying and selling foreign currencies at spot rates when necessary. The fair value of foreign
exchange contracts is the present value of future cash flows and is determined by reference to market rates. At 26 December 2015
the fair value of foreign currency swaps was £1 million (2014: £nil).
136
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 26 December 2015
4.3 Financial risk management (continued)
Sensitivity analysis on foreign currency risk
2015
Cash and cash equivalents
Floating rate bank facilities due 2020
€500 million fixed rate notes due 2022
Finance lease liabilities
2014
Cash and cash equivalents
Floating rate bank facilities due 2019
Finance lease liabilities
Carrying value
Sterling
£m
Euro
£m
US Dollar
£m
Other
£m
90
(247)
-
(54)
(211)
202
(408)
(54)
(260)
7
(36)
(363)
(28)
(420)
8
(332)
(30)
(354)
10
(357)
-
-
(347)
47
(318)
-
(271)
45
-
-
-
45
28
(73)
-
(45)
Total
£m
152
(640)
(363)
(82)
(933)
285
(1,131)
(84)
(930)
A 10% strengthening of all currencies against Sterling would increase net debt by £72 million. As described above, gains or losses in
the income statement and equity are offset by the retranslation of the related foreign currency net assets or specific intercompany
loan balances.
A 10% strengthening of all currencies against Sterling would reduce the fair value of foreign exchange contracts and result in a charge
to the income statement of £4 million (2014: £9 million).
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 limited credit risk with its
customers, the vast majority of whom pay in advance or at the time of their visit. There are credit policies in place with regard to
its trade receivables with credit evaluations 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 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.
137
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 26 December 2015
4.3 Financial risk management (continued)
Fair values
Fair value hierarchy
The Group analyses financial instruments in the following ways:
• Level 1: uses unadjusted quoted prices in active markets.
• Level 2: uses inputs that are derived directly or indirectly from observable prices (other than quoted prices).
• Level 3: uses inputs that are not based on observable market data.
Fair value versus carrying amounts
The fair values of financial assets and liabilities are presented in the table below, together with the carrying amounts shown in the
statement of financial position. Short term receivables, payables and cash and cash equivalents have been excluded from the following
disclosures on the basis that their carrying amount is a reasonable approximation to fair value.
Held at amortised cost
Floating rate bank facilities due 2020
Floating rate bank facilities due 2019
€500 million fixed rate notes due 2022
Finance lease liabilities
Held at fair value
Derivative financial instruments
Investments
2015
Carrying
amount
£m
(640)
-
(363)
(82)
1
11
Fair
value
£m
(631)
-
(358)
(82)
1
11
2014
Carrying
amount
£m
Fair
value
£m
-
-
(1,131)
(1,128)
-
(84)
(11)
6
-
(84)
(11)
6
(1,073)
(1,059)
(1,220)
(1,217)
The bank facilities, loan notes and finance leases are held at amortised cost. The fair values shown above for the bank facilities and loan
notes have been calculated using market values and are classified as Level 2 and Level 1 respectively. The fair values of the finance leases
are determined by reference to similar lease agreements.
Of the financial assets and liabilities held at fair value, the derivative financial assets or liabilities are classified as Level 2 and the
investments are classified as Level 3.
There have been no transfers between levels in 2015 or 2014.
138
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 26 December 2015
4.4 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 PPE 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 leaseback 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 2015 £89 million (2014: £86 million) was recognised as an expense in the income statement in respect of operating leases.
Of this £12 million (2014: £12 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.
139
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 26 December 2015
4.4 Lease obligations (continued)
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
2015
£m
Present value
of minimum
lease payments
2015
£m
Future
minimum lease
payments
2014
£m
Interest
2015
£m
Present value
of minimum
lease payments
2014
£m
Interest
2014
£m
Less than one year
Between one and five years
More than five years
6
25
244
275
6
25
162
193
-
-
82
82
6
26
254
286
Finance lease liabilities
Finance lease liabilities
Currency
Nominal
interest rate
Year of
maturity
GBP
EUR
5.64%
9.11%
2042
2042
6
25
171
202
2015
£m
54
28
82
-
1
83
84
2014
£m
54
30
84
The nominal interest rate for finance leases in the table above represents the weighted average effective interest rate. This is used
because the table above aggregates finance leases with the same maturity date and currency.
Operating leases
The minimum rentals payable as lessee under non-cancellable operating leases are as follows:
Less than one year
Between one and five years
More than five years
2015
£m
76
291
1,271
1,638
2014
£m
76
297
1,326
1,699
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, 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 from the date the parks start operating depending on the specific
circumstances of each lease and the nature of the assets at the attractions.
