Merlin Entertainments PLC Annual Report 2016

← All annual reports

FY2016 Annual Report · Merlin Entertainments PLC

Loading PDF…

ANNUAL REPORT AND ACCOUNTS 2016

HIGHLIGHTS

Financial KPIs

Visitors
52 weeks: 63.8m +1.3% (53 weeks: 65.1m)

2016

2015

2014

Underlying EBITDA
52 weeks: £433m +7.7% (53 weeks: £451m)

2016

2015

2014

Profit before tax
52 weeks: £259m +9.2% (53 weeks: £277m)

2016

2015

2014

Return on capital employed R
52 weeks: 9.6% (53 weeks: 10.2%)

2016

2015

2014

Non-financial KPIs

63.8

62.9

62.8

433

402

411

259

237

226

9.6%

9.7%

10.6%

Revenue
52 weeks: £1,428m +11.7% (53 weeks: £1,457m)
Like for like growth +1.4%

2016

2015

2014

Underlying operating profit R
52 weeks: £302m +3.6% (53 weeks: £320m)

2016

2015

2014

Basic EPS
52 weeks: 19.5p +15.7% (53 weeks: 20.8p)

2016

2015

2014

Adjusted EPS R
52 weeks: 19.5p +9.3% (53 weeks: 20.8p)

2016

2015

2014

1,428

1,278

1,249

302

291

311

19.5

16.8

16.0

19.5

17.8

17.7

Customer satisfaction R - Based on customer satisfaction surveys. Our target is a score over 90%.

Staff engagement - Based on annual employee surveys (see page 44). Our target is a score over 80%.

Health and safety R - The Medical Treatment Case (MTC) rate captures the rate of guest injuries requiring
external medical treatment relative to 10,000 guest visitations. The MTC rate is a new measure in 2016.

2015

2016

94%

89%

n/a

94%

89%

0.06

How we report our results

This year we are reporting on the 53 weeks to 31 December 2016. Profit metrics are provided on a 53 week statutory basis in the financial statements. To
provide a more direct comparison with last year’s 52 week period, the operating performance commentary is stated on a 52 week basis, unless otherwise noted.
More details on the period under review (‘52’ and ‘53’ week data) and the performance measures used are set out in the Group Financial Review on page 42.

Terms used throughout this document are defined in the Glossary on pages 172 to 173.

Executive Directors’ remuneration is linked to certain KPIs, as indicated by the following symbol: R. More details on Director’s remuneration are set out in the
Directors’ Remuneration Report on pages 82 to 103.

Merlin Entertainments plc Annual Report and Accounts 2016CONTENTS

At the end of 2016
Merlin operated:

STRATEGIC REPORT

HIGHLIGHTS
CONTENTS
MERLIN AT A GLANCE
MERLIN’S BUSINESS MODEL
MERLIN’S BRANDS
MERLIN’S GLOBAL PORTFOLIO
MERLIN’S GROWTH DRIVERS
CHAIRMAN’S STATEMENT
CHIEF EXECUTIVE’S REPORT
MERLIN MAGIC MAKING
NEW OPENINGS
OPERATIONAL REVIEW - Midway Attractions
OPERATIONAL REVIEW - LEGOLAND Parks
OPERATIONAL REVIEW - Resort Theme Parks
GROUP FINANCIAL REVIEW
TEAM MERLIN

RISKS AND UNCERTAINTIES
‘BEING A FORCE FOR GOOD’ -
Corporate Social Responsibility The Merlin Way

GOVERNANCE

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

FINANCIAL STATEMENTS

TABLE OF CONTENTS
CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE ACCOUNTS

MERLIN ENTERTAINMENTS PLC
COMPANY FINANCIAL STATEMENTS

NOTES TO THE MERLIN ENTERTAINMENTS PLC
COMPANY FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

FINANCIAL RECORD
OTHER FINANCIAL INFORMATION
GLOSSARY
SHAREHOLDER INFORMATION

2
3
4
6
8
10
12
14
16
20
24
26
30
34
38
43

60
62
66
70
76
82
104
105
108
109

114
115

116
117
118
119
120

163

165

170
171
172
174

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016MERLIN
at a glance

OUR COMPANY

Merlin Entertainments is Europe’s leading and the
world’s second-largest visitor attraction operator.

We are first and foremost an entertainment company. We aim to
deliver unique, safe and memorable experiences to millions of
visitors across our growing estate - our passion is putting smiles

on people’s faces! We believe that we achieve this objective
largely thanks to the commitment and passion of our teams and
the strength of our brands, which will never fail to be distinctive,
challenging and innovative. Together they deliver some of the
best financial returns and growth in the sector. In every respect
and to every group of stakeholders, Merlin will always be an
exciting company to be involved with.

OUR VISION

Our vision is to become the worldwide leader in
branded, location based entertainment.

OUR STRATEGY

Our strategy is to create a high growth, high return,
family entertainment company based on strong
brands and a global portfolio that is naturally
balanced against the impact of external factors.

Our international footprint and variety of attraction types
means we are not dependent on any one market. We operate
over Europe, North America and Asia Pacific, with a long term
ambition of an even split between these three areas. We have
a 60/40 balance of outdoor and indoor attractions, and with
two thirds of our visitors being domestic, are not reliant on 'fly-in'
markets. At an attraction level, visits are increasingly booked in
advance, also reducing volatility.

See page 10 for our global portfolio of attractions.

We operate in an attractive, dynamic, global marketplace.
Worldwide we see growth in leisure spending, an expansion in
leisure time and an expansion of the middle classes in emerging
economies. We believe international tourism will continue to
grow, as will the market for short break vacations.

Merlin delivers two types of visitor experiences
that we manage across three Operating Groups.

• Our Midway Attractions are predominantly indoor

attractions located in city centres or resorts providing visits
of shorter duration. We have high quality, chainable brands
positioned across all key target demographics. Merlin is the
only company to successfully operate the Midway product
across multiple brands and sites.

• Our Theme Parks are outdoor attractions offering

accommodation, rides, shows and interactive experiences
around a central theme:

• LEGOLAND Parks are aimed at families with younger

children and have LEGO as the central theme. Merlin holds
the global, exclusive rights to the LEGOLAND brand.

• Resort Theme Parks are national brands aimed at
families, teenagers and young adults. They have high
brand and customer awareness in their local markets
and include the leading theme parks in the UK, Italy
and Northern Germany.

Merlin Entertainments plc Annual Report and Accounts 2016I

S
N
O
T
C
A
R
T
T
A
Y
A
W
D
M

S
K
R
A
P
E
M
E
H
T

MERLIN at a glance

Indoor attractions located in
city centres or resorts

MIDWAY

104 ATTRACTIONS

21 COUNTRIES

4 CONTINENTS

1-2 HOUR EXPERIENCE

6 GLOBAL BRANDS

44%(1)

Outdoor attractions with rides
and shows, complemented with
themed accommodation

LEGOLAND
PARKS

7 ATTRACTIONS

6 COUNTRIES

3 CONTINENTS

1-3 DAY EXPERIENCE

34%(1)

LEGO THEMED ACCOMMODATION, RIDES,
SHOWS AND INTERACTIVE EXPERIENCES

c.1,450 ROOMS

2 NEW PARKS IN 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

c.1,600 ROOMS

Footnotes:
(1) Based on 2016 revenue.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016

MERLIN’S
Business model

OUR GROWTH DRIVERS

We have six highly complementary growth drivers
to deliver growth in our existing portfolio and as
we open new attractions all around the world.

• Growing the existing estate through planned

investment cycles - adding new rides and features to our
attractions to drive customer satisfaction, increase capacity
and provide a compelling new proposition to guests. The
investment cycle is specific to each attraction which receives
a ‘high’, ‘medium’ or ‘low’ investment depending on its place
in the cycle. These cycles smooth capital expenditure across
the portfolio, ensure investments are funded from operating
free cash flow, and enable attractions to plan effectively.

• Exploiting strategic synergies - leveraging the scale of

the Group in key markets to exploit enhanced operational,
marketing and buying power, including the implementation
of e-commerce initiatives that provide commercial benefits
and improved ‘digital journeys’ for our guests.

• Transforming our theme parks into destination resorts -
developing our theme parks into short break destinations
to extend the catchment area, create new revenue streams
and improve guest satisfaction. Key to this is on-site themed
accommodation. Our 2020 milestone target is to add 2,000
rooms to our accommodation portfolio between 2016
and 2020.

• Rolling out new Midway attractions - opening new
Midway attractions under one of our chainable global
brands, with a focus on ‘cluster’ locations where we can
derive operating cost, marketing and cross-selling advantages.
Our 2020 milestone target is to open 40 new Midways
between 2016 and 2020.

• New LEGOLAND park developments - which we operate
under three models (operated and owned, operated and
leased, under management contract). We combine our
operational expertise with the LEGO brand’s worldwide
popularity. Our 2020 milestone target is to open four new
LEGOLAND parks between 2016 and 2020.

See page 12 to learn more about developments in
the year and progress on our 2020 milestones.

• Strategic acquisitions - pursuing acquisition opportunities

that complement our strategic objectives.

OUR UNIQUE RESOURCES

Supporting our Operating Groups are
two specialist teams.

Merlin Magic Making (MMM) is the unique
resource sitting at the heart of Merlin.

MMM supports all our attractions with specialists in four areas:
• site-search and business development
• creative design
• production across the whole portfolio including animal

husbandry, wax figures and LEGO models

• project management of new site construction and

major capital investments

MMM also pursues acquisition and investment opportunities.

See pages 20 to 23 to learn more about MMM.

New Openings is a specialist team that has three
areas of focus.

• Developing new LEGOLAND parks - locating potential
new sites, negotiating contracts, managing the build
process before setting up operations, recruiting teams,
then opening the attraction and operating it for 12 to 18
months post opening.

• Opening new Midway attractions - setting up operations,

recruiting teams, then opening the attraction and
operating it for 12 to 18 months post opening.

• Integrating acquisitions.

See pages 24 to 25 to learn more about New Openings.

Merlin Entertainments plc Annual Report and Accounts 2016MERLIN’S Business model

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016MERLIN’S
Brands

MIDWAY ATTRACTIONS

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.

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 Eye observation
attractions offers the
ultimate viewing experience,
unparalleled and different
every time, giving an Eye
Opening perspective of the
location's landscape and
iconic landmarks.

Key

Number of attractions

Madame Tussauds’ heritage
and the breathtaking artistry
of the figures 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.

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
Hilarious Misadventures you
experience in the company of
your favourite DreamWorks
characters.

Merlin Entertainments plc Annual Report and Accounts 2016THEME PARKS

With Playful Learning at the
heart of the experience, our
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.

Jousting, knights, princesses,
falconry, staged scenes by
Madame Tussauds and the
Castle Dungeon all make
Warwick the Ultimate
Castle experience, now
with three different types
of themed accommodation.

Alton Towers Resort is 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 or
even go glamping.

MERLIN’S Brands

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 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
five 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 our Fantasy
and Adventure hotels
and adjacent SEA LIFE.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016MERLIN’S
Global portfolio

NORTH AMERICA ATTRACTIONS

Arizona
California
Charlotte
Dallas
Kansas City
Michigan
Minnesota
Orlando

Hollywood
Las Vegas
New York
Orlando
San Francisco
Washington D.C.

California
Florida

Arizona New
Atlanta
Boston
Chicago
Dallas

Kansas City
Michigan New
Toronto
Westchester

San Francisco

Orlando

UK ATTRACTIONS

Birmingham
Blackpool
Brighton
Great Yarmouth
Hunstanton
Loch Lomond
London
Manchester
Scarborough
Weymouth
and Skyline tower

Gweek
Oban

Blackpool
Edinburgh
London

Warwick
York

Blackpool
London

Alton

Chessington

London

London
Blackpool

Warwick

Windsor

Manchester

Chertsey

Revenue by indoor and
outdoor attactions (1)

Revenue by
geography (1)

Visitors by
domestic / tourist (2)

Outdoor 58%
Indoor 42%

UK 34%
Continental Europe 25%
North America 27%
Asia Pacific 14%

Domestic 63%
Tourist 37%

(1) Based on 2016 revenue. (2) Based on a sample of visitors answering the question 'What is your home country?'

Merlin Entertainments plc Annual Report and Accounts 2016MERLIN’S Global portfolio

Key

Existing Merlin attractions
2016 New Openings

CONTINENTAL EUROPE ATTRACTIONS

Benalmadena
Berlin
Blankenberge
Bray
Gardaland
Hannover
Helsinki
Istanbul
Jesolo
Königswinter

Konstanz
Munich
Oberhausen
Paris
Porto
Scheveningen
Speyer
Timmendorfer
Strand

Amsterdam
Berlin
Istanbul New
Vienna

Berlin
Istanbul
Oberhausen

Amsterdam
Berlin
Hamburg

Lake Garda

Billund
Günzburg

Soltau

ASIA PACIFIC ATTRACTIONS

Auckland
Bangkok
Busan
Melbourne

Mooloolaba
Shanghai
Sydney

Manly

Bangkok
Beijing
Chongqing New
Hong Kong
Singapore
Shanghai
Sydney
Tokyo
Wuhan

Dubai New
Malaysia

Osaka
Shanghai New
Tokyo

Illawarra
Otway

Sydney

Hamilton Island
Sydney

Mount Hotham

Falls Creek

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016MERLIN’S
Growth drivers

H
T
W
O
R
G
E
T
A
T
S
E
G
N
T
S
X
E

GROWING THE EXISTING ESTATE
THROUGH PLANNED INVESTMENT CYCLES

Adding new rides and features to our attractions to drive
customer satisfaction, increase capacity and provide a
compelling new proposition to guests.

EXPLOITING STRATEGIC SYNERGIES

Leveraging the scale of the Group in key markets to exploit
enhanced operational, marketing and buying power.

TRANSFORMING OUR THEME PARKS
INTO DESTINATION RESORTS

Developing our theme parks into short break
destinations: extending the catchment area, creating
new revenue streams and improving guest satisfaction.

ROLLING OUT NEW
MIDWAY ATTRACTIONS

Opening new Midway attractions under
one of our chainable global brands.

NEW LEGOLAND PARK
DEVELOPMENTS

Opening new full scale LEGOLAND parks.

STRATEGIC ACQUISITIONS

Pursuing acquisition opportunities that
complement our strategic objectives.

T
N
E
M
P
O
L
E
V
E
D
S
S
E
N
I
S
U
B
W
E
N

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016

MERLIN’S Growth drivers

2016 DEVELOPMENTS

2020 NBD MILESTONES

We opened new rides, shows or features at every attraction.
There were 15 major new investments across Midway
Attractions. LEGOLAND Billund and LEGOLAND California
both opened 'NINJAGO - The Ride' while THORPE PARK
launched the innovative 'Derren Brown's Ghost Train'.

See Ninjago case study on page 33

We continued the global implementation of the accesso®
‘Passport’ ticketing platform. The roll out is targeted to
be complete at major sites by the end of 2017. We have
seen improved mobile conversion rates, up-selling and
cross-selling and will further leverage the platform as
we develop trade ticketing.

Our existing and new accommodation offerings have
continued to perform well. A total of 210 additional
rooms have been added across both of our theme
park Operating Groups.

2,000 new accommodation rooms by the end of 2020

Building on 2016’s progress, 2017 will see a further
acceleration towards our target as we open new
accommodation offerings with more in the pipeline.

See Gardaland Adventure Hotel case study on page 37

Five new Midway attractions were opened in 2016 -
LEGOLAND Discovery Centres in Michigan, Arizona and
Shanghai and Madame Tussauds in Chongqing and Istanbul.

See LDC Shanghai case study on page 25

In October our seventh LEGOLAND park -
LEGOLAND Dubai - opened under a
management contract.

We acquired a minority stake in BIG BUS Tours and entered
into co-promotion agreements with them in a number of
city centre locations. This complements our strategy of
‘owning the visit’ in key city centre markets.

40 new Midway attractions by the end of 2020

With five opened in 2016 and a further 14 under
development at year end, we are on track to reach
our target.

Four new LEGOLAND parks by the end of 2020

LEGOLAND Japan will open in April 2017. We continue
to make progress with our LEGOLAND Korea location
and are exploring further potential sites in North America
and Asia.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016CHAIRMAN’S
Statement

SIR JOHN SUNDERLAND
Chairman

Merlin Entertainments plc Annual Report and Accounts 2016Trading and strategy
This has been a year of good progress for Merlin Entertainments.
The LEGOLAND Parks Operating Group continued to deliver
growth although Midway Attractions saw security concerns and
exchange rate volatility affect trading at some of our largest city
centre locations. Within Resort Theme Parks there was the start
of what we believe is an encouraging recovery at Alton Towers.

We continued to make longer term strategic progress, developing
more accommodation across our resorts, opening a LEGOLAND
park in Dubai, with another soon to come in Japan. We also
announced our new ‘Little Big City’ concept to add to the
existing suite of chainable Midway brands, where our pipeline
for future attractions remains strong.

Health, safety and security
In September the Group was fined following a prosecution
brought by the UK Health and Safety Executive in connection
with the accident at Alton Towers in 2015. That accident shocked
Merlin deeply and we have been rigorous in our response.

While we are never complacent in this area, I am reassured
by the outcome of independent reviews we subsequently
commissioned into our ride safety and our health and safety
governance arrangements.

We provide more details on further enhancements to our
approach in this most important area in our Health, Safety
and Security Committee report on pages 70 to 75.

Governance and the Board
Anne-Francoise Nesmes joined Merlin as Chief Financial Officer
in August following Andrew Carr’s retirement. Her extensive
finance and international experience across a number of
industries will be of great value to the Group as it grows
and evolves.

Rachel Chiang was appointed as a Non-executive Director at the
start of the year. Rachel brings relevant sector and geographical
experience as we continue Merlin’s expansion into the Asia
Pacific region.

I have enjoyed welcoming them to Merlin and look forward to
working with them both in the coming years. We have a diverse
Board that has a wealth of knowledge and experience to help
guide Merlin through the next phase of its growth story.

Dividends
The Board will be recommending to the AGM in June that we
pay a final dividend of 4.9 pence per share in June.

Taken together with the interim dividend of 2.2 pence per share
paid last September, this will equate to a full year dividend of 7.1
pence per share, up 9.2% on 2015.

CHAIRMAN’S Statement

Corporate social responsibility (CSR)
There are two overarching themes to Merlin’s CSR approach.
Firstly, we take our responsibility to be a ‘Good Corporate
Citizen’ seriously. There are then other specific areas where
we feel Merlin is uniquely placed to be a ‘Force for Good’.

Key to this are our employees who are proud to be part of and
to support their communities, demonstrating to all of Merlin’s
stakeholders the strength of the Company’s core values. This is
underpinned by robust governance standards and practices to
help us operate our businesses responsibly and safely.

All our attractions are tasked with delivering plans to reduce
energy consumption and carbon emissions in our commitment
to the environment. I am pleased therefore that we again
exceeded our carbon reduction target.

Our partner charity, the SEA LIFE Trust, protects marine wildlife
through its worldwide campaigns. In 2016, as part of our focus on
marine protection, we campaigned worldwide and were proud to
support President Obama’s expansion of the world’s biggest
marine protected area in Hawaii.

Merlin’s Magic Wand is our own children’s charity, delivering
magical experiences around the world to children who are
disadvantaged through sickness or disability. We have now
installed 31 ‘magical spaces’ across four continents, ranging from
themed areas at children’s homes and hospitals to the complete
refurbishment of an orphanage. We continue to arrange visits to
our attractions (over 86,000 in 2016) and to ‘take the magic’ to
local children’s organisations with community outreach activities.

Our aspiration is to become industry leaders for guests with
accessibility challenges. Our initiatives are aimed at improving
guest information, providing employees with tools and training
and delivering environments that are accessible to all.

More details can be found on pages 53 to 59.

Our people
As always it is Merlin’s management team and our many
thousands of employees around the world who have driven
our results and strategic progress. They are the foundation of
our relations with our communities and all stakeholders.
They have my ongoing gratitude for their contribution.

Looking forward
As we enter 2017, I am confident that Merlin’s strategy of
continued diversification and expansion, together with the
commitment of the Group’s employees, stand us in good
stead as we deliver further growth.

Sir John Sunderland
Chairman
1 March 2017

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016CHIEF
EXECUTIVE’S
Report

NICK VARNEY
Chief Executive Officer

Merlin Entertainments plc Annual Report and Accounts 2016CHIEF EXECUTIVE’S Report

Visitors (m)

Revenue (£m)

EBITDA (£m)

Operating profit (£m)

Like for like revenue growth

Like for like EBITDA growth

53 weeks ended
31 December
2016

52 weeks ended
24 December
2016

52 weeks ended
26 December
2015

65.1

1,457

451

320

63.8

1,428

433

302

62.9

1,278

402

291

Growth(1)

1.3%

11.7%

7.7%

3.6%

Constant
currency
growth(1)

3.6%

(1.8)%

(6.2)%

1.4%

(3.6)%

(1)

S
T
H
G
I
L
H
G
H

REVENUE GROWTH DESPITE CHALLENGING MARKET CONDITIONS

GOOD PROGRESS TOWARDS 2020 MILESTONES

CONFIDENT IN STRATEGY AND OUTLOOK

Merlin Entertainments has made good progress in 2016 in
the context of a challenging external environment.

From a trading perspective the Group’s longstanding
diversification strategy meant that we delivered revenue and
EBITDA growth at reported foreign exchange rates of 11.7%
and 7.7% respectively, despite headwinds in many markets, in
particular from international terrorism.

This was reflective of an encouraging recovery in Resort Theme
Parks, ongoing growth in LEGOLAND Parks and some Midway
Attractions divisions, offset by more difficult conditions in London
and a number of other Midway markets. There was also a strong
impact from New Business Development as we opened more
attractions and benefited from a meaningful contribution from
our accommodation expansion.

Merlin Entertainments has

made good progress in 2016

Short term macro developments
Following the European Union referendum in the UK, the
weakening of Sterling from its previously high level benefited
the 2016 results in the translation of the over 70% of profits we
derive from other countries; notably the USA and Continental
Europe. In the medium term, we expect a more competitive
pound to help inbound tourism to London recover and drive
more ‘staycations’ from UK residents, in the same way that some
of our Continental European attractions enjoyed a period of
Euro weakness. We are encouraged by recent visitation trends
in our London attractions, although it is premature to declare
a recovery, and we continue to plan accordingly.

Nonetheless we continue to believe that the UK tax system puts
the country’s tourism industry at a disadvantage, with the UK
VAT rate of 20% in many cases being twice that charged in other
European Union countries. The industry therefore continues to
lobby the Government for a reduction in VAT on tourism
services (attractions and accommodation). This would have the
effect of ‘locking in’ the value benefit of a weaker pound and
create a level playing field for UK tourism with competing
countries such as France and Spain.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016
CHIEF EXECUTIVE’S Report

We speak of 2017 as the

beginning of the Next Chapter in

the remarkable Merlin Story

Long term vision and strategy
The events of 2016 reinforce our view that a diversified portfolio
based on strong brands with natural synergies is the best way of
delivering consistent profit growth. Consequently we continue
to pursue a long term vision by which the Group’s revenues are
broadly spread one third each across The Americas, Europe
and Asia Pacific. It is worth noting that compared to 2005, when
Merlin was much smaller and only operating in Europe, the 2016
revenue of £1.4 billion was already derived 27% and 14% from
North America and Asia Pacific respectively. With the focus of
our Midway and LEGOLAND park new openings being in
these two regions, we remain confident of achieving this goal.

Despite the escalation in terrorist activity and its consequent
impact on tourism flows we continue to be excited about the
long term opportunities for Merlin. In particular, we believe that
visitation to international ‘gateway’ cities will grow steadily driven
by the increased propensity of resident populations to ‘short
break’ and the desire of emerging market consumers, notably
from China, to travel. This will create further opportunity for
our Midway brand clusters and support the extension of our
strategy to exploit growing city centre tourism.

The short break market is also set for further expansion
reinforcing our aspiration to position all our theme parks as resort
destinations. In this respect we envisage that, in the fullness of time,
most of our resorts can support over 1,000 accommodation
rooms, ranging from four star hotels to themed ‘glamping’.
Currently our top resorts LEGOLAND California, Gardaland
and Alton Towers have 250, 347 and 516 rooms respectively.

Our confidence in the long term prospects of our market
led us in February 2016 to announce some significant New
Business Development milestones; by 2020 to open 40 new
Midway attractions (mainly in cluster city locations), four new
LEGOLAND parks and over 2,000 new accommodation rooms.
By the end of 2016, 19 of these additional Midways were open
or under development. LEGOLAND Dubai opened in October
and LEGOLAND Japan is set to open in April 2017. In addition,
over 1,000 new rooms are already open or approved for
development. We are well advanced with other new projects,
including exciting new brands, which will see us deliver against
this strong structural growth story.

Our customers
At the heart of what we do is our desire to give our customers
safe, memorable experiences. Since the accident at Alton Towers
in 2015 we have reinforced our health and safety protocols and
resources and introduced a new Group engineering function
(see the Health, Safety and Security Committee Report on
pages 70 to 75).

In terms of the guest experience we have delivered against our
high (90%+) KPI on customer satisfaction, but our aspiration is
to continually do better. All businesses in the Group are now
focused on delivering ‘Top Box’ satisfaction, Trip Advisor
(or local equivalent) and ‘Net Promoter’ scores.

Our team
Merlin has one of the most engaged teams in any industry
anywhere, achieving a remarkable 89% in the 2016 staff survey.
It is this which drives the high productivity of the Group
and delivers memorable experiences to over 63 million
guests worldwide.

With pressures on our cost line from external factors such
as legislation-driven wage pressures around the world and
increased business tax rates in the UK, as well as above
inflationary wage growth in Asia, we will continue to seek to
drive greater productivity through resource efficiencies and
more motivated, better rewarded employees as a means
of retaining this extraordinary energy. This extends to
share ownership via the popular Merlin Sharesave Scheme.
We will also continue our already progressive policies in
shaping a management team which reflects the gender
and cultural diversity of our customers.

Internally we speak of 2017 as the beginning of the Next
Chapter in the remarkable Merlin Story. It is one where the
Company is moving forward with confidence to achieve our
ambitious growth strategy.

We have the brands, the people and an exciting pipeline of
projects to deliver against our objectives. Our overarching
purpose remains to create truly memorable experiences
for our millions of visitors and value for our stakeholders.

Nick Varney
Chief Executive Officer
1 March 2017

Merlin Entertainments plc Annual Report and Accounts 2016
At the heart of what we do is
our desire to give our customers
safe, memorable experiences

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016MERLIN Magic Making

MARK FISHER
Chief Development
Officer

MERLIN MAGIC MAKING (MMM) IS THE UNIQUE RESOURCE

THAT SITS AT THE HEART OF EVERYTHING MERLIN DOES.

FINDING THE MAGIC

MMM finds new business opportunities, ranging
from the strategic roll out of the Midway estate
to potential acquisitions.

CREATING THE MAGIC

Driving innovation across the Group, MMM creates the
highest class compelling propositions for the existing
estate and new attractions. This includes creating
Merlin’s very own in-house intellectual property.

PRODUCING THE MAGIC

MMM takes creative ideas and then produces amazing
content for our attractions. We make LEGO models,
wax figures, attraction theming, and ensure that
Merlin provides the best animal care possible.

DELIVERING THE MAGIC

MMM's project management teams produce world
beating attractions for our guests to enjoy!

W O R L D W I D E

Merlin Entertainments plc Annual Report and Accounts 2016 FINDING THE MAGIC

In 2016 our organic roll out programme continued, leading
us towards our strategic goal of 40 new Midways by 2020.
This progress will continue into 2017 and beyond as we roll
out new and existing brands into new territories.

Most exciting is our entry into India, with a Madame Tussauds
being built right in the heart of Delhi, on the world famous
Connaught Place. We are also taking the LEGOLAND
Discovery Centre brand over to Australia for the first
time as we open in Melbourne. This is in addition to our
continued roll out in China of our SEA LIFE and
LEGOLAND Discovery Centre brands.

The USA will see the further expansion of the LEGOLAND
Discovery Centre brand together with a ‘new concept’
Madame Tussauds in Nashville, where this first fully musically
themed attraction will leverage its prime location close to
the Grand Ole Opry.

Finally, we will launch our new Midway brand, ‘Little Big City’,
that will open alongside our Berlin cluster (see case study
on page 23).

More NINJAGO
training camps are appearing

in LEGOLAND parks, ready to

train the next generation of

LEGO warriors

MERLIN Magic Making

CREATING THE MAGIC

We are well advanced in introducing our first full intellectual
property based hotel outside of the LEGOLAND resorts,
with the launch of the ‘CBeebies Land Hotel’ at Alton Towers.
Children will be able to come and stay in the fully immersive and
magical world of CBeebies, before embarking on their day of
adventures within Alton Towers and a visit to the successful
CBeebies Land.

Further in 2017, a new ‘Ghostbusters’ ride experience at
Heide Park promises to ‘scare the pants off ’ our visitors, while
more NINJAGO training camps are appearing in LEGOLAND
Deutschland, LEGOLAND Florida and LEGOLAND Windsor,
ready to train the next generation of LEGO warriors. For those
with a more sedate side, ‘The Gruffalo’ will be dropping in to
Chessington World of Adventures.

Meanwhile, on the Midway side, amongst a whole host of exciting
projects, we will be introducing a new selection of Penguins in
Paris and a new wobbly world of Jellyfish in London.

Probably most exciting of all is the introduction of one of
our home grown attraction concepts, ‘Little Big City’.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016MERLIN Magic Making

PRODUCING THE MAGIC

We have produced some amazing things in 2016 and think none
is more spectacular than the ‘huge’ Miniland at the heart of our
new LEGOLAND park in Dubai.

Our new LEGO model shop is now operational in Florida,
as we absorb the ever increasing demand and focus on
operational efficiencies in rolling out new LEGOLAND parks
and Discovery Centres, as well as new attractions in our
existing estate. Our Malaysian model
shop will see further expansion
as we move through 2017.

Innovation continued to be a key feature in 2016, with many
new production techniques being trialled as technology plays
more of a central role in our production thinking. Examples are
facial scanning being used in the development of our handmade
wax figures and the use of 3D printing to produce ever more
lifelike theming across the Merlin estate.

Merlin Animal Welfare, our team of marine biologists,
continues to be at the forefront of our creature care as
well as developing even more innovative displays for our
SEA LIFE attractions.

DELIVERING THE MAGIC

Whether it is from new Midway attractions or other
developments, 2016 has seen no let-up in the variety,
geographic spread and number of delivered projects.
We have been working on over 48 major projects for
delivery in 2016 and 2017, across eleven countries,
representing a capital investment of over £245 million.

Our accommodation roll out will continue into 2017.
We will open the already mentioned ‘CBeebies Land Hotel’ at
Alton Towers, together with a new beach themed holiday
village in LEGOLAND Florida, a new LEGO Castle hotel at
LEGOLAND Windsor and an expansion of the holiday village
in LEGOLAND Billund. Overall we are well on target to
reach our goal of 2,000 new rooms by 2020.

Finally, after the successful launch of our virtual reality coaster
at Alton Towers in 2016, we will see a further roll out of this
innovative concept in Gardaland in 2017.

Overall 2016 has been another great year for Merlin Magic Making
with the whole team rising to the challenge. We are excited
about the opportunities in 2017.

We have produced
some amazing things in 2016.

None more spectacular than the

‘huge’ Miniland at the heart of

our new LEGOLAND park

in Dubai

Merlin Entertainments plc Annual Report and Accounts 2016MERLIN Magic Making

In search of new Midway brands, the
Merlin team have developed our own
in-house concept that can fit alongside
our portfolio of existing brands,
broadening our long term options
when it comes to achieving our
Midway pipeline roll out.

We are developing Merlin’s take on a model village with
a unique fusion of miniature models and a mix of old and
new technology. We will make the history of a particular
city come alive as we open a ‘Little Big City’ in our cluster

cities alongside our existing Midway brands.

We will open our first ‘Little Big City’ right in the heart
of Berlin in the summer of 2017. We will bring to life
the most important stories and events from medieval to
modern Berlin, using a captivating combination of special
effects, storytelling and interactive miniature designs.

DID YOU KNOW?

Our little ‘Reichstag’ is 4m wide,

3m high & 2m deep, and we

‘burn it down’ every 3 minutes!

There are 6,000 characters, each

individually digitally posed, dressed

and 3D printed.

We tell 391 character stories

through 6 eras of Berlin’s history.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016NEW
Openings

THE NEW OPENINGS TEAM IS MERLIN'S
SPECIALIST RESOURCE THAT

DEVELOPS NEW LEGOLAND PARKS

OPENS NEW MIDWAY ATTRACTIONS

INTEGRATES ACQUISITIONS

John Jakobsen
Chief New Openings Officer

Reflecting Merlin’s ambitious growth plans, in May 2015 the
Group announced the formation of a new team, New Openings,
responsible for the development of our LEGOLAND park
portfolio, overseeing the opening of all new attractions and
the integration of strategic acquisitions.

It is a vital element in delivering the Group’s strategic 2020
milestones, where from 2016 to 2020 the Group will be opening
40 new Midway attractions and four new LEGOLAND parks
(each with themed accommodation offerings). These projects will
mean hiring around 7,000 new staff over that period to support
an anticipated visitation of up to 20 million visitors per year.

Development
LEGOLAND parks
New Openings has a wide remit for new LEGOLAND park
developments, seeking out new opportunities and locations for
future resorts. Once a project is agreed and Board approved,
the New Openings team is responsible for the construction
of the park and any complementary accommodation.

Midway attractions
For Midway attractions, the site search activity for new project
locations rests with Merlin Magic Making (see pages 20 to 23
for more details). Once a project has Board approval it is
handed over to New Openings to oversee the development,
with Merlin Magic Making providing core project management
to deliver the project build.

Opening
In delivering a new attraction, New Openings will manage the
recruitment and training of staff, develop the marketing plan and
build brand awareness along with establishing all the functions a
new site needs, wherever possible leveraging expertise from
across the existing estate.

When a site opens, New Openings will support the business for
between 12 to 18 months, before stepping aside and leaving the
local team to execute the agreed strategy. Throughout this time
results will be reported within the relevant Operating Group.

2016
During 2016 the New Openings team has proved the benefits
of this dedicated resource, opening LEGOLAND Dubai under
a management contract in October, while pressing forward with
the construction of LEGOLAND Japan for a planned opening in
April 2017. They have also continued to make progress with our
LEGOLAND Korea location, working with local government on
the site’s supporting infrastructure, targeting a 2019 opening.

The team have also managed the opening of five new Midway
attractions in three different continents this year. All projects are
operating well with guest satisfaction scores on a par with high
Merlin standards.

Looking forward
As highlighted on pages 20 to 23, there are a number of new and
exciting developments we are working on alongside Merlin Magic
Making, and we stand ready to deliver more successful launches.

Regarding new LEGOLAND parks, we continue to seek
out new sites worldwide, with opportunities progressing in
North America and China.

Acquisitions
To enable existing teams to focus on operating existing
attractions, New Openings is responsible for operating any
acquired businesses until they are ready to be integrated
into the relevant Operating Group.

Merlin Entertainments plc Annual Report and Accounts 2016
NEW Openings

After a strong and consistent increase
in LEGO toy sales in China over the past
several years we see opportunities for the
development of LEGOLAND branded
attractions in this significant market.

In considering our first important step into the
market the Group decided to open the first
LEGOLAND attraction as an LDC in Shanghai.
This is one of the strongest LEGO markets in China
and with a location within walking distance of our
Chang Feng Ocean World aquarium we have been
able to leverage operational synergies with our
existing well established Merlin team.

The attraction follows the established LDC format
and New Openings worked together with the MMM
project management team to ensure we opened on
schedule in April 2016. Following a well executed
marketing and sales programme - integrated with
LEGO China - the attraction enjoyed a strong launch
and has seen very promising guest
satisfaction scores so far.

The success of this highly strategic launch provides
confidence for the potential for many further
LDC projects in China, as well as supporting our
conviction of the market potential for our larger
scale LEGOLAND parks.

We look forward to overseeing this successful new
attraction for its remaining time with New Openings
before we then hand operations over to our
Midway colleagues!

DID YOU KNOW?

The Shanghai Tower, at 4.9 metres

from the floor to the top of the model,

is the tallest in any LDC.

There are 600,000 bricks and over

3,000 Minifigures in the Miniland.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016MIDWAY
Attractions

2626

Merlin Entertainments plc Annual Report and Accounts 2016OPERATIONAL REVIEW - MIDWAY Attractions

Visitors (m)

Revenue (£m)

EBITDA (£m)

Operating profit (£m)

Like for like revenue growth

53 weeks ended
31 December
2016

52 weeks ended
24 December
2016

52 weeks ended
26 December
2015

41.7

638

236

172

40.6

621

224

160

40.0

561

221

167

Growth(1)

1.5%

10.8%

1.5%

(4.3)%

Constant
currency
growth(1)

3.4%

(4.7)%

(9.7)%

(0.2)%

(1)

S
T
H
G
I
L
H
G
H

LIKE FOR LIKE REVENUE LEVEL WITH 2015

SPECIFIC CHALLENGES IN A NUMBER OF KEY MARKETS

GOOD CONTRIBUTION FROM MIDWAY ROLL OUT

Nick Mackenzie
Managing Director
Midway Attractions

Market backdrop and strategy
The Midway Attractions Operating Group experienced a difficult
year in 2016, with several of our large, city centre attractions
experiencing volatile trading patterns. Whilst occasional ‘shocks’
have always been present to a degree given the global nature of
the Operating Group, the increased prevalence of these in recent
years has resulted in a more challenging trading environment.

Nevertheless, a number of savings were made in light of the
geopolitical events of the first half of 2016 and in anticipation
of mounting underlying cost pressures. Whilst the part-year
benefit of these mitigating actions did not fully offset the softer
revenue performance, they are expected to support profitability
going forward, allowing for continued investment in marketing
and product.

Nevertheless, we remain confident in the long term prospects for
Midway. We continue to see growth opportunities as consumers
seek more leisure experiences, and as increased ‘digitalisation’ of
media and entertainment leads to greater value being placed on
high-quality experiences with friends and family.

Against this backdrop, our strategy is based around the continued
growth and global diversification of our brands, exceptional
marketing execution, ‘owning the visit’ in our ‘gateway’ city
attractions and maximising strategic synergies.