140
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 26 December 2015
4.5 Equity and capital management
Capital management
The capital structure of the Group consists of debt which includes borrowings (see note 4.2), 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 plans 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. 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.
Share capital and reserves
Share capital
Ordinary shares of £0.01 each
2015
Number
2014
Number
2015
£m
2014
£m
On issue and fully paid at beginning and end of year
1,013,746,032
1,013,746,032
10
10
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 and no shareholder holds shares carrying special rights
relating to the control of the Company.
The Company has entered into a Relationship Agreement with its major shareholder, KIRKBI, in connection with the exercise of its rights
as a major shareholder in the Company and the right to appoint Directors to the Board. Relationship Agreements with Blackstone and
CVC (which were described in the Annual Report and Accounts for the year ended 27 December 2014) terminated in March 2015
when they ceased to hold any shares in the Company.
The nominal value of shares in issue is shown in share capital, with any additional consideration for those shares shown in
share premium.
141
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 26 December 2015
4.5 Equity and capital management (continued)
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
Interim dividend for the 52 weeks ended 27 December 2014 of 2.0 pence per share
Final dividend for the 52 weeks ended 27 December 2014 of 4.2 pence per share
Interim dividend for the 52 weeks ended 26 December 2015 of 2.1 pence per share
Total dividends paid
2015
£m
-
43
21
64
2014
£m
20
-
-
20
The Directors of the Company propose a final dividend of 4.4 pence per share for the year ended 26 December 2015
(2014: 4.2 pence per share). The total dividend for the current year, subject to approval of the final dividend, will be 6.5 pence
per share (2014: 6.2 pence per share).
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 reflected 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.
4.6 Share-based payment transactions
Accounting policy
The fair value of the share plans is recognised as an expense over the expected vesting period with a corresponding entry to retained
earnings, net of deferred tax. 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,
which 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 plans for employees in certain territories. The issues and resulting
charges of these plans are not material to the financial statements.
Equity-settled plans
The Group operates four employee share incentive plans: the Performance Share Plan (PSP), the Deferred Bonus Plan (DBP), the
Company Share Option Plan (CSOP) and the All Employee Sharesave Plan (AESP) as set out in the Directors’ Remuneration Report
and the tables below. A summary of the rules for the plans and the performance conditions attaching to the PSP are given in the
Directors’ Remuneration Report.
142
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 26 December 2015
4.6 Share-based payment transactions (continued)
Analysis of share-based payment charge
PSP
CSOP
AESP
Analysis of awards
2015
£m
2014
£m
1
1
2
4
2
1
1
4
Date of grant
Exercise
price (£)
Period when
exercisable
November 2013 - December 2015
March 2015
-
-
2017 - 2025
2018 - 2025
November 2013 - September 2015
3.15 - 4.42
2016 - 2025
January 2014 - March 2015
2.96 - 3.43
2016 - 2018
PSP
DBP
CSOP
AESP
Total
The weighted average exercise prices (WAEP) over the year were as follows:
Average
remaining
contractual
life (years)
8.7
9.2
8.4
2.2
Number
of shares
2015
Number
of shares
2014
5,633,093
3,611,209
361,734
-
3,192,347
2,305,252
5,502,199
3,180,962
14,689,373
9,097,423
DBP (1)
Number
CSOP
AESP
Number
WAEP (£)
Number
WAEP (£)
At 29 December 2013
Granted during the year
Forfeited during the year
At 27 December 2014
PSP (1)
Number
3,633,489
120,577
(142,857)
3,611,209
-
-
-
-
2,298,375
206,850
(199,973)
2,305,252
Granted during the year
2,426,028
383,843
1,083,850
Forfeited during the year
(404,144)
(22,109)
(196,755)
Exercised during the year
Expired during the year
-
-
-
-
-
-
3.15
3.64
3.17
3.19
4.38
3.46
-
-
-
3,555,062
(374,100)
3,180,962
2,823,813
(473,366)
(4,213)
(24,997)
At 26 December 2015
5,633,093
361,734
3,192,347
3.58
5,502,199
Exercisable at end of year
At 27 December 2014
At 26 December 2015
(1) Nil cost options
-
-
-
-
-
-
-
-
-
-
-
2.98
2.99
2.98
3.24
3.11
2.98
2.98
3.10
-
-
143
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
52 weeks ended 26 December 2015
4.6 Share-based payment transactions (continued)
The fair value per award granted and the assumptions used in the calculations for the significant grants in 2014 and 2015 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
DBP
CSOP
AESP
2 April 2015
25 March 2015
1 April 2015
13 January 2014
7 February 2014
17 February 2015
17 March 2015
-
-
4.42
3.17
2.96
3.43
3.23
4.47
4.45
4.42
3.73
3.54
4.04
4.38
4.47
4.45
0.99
0.70
0.84
0.71
1.20
n/a
n/a
1.4%
0.7%
0.7%
1.5%
1.4%
n/a
n/a
24%
20%
22%
18%
20%
3.0
3.0
4.7
2.2
3.3
2.2
3.3
n/a
n/a
1.0%
0.8%
1.2%
0.7%
0.9%
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, CSOP and DBP. The Black-Scholes model is used to value the AESP.