Trading performance
Overall revenue growth of 10.8% was underpinned by constant
currency growth of 3.4%, with more favourable foreign exchange
rates benefiting our reported results.

EBITDA grew by 1.5% (decline of 4.7% at constant currency),
representing a decline in the margin from 39.4% to 36.1%.
With a cost base that is typically more fixed in nature when
compared to our theme park businesses, significant structural
cost savings in Midway are challenging to achieve.

New ‘drop ride’ in
the Berlin Dungeon

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016OPERATIONAL REVIEW - MIDWAY Attractions

Other key product launches included a new ‘drop ride’ in the
Berlin and San Francisco Dungeons, a Sherlock Holmes feature
in Madame Tussauds London, and the ‘K-Wave Zone’ in
Madame Tussauds Shanghai - capturing the appetite in China
for Korean music. We introduced a number of NINJAGO based
‘Laser Training Camps’ at our LEGOLAND Discovery Centres
and launched a new café format at LDC Dallas which has the
potential to be rolled out to the wider estate. Late in the year
we launched a penguin feature at SEA LIFE Sydney Aquarium.

Brand investment
As part of the continuous evolution of our iconic brands, we
continued in 2016 to support their competitive positioning
in an ever-evolving landscape. In Madame Tussauds, we have
focused upon evolving the experience ‘beyond wax’, creating
new immersive experiences and ensuring appropriate
differentiation between our global portfolio of attractions.
We are also developing new strategic partnerships with
international media and consumer brands. In SEA LIFE, we
are rolling out refreshed marketing communications and
product, and are increasingly partnering with major brands.

Customer satisfaction
Our continued focus on delivering memorable experiences
helped our Midway attractions maintain their excellent levels
of guest satisfaction with a particular focus on improvements
to ‘Top Box’ scores.

Existing estate - looking ahead
We will make further investments in 2017, with something new
at each of our attractions as we deploy capital efficiently across
the estate. These will include:
• a penguin attraction at SEA LIFE Paris and a

jellyfish feature at SEA LIFE London Aquarium;
• ‘The Voice’ - based around the hit TV show -
in Madame Tussauds London and New York;
• ‘NINJAGO City’ - which we will roll out to
more LEGOLAND Discovery Centres.

New penguin feature at SEA LIFE Sydney Aquarium

The Operating Group’s margin in 2016 was also driven by our
roll out strategy impacting mix, with newer sites typically having
lower margins.

As a result, and including higher depreciation driven by continued
investment in the estate, operating profit declined by 4.3%
(9.7% at constant currency).

Existing estate
Revenue declined by 0.2% on a like for like basis as difficult
trading conditions in a number of our larger markets, which
were adversely affected by security concerns or market-specific
issues, were not fully offset by strong performances elsewhere.
We are nevertheless encouraged by the continued strong market
positioning of our brands even in these more challenging markets.

As the largest of Midway’s five Divisions, the impact of security
concerns was most strongly felt in London. Although the
competitiveness of Sterling improved following the UK’s
referendum on the EU in June, this resulted in little material
benefit on visitation from overseas as 2016 summer holiday
decisions had largely been made prior to the currency
movements. Some improvement in overseas visitation
was however experienced towards the end of the year.

Our Midway Asia Division saw challenging trading as localised
market factors impacted several of our larger attractions.
This was most prevalent in Hong Kong where travel restrictions
from the People’s Republic of China continue to impact visitation
to Madame Tussauds. We however remain confident in the
longer term prospects for the region as a whole and will
continue to invest in both our existing and new attractions.

In a portfolio of over 100 attractions, there were naturally a
number of strong performances. These tended to be delivered
at our attractions located outside of city centres. As these
are typically smaller in scale compared to their city centre
counterparts, their good performances were insufficient to
offset weakness elsewhere.

Capital investment
2016 saw a number of significant product launches, typically
designed to deliver ‘new news’ via marketing and PR to drive
repeat visitation, support price increases, or shift focus towards
a particular audience.

Madame Tussauds New York enjoyed a new ‘Ghostbusters’
feature, coinciding with the remake of the film which was
launched in July. We also teamed up with a virtual reality
provider - ‘The Void’ - to make this experience even more
interactive and engaging. PR surrounding the product was
fantastic, and the performance uplift helped offset a
difficult tourist market in New York.

Merlin Entertainments plc Annual Report and Accounts 2016
OPERATIONAL REVIEW - MIDWAY Attractions

In Spring 2016, following a number of terrorist attacks across Europe, and with UK
exchange rates still relatively unfavourable for inbound tourists, the London tourist
market was displaying signs of weakness. European markets were struggling and
visitor sentiment was negative at a crucial point for summer holiday bookings.
With international guests typically representing over 70% of visitors to our
London attractions, we decided to execute a proactive strategy.

With a primary focus on growing market share in
domestic audiences in London and the South East
of the UK throughout the summer holidays, we
increased our marketing spend and developed an
impactful campaign to drive visits to London’s
South Bank. A fully integrated, multi-media campaign
featuring ‘Eye-Popping Days Out’ ran from June
until the end of August across a range of media
to maximise awareness and ‘share of voice’.

This included working with our partner, Big Bus, with
advertising across their fleet and sales team incentives.

As we had planned, the campaign boosted
domestic interest, web traffic and visitation.
Whilst the international market remained difficult
over the summer period, the improvement in
domestic visitor numbers arrested the decline
in overall guest numbers.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016LEGOLAND
Parks

3030

Merlin Entertainments plc Annual Report and Accounts 2016OPERATIONAL REVIEW - LEGOLAND Parks

Visitors (m)

Revenue (£m)

EBITDA (£m)

Operating profit (£m)

Like for like revenue growth

53 weeks ended
31 December
2016

52 weeks ended
24 December
2016

52 weeks ended
26 December
2015

12.9

495

193

165

12.8

486

188

160

12.7

429

169

146

Growth(1)

0.6%

13.5%

11.1%

9.1%

Constant
currency
growth(1)

2.9%

0.5%

(1.4)%

1.6%

(1)

S
T
H
G
I
L
H
G
H

LIKE FOR LIKE REVENUE GROWTH OF 1.6%

SPECIFIC CHALLENGES IN FLORIDA; STRONG
PERFORMANCES IN EUROPEAN PARKS

CONTINUED ROLL OUT OF THEMED ACCOMMODATION

Hans Aksel Pedersen
Managing Director
LEGOLAND Parks

Trading performance
Following two years of extremely strong growth, the LEGOLAND
Parks Operating Group saw further positive momentum in 2016.
Our ongoing successful investment in product and the guest
experience at our six existing parks, underpinned by the
LEGO toy brand, has been a major driver of this.

Existing estate capital investment
In 2016, the high year major product investment was in
LEGOLAND Billund, with a medium year in LEGOLAND
California. In both these parks, we launched new offerings
based upon core LEGO NINJAGO intellectual property
(see case study on page 33).

Overall revenue growth of 13.5% was driven by constant
currency growth of 2.9%, with the strength of the US Dollar
benefiting the translated result of our two North American parks.
Reflecting growth in revenue offset by underlying cost growth
and pre-opening costs related to future parks, EBITDA grew
by 11.1% (0.5% at constant currency), and operating profit
by 9.1% (decline of 1.4% at constant currency).

Existing estate trading
Revenue grew by 1.6% on a like for like basis, reflecting the
strong comparatives following exceptionally strong growth
in recent years.

We enjoyed good performances in our parks in Billund and
Germany which benefited from a ‘staycation’ effect. LEGOLAND
California maintained a strong market position despite increased
promotional activity from competitors, whilst the Florida tourist
market suffered from a number of
issues, including concerns related to
the Zika virus and the Orlando
shootings, resulting in increased
competitive pressures.

Additionally, we launched the new and exclusive movie ‘short’:
‘The LEGO Movie 4D A New Adventure’ across each of our
parks. Partnering with Warner Bros. and the LEGO Group, this
efficiently added further capacity to our parks, and supported
guest satisfaction.

LEGOLAND Parks saw

further positive momentum…

from our ongoing successful

investment in product and the

guest experience

3131

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016
2017 will see a

significant acceleration in our

accommodation strategy

Looking ahead
In 2017 we will continue to provide our guests with new,
innovative and compelling features at each of our parks.

Building upon the resounding success of our NINJAGO
product investments in 2016, similar rides and experiences
will be rolled out across the remaining parks. We believe these
will benefit from the LEGO Group’s continued investment into
the NINJAGO brand, as well as further marketing momentum
around the LEGO NINJAGO movie currently expected to
be released towards the end of 2017.

It is this mutually-synergistic relationship with LEGO, allowing
for strong product offerings and marketing opportunities, which
provides us with confidence in the longer term outlook for the
LEGOLAND Parks Operating Group.

2017 will also see a significant acceleration in our accommodation
strategy. A new holiday village offering at LEGOLAND Florida
will add capacity to complement the hotel that opened in 2015.
We will also open a second hotel at LEGOLAND Windsor and
expand the holiday village at LEGOLAND Billund. In total, just
over 300 rooms will be added to the estate in 2017, with a
further acceleration of the roll out expected in 2018, as
Merlin progresses towards its 2020 milestones.

OPERATIONAL REVIEW - LEGOLAND Parks

Resort positioning
Our strategy of developing our theme parks into short break
resorts made further progress in 2016 with the addition of 47
new accommodation rooms. We opened a 34 room ‘Castle’
hotel and more ‘giant-sized’ beer barrel chalets at LEGOLAND
Deutschland Holiday Village. Such accommodation developments
not only generate attractive returns in their own right, but
drive increased volumes to the park as a result of the broader
catchment area. Data continues to show that guest satisfaction
is higher amongst those who have stayed with us overnight.

Customer satisfaction
2016 showed an improvement in guest satisfaction in a
number of key areas. For example our themed accommodation
performed particularly well which was also reflected through
highly favourable ratings on Trip Advisor.

The ‘Castle’ hotel at LEGOLAND Deutschland Holiday Village

Merlin Entertainments plc Annual Report and Accounts 2016
OPERATIONAL REVIEW - LEGOLAND Parks

The rationale for LEGOLAND Billund
developing a NINJAGO themed feature
as a high year capital investment project
was compelling, with NINJAGO already
one of LEGO’s best-selling toy lines and
becoming a key LEGO intellectual
property. Our own detailed market
research reinforced that the idea of a
‘NINJAGO training camp’ scored well with
both boys and girls and across different
age groups, as well as amongst parents.

With our defined investment cycles giving clarity
to our parks, LEGOLAND Billund started the
project in 2014 for the 2016 season. The objective
was to deliver a high capacity ride and a new
themed area, driving improvements in guest
satisfaction and visitation whilst delivering the
expected returns on capital.

LEGO NINJAGO World opened in 2016 in Billund.
In addition to various training exercises to become
a ‘Ninja’, the heavily themed area includes a ‘dark'
ride - with lasers controlled by hand gestures,
as well as dining and shopping features.

We also opened a similar NINJAGO themed
attraction at LEGOLAND California.

Following the successful launches in Billund and
California, and coinciding with the NINJAGO
movie anticipated in 2017, the remaining parks
will launch similar attractions throughout 2017.
Rolling out similar or identical products in this
way offers clear synergies from a development,
operational and cost perspective.

DID YOU KNOW?

LEGOLAND Billund's NINJAGO World

covers an area of 5,100 square metres.

The LEGO models weigh 1.5 tonnes,

containing 727,000 bricks.

The high score on 'NINJAGO - The Ride'

is currently 380,000!

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016RESORT
Theme Parks

3434

Merlin Entertainments plc Annual Report and Accounts 2016OPERATIONAL REVIEW - RESORT Theme Parks

Visitors (m)

Revenue (£m)

EBITDA (£m)

Operating profit (£m)

Like for like revenue growth

53 weeks ended
31 December
2016

52 weeks ended
24 December
2016

52 weeks ended
26 December
2015

10.5

322

10.4

319

10.2

285

Growth(1)

1.5%

11.8%

45.9%

109.7%

Constant
currency
growth(1)

5.8%

28.1%

61.3%

4.3%

(1)

S
T
H
G
I
L
H
G
H

LIKE FOR LIKE REVENUE GROWTH OF 4.3%

RECOVERY IN LEISURE VISITATION UNDERWAY
AT ALTON TOWERS

GOOD PERFORMANCE IN THE WIDER ESTATE

STRONG CONTRIBUTION FROM NEW ACCOMMODATION

Justin Platt
Managing Director
Resort Theme Parks

Due to the decline in visitation at Alton Towers experienced
in the second half of 2015 and in anticipation of a continuation
of this in 2016, action was taken towards the end of 2015 to
re-align the cost base. These savings have been achieved more
rapidly than initially envisaged, with any further operational
improvements expected to be more modest as the focus shifts
towards driving revenue growth. Crucially, we are pleased that
guest satisfaction has remained above target levels.

Trading performance
Following an extremely difficult year in 2015, the Resort
Theme Parks Operating Group made good progress in 2016,
with revenues growing by 11.8% or 5.8% on a constant
currency basis.

Reflecting growth in revenues and control of the cost base,
EBITDA grew by 45.9% and operating profit by 109.7%
(28.1% and 61.3% respectively at constant currency).

Existing estate trading
On a like for like basis revenues grew by 4.3%. Growth for the
Operating Group as a whole was held back by the full year effect
of lower volumes at Alton Towers following the accident in June
2015, although we saw a steady recovery in leisure visitation
volumes during the year.

Elsewhere, we enjoyed strong performances, including
THORPE PARK in the UK which launched a major new product
investment - ‘Derren Brown’s Ghost Train’. Across the estate,
a strong Halloween offering built on the success of previous
years, supporting trading outside of the summer season.

Knight's Village lodges at Warwick Castle

3535

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016OPERATIONAL REVIEW - RESORT Theme Parks

Capital investment
In line with our four year capital investment cycle, the major
investment for 2016 was in THORPE PARK where we opened
another world first - ‘Derren Brown’s Ghost Train’. This combines
the unique talents of the mentalist and illusionist with the creative
and project management expertise of Merlin Magic Making.
This investment drove good growth in volumes although,
reflecting the complex and cutting-edge nature of the project,
the launch was not without its challenges. We are confident of
further opportunities to improve guest satisfaction, with further
product development already planned for 2017 and we continue
to see intellectual property as an area for focus in coming years.

Gardaland and Heide Park each saw new themed areas
based around DreamWorks Animation’s ‘Kung Fu Panda’
and ‘How to Train Your Dragon’, respectively.

Finally, Alton Towers used state-of-the-art, virtual reality
technology to create a brand new ride experience called
‘Galactica’. Based upon the ‘re-imagining’ of an existing ride, and
despite being a low year investment, we are pleased with the
positive impact the ride has had on visitor numbers, and in
contributing towards rebuilding the Alton Towers brand.

‘How to Train Your Dragon’ at Heide Park

Resort positioning
Our strategy of developing our resorts into short break
destinations continued in 2016, with the addition of the 28 room
Knight’s Village lodges at Warwick Castle, the launch of a 100
room second hotel in Gardaland (see case study on page 37) as
well as 35 room ‘glamping’ at Chessington World of Adventures.
We will continue to invest in themed accommodation which,
as well as generating attractive returns directly, has the benefit
of widening a resort’s catchment area and improving
guest satisfaction.

Alton Towers used

state-of-the-art virtual reality

technology to create a brand

new ride experience,

‘Galactica’

Customer satisfaction
We maintained good levels of satisfaction this year as a result
of continued investment in new products and features together
with our exceptional staff. We are particularly pleased that
Alton Towers showed a continued improvement in their
‘Net Promoter’ score - a metric we are increasingly focused
upon. Refinements to the ‘Derren Brown - Ghost Train’ at
THORPE PARK in 2017 should also drive further improvements.

Looking ahead
2017 will see further investment in the existing estate and an
expansion of our accommodation offerings, with a particular
emphasis on intellectual property.

In Heide Park, following the success of previous partnerships with
Sony, ‘Ghostbusters 5D: The Ultimate Ghosthunt’ will launch as
Europe’s only 5D ‘Ghostbusters’ experience, allowing guests to
fight their way through an ‘alien-infested’ warehouse! Meanwhile,
at Chessington World of Adventures in the UK, the much loved
‘Gruffalo’ will come to the resort through an interactive and
immersive ride experience.

We see a strong pipeline of further accommodation across each
of our resorts as part of the Group’s target to open 2,000 new
rooms by the end of 2020. Offerings will include not just hotels,
but holiday villages, lodges and speciality accommodation such
as ‘glamping’. Where appropriate, we may also look to use
intellectual property in our accommodation projects in the
same way that we have for our existing estate investments.

At Alton Towers for example, building on the success we have
enjoyed with CBeebies Land, which opened in 2014, we will
in 2017 open a CBeebies themed hotel, incorporating 76
rooms and enjoying its own dedicated entertainment area
and restaurant. With a full entertainment programme running
throughout the year, the new development will feature live shows,
hosted activities, character ‘meet and greets’ and play areas.

Merlin Entertainments plc Annual Report and Accounts 2016
OPERATIONAL REVIEW - RESORT Theme Parks

A key pillar of Gardaland's strategy in recent years has been to develop its short break offering. The existing 247 room hotel has enjoyed strong growth and occupancy levels as marketing campaigns and product offerings have increasingly been aimed at short breaks for the Italian domestic market. Approximately 70% of the Lake Garda region's five million annual visitors come from outside Italy, so in 2016 Gardaland launched the new 100 room 'Adventure Hotel' to target this international audience. Four different 'adventure' themes are aimed at families with slightly older children and differentiate this new product from the existing hotel that has 'Fantasy' as its central proposition. Pricing reflects the hotel's premium nature, with average room rates approximately €35 higher. Results have been positive, with a strong share of international visitors underpinning financial results in line with our expectations. The existing hotel also saw a 6 percentage point increase in international tourists and both hotels had close to 100% occupancy rates during peak season.Gardaland will continue to develop its resort positioning strategy in its long term ambition to ensure that we are offering a wide range of accommodation types and price points.Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016GROUP
Financial Review

ANNE-FRANCOISE NESMES
Chief Financial Officer

Merlin Entertainments plc Annual Report and Accounts 2016GROUP Financial Review

53 weeks ended
31 December
2016
£m

52 weeks ended
24 December
2016
£m

52 weeks ended
26 December
2015
£m

52 week
growth
%

52 week
constant

currency growth
%

3.6%

(1.8)%

(10.3)%

(6.2)%

Revenue

EBITDA

Depreciation and amortisation

Operating profit

Net finance costs

Profit before tax

Taxation

Profit for the year

Post-tax exceptional items

Adjusted earnings per share

ROCE

Leverage on net debt to
underlying EBITDA

1,457

451

(131)

320

(43)

277

(66)

211

20.8p

10.2%

2.3x

1,428

433

(131)

302

(43)

259

(62)

197

19.5p

9.6%

11.7%

7.7%

(18.3)%

3.6%

(4.9)%

3.4%

11.7%

9.3%

100.0%

9.3%

1,278

402

(111)

291

(41)

250

(70)

180

((10)

17.8p

9.7%

2.3x

See 'How we report our results' on page 42 for details of how we report our financial performance.

Although there have been several headwinds, the strength

of the portfolio and our ongoing focus on the execution of the

strategy has resulted in continued revenue growth

Having joined Merlin in August 2016, I am pleased to report a
solid set of financial results. Although there have been several
headwinds for the business in 2016, the strength of the portfolio
and our ongoing focus on the execution of the strategy has
resulted in continued revenue growth, albeit on a constant
currency basis profits have been held back by underlying cost
increases and investments in new attractions. Cash generation
remains strong, allowing for significant re-investment into
the business.

My focus as Chief Financial Officer is on ensuring that the
business has the resources to grow and that we maintain our
capital discipline. Additionally I will develop the finance structures
and systems to evolve with the growth of the business as it
executes its strategy.

To aid comparability, the trading commentary which follows is on
a 52 week basis. Unless otherwise stated, all growth rates are
presented on a constant currency basis, that is, as if the 2015
results were re-translated at 2016 average rates.

Revenue
Reported revenue for the 53 weeks to 31 December 2016
increased to £1,457 million. On a 52 week constant currency
basis, total revenue grew by 3.6%, to £1,428 million. Growth was
delivered in each of the three Operating Groups as we drive
growth from both our existing and new businesses.

On a like for like basis, revenues grew by 1.4%, reflecting a broadly
flat result in Midway Attractions offset by continued growth in
LEGOLAND Parks and a recovery in Resort Theme Parks.

In addition to the performance in our existing estate, we made
good progress towards our 2020 milestones driving further
revenue growth. The opening of five new Midway attractions,
together with the full year benefit of 2015 openings, contributed
1.6 percentage points to revenue growth, whilst new
accommodation added 0.8 percentage points.

The opening of LEGOLAND Dubai, which opened on 31 October
and for which we earn a management fee, had a limited financial
impact, although during the year we recognised the remaining
balance of the park development fee up until its opening.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016
GROUP Financial Review

EBITDA

2016
52 weeks
£m

Constant
currency
growth
%

2016
margin
52 weeks
%

Midway Attractions

LEGOLAND Parks

Resort Theme Parks

Central

Group

224

188

(48)

433

(4.7)%

0.5%

28.1%

36.1%

38.7%

21.5%

(1.8)%

30.3%

Reported EBITDA for the 53 weeks to 31 December 2016
increased to £451 million. On a 52 week constant currency basis
EBITDA decreased by 1.8% to £433 million as underlying cost
increases in our existing estate and the additional investment in
our new attractions more than offset revenue growth.

EBITDA margins overall fell slightly to 30.3% primarily as a result
of a decline in the Midway Attractions margin, not fully offset by
a recovery in the Resort Theme Parks margin. The LEGOLAND
Parks margin was affected in 2016 by an increase in pre-opening
costs related to LEGOLAND Japan and Korea.

Central costs grew by £13 million as a result of the full year effect
of newly created roles in health and safety and engineering areas,
together with the non-recurrence of a number of cost decreases
in 2015, for example reductions in variable remuneration.

Midway Attractions EBITDA includes a £5 million sales tax rebate
which was recognised in the first half of the year, while the Resort
Theme Parks EBITDA includes a £5 million fine arising from the
accident at Alton Towers in 2015.

As a result of a cost base which is in the short term relatively fixed,
growth in revenue in our attractions typically flows through to
higher profits and margins. Margins in each of the Operating
Groups are affected by the source and mix of revenue in the
existing estate together with the development of new attractions
and accommodation which typically have lower margins than the
existing estate and that incur costs in the pre-opening period.
Increases in Central costs to support the increasing breadth
and scale of the business will also impact margins. To maintain
or improve margins, we continue to review our productivity to
mitigate the impact of the cost pressures that the business is facing.

Operating profit
Depreciation and amortisation grew by 10.3% to £131 million.
This increase primarily reflects the execution of our strategic
growth drivers, for example the roll out of Midway attractions
and resort positioning, as well as continued investment in
shorter life assets such as IT. On a constant currency basis,
underlying operating profit decreased by 6.2% to £302 million.

Interest
Net underlying finance costs of £43 million were incurred
in 2016 (2015: £41 million), reflecting the impact of adverse
movements in exchange rates. At reported exchange rates this
movement outweighed the positive full year impact of lower
underlying borrowing costs following the refinancing and bond
issuance in 2015 together with interest income related to the
Big Bus Tours investment.

Taxation
The underlying tax charge of £62 million represents an effective
tax rate of 23.8% (2015: 27.9%).

The Group's effective tax rate has fallen from 27.9% (based on
underlying results) to 23.8%, primarily due to the restructure of
the Group's external and internal financing arrangements in 2015,
which were put in place to support development and ongoing
funding needs in overseas territories. In addition, the revaluation
of Italian deferred tax liabilities due to the future reduction in
rates resulted in a one off benefit.

Going forward we expect the ongoing effective tax rate to be
higher than that reported for the 2016 financial period, which
incorporated the one off benefit noted above. Further detail is
provided in note 2.4 to the financial statements.

Foreign exchange rate sensitivity
Merlin is exposed to fluctuations in foreign currency exchange
rates on transactions and the translation of our non Sterling
earnings. Retranslating 2015 performance at 2016 rates would
result in a £101 million benefit to revenue and a £39 million
benefit to EBITDA. We set this out in more detail by major
currency on page 171.

Dividend
The Company’s policy is to pay a dividend with a target range
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 re-investment
in the business.

In September 2016 we paid an interim dividend of 2.2 pence
per share and the Board is recommending a final dividend of
4.9 pence per share. This equates to a full year dividend of 7.1
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 (see note vii to the
Company financial statements on page 169), as well as the
liquidity of the Group.

Merlin Entertainments plc Annual Report and Accounts 2016GROUP Financial Review

There were no refinancing costs or any repayment of borrowings
in the year (2015: cash outflow of £137 million).

Leverage on net debt at the year end equates to 2.3x underlying
EBITDA (2015: 2.3x). Going forward, we consider the range of
2-3x net debt to EBITDA to be an appropriate level of leverage
for the Group.

Net assets

Cash flow

EBITDA

Working capital and other movements

Tax paid

Net cash inflow from operating activities

2016
53 weeks
£m

2015
52 weeks
£m

451

(50)

433

402

(18)

(59)

325

2016
£m

1,841

1,017

(178)

(1,025)

(180)

(11)

(98)

2015
£m

1,495

923

(129)

(937)

(142)

(5)

(78)

Capital expenditure

(259)

(215)

Property, plant and equipment

Other investing activities

Proceeds from share capital

Interest paid, net of interest received

Dividends paid

Other

Net cash inflow before refinancing
and repayment of borrowings

Refinancing and repayment of borrowings

Net cash inflow/(outflow) for the year

(33)

(40)

(67)

(5)

(41)

(64)

Goodwill and intangible assets

Investments and other
non-current receivables

Working capital

Net debt

Corporate and deferred tax

Employee benefits

(137)

Other liabilities

(137)

Net assets

1,428

1,149

Property, plant and equipment increased by £346 million,
primarily reflecting the capital additions referred to previously
offset by depreciation charges, together with the retranslation of
those assets at different foreign exchange rates. Foreign exchange
translation differences also account for the reported increase in
intangible assets from £923 million to £1,017 million.

The increase in investments primarily reflects the Big Bus Tours
investment combined with the impact of foreign exchange due
to the investment being denominated in US Dollars.

Further details of the working capital movements of £49 million
are provided in note 3.4 to the financial statements.

The increase in reported net debt is due to the impact of foreign
exchange movements on non Sterling borrowings, partially offset
by cash generated in the year.

Further details are provided in the consolidated statement of
financial position on page 117 and the notes to the financial
statements on pages 120 to 162.

Merlin continues to be highly cash generative, with a net
operating cash flow after tax for the 53 weeks to 31 December
2016 of £433 million (52 weeks to 26 December 2015:
£325 million).

This reflects EBITDA of £451 million augmented by £32 million
of working capital and other movements following an £18 million
outflow in 2015. This reflects the impact of the timing of
payments, foreign exchange and non cash share-based
payment charges. Cash tax payments of £50 million
were made during the year.

A total of £259 million was incurred on capital expenditure in
2016, comprising £141 million invested in the existing estate and
£118 million on new attractions and accommodation. All major
capital projects are appraised both commercially and financially
and Merlin sets clear project return targets to assist in assessing
their viability and to ensure appropriate prioritisation.

We invested £51 million and £36 million across our theme park
resorts and in Midway attractions respectively, related to 2016
openings and pre-spend on future years. Capital expenditure of
£31 million was incurred in respect of the new LEGOLAND
parks currently under development.

Other investing activities of £33 million reflect predominantly a
loan note and minority equity stake investment in Big Bus Tours
with whom we have also entered into co-promotion agreements.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016GROUP Financial Review

Loan facilities
Merlin’s current loan facilities are detailed in note 4.2 to
the financial statements.

In addition to the Group’s term debt of £1,147 million, a
multi-currency revolving facility of £300 million (2015: £300
million) is available, with none drawn down at 31 December
2016 (2015: £nil).

This facility, in conjunction with the Group’s cash balance of
£215 million (2015: £152 million), is available to finance working
capital requirements and capital investment. We will continue to
seek opportunities to further diversify our sources of funding
away from the bank markets.

All covenant requirements were satisfied throughout the year.

Return on capital employed (ROCE)
Reflecting Merlin’s disciplined approach to the use of capital,
the Board considers ROCE to be an important metric for
appraising financial performance and uses it, along with EPS,
in the remuneration of senior executives. The return 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, derivative financial assets and
liabilities, and net debt.

ROCE in 2016 was 10.2% (52 weeks: 9.6%, 2015: 9.7%), reflecting
the fall in the effective tax rate and the impact of the 53 week
reporting period. See page 171 for how ROCE is calculated.

Summary
Since joining the business in August 2016, I have spent time
visiting a number of our attractions and teams around the world.
I have been struck by their passion and dedication for Merlin,
as well as their understanding of our strategy and what we
are trying to achieve.

Whilst in a complex, global business, there are always
improvements to be made, the financial foundations are sound,
and the disciplined approach to the use of capital is clear. My role
is to provide the best possible financial support to the business
to enable Merlin to deliver on its ambitious growth plans.

We will also continue to develop our structures and processes,
supporting our groupwide focus on productivity.

In summary, I am pleased with the overall good progress made
in 2016 and look forward to being part of the next phase of
Merlin’s growth!

Anne-Francoise Nesmes
Chief Financial Officer
1 March 2017

How we report our results

Period under review - this year’s consolidated Group financial statements
are prepared on a ‘53 week’ basis for the period ending 31 December
2016. In most years we report on a ‘52 week’ period. In certain years an
additional week is included to ensure that the statutory financial year end
date stays in line with the end of December. Within this report we also
present ‘52 week’ information for 2016 where we think it will provide
a more direct comparison of performance. The difference between the
two periods is the week ending 31 December 2016.

Financial KPIs - we present our performance consistently each year.
We refer to EBITDA as it is the profit measure we use internally to
measure the performance of our attractions. It is the KPI that we feel
most appropriately captures the ongoing ability of our attractions to
generate operating cash flows which contribute to capital reinvestment
that supports further growth, service the Group’s debt facilities, settle
our tax obligations and provide a return to our shareholders. We refer
to ‘underlying’ results, which remove the impact of any exceptional
items and provide a more direct comparison of trading performance.
There were no exceptional items in 2016. In 2015 there were no
exceptional items other than refinancing related items (and their
tax impact).

In the table on page 39 ‘underlying’ and ‘total’ figures for line items
down to operating profit are therefore identical. Net finance costs
and line items below are stated on an underlying basis.

All balance sheet, and therefore cash flow information, is reported as
at the statutory year end date and therefore represents a 53 week
period in 2016 (2015: 52 weeks).

Our financial performance measures are defined in the Glossary on
pages 172 to 173. Where relevant they are clearly set out within the
consolidated Group financial statements as shown on pages 115 to
162. Details regarding ROCE are set out within the ‘Other Financial
Information’ section on page 171. The five year Financial Record
on page 170 contains further information.

Reference to financial statements - 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 122 to 124. Those areas requiring significant
judgement in the preparation of the financial statements are
summarised on page 121.

Merlin Entertainments plc Annual Report and Accounts 2016

TEAM
Merlin

*The Sunday Times 30 Best Big Companies to work for 2017

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016TEAM Merlin

S
T
H
G
I
L
H
G
H

CONTINUED FOCUS ON ENGAGEMENT, DEVELOPING
OUR TALENT AND REWARDING OUR TEAMS

OUTSTANDING EMPLOYEE ENGAGEMENT SCORES

STRONG SHARE PLAN PARTICIPATION

EXTERNAL RECOGNITION IN SUNDAY TIMES AWARDS

Natalie Bickford
Group Human
Resources Director

Employee engagement
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’.

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.

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
For the third year running the Sunday Times have ranked us as
one of the ‘Best Big Companies to Work For’. In this expanded
category of ‘Top 30’ companies we achieved a fantastic 20th place.
We’re really proud! The Job Crowd also named us as number
three in their top five companies for graduates in our sector.

‘The Wizard Wants to Know’
Every summer we run ‘The Wizard Wants to Know’, our online
employee survey. We invite 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 is at 89%, way above the global average for
similar surveys run by other organisations. We continue to believe
that ‘The Merlin Way’ sits at the heart of these great results.

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.

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.

137,000 ‘Stars’ were sent worldwide in 2016 – the most ever,
and in 2016 Star number 500,000 was sent to one of our
team from Kelly Tarlton’s SEA LIFE Aquarium, New Zealand.

• Spark an Idea – another online service that lets our colleagues

share their ideas, however big or small.

• 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 Chang
Feng Ocean World in Shanghai beat almost 80 other
entries from across the globe!

Merlin Entertainments plc Annual Report and Accounts 2016
TEAM Merlin

Talent and development
Merlin’s future growth depends on recruiting and developing the
Team Merlin of the future. We are 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 they are recruited, we commit 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
Merlin operates in a sector with high employee turnover and so
it requires considerable effort to maintain our existing employee
base. On top of this, as Merlin grows each year, we need an ever
greater variety of roles and skills and offer an increasingly wide
range of opportunities. This becomes increasingly challenging
as we enter new territories to support our growth strategy.
As a result 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’
Hiring so many new people every year means that wherever
in the world our new people join us, they need to receive a
clear, consistent and fun induction into our magical business.
Building on from last year’s successful launch of our global
induction programme, 2016 saw the launch of our online,
interactive format to meet the needs of our ever expanding
global workforce.

In 2016, we continued our ‘Senior Leader Induction’ with a total
of 65 new leaders attending, a large proportion coming from
our new openings. Bringing together new leaders from across
the Merlin family for an exciting five days, the induction gives
them a fabulous opportunity to network and a chance to
improve their understanding of the whole Merlin business,
our strategy, ‘The Merlin Way’ and how they can contribute
to our continuing success as a Merlin leader.

Colleagues at LEGOLAND Windsor 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 want Merlin’s approach to
diversity to be recognised in every market that we operate in
and are committed to ensuring that diverse groups are fully
and properly represented at all levels of our organisation.

We have diversity development plans aligned to our strategy
and, to support this, we’ve launched our ‘Managing Inclusively’
programme for all our line managers.

Our strategy strives to ensure we have the best people for every
role, regardless of gender, race, disability, sexual orientation, or any
other factor. Wherever possible, everyone should have the same
access to every opportunity.

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.

In recent years one of our primary aims has been to
increase gender diversity through our Women at Merlin
(W@M) programme, which gives women the support and
opportunities they need to achieve their ambitions and
develop into senior roles.

20% of our Executive Committee are now women, up from
9% in 2015. Whilst we have seen a small decline (1%) in the
percentage of our senior leadership teams at 32%, we have
increased the number to 123 women. Of our permanent
colleagues, 4,226 or 47% (2015: 3,925 / 49%) are women.

As we expand into new territories, the ethnic diversity of our
teams continues to increase. Of particular note is the fact that
we opened LEGOLAND Dubai with 56 different nationalities
represented within the park!

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016TEAM Merlin

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 learning opportunities 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. The success of the programme was demonstrated
in 2016 by more than 25 of our Accelerate alumni being
promoted into senior positions across the Group. Reflecting
our global scale and growth plans, the September 2017 intake
will include 30 super-talented recruits from across the UK,
North America, China, Hong Kong, Japan and South Korea.

Leadership development programmes
We want our leaders to constantly grow and develop so
we offer lots of brilliant leadership development programmes.
These include partnering with the IMD Business School in
Switzerland to provide our senior executives with exceptional
leadership development. Our flagship ‘XCalibre’ programme, in
partnership with Kingston University, is for leaders with bags
of potential. There is also the ‘Merlin Leadership Programme’,
which we run regionally to ensure it reaches all our leaders.

And finally, to complement all our other learning, at any time
our teams can access Merlin’s School of Magic, our online
training resource run with the renowned Ashridge Business
School, and the IMD Learning Hub, which features articles and
videos from close to 100 business sources across the globe.

Compensation and benefits
When you rely on your people as much as we do, it is essential
to provide compensation and benefit programmes which are
competitive and which support our business and culture.

In a number of our markets there is an increasing focus on rising
minimum wage levels, for instance with the UK National Living
Wage and many US states setting out plans for annual increases
in the next few years. Recognising this we plan to deliver greater
productivity through resource efficiencies and more motivated,
better rewarded employees.

Share plans
We want as many of our colleagues as possible to ‘Own a Piece
of the Magic’ by taking up shares in Merlin. This is a great way of
making Team Merlin even more committed to our success.

2016 saw the third annual awards under the Merlin Employee
Sharesave Plan. This 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. We are thrilled that, so
far, almost 39% of our permanent colleagues worldwide have
enrolled in the Sharesave plans. Looking forward, 2017 will
see employees receive shares from the first Sharesave plan
launched in 2014.

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
Building on the extended Healthcheck programme that was
established last year we are going further to look after the
wellbeing of all of our colleagues. We call this ‘Be Well’
and our focus is on five areas:

• Be Happy - covering all aspects of emotional wellbeing, for

example incorporating our Employee Assistance Programme.

• Be Active - covering physical wellbeing and health.
• Be Secure - financial wellbeing, including retirement

and health insurance.

• Be Mindful - covering mental wellbeing and harnessing
employee focus to drive engagement and productivity.
• Be Involved - social wellbeing, including engagement in our
Force for Good charitable and environmental initiatives.

We continue to move large numbers of colleagues around the
world to support our business growth, particularly in Asia and
North America in support of our Midway and LEGOLAND
attractions as they step up their development. Our international
mobility team is invaluable in helping us move our greatest
assets safely, securely and comfortably.

Summary
Having joined Merlin in April 2016, I have been incredibly
impressed by the team’s dedication, hard work and commitment.
The fact that their love of ‘The Merlin Way’ and passion to
create truly memorable experiences has been recognised for
a third year running by the ‘Best Big Companies’ survey is
absolutely fantastic.

Merlin is a truly magical company, but we can’t rest on our laurels.
With a team of 27,000 in peak season and potentially another
7,000 as we deliver our 2020 milestones, our focus on recruiting
and retaining the best talent, nurturing current and future
business leaders and driving productivity will be the foundations
for continuing to build on Merlin’s remarkable success.