• Due to limited 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.
144
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 5 OTHER NOTES
52 weeks ended 26 December 2015
5.1 Investments
Accounting policy
As no observable market data is available for the Group’s existing investments, fair value is determined by reference to discounted
future cash flows, with movements recorded in other comprehensive income. No fair value movements have been recorded and there
is no material sensitivity to the assumptions used.
At beginning of year
Additions
At end of year
2015
£m
6
5
11
2014
£m
3
3
6
LEGOLAND Malaysia
In 2013 the Group acquired 16,350,300 shares in IDR Resorts Sdn. Bhd. (IDR) for the consideration of £3 million. During the year the
Group acquired an additional 26,149,700 shares for the consideration of £5 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 5.3).
LEGOLAND Korea
In 2014 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.
5.2 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 them. 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 (2014: £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.
145
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 5 OTHER NOTES (continued)
52 weeks ended 26 December 2015
5.2 Employee benefits (continued)
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 which
was paid in 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 26 December 2015 was 20 years.
The assets and liabilities of the schemes are:
Equities
Corporate bonds and cash
Fair value of scheme assets
Present value of defined benefit obligations
Net pension liability
Movement in the net pension liability
At 29 December 2013
Net interest
Contributions by employer
Benefits paid
Remeasurement gain/(loss)
Recognition of defined contribution section assets and liabilities
At 27 December 2014
Net interest
Contributions by employer
Benefits paid
Remeasurement loss
At 26 December 2015
2015
£m
23
5
28
(33)
(5)
2014
£m
23
5
28
(33)
(5)
Present value
of scheme
assets
£m
Present value of
defined benefit
obligations
£m
Net pension
liability
£m
17
1
1
(1)
2
8
28
1
1
(1)
(1)
28
(21)
(1)
-
1
(3)
(9)
(33)
(1)
-
1
-
(33)
(4)
-
1
-
(1)
(1)
(5)
-
1
-
(1)
(5)
The amount recognised in the income statement was £nil (2014: £nil). The amount recognised in the statement of comprehensive
income was a loss of £1 million (2014: loss of £2 million).
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 were recognised in 2014.
146
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 5 OTHER NOTES (continued)
52 weeks ended 26 December 2015
5.2 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
2015
3.9%
3.5%
3.2%
2014
3.9%
3.5%
3.2%
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.
5.3 Related party transactions
Identity of related parties
The Group has related party relationships with a major shareholder, 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 a major shareholder, KIRKBI Invest A/S, and the LEGO Group, a related party
of KIRKBI Invest A/S. During the year Blackstone Capital Partners and funds advised by CVC Capital Partners (via Lancelot Holdings
S.à r.l.) ceased to hold any shares.
Transactions entered into, including the purchase and sale of goods, payment of fees and royalties, and trading balances outstanding at
26 December 2015, were as follows:
2015
KIRKBI Invest A/S
LEGO Group
2014
KIRKBI Invest A/S
LEGO Group
Goods and services
Amounts owed
by related
party
£m
Sales
£m
Amounts owed
to related
party
£m
Purchases
£m
-
1
1
1
1
2
-
1
1
-
-
-
9
47
56
7
37
44
2
2
4
2
2
4
Prior to the refinancing in March 2015 (see note 4.2) KIRKBI Invest A/S, as a member of a banking syndicate, owned an element of the
Group’s bank loan portfolio. The balance outstanding at 26 December 2015 is £nil (2014: £49 million).