Merlin Entertainments plc Annual Report and Accounts 2016RISKS
and uncertainties

MERLIN'S RISK MANAGEMENT FRAMEWORK

TOP
DOWN

OVERSIGHT - THE BOARD

• Overall responsibility for risk management and internal control systems
• Sets strategic objectives and defines risk appetite
• Provides tone and direction for risk management processes
• Monitors risks against Group strategy to ensure they are proportionate and considered

MONITORING AND REPORTING - REGULAR UPDATES TO THE BOARD

Commercial and Strategic Risk
Management Committee

Health, Safety and Security
(HSS) Committee

Audit Committee

Oversight,
identification,
assessment
and mitigation
at corporate
level

Chaired by the CFO

Chaired by the Group Chairman

Chaired by a Non-executive Director

Members from the
Executive Committee

Members from the Board and
Executive Committee

Members are Non-executive Directors

Meets quarterly

Meets four times a year

Meets five times a year

Responsible for oversight and guidance
on the identification, mitigation and
monitoring of commercial risk.

Responsible for the promotion of a
positive and proactive safety culture to
ensure that the Group complies with
legislation, meets or exceeds industry
standards and above all safeguards
our guests, employees, visitors and
contractors within our care.

Responsible for ensuring that the
Group meets its external financial
reporting and compliance obligations,
manages the mitigation of financial risks
as well as assessing the effectiveness of
the Group’s overall approach to risk
management and internal control.

Oversight of the treatment of animals
in our care to ensure we meet the high
standards our stakeholders expect.

Oversight and guidance on the
identification, mitigation and monitoring
of risks in connection with HSS.

Oversight and guidance on the
identification, mitigation and
monitoring of risks in connection
with financial management.

Annual review of the output of attractions and central functions risk assessment workshops.

Participation in the regular cycle of HSS, strategic, and operational reviews, to assess whether material changes in the
external landscape or recent trading trends require an alternative approach to monitoring and managing risk.

INTERNAL CONTROL FRAMEWORK

Identification,
assessment
and mitigation
at attraction
and function
level

Management
Structure

Strategic Planning, Risk Management
and Business Performance Monitoring

Policies and Procedures

Controls - Financial, Operational, IT, HSS, Business continuity

RISKS

BOTTOM
UP

OPERATIONAL

SAFETY

SECURITY

ANIMAL WELFARE

MARKET

FINANCIAL

TECHNOLOGICAL

ENVIRONMENTAL

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016RISKS 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. It must also be aligned
with the Group’s policies on sustainability and the environment.

Quantitative and qualitative measures are used to ensure there
is effective governance, monitoring and measurement of the
Group’s appetite for risk. Quantitative measures include defined
financial and non-financial targets such as EBITDA, ROCE, and
Customer Satisfaction scores. Qualitative measures consider
items such as reputational impact and compliance with laws
and regulations.

In assessing the principal 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, 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 together with 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
Attraction and central function risk registers record the principal
risks faced for each of the following three components: health,
safety and security; commercial and strategic; and financial
process. The registers include a risk rating based on an
assessment of likelihood and impact, after taking into account
existing mitigating control measures, for example management
oversight and independent review. Where this assessment
indicates a high residual risk, further assessment is performed
both locally and by the risk management committee to consider
if further mitigating action is required.

Regular reviews of the risk registers and planned actions provide
the basis for ongoing risk management. A formal review process
takes place annually to ensure that the significant risks and
mitigating activities at an attraction and Operating Group level
are incorporated into the strategic business planning cycle.

The Board gains assurance over risk management systems
from the regular reporting it receives on the structured internal
assurance programmes covering both financial processes and
health, safety and security controls across the Group. In addition,
independent third party subject matter experts are also used for
detailed reviews concerning specific risk issues.

Internal control framework
Our internal control framework is designed to ensure:
• proper financial records are maintained;
• the Group's assets are safeguarded;
• compliance with laws, regulations and policies and procedures

including those relating to health and safety matters; and

• effective and efficient operation of business processes.

The framework is supported by ‘The Merlin Way’, our corporate
values, which underpin everything we do. It is the Board's aim
that these values should drive good behaviours and actions by
all employees.

The key elements of the internal control framework are
described below:

Management structure
Our management structure has clearly defined reporting lines,
accountabilities and authority levels. The principal operating
business units are led by a member of the Executive Committee
and each attraction has its own senior leadership team.

Strategic planning, risk management and business
performance monitoring
Our five year strategic plan (being the current year together with
four future years) is updated by management and reviewed by
the Board annually. This also includes an assessment of how the
principal risks could prevent strategic objectives being achieved.

Business objectives and performance measures are set
annually together with budgets and forecasts. Regular business
performance reviews are conducted at both Operating Group
and individual attraction level.

Our pipeline for the delivery of new attractions is reviewed
regularly to:
• assess whether new compelling experiences and attractions

in development are progressing according to schedule;

• identify new ideas and assess fit with our brand portfolio; and
• assess the expected commercial returns.

Policies and procedures
The Group maintains policies and procedures across all areas
of the business. The appropriateness and application of these is
continuously monitored to ensure compliance, as well as to assess
their appropriateness as the business grows and external factors
change. Assurance concerning compliance with the policies and
procedures comes from a number of sources that include HSS,
financial and operational audit activities and self-certification.

Merlin Entertainments plc Annual Report and Accounts 2016RISKS and uncertainties

Controls
Our key controls are as follows:
• Operational - there are a range of control measures and

performance indicators in place to ensure the effective and
efficient operation of our attractions and to give our guests
safe and memorable visits.

• Health, Safety and Security - all our sites operate using a

well established Safety Management System designed to ensure
that they operate in compliance with relevant regulatory
and legislative requirements. Regular HSS internal audits are
undertaken to confirm this is the case, ensuring that any safety
and security matters are understood and dealt with promptly.
Further information can be found in the HSS Committee
Report on pages 70 to 75.

• Information Technology - the Group has a wide range of IT

technical, security, and disaster recovery controls to ensure that
it has a stable infrastructure platform from which to operate.
• Financial - our controls are designed to prevent and detect
financial misstatement or fraud and operate at three levels.
Oversight controls are typically performed by senior managers
at Group and business unit level. Month end and year end
procedures are performed as part of our regular financial
reporting and management processes. Transactional level
controls operate on a day-to-day basis. To specifically address
potential fraud risks at a transactional level, a group of
profit protection professionals are employed to support
management in addressing these risks at an attraction level.

• Business continuity planning - 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 reinstate performance in the event of adverse events.

Plans for 2017
We continue to refine and strengthen our internal control
framework where required within our existing estate and
recently opened attractions.

The implementation of accesso®, our new admissions system,
is expected to help in this regard as it will deliver improvements
in our control framework through standardisation of business
processes and greater automation of transactional level and
period end control activities.

Principal risks
Management has identified and agreed the principal risks with
the Board, which are set out on the following pages. Of these,
a number are deemed to be generic risks facing businesses
including, but not limited to; failure to comply with financial
reporting regulations, adverse movements in foreign exchange
and interest rates, credit risk and non-compliance with legislation.

Viability Statement

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 50 to 52
of the Annual Report. Based on this assessment, the Directors confirm
that they have a reasonable expectation that the Company will be able
to continue in operation and meet its liabilities as they fall due over the
period until December 2020.

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.
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 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. Accordingly the Directors have
determined that a four year period to December 2020 is an
appropriate period over which to provide its viability statement.

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 were 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. Examples include ride safety incidents and acts of terrorism.
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. It is important to note that
a significant portion of planned spending on both the existing estate and
for new business development is discretionary in nature. This gives us
flexibility to manage cash flows. Merlin’s ability to flex the cost base
and the ability to rephase or delay capital investment provides some
protection to our viability in the face of macro events or uncertainty
not in the Group’s control.

Merlin’s banking facilities currently mature in March 2020. Taking into
account Merlin’s profitability and financial position it is anticipated that
the Group will be able to refinance these bank facilities. The Group will
undertake a process to extend or replace these facilities well in advance
of the expiry date and therefore the Group does not consider there to
be any material impact on the viability assessment.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016RISKS and uncertainties

The tables on the following pages highlight the significant specific
risks identified through the Group’s risk assessment processes
that have the potential to impact on the strategic development
of the Group.

• the principal risks and internal control processes have been
considered by management and the Board throughout the
year; and

• no significant failings or weaknesses in internal control

The three risk committees consider both gross and net risk.
Gross risk reflects the risk exposure and risk landscape before
considering how risks are managed. Gross risks are assessed in
comparison to the previous year as to whether they are stable,
increasing or decreasing. Net risk reflects the residual risk after
risk mitigation factors.

Effectiveness of risk management and internal
control systems
In accordance with the UK Corporate Governance Code 2014,
the Board is responsible for reviewing the effectiveness of the
Group's risk management and internal control systems, and
confirms that:
• there is an ongoing process for identifying, assessing, managing

and monitoring the Group's principal risks;

• management’s assessment of the principal risks is considered
to be appropriate and those risks that have the potential to
impact liquidity have been considered in the assessment of
the Group's viability;

processes have been identified.

Based on its review throughout the year, the Board is satisfied
that the risk management and internal control systems in place
remain effective.

EU Referendum
The Board has considered the impact of the UK’s referendum
on membership of the EU (‘Brexit’) upon the business and
reflected on its previous risk assessments in light of this
development. Given the Group’s global footprint and the fact
that an attraction’s cost base and supply chain will sit largely in
the individual country of operation, the impact is limited. In the
short term, currency movements have affected our London
businesses as described elsewhere in this Annual Report and
have affected the translation of the results of our overseas
operations into Sterling (as set out in the Group Financial
Review on pages 38 to 42). These conditions may continue
into the future. In the medium term, a shift in the availability
of skills in the UK workforce could impact recruitment in
our UK businesses, which the Group will continue to monitor.

Description

Gross
risk trend How risks are managed

Health, safety and security risk (HSS)

Safety

Health and safety is one of Merlin’s
Key Performance Indicators.

Serious incidents leading to guests, staff members
or contractors being harmed as a result of:

• a failure to follow prescribed safety management

systems in connection with the operation
of rides;

• inadequate maintenance and management
of buildings, infrastructure and vegetation;
• substandard build quality, asset degradation,

fire, flood, storm or utility failure.

Furthermore, this could undermine confidence to
visit the Group’s attractions and adversely impact on
the reputation and growth potential of the business.

Security

Sabotage or a terrorist attack on:

Increasing

• a ride or attraction leading to a guest or staff

member or animal in our care being harmed; or

• a location in which the Group operates.

This could influence guest confidence to visit the
Group’s attractions or the attraction's location
thereby impacting on the growth potential of
the business.

Stable

• Regular review of performance as well as key policies

and procedures.

• 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,
monitoring and inspecting facilities in accordance with a
planned maintenance and inspection regime backed up
by professional HSS teams.

• Utilisation of HSS systems to support the management
of risks with annual risk register and action planning
processes by each attraction.

• Regular internal and independent external auditing

and review regimes.

• Contractor selection, approval and monitoring by

in-house qualified project managers.

• Application of detailed security protocols before guests
or employees access an attraction (e.g. bag searches).
• Regular reviews of attraction infrastructure to reduce the
opportunity for physical threats to guests, staff or animals.

• Extensive use of CCTV.
• Regularly tested major incident management plans.
• Co-operation with local and national security forces.
• Availability of appropriate insurance cover.

Merlin Entertainments plc Annual Report and Accounts 2016RISKS and uncertainties

Description

Commercial and strategic risk

Gross
risk trend How risks are managed

Competition:

Increasing

• Diversification to reduce reliance on individual

Innovation,
brand
development
and customer
satisfaction

People
availability and
expertise

Competition
and Intellectual
Property (IP)

Foreign
exchange rates
impacting
international
tourism

Animal welfare

Customer satisfaction is one of Merlin’s
Key Performance Indicators.

Stable

Our growth potential could be impacted if guests:

• consider our offerings are either outdated,

no longer relevant or enjoyable; or

• provide negative social media comments that

adversely influence the likelihood of a customer
to visit an attraction.

Staff engagement is one of Merlin’s
Key Performance Indicators.

Merlin is a people business. The increasing cost of
attracting and retaining appropriately experienced
and well-motivated customer service orientated
staff could impact guest satisfaction and the
successful delivery of planned future expansion.

• for leisure time;
• from new or existing providers of location

based entertainment; and

• for IP around which compelling propositions

are created.

This could restrict the ability of the Group to
grow in line with the strategic objectives.

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.

Incidents or staff behaviours leading to animals
in our care being harmed as a result of:

• a failure to follow prescribed welfare

protocols; or

• inadequate maintenance and management
of buildings, infrastructure and vegetation.

Furthermore, this could result in reputational
damage. A negative reaction from the general
public would undermine the performance of the
business and limit the potential for growth.

Availability
and delivery of
new sites and
attractions

Stable

The ability of the Group to grow in line with
the strategic objectives could be inhibited by
the lack of:

• economically viable sites to locate Midway
attractions and LEGOLAND parks; and

• timely approval of planning consent required for

building new rides and attractions.

• 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.

• Engagement with the public and social media for
concerns in order to take any requisite action.

Increasing

• Plans to drive greater productivity through

resource efficiencies and more motivated, better
rewarded employees.

• 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.

attractions or locations.

• Ongoing investment in sites to ensure continued

appeal to visitors.

• Competitor research and monitoring.
• Dedicated in-house creative team to deliver
new and innovative compelling propositions
and intellectual property.

Stable

• Increased hedging as a result of further global

diversification of the Group’s operations.

• Ability to proportionally upweight marketing activity
towards either domestic or international audiences
depending on tourism trends.

Stable

• External zoo licence audits ensure appropriate

animal care.

• An internal ethics committee and the Merlin Animal

Welfare and Development team monitor the
treatment of animals in our care.

• A comprehensive range of policies, standards, procedures
and guidelines specifically addressing animal acquisition,
welfare and display.

• Training programmes for all staff that interact

with animals.

• Planned preventative maintenance programmes to

ensure buildings, infrastructure and vegetation remain
suitable for displaying the 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.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016RISKS and uncertainties

Description

Gross
risk trend How risks are managed

Commercial and strategic risk (continued)

IT robustness,
technological
developments
and cyber
security

The Group has various IT systems and applications
operating across its estate, the obsolescence or
failure of which could impede trading or the ability
to operate an attraction.

Increasing

Without the technical developments necessary
to meet consumer or business expectations the
Group may fail to deliver the growth required
by the business strategy.

Failure to put in place adequate preventative
measures, if attacked, could lead to data loss
or inability to use the IT systems for a
prolonged period.

Financial process risk

• 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 and stability of the Group’s IT

infrastructure and security through an expanded use of
secured hosting partners and penetration testing regimes.

• Further security measures have been put in place to
mitigate the increasing threat of cyber security risk.

Anti-bribery and
corruption

While Merlin’s business model is lower risk relative
to other industries as the majority of transactions
are of low value and from individual customers,
a number of the territories in which Merlin is
operating and proposing to enter have a greater
historic propensity for incidents of bribery
and corruption.

Any such incident could lead to either criminal
or civil prosecution, fines and cause reputational
damage to the Group.

Stable

• A well embedded corporate culture in which fraud

and bribery at any level are not tolerated.

• Global fraud and bribery training programme in place

alongside a fraud policy sign off for all staff.

• Effective 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

Liquidity /
Cash flow risk

A lack of liquidity could inhibit the ability of
the Group to grow in line with the strategic
objectives if:

• insufficient cash is generated during peak

trading periods to cover fixed costs and capital
investments (including strategic acquisitions, the
roll out of Midway attractions, the development
of new LEGOLAND parks and new
accommodation offerings); or

• changes in the global credit market impact the
Group’s long term ability to meet current
growth targets.

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.

revolving credit facility to assist with seasonal cash
flow requirements as necessary.

• Weekly cash flow forecasts are prepared to ensure
liquidity for business operations on an ongoing basis.

• Plans cover at least four future 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 can be obtained at
the right time and at the right price to ensure the
availability of funds to meet its strategic growth plans.
• The continued geographical expansion of the Group
reduces the exposure to any one peak trading period.

• 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.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016BEING A FORCE
FOR GOOD

Corporate Social Responsibility - The Merlin Way

MISSION

WE ARE SUPERHEROES

FOR PEOPLE

FOR OUR PLANET

Merlin’s Magic Wand

Accessibility

Delivering memorable
experiences to
disadvantaged
children across
the globe

Providing memorable
experiences and
environments that
are accessible
to all

SEA LIFE and
WILD LIFE

Protecting wildlife
through targeted
global campaigns
and activity

Sustainability and
the Environment

Operating the business
within a culture
of responsible
sustainability

WE ARE A GOOD CORPORATE CITIZEN

Do it with
Team Merlin

Recognised by
employees, partners
and other stakeholders
as a company that cares

Do it in the
Community

Being a Force for
Good in every
community in which
we operate

Do it
Responsibly

Delivering our
experiences in a
safe, and socially
conscious way

Do it Right

Operating our business
in accordance with
robust governance
standards and
practices

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016BEING A FORCE FOR GOOD Corporate Social Responsibility

In 2016 our children’s charity Merlin’s Magic Wand
(MMW) has continued to grow with Merlin teams in
every attraction getting involved in creating magic.

MAGICAL DAYS OUT

MERLIN'S MAGIC SPACES

COMMUNITY OUTREACH

Providing days out to over 86,000
children and their families.

Creating 15 exciting Merlin’s
Magic Spaces, taking the total
to 31 worldwide.

Making a difference to over 3,500
children in our local communities
by taking the Magic to them in
hospitals and hospices.

You will

never know how

much we needed

that day

Excellent

for giving my son

a day out away

from hospital

appointments

Merlin Entertainments plc Annual Report and Accounts 2016

BEING A FORCE FOR GOOD Corporate Social Responsibility

DURING THE MONTH OF SEPTEMBER WE CELEBRATED

FUN

FESTIVAL!

TO FIND OUT MORE VISIT WWW.MERLINSMAGICWAND.ORG

It is rare to

have a good day, our

day out was magical

and we will never

forget it

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016
BEING A FORCE FOR GOOD Corporate Social Responsibility

Accessibility
We 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:

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.

Community Relations
Our attractions continue to forge partnerships in their local
communities with local charities and other groups supporting
disadvantaged people. This happens in many different ways, from
hosting visits for foster children through to visiting local
community centres or joining other local initiatives.

Student Joanne Sibley meets the Duke of Cambridge

A particular highlight this year was when Joanne Sibley, a student
from Livability's Victoria Education Centre in Poole, Dorset, was
invited to meet the Duke and Duchess of Cambridge at the
Coca-Cola London Eye when we hosted a 'Heads Together'
charity coalition for World Mental Health Day, focused on the
importance of 'psychological and mental health first aid for all'.

Merlin's Magic Wand have been working with Victoria Education
Centre for a number of years which has included a Merlin's Magic
Spaces project. Joanne has been very involved with the project
and the ongoing relationship between MMW and Victoria School,
so her enthusiasm and vibrant spirit made her the perfect person
to hand over the bouquet to the Duchess of Cambridge during
this important visit.

Received from a family that enjoyed time together at Alton Towers Resort

I cannot praise the staff highly enough for their enthusiasm and commitment to us. Physically my son does not appear to have any abnormalities, but those with experience know how tricky Type 1 Diabetes can be to deal with. Every single staff member we came across treated us and our son with the utmost respect. Hidden disabilities can be hard to deal with, but you made our family, with our son and his older brother at the centre, feel so special.Merlin Entertainments plc Annual Report and Accounts 2016
BEING A FORCE FOR GOOD Corporate Social Responsibility

Marine and wildlife conservation
Merlin promotes the protection of wildlife across the globe by
supporting projects and campaigns which make a real difference.
In doing this we leverage our reputation for the ethical and
responsible care, preservation and conservation of animals
and the marine environment.

SEA LIFE
Merlin supports our official marine conservation charity partner,
the SEA LIFE Trust, dedicated to protecting our oceans and
the amazing wildlife that calls them home. We engage our staff
across the SEA LIFE estate to support these activities - a great
example are our beach clean events where teams keep their
local beaches free of litter. SEA LIFE staff across the world also
helped support the Trust by running, walking, rowing and
pedalling 10,328 miles to raise funds - that’s like crossing
both the Indian and Atlantic Oceans!

In 2016 the Trust campaigned on marine protection in
three territories;
• In the USA, we campaigned to support President Obama’s

creation of two marine protected areas including his expansion
of the world’s biggest marine protected area in Hawaii.

• In the UK, and working together with the Marine Conservation
Society, we have collected more than 53,000 signatures so far
in our efforts to protect 34 priority coastal areas.

• In Australia, we gathered over 10% of the total submissions
to the Australian Government in support of 26 marine
protected areas.

Alongside this, the Trust donated over £115,000 to projects and
campaigns that support wildlife and habitat across the world.

In 2017, the Trust will launch a major campaign and fund projects
that help to protect sea turtles, which are increasingly at danger
from fishing bycatch and plastic pollution.

WILD LIFE
Chessington World of Adventures Resort in the UK, WILD LIFE
Sydney Zoo and WILD LIFE Hamilton Island in Australia, all have
a long standing commitment to animal breeding or managed
species programmes - at Chessington we saw three Asiatic
Lion cubs arrive just in time for Christmas!

Asiatic lion cubs at Chessington World of Adventures Resort

Examples of SEA LIFE Trust campaigns throughout the year

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016BEING A FORCE FOR GOOD Corporate Social Responsibility

Sustainability and the environment

Strategy and governance
Merlin manages resources responsibly. 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.

Ultimate responsibility for this strategy rests with the CEO,
with management teams responsible for implementation at
local and regional levels. More specific details can be found in
our environmental policy, available on our website.

Environment and energy management
We have specific budgets set aside to test and implement
environmentally focused initiatives and an annual ‘Environmental
Award’ to motivate our sites in this area. We have developed
groupwide sustainability management and carbon reduction plans
and a number of water and waste management initiatives to
encourage sites in this area and build on examples of best
practice across the Group, through 2017 and beyond.

We participate in the UK Carbon Reduction Commitment
(CRC) energy efficiency scheme, EU Energy Efficiency Directives
and other applicable environmental regulations globally.

Some examples of our numerous environmental initiatives
in the year are:
 Lighting optimisation at Sydney Harbour cluster, Australia.
 Pump optimisation at SEA LIFE Blackpool, UK.
 Solar energy at Gardaland Hotel, Italy.
 Solar thermal at SEA LIFE Benalmadena, Spain.

‘We Care about our Planet’ event
Our attractions participated in our annual planet event to
support Merlin’s commitment to sustainability, in line with
our ‘We Care’ core value.

There were a wide range of activities including:
 We sent climate change information materials to 1,000
students through THORPE PARK’s partner schools.
 We engaged on climate change issues with 4,000 guests

at our SEA LIFE at LEGOLAND California Resort.

 We planted trees at THORPE PARK.
 SEA LIFE Timmendorfer Strand, Germany ditched their
voucher delivery car and replaced it with a bicycle!
 Chang Feng Ocean World, Shanghai engaged over
40 students at a sleepover event on climate change.

Renewable solar
thermal for hot water
energy at SEA LIFE
Benalmadena, Spain

Benches made from recycled plastic bottles
at LEGOLAND Florida Resort, USA

The team in SEA LIFE Timmendorfer Strand in
Germany replacing their delivery car with a bicycle

Merlin Entertainments plc Annual Report and Accounts 2016
BEING A FORCE FOR GOOD Corporate Social Responsibility

Good Corporate Citizen
Merlin always seeks to operate ethically and to be a ‘Good
Corporate Citizen’. Our approach in this area is based on four
pillars that underpin our Force for Good initiatives where we
feel Merlin is uniquely placed to make a difference.

Do it with Team Merlin - the Team Merlin section of this report
provides more details on our employees, our extraordinary team
whose levels of engagement and enthusiasm help make Merlin
special. We look to harness this enthusiasm to demonstrate and
reinforce our core values, especially how ‘We Care’, across our
workforce and more widely with our business partners and
other stakeholders of the business.

Regarding Human Rights, our Policy is guided by the International
Labour Organisation Declaration on Fundamental Principles
and Rights at Work together with the OECD Guidelines for
Multinational Enterprises. It is set out in full on our website.

Do it in the community - our businesses sit at the heart of
communities around the world and our teams are proud to be
part of and to support those communities. This demonstrates
to all of Merlin’s stakeholders the strength of the Company’s
‘We Care’ core value. This can be seen from our Merlin’s Magic
Wand activities, other community outreach initiatives, or even how
our teams help clean beaches to support the SEA LIFE Trust!

Do it responsibly - our Health, Safety and Security (HSS)
Committee report on pages 70 to 75 sets out how we oversee
and manage HSS risks to ensure we operate our businesses with
a constant focus on keeping our guests, employees and other
visitors safe and secure.

We also believe there is a strong social conscience at the heart
of Merlin that can be seen in areas such as our ethical animal
husbandry activities and our approach to procurement. We have
a responsibility 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. More details in this area are
available on our website.

Do it right - Merlin has robust governance standards and
practices that extend throughout the business. This starts
‘at the top’ with an experienced Board that is structured in line
with best practice and supported by appropriately rigorous
Board Committees. It then extends to how we identify and
manage the principal risks that could affect our business
(as set out on pages 47 to 52).

Our full policies in specific areas and further guidance on our
approach, together with answers to frequently asked questions,
can be found on our website (www.merlinentertainments.biz).

Report boundaries

Consistency with
financial statements

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 2015 to
30 November 2016 in comparison to
our financial year of January to
December 2016.

The WRI / WBCSD Greenhouse Gas
Protocol: A Corporate Accounting and
Reporting Standard (Revised Edition)
applying emissions factors from IEA CO2
from fuel combustion (2016 edition) and
emissions factors from DEFRA (2016).

Intensity ratio

Emissions per £1 million of revenue

Scope 1

Scope 2
Localised Based

Scope 2
Market Based

Group Gross
Emissions

Intensity baseline
(revenue)

Emissions
intensity

19,270 tonnes of CO2 equivalent
(2015: 18,980 tonnes)

116,814 tonnes of CO2 equivalent
(2015: 123,277 tonnes)

112,381 tonnes of CO2 equivalent
(2015: 120,985 tonnes)

131,651 tonnes of CO2 equivalent
(2015: 139,965 tonnes)

£1,428 million (2015: 1,278 million)

92 tonnes of CO2 equivalent per
£1 million of revenue (2015: 110 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 includes REGOs for our German Midway operations.
Our annual carbon reduction target is measured based on market based conditions.

Greenhouse gas (GHG) reportingThe Company is required to report each year on its carbon dioxide emissions which are set out in the table below.The reported emissions intensity is affected by the impact of foreign exchange movements on the revenue figure that forms the intensity baseline. This has contributed 6.6% to the reported reduction of 15.8% and accordingly the reduction on a constant currency basis would be 9.2%. Furthermore, carbon emission factors used in 2016 were lower compared to 2015 due to a reduction in the use of coal for energy generation. This contributes 5.4% to the reported reduction. Our underlying carbon emission intensity reduction was therefore 3.8%, in excess of our annual target which is to reduce our carbon emission intensity by 2% year on year. Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016CORPORATE
Governance Statement

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).

Statement of compliance
Merlin was fully compliant throughout the accounting period with
all relevant provisions of the Code, the DTRs and the Listing Rules.

Board composition
The Board has undergone a number of changes during the year.
On 1 January 2016, Yun (Rachel) Chiang was appointed to the
Board as a Non-executive Director. On 31 July 2016, Andrew
Carr left the Board, having announced his intention to retire in
January 2016. He was replaced as Chief Financial Officer on
1 August 2016 by Anne-Francoise Nesmes. The appointments
of Rachel and Anne-Francoise, which have led to an increase
in Board diversity, followed rigorous search processes using
Russell Reynolds and Korn Ferry respectively, both of which
are external search companies with no links to Merlin.

Fair, balanced and understandable
As part of the Company’s commitment to maintaining high
standards of corporate governance, the Board has put in place
a process dedicated to ensuring that the Annual Report and
Accounts is presented in a way that is fair, balanced and
understandable. This process includes a review of all Board
and Committee meetings to identify matters for inclusion
and a series of specific reviews undertaken by a dedicated
Disclosure Committee of senior managers.

Evaluation of effectiveness
During the year, externally facilitated evaluations were undertaken
of the effectiveness of the Board, its Committees, the Chairman
and individual Directors. These were facilitated by Prism Cosec,
who are independent of the Company and also advise the
Company on company secretarial compliance matters.

The evaluation involved the completion of questionnaires by
all Directors, the compilation of reports on the Board and each
of its Committees by Prism Cosec and discussions between the
Chairman and each Director. The performance of the Chairman
was evaluated by the Non-executive Directors, led by the
Senior Independent Director.

The outcome of the evaluations was very positive overall and no
major issues were flagged. However some areas were identified
for further improvement including:
• more Board time could usefully be spent debating key
risk topics (including identifying emerging risks such as
cyber security);

• suggestions for improving the format of the annual

Board strategy day;

• the need to continue to bring further formality to the

operation of the Nomination Committee and for increased
focus on talent management and succession planning; and

• appointing an independent health and safety expert to

the Health, Safety and Security Committee.

Following the 2015 Effectiveness Review a programme of
Director training sessions was delivered in 2016, including content
on recent developments in corporate governance, such as the
impact of the new Market Abuse Regulations, specific training for
Audit Committee members and recent trends and regulation in
the area of executive remuneration. The terms of reference of
the Board’s Committees were also reviewed in early 2016.

Formal reviews of the internal audit function and the external
auditors, led by the Audit Committee, were also conducted
during the year and these concluded that both internal audit
and the external auditors remain effective.

Merlin Entertainments plc Annual Report and Accounts 2016
CORPORATE Governance Statement

Investor relations
The Company communicates with institutional and private
shareholders in a number of ways and has a dedicated investor
relations team to facilitate the exchange of information and
feedback between shareholders and shareholder representative
bodies and the Company. Details of major shareholders are
provided on page 66.

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 a full and mutually constructive dialogue.
Merlin’s 2017 financial calendar is set out on page 174.

The Company’s corporate website is regularly updated with news
and information, including its Annual Report and Accounts, which
set out our strategy, operating model 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.

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…

Merlin was fully compliant

throughout the accounting

period with all relevant

provisions of the Code, the

DTRs and the Listing Rules

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016
BOARD
of Directors

Merlin Entertainments plc Annual Report and Accounts 2016The members of the Board during the year and at the date of this report are as follows:

BOARD of Directors

Sir John was appointed Chairman of Merlin Entertainments in December 2009.

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.

Nick has over 25 years’ experience in the visitor attractions industry and was
appointed Chief Executive Officer of Merlin Entertainments in 1999.

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.

Anne-Francoise was appointed Chief Financial Officer in August 2016. With over 23
years’ experience in finance across international organisations, Anne-Francoise brings
a strong focus on strategy execution, M&A, process improvement and governance.

Anne-Francoise started her career in the UK as a finance graduate trainee at
John Crane, before moving to Tetra Pak, then ADP and later Caterpillar UK.
In 1997, she joined GlaxoSmithKline and held a variety of increasingly senior roles
across the organisation in the UK and overseas, including Senior Vice President
of Finance for Vaccines.

In April 2013, Anne-Francoise joined Dechra Pharmaceuticals PLC as Chief
Financial Officer, where she was instrumental in transforming Dechra into a
successful pharmaceutical company specialising in animal health. She led the
expansion of its international footprint through acquisitions and delivered
significant efficiencies through modernising Finance and R&D processes.

Sir John Sunderland
Chairman

Nick Varney
Chief Executive Officer

Anne-Francoise Nesmes
Chief Financial Officer

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016BOARD of Directors

Yun (Rachel) Chiang
Non-executive Director

Charles Gurassa
Senior Independent
Non-executive Director

Fru Hazlitt
Non-executive Director

Rachel was appointed a Non-executive Director of Merlin Entertainments with
effect from 1 January 2016.

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 $16 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),
Hong Kong-listed Pacific Century Premium Developments (PCPD) which specialises
in the development and management of premium property and infrastructure projects
in the Asia Pacific region and Hong Kong-listed Goodbaby International Ltd, a leading
manufacturer of children’s durable products.

Charles was appointed Senior Independent Non-executive Director of Merlin
Entertainments and Chairman of the Remuneration Committee in 2013.

Charles is the Non-executive Chairman of Channel 4, Deputy Chairman at EasyJet plc and
a trustee of English Heritage and the Migration Museum. Until January 2017 he was the
Non-executive Chairman of Genesis Housing Association, a position he held since 2010.

Charles is a former Chairman of Virgin Mobile plc, LOVEFiLM, Phones4U, MACH, Tragus,
NetNames, Parthenon Entertainments and Alamo/National Rent a Car and the 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 was appointed a Non-executive Director of Merlin Entertainments in 2014.

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.

Merlin Entertainments plc Annual Report and Accounts 2016
BOARD of Directors

Ken was appointed a Non-executive Director and Chairman of the Audit Committee
of Merlin Entertainments in 2013.

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.

Ken is a Fellow of the Chartered Institute of Management Accountants, the Association
of Chartered Certified Accountants and the Association of Corporate Treasurers.

Trudy was appointed a Non-executive Director of Merlin Entertainments in 2015.

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.

Trudy is a Certified Public Accountant (unlicensed) and Certified Management Accountant.

Søren was appointed a Non-executive Director of the Company in 2013,
representing KIRKBI.

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 and Falck Holding A/S.

Ken Hydon
Non-executive Director

Trudy Rautio
Non-executive Director

Søren Thorup Sørensen
Non-executive Director

Andrew Carr

Andrew retired as Chief Financial Officer on 31 July 2016.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016CORPORATE
Governance Report

Board membership and the Code
As at the date of this Annual Report and Accounts the Company
complies and 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’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.

Relationship agreement
The Company has entered into a Relationship Agreement
with KIRKBI dated 30 October 2013 which remains in force.
Under the KIRKBI Relationship Agreement:
• KIRKBI is entitled to appoint one Director to the Board.
• While KIRKBI (together with its respective affiliates) holds
at least 10% of the Company’s issued share capital, it may
appoint an observer (with the right to attend and speak
but not vote) to the Board and each of the Audit Committee,
Remuneration Committee and Nomination Committee.

Major shareholdings
As at 28 February 2017, 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.

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.

Name of
shareholder

Number of
ordinary
shares

% of issued
share capital

Nature of
holding
(Direct/
Indirect)

KIRKBI Invest A/S

302,971,529

29.83

Direct

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),
the other Directors have concluded that this relationship did
not have any effect on the independence of Mr Gurassa.

KIRKBI was one of the pre-IPO major shareholders of Merlin
(along with Blackstone and CVC who ceased to hold any shares
in the Company in March 2015). KIRKBI presently holds 29.83%
of the issued share capital of the Company. The Non-executive
Director representing KIRKBI (Søren Thorup Sørensen) is not
regarded as independent for the purposes of the Code.

Accordingly, the Board considers that, throughout the 2016 year,
the Company was in full compliance with the recommendation of
the Code concerning the balance of independent Non-executive
Directors on the Board.

Blackrock
Investment
Management
(UK) Limited

The Wellcome
Trust

GIC Private
Limited

87,937,149

8.66

Indirect

42,800,000

4.21

Direct

30,583,647

3.01

Indirect

Board and Committees
Board Committees
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.

Merlin Entertainments plc Annual Report and Accounts 2016CORPORATE Governance Report

The terms of reference of each of the Board and its
Committees are available on the Company’s corporate
website (www.merlinentertainments.biz).

The table below sets out the membership of the Board and
its Committees, during the year, together with the number
of meetings held and each member’s attendance. The tables
overleaf contain further information in relation to the Board
and its Committees covering their respective responsibilities,
duties and Code compliance.

The Directors of all Group companies, as well as the Board and
each of its Committees, have access to the advice and services
of the Group General Counsel and Company Secretary 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.

Executive Committee
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 members of the Executive Committee include the Chief
Executive Officer and the Chief Financial Officer together with
the Managing Directors of each Operating Group; the Chief
Development Officer, the Chief New Openings Officer; the
Group HR Director; the General Counsel and Company
Secretary and the Chief Information Officer.

Number of meetings held (1)

Sir John Sunderland

Nick Varney

Anne-Francoise Nesmes

Charles Gurassa

Ken Hydon

Fru Hazlitt

Trudy Rautio

Rachel Chiang

Søren Thorup Sørensen

Andrew Carr (4)

Health, Safety
and Security
Committee (2), (3)

The Board

Audit
Committee (3)

Remuneration
Committee (3)

Nomination
Committee (3)

2/2

6/6

2/2

N/A

3/3

N/A

2/2

N/A

1/1

4/4

N/A

2/2

N/A

1/1

N/A

Table notes:
# Denotes Chairman.
(1)
(2)

Number of meetings attended during the year during period the respective Director was a member of the relevant Committee.
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.

(3) Details of the Committee changes during the year are included in the Nomination Committee Report on page 104.
(4) Andrew Carr attended each of the Board and Health, Safety and Security Committee meetings prior to his retirement from the Board on 31 July 2016.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016CORPORATE Governance Report

The Board

Health, Safety and Security Committee

Principal
responsibilities
and duties

The Board has overall responsibility for overseeing
the management of the Company.

The Health, Safety and Security Committee assists the
Board in ensuring that health, safety and security matters are
managed effectively and proactively throughout the Group.

• Overseeing the Company’s strategy and management.
• Determining the Company’s capital structure.
• Overseeing the Company’s financial reporting and controls.
• Ensuring the Company maintains a sound system of internal

• Recommending to the Board, implementing and monitoring

the Group’s health, safety and security policy.

• Reviewing the effectiveness of the Group’s health and safety

controls and risk management.

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 70 to 75 for further details.

• 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 the Committees, 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, safety and security 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.

Number of
meetings

At least six times a year and as required or otherwise at the
request of one or more of the Directors.

At least 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

We comply

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).

Merlin Entertainments plc Annual Report and Accounts 2016
CORPORATE Governance Report

Audit Committee

Remuneration Committee

Nomination Committee

The Audit Committee assists the Board
in discharging its responsibilities in relation to
financial reporting and controls and external
and internal audits.

• Reporting to the Board on matters within

the Committee’s remit.

• Risk management process and internal

controls, including whistleblowing and fraud.
• Financial reporting, including considering the
processes supporting the assessment of the
Group’s longer term solvency and liquidity
which underlie the Viability Statement.

• Internal audit.
• External audit.

See the Audit Committee Report on
pages 76 to 81 for further details.

The Remuneration Committee assists the
Board in discharging its responsibilities in
relation to remuneration.

The Nomination Committee assists the Board
in discharging its responsibilities in relation to
the composition of the Board.

• Setting the remuneration policy for

• Reviewing the balance of skills, knowledge

Executive Directors and the Chairman.
• Reviewing and making recommendations
to the Board on senior management
remuneration.