147
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 5 OTHER NOTES (continued)
52 weeks ended 26 December 2015
5.3 Related party transactions (continued)
Transactions with key management personnel
Key management of the Group, being the Executive and Non-executive Directors of the Board, the members of the Executive
Committee and their immediate relatives control 1.7% (2014: 2.1%) 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
2015
£m
4.2
0.3
1.4
5.9
2014
£m
7.7
0.5
0.8
9.0
Transactions with other related parties
As part of the agreement for the development and operation of LEGOLAND Malaysia, the Group has subscribed 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 26 December 2015 the Group had subscribed for 42,500,000 shares in IDR (2014: 16,350,300 shares).
Transactions entered into, including the purchase and sale of goods, payment of fees and trading balances outstanding at 26 December
2015, are as follows:
Sales to related party
Amounts owed by related party
5.4 Contingent liabilities
2015
£m
5
3
2014
£m
5
3
On 2 June 2015 an accident occurred at Alton Towers Resort on ‘The Smiler’ ride. The Group responded immediately to support
those who were injured, and maintains appropriate insurance that we expect will provide full compensation in due course. We continue
to fully support the Health and Safety Executive (HSE) as they undertake their investigation. It is possible that additional uninsured costs
and, depending on the outcome of the HSE investigation, financial penalties may be incurred. At this stage these costs are not anticipated
to be material in the context of the Group’s financial statements.
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 (2014: £1 million).
148
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 5 OTHER NOTES (continued)
52 weeks ended 26 December 2015
5.5 New standards and interpretations
The following standards and interpretations, issued by the International Accounting Standards Board (IASB) or the International Financial
Reporting Interpretations Committee, have been adopted by the Group with no significant impact on its consolidated financial statements:
• IAS 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’.
• IAS 24 (Amendment) ‘Related party disclosures’ - definition of ‘related party’.
EU endorsed IFRS and interpretations with effective dates after 26 December 2015 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 2016. The Group does not expect any significant impact on its consolidated financial statements from these amendments.
• IFRS 11 ‘Joint arrangements’ - accounting for acquisitions of interests in joint operations.
• IAS 16 ‘Property, plant and equipment’ and IAS 38 ‘Intangible assets’ - clarification of acceptable methods of depreciation
and amortisation.
• IAS 27 ‘Separate financial statements’ - equity method.
• IFRS 5 ‘Non-current assets held for sale and discontinued operations’ - changes in method for disposal.
• IFRS 7 ‘Financial Instruments: Disclosures’ - continuing involvement for servicing contracts.
• IAS 19 ‘Employee Benefits’ - discount rate in a regional market sharing the same currency - e.g. the Eurozone.
• IAS 1 ‘Presentation of financial statements’ - disclosure initiative.
During 2014 the IASB issued IFRS 15 ‘Revenue from contracts with customers’, which will become effective from the 2018 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.
In January 2016 the IASB issued IFRS 16 ‘Leases’, which will become effective from the 2019 accounting period. It is anticipated that this
will require many of the Group’s leases to be accounted for ‘on balance sheet’ and will result in significant changes to the presentation of
the Group’s consolidated financial statements. It will therefore be a key area of focus.
5.6 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.
5.7 Subsequent events
On 24 February 2016 the Group invested $34.4 million (£24.6 million) in Big Bus Tours Group Holdings Limited, the leading global
owner-operator of Hop On Hop Off City Tours. The consideration will be settled in cash and will provide Merlin with a minority equity
holding and an investment in loan notes.
149
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 5 OTHER NOTES (continued)
52 weeks ended 26 December 2015
5.8 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
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 (3)
Sydney Attractions Group Pty Ltd
150
Country of
incorporation
Class of
share held
Ownership
2015
Ownership
2014
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%
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%
100.0%
57.0%
65.0%
100.0%
100.0%
64.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
50.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 5 OTHER NOTES (continued)
52 weeks ended 26 December 2015
5.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
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 Indoor Children's Playground (Shanghai) Company Limited
Merlin Entertainments Hong Kong Limited
Merlin Exhibition (Chongqing) Company Limited
Shanghai Chang Feng Oceanworld Co. Ltd
LEGOLAND ApS
Merlin Entertainments Group Denmark Holdings ApS
SEA LIFE France SARL
Dungeon Deutschland GmbH
Heide-Park Soltau GmbH
LEGOLAND Deutschland Freizeitpark GmbH
LEGOLAND Deutschland GmbH
LEGOLAND Discovery Centre Deutschland GmbH
LEGOLAND Holidays Deutschland GmbH
LLD Share Beteiligungs GmbH
LLD Share GmbH & Co. KG
Madame Tussauds Deutschland GmbH
Merlin Entertainments Group Deutschland GmbH
SEA LIFE Deutschland GmbH
SEA LIFE Konstanz GmbH
Tussauds Deutschland GmbH
Tussauds Heide Metropole GmbH
Merlin Entertainments India Private Limited
Merlin Entertainments Ireland 1 Limited
Merlin Entertainments Ireland 2 Limited
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.