• Determining the individual remuneration
and benefits package of each of the
Executive Directors.

• Determining the fees of the Chairman.
• Reviewing the design of share incentive

plans for approval by the Board.
• Ensuring appropriate reporting on
remuneration matters in the
Annual Report and Accounts.

No Director may participate in discussions
relating to his own terms and conditions
of remuneration.

Non-executive Directors’ fees are
determined by the full Board.

See the Directors’ Remuneration Report
on pages 82 to 103 for further details.

and experience on the Board.
• Reviewing the size, structure and

composition of the Board.

• Considering and making recommendations
to the Board on retirements, re-elections
and appointments of additional and
replacement Directors and on
membership of Committees.

• Considering succession planning for both
Executive and Non-executive Directors
and the Chairman.

• Considering the time required for

Directors to fulfil their roles.
• Developing a policy on diversity

and reporting on progress thereon.
• Making appropriate recommendations
to the Board on matters within the
remit of the Committee.

See the Nomination Committee Report
on page 104 for further details.

At least three times during the financial year
at appropriate times in the audit cycle.

In addition, it meets at such other times as the
Board or the Committee Chairman requires,
or if requested by the external auditors.

At least twice each year and at such
other times as the Board or the
Committee Chairman requires.

We comply

The Code recommends that an Audit
Committee should comprise at least three
independent Non-executive Directors
and that at least one member should have
recent and relevant financial experience.

The Audit Committee consists of four
independent Non-executive Directors. Both
Ken Hydon and Trudy Rautio are considered by
the Board to have recent and relevant financial
experience. Further details are set out on page
65. No members of the Audit Committee have
links with the Company’s external auditors.

The Code recommends that a Remuneration
Committee should comprise at least three
independent Non-executive Directors.

The Code recommends that a majority of the
members of the Nomination Committee should
be independent Non-executive Directors.

The Committee consists of four independent
Non-executive Directors and the Chairman.

The Committee is chaired by the Chairman
of the Board and consists of the Chairman
of the Committee and three independent
Non-executive Directors.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016

HEALTH, SAFETY AND
SECURITY Committee Report

STATEMENT FROM THE CHAIRMAN OF THE HEALTH, SAFETY AND SECURITY COMMITTEE

Dear Shareholder

Our number one priority is delivering
safe and memorable experiences to
our guests. Central to this is our total
commitment to continuously achieving
high standards in Health, Safety and
Security (HSS). Every day we remain
focused on ensuring our operations
and business activities remain safe,
thereby fulfilling the trust placed in
us by our guests, employees, business
partners and shareholders.

The HSS Committee assists the Board
in ensuring that HSS risks are managed
effectively across the Group. This report
describes the work of the Committee,
the Group’s HSS management systems,
processes and performance, together with
details of developments during 2016.

The Smiler accident
The accident on ‘The Smiler’ ride at
Alton Towers Resort in June 2015
shocked the entire organisation.
We have always prided ourselves on
being an industry leader in terms of
amusement park safety, working alongside
national regulating bodies to improve
industry practice and highlight innovation
in terms of safety management.

This accident called the Group’s safety
record into question and our response
has included a ‘root and branch’ review
of all our safety procedures and protocols.
The criminal prosecution that followed,
and the Judge’s comments, reflect the
seriousness of the offence and the
shortcomings in our safety arrangements
on this specific ride, as did the resultant
fine of £5 million. We are taking action
to address the Judge’s comments.

The Judge did accept that we generally
have a good health and safety record
and procedures in place, particularly
given our size. Further, the Judge also
recognised our exceptional co-operation
with the UK’s Health and Safety Executive
during their investigation of the accident
and that full and extensive steps have
been taken to remedy the problem.

We have a strong history of delivering
millions of safe experiences to our guests
and we are determined to rebuild the
trust that our guests rightfully place in us.

Independent reviews
Following ‘The Smiler’ accident the
HSS Committee commissioned an
independent review of ride safety across
the business. A global risk management
consultancy, DNV GL, were engaged to
assess and validate how ride safety is
continuously achieved and how the
Company’s safety culture supports this.

The findings of the DNV GL review
provided reassurance to the HSS
Committee and the Board that the
Group’s safety management systems in
place were suitably robust. No major or
systemic areas of concern were identified
during the extensive audit. Furthermore,
the safety culture within the business was
described as ‘strong’. Nevertheless a
number of recommendations were
made and these are being duly actioned.

The Committee also commissioned an
independent review of the Company’s
corporate governance arrangements for
HSS, with a leading figure in the UK’s
HSS professional community engaged and
provided with full access to the business.
Existing governance arrangements at
Board and Executive Committee level

were assessed to determine whether they
were sufficiently robust and if they could
be strengthened.

Confirmation was provided that the
governance arrangements in place were
of a suitably rigorous standard, especially
given the Company’s size. A small number
of recommendations were made and
these are also being duly implemented.

Risk control
Our fundamental goal is to ensure the
effective prevention or mitigation of HSS
risks through robust management systems
and programmes that are supported by
the right organisational structure and a
genuine commitment from all staff.

‘Protecting the Magic’ is the name of our
ongoing commitment to controlling HSS
risks. This branding provides us with a
high-profile communication platform
through which we drive workforce
engagement and a proactive safety culture.

Performance reporting
Our performance reporting has evolved
during 2016. We now report on both
‘leading indicators’ (those activities such
as inspections and audits we perform to
manage risk), as well as ‘lagging indicators’
(the incident frequency type reporting
that has traditionally been the Group’s
primary reported KPI). Further details
are set out on page 74.

Looking forward
Looking forward we will continue to
challenge, monitor and support the
whole of Merlin in their HSS efforts.

Sir John Sunderland
Chairman of the HSS Committee
1 March 2017

Merlin Entertainments plc Annual Report and Accounts 2016
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:

1 To oversee the Group’s policies and
procedures for ensuring the HSS of
guests, employees, contractors and
operating assets.

2 To monitor the Group’s processes

for identifying and managing risks.
3 To monitor the skills, effectiveness
and levels of resource within the
Group’s HSS teams.

The Committee receives advice from HSS
professionals and is updated on industry
best practice. Issues discussed at the HSS
Committee are shared with the Board.

Details of the Committee’s membership,
together with the frequency of and
attendance at meetings, are outlined
on pages 66 to 69.

HSS management
The Company maintains a well
developed and systematic approach to
the management of HSS risks, in line with
the endorsed model of the UK’s regulator
- the Health and Safety Executive (HSE).
This approach sets out how organisations
should organise themselves and deploy
suitable and sufficient safeguards for
the effective control of HSS risks.

We therefore place great focus on
designing and implementing programmes
that relate to each of our following
five HSS cornerstones:
1 Leaders - Our leaders and managers

must exhibit visible leadership towards
safety and establish robust compliance
and improvement plans in support
of this vision.

2 People - Our employees and

contractors must be equipped with the
necessary skills, experience and cultural
attitudes such that they understand
and control safety risks effectively.

3 Standards - Our standards and
procedures must be clearly
documented and rigorously followed
to help ensure we design, build and
operate in a safe and compliant way.

HEALTH, SAFETY AND SECURITY Committee Report

4 Assets - Our assets and equipment
must be fit for purpose throughout
their term of operation such that
no unacceptable or uncontrolled
safety risk is created.

5 Performance - Our safety performance
must be measured so that we are able
to understand, improve and sustain
our performance.

HSS management system
Our policies and HSS management
systems set mandatory obligations for
standards and performance across all
our attractions and operations.

The requirements set out in our Group
Health and Safety Manual and associated
policies are well established, providing a
strong basis for compliance and continual
improvement in performance. They form
the basis for the development and
application of the Company’s health
and safety management system at all
levels in the business, as depicted in
the chart below.

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 identify and assess all significant
risks. The Group’s principal HSS risks
are summarised on page 50.
• 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.

HSS programmes and arrangements
at each attraction are part of the
overall management system that
facilitates the assessment and control
of HSS risks. This includes the
Company’s organisational structures
and incorporates: planning activities;
key roles and responsibilities; the
production of safety policies; Codes
of Safe Working Practice for each
ride; instructions and other procedures;
and the resources for developing,
implementing, achieving, reviewing
and maintaining the organisation’s
health and safety policies.

Group
HSS
Vision

Group HSS Policies
and Standards

Group HSS Manual, Programmes
and Guidance Notes

Operating Group specific HSS Policies,
Programmes and Guidance Notes

Attraction-based / Departmental Risk Assessments,
HSS Programmes and Standard Operating Procedures

R
e
q
u
i
r
e
m
e
n
t
s

P
r
o
g
r
a
m
m
e
s

G
o
b
a

C
o
r
p
o
r
a
t
e

a
n
d
M
a
n
a
g
e
d

B
u
s
i
n
e
s
s
U
n
i
t

D
e
s
i
g
n
e
d

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016

HEALTH, SAFETY AND SECURITY Committee Report

Training
Attraction management teams attend
formal Safety Leadership and Safety
Management training courses to ensure
they are equipped with the necessary
skills and knowledge. Other functional,
departmental and task-relevant safety
training takes place dependent on
specific role and needs analysis.

Training plans are formulated or reviewed
each year as part of the annual Personal
Development Plan process, or as part of
each department’s training needs analysis
arrangements. A foundation of these
training programmes is the delivery
of mandatory new starter
Induction Training.

Safety leadership walks
In 2016 we launched a new programme
of safety leadership walks where our
most senior managers will regularly and
frequently engage with our employees
in order to demonstrate commitment to,
focus on, and understanding of effective
health and safety risk management.

These walks allow senior management to
praise and reinforce safe behaviours and
to identify and modify unsafe practices
and conditions.

Ride and facilities safety
All of our attractions have in place
structured and formalised programmes
for the scheduling and completion
of maintenance works on plant
and equipment - both rides and
facilities/building assets.

Additionally, all required repair works
are logged and managed safely through
to completion.

Our amusement rides are managed
for safety through their asset lifetime in
line with applicable national or local
legal requirements.

Merlin’s fundamental approach to

ride safety was found to be suitable and

sufficiently robust. It is well supported by

the positive attitudes of its people at all

levels in the organisation

DNV GL

Our operational, engineering and safety
processes, together with our quality
checks and inspections cover:
1 Designing, manufacturing and testing.
2 Transporting, assembling, installing

and commissioning.

3 Operating, cleaning, maintaining,

inspecting and testing.
4 Day-to-day use by guests.

In order to bring a new amusement ride
into operation in the UK, for instance, we
are required to demonstrate compliance
with applicable codes and practices, which
is achieved by subjecting each ride to an
independent review by a registered /
accredited Inspection Body.

Thereafter, rides are subjected to an
annual independent in-service inspection.
This normally requires a ride to be
fully or partially disassembled and to be
subjected to thorough visual examination
and, where applicable, non-destructive
testing. Each ride is then reassembled
and subjected to a function test. A single
document called a ‘Declaration of
Operational Compliance’ confirms
that the appropriate inspection has
been completed successfully. Similar
equivalent processes are in place
in non-UK locations.

Attractions maintain operational
procedures to ensure that rides are
operated in the correct and safe manner.

In 2016, allied to one of DNV GL’s
recommendations, we developed and
launched a brand new set of competency
and training criteria that must be
implemented by all applicable attractions
for their ride operations staff. This covers
both new starters and existing staff.

Additionally, all of our attractions have in
place robust, tested, emergency response
plans and procedures.

Contractor safety
Contractor safety is of great importance
to us. In 2016 we launched a new
Contractor Safety Handbook which
clearly sets out our HSS expectations
of contractors.

Contracting entities engaged to work
at our attractions undergo a safety
vetting and pre-qualification process.
They are then provided with relevant
HSS information prior to starting work,
with risk assessment documents
(or similar) completed and reviewed.
We ensure contractor activities on
site are appropriately supervised
and controlled.

Projects have sufficient budgets and
timescales to allow the contractor to
complete the works and relevant HSS
checks, and we ensure regular feedback
on any HSS issues, incidents or challenges.
Site inspections and audits by our project
managers, HSS teams and external
consultants help us to ensure that our
rigorous standards are continually met.

Merlin Entertainments plc Annual Report and Accounts 2016

Food safety and hygiene
The Group applies the globally recognised
best practice approach for ensuring food
safety - the Hazard Analysis and Critical
Control Point (HACCP) system.
Our detailed and prescriptive Food
Safety Manual provides clear and
consistent direction for attractions on
how to address food safety and hygiene
risks. The manual must be adhered to
at all times and all attractions are
independently assessed by food safety
specialists for compliance with it.

In 2016 we commissioned an
independent review of our food safety
arrangements to ensure they remain
suitable and sufficient. We continue to
make improvements where necessary.

Attraction security and travel safety
We maintain active and passive security
protocols across our attractions in order
to maintain the integrity of our physical
boundaries together with operations and
assets within. Security risk assessments
help ensure that we deploy the
appropriate technology, techniques and
resources commensurate to the national
or local threat level. In 2016 security
searches of guests and their bags were
extended across specific attractions
to reflect such risks.

As the types of threats and risks evolve
we work closely with local police and
governmental security agencies to ensure
appropriate intelligence is shared and
attraction based security protocols
remain suitable, proportional and robust.

When employees need to travel overseas
we work with a third party organisation
to ensure that we have the best available
security and health information to help us
assess and plan such trips. We actively
monitor local security conditions to
ensure deployments remain safe both
pre-departure and in-journey.

Accommodation safety
We are delighted that many of our
guests can enjoy a longer stay at our
attractions by taking advantage of our
range of accommodation.

HEALTH, SAFETY AND SECURITY Committee Report

The safety of any guest who stays with us
is paramount and we deal rigorously with
the additional and specific safety
challenges involved.

Our approach to managing the risk of fire
is to have systems that meet or exceed
what is required by local legislation. For
instance, automatic fire detection and
warning systems are in place across all our
hotels and lodges and which comply with
the highest standards. Our guests will get
the earliest possible warning of a potential
incident, which allows our specially trained
staff members to quickly investigate any
problem and minimise the impact of a
false alarm. Fire drills are regularly
practised too.

All our accommodation staff receive
thorough fire safety training that includes
risk reduction, what to do in the event
of fire, how to raise the alarm as well as
roles and responsibilities in the event
of an evacuation.

Some staff are specially selected as fire
wardens and are trained to use on-site
firefighting equipment.

Safety for our disabled guests
At Merlin, we've always tried to make
our attractions accessible to as many
people as possible, but we recognise
that certain rides can be physically
demanding and vigorous so they are
not appropriate for every guest.

We carry out regular in-house surveys
and access audits are conducted by
independent experts so that we are
always up-to-date with the latest
guidance and recommendations.

Effective and clear communication play an
important part in helping our visitors with
accessibility requirements to decide whether
or not the experiences on offer are suitable.
It is why our websites carry detailed
information so that people can make a
decision based on their individual needs.

Protecting the Magic

‘Protecting the Magic’ is our internal
brand for the communication of HSS
matters throughout the organisation.

In 2016 we launched:

Our new Little Book of Safety Spells
- an HSS briefing toolkit for
managers and staff.

New Six Spells for Safety posters,
banners, badges, screensavers
and key info-cards.

A new bi-monthly HSS magazine
called ‘The Shield’.

Our new Safety First Employee
Handbook - fully translated
and openly available on our
www.protectingthemagic.com

website.

Since the end of the year we published
our comprehensive Guests’ Guide
to Safety - available on Merlin’s
www.protectingthemagic.com website.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016HEALTH, SAFETY AND SECURITY Committee Report

Performance information

HSS Performance Indicators

Leading Indicators:

Safety Inspection Certificates - Rides (1)

Safe Operating Procedures - Rides (2)

Food Safety Audits (3)

Safety Culture Survey Results (4)

HSS Committee Meetings (5)

Lagging Indicators:

Medical Treatment Case Rate (Guests) (6)

Medical Treatment Case Rate (Employees) (6)

2016

100%

97%

94%

100%

0.06

0.07

(1) Safety Inspection Certificates are issued annually by independent ride examiners following the
thorough inspection and testing of every theme park ride in Merlin. This % score indicates the
percentage of rides that have Safety Inspection Certificates issued.

(2) Each theme park ride in operation in Merlin must have Safe Operating Procedures in place covering

the ongoing use of the ride. These procedures must state what the necessary risk controls are for each
ride. This % score indicates the percentage of rides that have Safe Operating Procedures in place.

(3) Merlin commissions an independent specialist to audit attractions for compliance with its Food Safety

Manual. This % represents the average compliance score.

(4) Merlin’s annual ‘Wizard Wants to Know’ staff survey features a series of questions relating to health

and safety that help to determine the maturity of the Company’s safety culture and the level to which
staff are actively engaged with the topic. This % represents the overall safety engagement score.

(5) Through the HSS Committee the Board provides strategic direction and performance scrutiny of

HSS matters within the business. Additionally, each Operating Group also has their own HSS Steering
Committee. These forums are intended to meet quarterly and this % score indicates compliance
with this expectation.

(6) A Medical Treatment Case (MTC) is defined as an injury which requires external medical treatment
(i.e. ambulance attendance to site or hospital visit directly from the site). The rates referenced are the
number of MTC’s relative to either 10,000 guest visitations or 10,000 employee hours worked.

Monitoring performance
HSS performance, including near-miss
and incident reporting, is regularly
reviewed by each attraction, each
Operating Group’s senior leadership
team and the HSS Committee.

All attractions in Merlin are subjected
to routine health and safety audits,
conducted by HSS professionals
independent of the attraction being
assessed. These audits evaluate
compliance with Merlin’s Global Health
and Safety Manual and associated safety
policies. This includes an examination
of the adequacy and availability of risk
assessments / job hazard analyses and
the implementation of required
control measures.

Consideration is also made of how such
control measures are communicated or
‘trained out’ to those persons undertaking
the works. Any non-compliance matters
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.
Additionally, property and infrastructure
risk audits are conducted annually by
external engineering surveyors.

In 2016 our performance reporting has
evolved and we can now report on
two types of performance metric:

1 Leading indicators monitor the activities
we undertake as part of our HSS
governance and monitoring processes.
Our approach includes arrangements
by attractions for near-miss / unsafe
condition reporting, trend analysis
and corrective action management.
2 Lagging indicators capture incident

rates for both guests and employees.

In developing our performance reporting
we have the ambition to become the
benchmark for our industry sector
as we capture, report on, interpret
and respond to this source of
management information.

Merlin Entertainments plc Annual Report and Accounts 2016
HEALTH, SAFETY AND SECURITY Committee Report

FOCUS ON
Merlin Engineering

Group Engineering
In 2016 our Group Engineering Directorate was
established to provide clear direction to Merlin’s
technical teams at every attraction and help drive
continuous improvement and engineering excellence.
The team is now fully formed and has set its
strategic direction:

• Group Engineering Strategy - to underpin the delivery
of memorable experiences with technical excellence
and efficiency.

• Group Engineering Strategic Objective - to define and
uphold groupwide engineering standards, practices and
processes that deliver sector leading safe, compliant
and optimised asset performance thus ensuring that
every guest's memorable experience is not negatively
impacted by any technical issue.

The connection between safety and engineering is
fundamental, shaping every aspect of engineering
work undertaken in Merlin. From the outset, Group
Engineering has set to reinforce this connection and
set up systems that focus on Safety Engineering.
In particular, the immediate opportunities that have been
realised with this new central function are in elements of
Safety in Design and Maintenance.