Country of
incorporation
Class of
share held
Ownership
2015
Ownership
2014
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Austria
Austria
Belgium
Canada
China
China
China
China
China
China
China
Denmark
Denmark
France
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
India
Ireland
Ireland
Ireland
Italy
Italy
Italy
Italy
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%
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%
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%
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%
151
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 5 OTHER NOTES (continued)
52 weeks ended 26 December 2015
5.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
Merlin Water Parks S.r.l.
Ronchi del Garda S.p.A.
Ronchi S.p.A.
LEGOLAND Japan Limited
Merlin Entertainments (Japan) Limited
Merlin Entertainments Group Luxembourg 3 S.à r.l. (2)
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
Merlin Entertainments Korea Company Limited
(formerly Aquaria Twenty-One Co. Ltd)
Busan Aquaria Twenty One Co. Ltd
LEGOLAND 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 (3)
KZ Mexico Holdco Limited (3)
LEGOLAND US Holdings Limited
152
Country of
incorporation
Class of
share held
Ownership
2015
Ownership
2014
Italy
Italy
Italy
Japan
Japan
Luxembourg
Luxembourg
Luxembourg
Malaysia
Malaysia
Malaysia
Netherlands
Netherlands
Netherlands
Netherlands
New Zealand
New Zealand
Portugal
Singapore
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
South Korea
Ordinary
South Korea
South Korea
Spain
Thailand
Thailand
Turkey
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
100.0%
(1) 49.4%
100.0%
(1) 49.4%
90.4%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
60.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
90.4%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
60.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
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 2015 SECTION 5 OTHER NOTES (continued)
52 weeks ended 26 December 2015
5.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
LEGOLAND Windsor Park Limited
London Aquarium (South Bank) Limited
London Dungeon Limited
London Eye Holdings Limited
London Eye Management Services Limited
Madame Tussaud’s Limited
Madame Tussauds Touring Exhibition Limited
M.E.G.H. Limited (3)
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 (NBD) Limited (formerly Tussauds (NBD) Limited)
Merlin Entertainments (SEA LIFE) Limited
Merlin Entertainments Crown (UK) Limited
Merlin Entertainments Developments Limited
Merlin Entertainments Finance Limited (3)
Merlin Entertainments Group Employee Benefit Trustees Limited
Merlin Entertainments Group Holdings Limited
Merlin Entertainments Group International Limited (3)
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 (3)
SEA LIFE Trust 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 Attractions Limited
Tussauds Group (UK) Pension Plan Trustee Limited
Tussauds Holdings Limited (3)
Tussauds Hotels Limited
Tussauds Limited
Tussauds Theme Parks Limited (3)
Warwick Castle Limited
Country of
incorporation
Class of
share held
Ownership
2015
Ownership
2014
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%
153
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 SECTION 5 OTHER NOTES (continued)
52 weeks ended 26 December 2015
5.8 Subsidiary and joint venture undertakings (continued)
Subsidiary undertaking
Wizard AcquisitionCo Limited (3)
Wizard BondCo Limited (3)
Wizard EquityCo Limited (3)
Wizard NewCo Limited (3)
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 Center Philadelphia 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 Crown (US) Inc
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
2015
Ownership
2014
UK
UK
UK
UK
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
USA
USA
Ordinary
Ordinary
Ordinary
Ordinary
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Ordinary
-
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%
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%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
50.0%
50.0%
(1) Merlin Entertainments plc has control over this entity via control of the immediate parent entity and the control that the
immediate parent entity has over the subsidiary entity.
(2) Merlin Entertainments Group Luxembourg 3 S.à r.l. is held by the Company. All other subsidiaries are held by intermediate subsidiaries.
(3) Company sold or dissolved between 27 December 2015 and 24 February 2016.
154
Merlin Entertainments plc Annual Report and Accounts 2015 MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
Company Statement of Financial Position at 26 December 2015 (2014: 27 December 2014)
Non-current assets
Investments
Other receivables
Current assets
Other receivables
Total assets
Current liabilities
Interest-bearing loans and borrowings
Other payables
Non-current liabilities
Interest-bearing loans and borrowings
Total liabilities
Net assets
Issued capital and reserves attributable to owners of the Company
Total equity
The notes on pages 157 to 161 form part of these financial statements.
Note
iii
iv
iv
vi
v
vi
vii
2015
£m
3,115
1,062
4,177
31
31
2014
£m
3,111
-
3,111
58
58
4,208
3,169
4
91
95
1,003
1,098
3,110
3,110
3,110
-
2
2
-
2
3,167
3,167
3,167
The parent Company financial statements were approved by the Board of Directors on 24 February 2016 and were signed on its behalf by:
Nick Varney
Chief Executive Officer
Andrew Carr
Chief Financial Officer
155
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
Company Statement of Changes in Equity at 26 December 2015 (2014: 27 December 2014)
At 29 December 2013
Profit for the year
Total comprehensive income for the year
Equity dividends
Capital restructure
Share incentive schemes:
Movement in reserves for
employee share schemes
At 27 December 2014
Profit for the year
Total comprehensive income for the year
Equity dividends
Share incentive schemes:
Movement in reserves for
employee share schemes
At 26 December 2015
Note
Share
capital
£m
10
-
-
-
-
-
10
-
-
-
-
10
vii
iii
iii
vii
Share
premium
£m
3,183
-
-
-
(3,183)
-
-
-
-
-
-
-
Retained
earnings
£m
(11)
1
1
(20)
3,183
4
Total
equity
£m
3,182
1
1
(20)
-
4
3,157
3,167
3
3
(64)
4
3
3
(64)
4
3,100
3,110
156
Merlin Entertainments plc Annual Report and Accounts 2015 NOTES TO THE MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
i Accounting policies
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework
(FRS 101). The amendments to FRS 101 (2014/15 Cycle) issued in July 2015 and effective immediately have been applied.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of International
Financial Reporting Standards as adopted by the EU (Adopted IFRSs), but makes amendments where necessary in order to comply with
Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
In the transition to FRS 101, the Company has applied IFRS 1 whilst ensuring that its assets and liabilities are measured in compliance
with FRS 101. The policies applied under the entity’s previous accounting framework are not materially different to FRS 101 and have
not impacted on equity or profits for the year.
The consolidated financial statements of Merlin Entertainments plc are prepared in accordance with International Financial Reporting
Standards and are available to the public and may be obtained from 3 Market Close, Poole, Dorset, BH15 1NQ. Company financial
statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as
adopted by the EU (Adopted IFRSs).
In these financial statements, the Company has applied the exemptions available under FRS 101 in respect of the following disclosures:
• Cash flow statement and related notes;
• Disclosures in respect of transactions with wholly owned subsidiaries;
• Disclosures in respect of capital management;
• The effects of new but not yet effective IFRSs;
• Disclosures in respect of the compensation of key management personnel.
As the consolidated financial statements of Merlin Entertainments plc include the equivalent disclosures, the Company has also taken
the exemptions under FRS 101 available in respect of the following disclosures:
• IFRS 2 ‘Share-based payment’ in respect of group settled share-based payments;
• Certain disclosures required by IFRS 13 ‘Fair value measurement’ and the disclosures required by IFRS 7 ‘Financial
Instrument Disclosures’.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial
statements and in preparing an opening FRS 101 IFRS statement of financial position at 29 December 2013 for the purposes of the
transition to FRS 101 Adopted IFRSs.
These financial statements have been prepared for the 52 weeks ended 26 December 2015 (2014: 52 weeks ended 27 December 2014).
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.
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 income statement.
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.
157
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015
NOTES TO THE MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
(continued)
i Accounting policies (continued)
Taxation
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 substantively enacted at the end of the
reporting period, and any adjustment to tax payable in respect of previous periods.
Deferred tax is provided on certain temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and taxation purposes respectively. The following temporary differences are not provided for: the initial recognition
of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business
combination; and differences relating to investments in subsidiaries and joint ventures to the extent that they will probably not reverse
in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period.
After considering forecast future profits, deferred tax assets are recognised where it is probable that future taxable profits will be
available against which those assets can be utilised.
Share-based payments
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.
Loans to group undertakings
Loans to group undertakings are recognised initially at fair value and subsequently at amortised cost using the effective interest rate
method, less provision for impairment.
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.
158
Merlin Entertainments plc Annual Report and Accounts 2015 NOTES TO THE MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
(continued)
i Accounting policies (continued)
Interest-bearing loans and borrowings
These are initially recognised at the principal value of the loan concerned, less any related fees. These fees are then amortised through
the income statement on an effective interest rate basis over the expected life of the loan (or over the contractual term where there is
no clear indication that a shorter life is appropriate).
If the Group subsequently determines that the expected life has changed, the resulting adjustment to the effective interest rate
calculation is recognised as a gain or loss on re-measurement and presented separately in the income statement.
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company’s shareholders or their payment.
ii Employees
The average number of employees of the Company during the year was seven (2014: seven). 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 76 to 96.
One Director accrued benefits under defined contribution schemes during the year (2014: two).
iii Investment in subsidiary undertaking
Cost and carrying value
At 29 December 2013
Capital contributions to subsidiaries
At 27 December 2014
Capital contributions to subsidiaries
At 26 December 2015
Shares in
subsidiary
undertaking
£m
3,107
4
3,111
4
3,115
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 year 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 5.8 of the consolidated financial statements on page 150.
159
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 NOTES TO THE MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
(continued)
iv Other receivables
Amounts owed by group undertakings
Current assets
Non-current assets
2015
£m
31
2014
£m
58
2015
£m
1,062
2014
£m
-
Amounts owed by group undertakings comprise funds loaned by the Company to fellow group undertakings. The non-current loans have
maturities of 2020 and 2022 and carry interest rates that are based on the costs of servicing the external bank facilities and loan notes.
v Other payables
Amounts owed to group undertakings
Accruals
vi Borrowings
Non-current
Floating rate bank facilities due 2020
€500 million fixed rate notes due 2022
£300 million floating rate revolving credit facility due 2020
Current
Interest payable
2015
£m
90
1
91
2015
£m
640
363
-
1,003
4
1,007
2014
£m
-
2
2
2014
£m
-
-
-
-
-
-
In 2015 the Group refinanced its long term debt.
The new committed facilities are:
• Bank facilities comprising £250 million, $540 million and €50 million floating rate term debt to mature in March 2020. The relevant
floating interest rates are LIBOR, the USD benchmark rate and EURIBOR, which were 0.59%, 0.57% and (0.13)% respectively at
26 December 2015. The margin on the bank facilities is dependent on the Group’s adjusted leverage ratio and is currently 2.0%.
• A £300 million multi-currency revolving credit facility. The margin on this facility is also dependent on the Group’s adjusted leverage
ratio and would currently be at a margin when drawn of 1.75% over the same floating interest rates.
• A bond in the form of €500 million seven year notes with a coupon rate of 2.75% to mature in March 2022.
160
Merlin Entertainments plc Annual Report and Accounts 2015 NOTES TO THE MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
(continued)
vi Borrowings (continued)
The fees related to the new facilities are being amortised to the maturity of the debt.
The borrowings under the new bank facilities (including the revolving credit facility) and the €500 million bonds are unsecured but
guaranteed by the Company and certain of its subsidiaries.
vii Equity
Share capital
Ordinary shares of £0.01 each
At beginning and end of the year
2015
Number
2015
£m
2014
Number
2014
£m
1,013,746,032
10
1,013,746,032
10
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.
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.
Retained earnings
The profit after tax for the year in the accounts of Merlin Entertainments plc is £3 million (2014: profit after tax of £1 million).
Dividends
Interim dividend for the 52 weeks ended 27 December 2014 of 2.0 pence per share
Final dividend for the 52 weeks ended 27 December 2014 of 4.2 pence per share
Interim dividend for the 52 weeks ended 26 December 2015 of 2.1 pence per share
Total dividends paid
2015
£m
-
43
21
64
2014
£m
20
-
-
20
The Directors of the Company propose a final dividend of 4.4 pence per share for the year ended 26 December 2015
(2014: 4.2 pence per share). The total dividend for the current year, subject to approval of the final dividend, will be 6.5 pence
per share (2014: 6.2 pence per share).
In making this proposal the Directors have considered the resources available to the Company and its subsidiaries. Specifically they have
taken account of the Company’s significant distributable profits, as noted above, as well as the position and liquidity of the Group
disclosed in the consolidated statement of financial position as explained in the Group going concern disclosures on page 113.
161
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 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)370 703 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 2.1 pence per share was paid on 24
September 2015 to shareholders on the Register on 14 August 2015.
A final dividend for the year ended 26 December 2015 of 4.4
pence per share will be recommended to shareholders for
approval at the 2016 Annual General Meeting of the Company.
Dividend Re-Investment Plan
The Company has introduced a Dividend Re-Investment Plan
(DRIP) which allows 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 2016
Annual General Meeting.
Financial calendar
The principal dates in our financial calendar for 2016 are
as follows:
Preliminary Announcement of Results
Trading Update
Annual General Meeting
Interim Results Announcement
Trading Update
Pre-Close Trading Update
25 February
19 May
19 May
28 July
29 September
29 November
162
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
(www.merlinentertainments.biz/investor-relations).
Annual General Meeting (AGM)
The AGM of the Company will be held on 19 May 2016 at Safari
Hotel, Chessington World of Adventures, Leatherhead Road,
Chessington, Surrey, KT9 2NE 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
Gateway House, Tollgate
Chandlers Ford
Southampton, SO53 3TG
United Kingdom
Joint Corporate Brokers
Barclays Bank PLC
5 North Colonnade
Canary Wharf
London
E14 4BB
Telephone
+44 (0)23 8020 2000
Citigroup Global Markets Limited
Citigroup Centre, Canada Square
Canary Wharf
London
E14 5LB
Merlin Entertainments plc Annual Report and Accounts 2015
FINANCIAL Record
2015
£m
2014
£m
2013
£m
2012
£m
2011
£m
1,278
1,249
1,192
1,074
402
291
291
237
1,495
923
152
1,003
1,149
325
(19)
(137)
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)
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 (decrease)/increase in cash
and cash equivalents
163
Merlin Entertainments plc Annual Report and Accounts 2015Merlin Entertainments plc Annual Report and Accounts 2015 GLOSSARY
Key terms
Adjusted EPS
Blackstone
Capex
Cluster
Definition
Adjusted earnings per share is calculated by dividing the profit for the year attributable to
ordinary shareholders, adjusted for exceptional items, by the weighted average number of
ordinary shares in issue during the year.
Was 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 2015 exchange rates.
CVC
Was one of the three pre-IPO major shareholders of the Company.
DreamWorks Tours - Shrek’s Adventure!
This is a new attraction opened in 2015. It is part of the Midway Attractions Operating Group.
EBITDA
EPS
Exceptional items
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
IP
IPO
KIRKBI
KPI
LDC
Lead price
Like for like (LFL)
Listing
164
Year of high spend in capital investment cycle of an attraction.
Intellectual Property.
Initial Public Offering.
KIRKBI owns 75% of LEGO A/S and owns 29.89% of the share capital of Merlin Entertainments plc.
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.
2015 LFL growth refers to the growth between 2014 and 2015 on a constant currency basis
using 2015 exchange rates and includes all businesses owned and operated before the start
of 2014.
Listing on the London Stock Exchange.
Merlin Entertainments plc Annual Report and Accounts 2015 GLOSSARY
Key terms
LLP
Merlin Magic Making (MMM)
Merlin’s Magic Wand (MMW)
Definition
LEGOLAND Parks Operating Group.
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.
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
Rooms
RPC
RTP
SLC
Second gate
Turkuazoo
Underlying
Visitors
Return on Capital Employed. The profit measure used in calculating ROCE is based on
underlying operating profit after tax. The capital employed element of the calculation is based
on average 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.
A single accommodation unit at one of our theme parks, for example a hotel room, lodge or
‘glamping’ tent.
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.
Turkuazoo Aquarium was a standalone acquisition that has since been relaunched as 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 2015Merlin Entertainments plc Annual Report and Accounts 2015 NOTES
166
Merlin Entertainments plc Annual Report and Accounts 2015 © MARVEL
Star Wars © & ™ Lucasfilm Ltd.
Shrek, Kung Fu Panda, How To Train Your Dragon © DreamWorks Animation LLC.
Horrible Histories® is a registered trademark of Scholastic Inc and is used under authorization.
All rights reserved. Based on the bestselling books written by Terry Deary and illustrated by
Martin Brown. Illustration © Martin Brown.
ICE AGE ™ © 2016 Twentieth Century Fox Film Corporation. All Rights Reserved.
LEGO, the LEGO logo, the Brick and Knob configurations, the Minifigure, LEGENDS OF CHIMA,
NINJAGO and LEGOLAND are trademarks of the LEGO Group ©2016 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.
167
Merlin Entertainments plc Annual Report and Accounts 2015 Registered office
Merlin Entertainments plc
3 Market Close
Poole
Dorset
BH15 1NQ
United Kingdom
Registered number: 08700412
Registered in England and Wales
www.merlinentertainments.biz
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