Safety in Design
Although the independent Inspection Bodies conduct
thorough design reviews and provide design safety
assurance, it is essential that safety critical systems can
be maintained and assessed easily. Group Engineering
provides critical technical analysis of design and challenge
to suppliers and equipment manufacturers of both new
products and for modifications to existing installations.
This gives support to both attractions and project
delivery teams as the ‘intelligent customer’ to ensure
that not only is redundancy built in to safety critical
systems, but also that safety critical items are designed
for maintainability to provide the essential balance
between safety and performance.

Safety in Maintenance
Robust maintenance systems and procedures are already
in place through the comprehensive suite of daily, weekly,
monthly and annual maintenance activities for rides and
installations. However, we never stand still and always
look to incrementally improve our maintenance
systems through the work of Group Engineering:

• Learning Forums - Group Engineering has established
communication channels between Technical Directors
at attractions to allow groupwide technical expertise
to be shared effectively. Enhanced arrangements have
been set up with the prime purpose of driving shared
learning and discussion to facilitate faster responses
to technical challenges and safety improvements.

• Maintenance Regime Review - the maintenance regime
for each asset or ride is derived from the requirements
set out in the operating and maintenance manual
provided by the manufacturer. This regime is then
overlaid with any enhanced inspections or tests that
are identified through the continued use and inspection
of the asset. Critical review and comparison of evolved
maintenance regimes can now be undertaken to
ensure that maintenance across the Group is optimised
for assets that are installed in multiple locations.

• Root Cause Analysis - within even the most robust
safety and maintenance system unplanned technical
issues will arise. Understanding the cause of such issues
provides insight into any changes required to safety and
reliability systems to prevent recurrence. Our assets are
complex due to factors such as the technology of the
systems and materials used; the interface with attraction
operators; the way guests interact with the assets;
external environmental effects; and the continued
maintenance of the asset. The oversight of Group
Engineering and ability to use groupwide expertise
to analyse and critique any failures ensures that
appropriate alterations are made through intellectually
rigorous and consistent analysis of failures and faults.

Group Engineering will continue to drive the
optimisation of this function to help maintain
our focus on safety engineering.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016AUDIT
Committee Report

STATEMENT FROM THE CHAIRMAN OF THE AUDIT COMMITTEE

Dear Shareholder

I am pleased to present the 2016 report
of the Audit Committee (the Committee).

The Committee has an annual standing
agenda of matters to be examined and
in addition there are focused reviews
of particular topics. During the course
of the year the Committee met with
operational management to consider
financial, IT and other risks that the
business faces together with the controls
through which we manage those risks.
We appreciated the open discussions.

Our detailed programme of work has
focused on the following areas which
the Committee report itself covers in
more detail.

Committee membership
and effectiveness
Committee meetings are scheduled ahead
of Board meetings and a summary is given
to the Board at the following meeting.
The Committee’s terms of reference
are available on the Company’s website.

I was pleased to welcome Trudy Rautio
and Rachel Chiang as new members of
the Audit Committee during the year.
We have a Committee with deep financial
and international business experience
particularly in customer facing and
consumer businesses. The external
Board Effectiveness review confirmed
that the Committee is effective.

The Group’s principal risks and
uncertainties are set out on pages
50 to 52.

The Committee has reviewed these
and is comfortable the Company has
addressed them appropriately within its
ongoing operating model.

Financial reporting
I am pleased to confirm that we believe
the Annual Report and Accounts,
taken as a whole, are fair, balanced
and understandable.

In preparing the Group’s financial
statements, the two areas determined
to be of most significance are the
valuation of assets including impairment,
and revenue recognition. Further details
of our reviews in these areas are set out
on page 79.

We also considered how the Group
assesses its longer term solvency
and liquidity as set out in the Viability
Statement on page 49, agreeing the
stress testing parameters of the Group’s
principal risks and the period over
which the assessment should be made.

Internal and external audit
The Group’s control framework
includes independent and effective
auditors. The Committee has therefore
spent time during the year assessing the
internal and external audit functions,
finding both to be effective.

Risk management and internal control
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 risk based internal audit plan has
provided appropriate coverage of the
Group’s operations and we are satisfied
with the content and quality of both
reporting and management responses.

Similarly, we are fully satisfied with
KPMG’s ongoing performance and their
approach to the audit; their work makes
an important contribution to the integrity
of the Group’s reporting and again this
year has resulted in a clean audit opinion.

We continue to monitor regulatory
matters, including the requirement to
retender the audit by 2023 and retender
the audit at least every ten years
thereafter. The Committee is mindful
that the next regular KPMG partner
rotation is after the 2019 audit.

Looking forward
The Committee has an agreed programme
for 2017.

Key focus areas include monitoring the
continuing roll out of accesso®, as well
as to monitor the control environment,
particularly in new attractions opened
in line with the Group’s 2020 milestones.

Recognising the impact of the new leasing
accounting standard (IFRS 16), we will
review management’s work on capturing
the detail required for both transition
accounting and the related financial
statement disclosures.

I would like to thank the Committee
members for their diligence and support
throughout the year.

Ken Hydon
Chairman of the Audit Committee
1 March 2017

Merlin Entertainments plc Annual Report and Accounts 2016The role of the Audit Committee

2016 focus

An external effectiveness review was
undertaken showing the Committee
to be effective.

The Audit Committee’s primary
responsibilities are as set out below,
forming the basis of a programme of work
that is agreed at the end of the prior year
and undertaken during the following year.
In performing their work, the Committee
is kept abreast of any changes in
governance, legislation or guidance.

Risk management and internal control
• To review and report on the

effectiveness of the Company’s internal
financial controls and the overall risk
management system.
• To review the Company’s

arrangements for its employees
to raise concerns through its
whistleblowing and fraud policies.

Financial Reporting
• To monitor the integrity of

the financial statements of the
Company and report to the Board
on significant financial reporting
issues and judgements.

• To consider whether the Company’s
financial statements are ‘fair, balanced
and understandable’.

• To consider the processes supporting
the assessment of the Group’s longer
term solvency and liquidity which
underlie the Viability Statement.

Internal and external audit
• 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 propose and select the external
auditors and then to oversee their
performance and independence.

Membership and meetings
Details of the Committee’s membership;
qualifications; and meetings are outlined
on pages 66 to 69, including details of
those members having recent and
relevant financial experience. The CFO
and other key members of management
routinely attend, as do other members
of senior management depending on the
matter under discussion. The Chairman
and the CEO attended most meetings.
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 Committee took place.
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. The results showed the
Committee to be effective.

AUDIT Committee Report

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016

AUDIT Committee Report

Risk management and internal control

2016 focus

The Committee concluded that
Merlin operates an appropriate
process to assess the internal
control environment, and that
controls are in place to mitigate
financial process risk.

While the Board retains overall
responsibility for the Company’s internal
controls, the Committee has a delegated
responsibility in two specific areas.

1 Specifically monitoring the

management of financial process risk

The Risks and Uncertainties section
on pages 47 to 52 shows how the
Company separates its oversight
of risk management into three risk
components: Health, safety and
security; Commercial and strategic;
and Financial process.

For financial process risk, management
remain responsible for establishing and
maintaining adequate internal controls
that are designed to manage, rather
than eliminate, such risks. It is
addressed using the three levels of
activity and assurance set out below.
The outcomes of these activities are
reviewed by management, the Audit
Committee and the Board.

Level 1
Documented delegated authority limits
and purchasing and sale price approval
levels in place across the Company.

Level 2
Frequent and regular review processes
of trading performance together with
detailed capital investment and
strategic planning processes.

Level 3
Self-assessment, including quarterly
self-certification by the heads of
finance of each of the business units.

Internal audit reviews with the
support of specialist experts as
appropriate. The annual risk based
internal audit plan is developed in
conjunction with management,
and approved by the Committee.
Internal audit results and management
responses are then discussed and
challenged at each Committee
meeting. The Committee reviews
management actions in response
to significant findings and looks at
the root cause of consistent themes
emerging across the Company,
including ‘deep dive’ assessments
where necessary. In 2016 these related
to the purpose and structure of the
profit protection function, reviewing
residual risks identified in the Group’s
business planning process, together
with considering the Group’s
treasury strategy.

External audit reviews the control
environment and financial statements.
KPMG present their view of Merlin’s
control environment at the December
meeting, following their audit of such
processes in the fourth quarter.

2 Overseeing the overall risk

management process

During the year the Committee
reviewed the overall risk management
process in place. At the end of the
year it examined the Company’s risk
organisation and how this has been
practically implemented, and the
methodology by which risk matters
raised are brought to the attention
of the Board. The Group’s risk
organisation and principal risks
are disclosed on pages 47 to 52.

Whistleblowing systems and
fraud/bribery mitigation
The Company has a good culture of
encouraging its staff to report incidents of
poor practice. This is reinforced through
the work of internal audit and local profit
protection teams, a summary of whose
work is reviewed by the Committee.

The Committee also receives regular
updates on whistleblowing, including the
quantity, source and nature of incidents
reported and how matters are resolved.
During 2016 efforts have continued to
increase awareness of the Company’s
whistleblowing procedures, evidenced
by the 84% of staff who completed the
annual staff survey confirming they were
aware of the whistleblowing policy.

Financial Reporting

2016 focus

The financial statements
appropriately address amounts
reported and disclosures together
with any significant judgements
and estimates.

The two significant areas for review
were appropriately scrutinised by
the Committee throughout the
reporting cycle.

The Committee considered and
approved the Group’s going concern
review and viability assessment.

Together with management and
the external auditors, the Committee
determined that the two financial
reporting areas of most significance and
which could give rise to misstatement
of the Group’s financial statements are
the valuation of assets and impairment
and revenue recognition. These items
are set out below and were considered
by the Committee throughout the
audit cycle.

Merlin Entertainments plc Annual Report and Accounts 2016

Key focus areas

1 The valuation of assets

and impairment

Having reviewed the basis of
management’s calculations and the
findings of the external audit, the
Committee is satisfied that no
impairment is required and that
the presentation and disclosures
in the financial statements are
appropriate and adequate.

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. Additionally the
Group continues to open attractions
in new and, to some degree, unproven
locations. While the Group has
accumulated experience of opening
many attractions around the world,
the performance of additional
attractions, particularly in new
markets, can be difficult to predict.

2 Revenue recognition

The Committee has considered the roll
out of the accesso® admissions system
together with existing revenue recording
systems. In both areas the Committee
considered the internal controls in
place and concluded that they
remain effective.

Revenue is generated by high volumes
of low value transactions in numerous
jurisdictions across the world. Although
Merlin’s revenue accounting policies
require limited judgement compared
to some other sectors, the accuracy
of financial reporting relies on
robust internal controls over cash
reconciliations and accurate cut-off
at the reporting date in respect of
advanced sales or payments in
arrears by trade customers.

AUDIT Committee Report

Management's papers considered
the performance of Alton Towers
following the accident there in 2015
when considering the expected future
earnings of that attraction and the
Resort Theme Parks Operating
Group as a whole, as well as
detailing the results of sensitivity
analysis performed.

As set out in note 3.3 to the financial
statements, valuations are performed
based on forward looking discounted
cash flow forecasts and other market
data so are inherently judgemental
in nature. Management’s detailed
papers to the Committee set out the
methodology and judgements adopted
to test the value of assets, and the
disclosures proposed for the
Annual Report and Accounts.

The papers considered the valuation
of goodwill at an Operating Group level,
individual brands and specific property,
plant and equipment. For each item,
‘value in use’ and ‘fair values’ (using an
appropriate EBITDA multiple) were
provided. We focused especially on
how the ‘value in use’ of assets is
calculated, which involves judgements
of forecast cash flows, the discount
rates used and the calculation of
an asset’s terminal value.

accesso®
During the year the Company continued
its roll out of the accesso® admissions
system across the Group. The new
system is being used to transact an
increasing proportion of the Group’s
admissions revenues with the roll out
to all major sites targeted by the end
of 2017.

The roll out continued under the
guidance of a senior steering group,
chaired by the Group’s Chief Information
Officer, and including the Group CFO
and other members of the Group’s
senior finance team. The project roll out
team includes finance resource that is
responsible for designing and
implementing appropriate financial
processes and controls.

During the year the Committee
received regular updates on the
progress of the project together with
the identification and subsequent
resolution of issues that arose.

IFRS 15
IFRS 15, the new accounting standard
on revenue from contracts with
customers, will become effective from
the 2018 accounting period.
The Committee has considered the
potential impact in the context
of the Company’s business model and
the nature of the Company’s revenue
transactions and has concluded that
IFRS 15 is not expected to materially
alter the Group’s financial results.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016AUDIT Committee Report

Going concern and viability review
We focused especially on the
appropriateness of the key judgements,
assumptions and estimates underlying
the Company’s plans together with a
review of compliance with key financial
covenants. For the viability assessment
we considered the outlook period in the
context of the Group’s business plan, its
planned capital investment cycles, new
business development plans and potential
uncommitted capital projects and
acquisitions. We concluded that the four
year outlook period was appropriate.

We considered the key risks identified
by the Group (as set out in the Risks and
Uncertainties section on pages 50 to 52)
and any mitigating controls. This process
enabled the Committee to assess
whether any material residual risks
remained that could pose a significant
threat to the viability of the business
as a whole.

The risks identified were those related
to safety related incidents and the impact
of acts of terrorism or sabotage. The
Committee then reviewed appropriate
sensitivity analyses in severe yet plausible
scenarios that were performed to assess
the possible impact of these risks and
the Group’s resilience to them through
controls and mitigating actions that
could be taken.

The Viability Statement is on page 49.

Other matters
The Committee also reviewed other
matters in relation to the Company’s
financial statements. In doing so they
took into account recent developments
in corporate reporting and particular
current focus areas. Matters
reviewed included:
• 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 Group’s use and description of
alternative performance measures
within its financial reporting.

• Those areas of the Group’s

financial reporting considered to
have required most judgement
or the use of estimates.

• The tax position of the Group, in

particular the effective tax rate and
the recognition of deferred tax assets.

• The impact of new accounting

standards that are yet to become
effective, especially IFRS 15
(as noted above), and IFRS 16,
the new standard on leasing.
• Key assumptions in relation to

defined benefit pension schemes.
• 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.

Internal and external audit

2016 focus

Following an extensive review process,
the Committee considers that the
internal and external audit functions

were both effective during 2016.

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 through the activities
set out below. The Committee oversees
both functions to ensure they are
independent and effective.

Internal audit
The Company’s internal audit function,
which has dual reporting lines into both
the Chairman of the Audit Committee
and the CFO, comprises six in-house
auditors and is led by an appropriately
qualified Group Internal Audit and
Risk Management Director with the
relevant skills and experience to fulfil
the obligations of the role.

When necessary external support is
used in specialist areas. For example
PricewaterhouseCoopers (PwC)
provided specialist support to
the audit of the Company’s IT
strategic roadmap and risks.

The Committee approved the internal
audit plan before the start of the year
which included an assessment of the
risk approach taken in formulating audit
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 assessment.

During the year, audits were undertaken
to obtain an appropriate level of coverage
across the business which we measure
on a rolling two-year basis. Internal audits
conducted over the last two years
have been at operations representing
coverage of approximately 60% of
the Group’s revenue.

In addition to the revenue generating
locations, internal audits were performed
over other areas including MMM project
management, procurement, legislative
compliance and IT disaster recovery.

The coverage is in line with the plan
approved by the Committee.

An external review of the effectiveness
of internal audit was undertaken during
the year. 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
and diligent and that its internal audits
are appropriately detailed.

Merlin Entertainments plc Annual Report and Accounts 2016

External audit
The Company’s external auditors are
KPMG LLP. As set out in more detail
below, the Committee has considered
their appointment, governance, fees
and independence, together with the
work performed.

Appointment and governance
In recommending the reappointment
of external auditors at the AGM, the
Committee has taken into account EU
guidance and the Competition and
Markets (CMA) Authority Order on
mandatory audit tendering. Merlin will
be required to retender its audit no
later than for the 2023 financial year.
The Committee will bear in mind the
next regular KPMG partner rotation
after the 2019 audit.

The Committee has considered
whether a retender during 2017
would be appropriate as part of its
annual recommendation on the
appointment of the external auditors.
The Committee decided to recommend
retaining KPMG for 2017.

Remuneration and independence
of external auditors
Non-audit services are subject to market
tenders or tests and are awarded to the
most appropriate provider. The external
auditors may provide non-audit services
only when their skills and experience
make them a competitive and most
appropriate supplier of these services.
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 requires
a detailed understanding of the Group.

The new Ethical Standard for the audit
profession issued by the FRC required
KPMG to review their non-audit services
and resign from their tax appointments.
The Committee was satisfied with the
way KPMG approached this exercise
and has updated its Terms of Reference
on appointing the auditors for non-audit
services accordingly.

The principle followed 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
non-audit services:
• Work which a third party requires

to be carried out by the
Company’s auditors.

• Any other work up to a value of

£50,000 where the external auditors
are best placed to undertake the work.

The Committee regularly reviews and,
where necessary, challenges management
to ensure that auditor objectivity and
independence is not impaired. We
review reports on audit, audit-related
and non-audit expenditure, together
with proposals of any material
non-audit related assignments.

The Committee has adopted the
guidance and related definitions from
the Department for Business, Energy and
Industrial Strategy and determined that
‘non-audit fees’ should be no higher than
70% of ‘audit fees’. We will continue
to monitor this ratio. In 2016 fees for
non-audit services were £0.7 million
(2015: £0.8 million); a ratio of 48%
(2015: 58%). Details of KPMG fees
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. This included
an externally facilitated, questionnaire
based, effectiveness assessment as
well as 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 of the audit.

The survey indicated widespread
satisfaction with the quality of the
KPMG audit and the Committee
accepted KPMG’s responses to
points raised in the survey.

The effectiveness of KPMG’s 2016 audit
was assessed over the year by reference
to the following factors:
• The performance of Hugh Green
in his second year as Audit Partner,
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.

• The quality of the formal report

to shareholders.

• Their reputation and standing, including
their independence and objectivity,
their internal quality procedures,
and reports published by the FRC.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS’
Remuneration Report

STATEMENT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE

Dear Shareholder

This year’s Remuneration Report is split into three sections:
• Statement from the Chairman of the Remuneration

Committee contains details of our remuneration principles
and of the key decisions reached by the Committee.

• Policy Report to be put to a binding vote by shareholders at
the 2017 AGM. Given that the existing Remuneration Policy
expires in the 2017 financial year, a summary of changes is
contained in this Chairman’s Statement with the full details
set out in the Policy Report.

• Annual Report on Remuneration contains details of pay
received by Directors in 2016 and full details of how we
intend to implement our pay policy during 2017. The Annual
Report on Remuneration will be subject to an advisory vote
at the 2017 AGM.

Remuneration principles
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; and widespread share
ownership should be encouraged.

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 and the
creation of value to shareholders.

• 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 base salary.

Consistent with best practice
• Salaries are intended to be set at competitive, but not

Performance orientated
• Rewarding performance is a core part of our ethos. About

excessive, levels compared to peers and other companies
of an equivalent size and complexity.

80% of our permanent employees participate in a bonus plan
and over 340 employees receive regular share awards or
share option grants.

• 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

• 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.

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.

Merlin Entertainments plc Annual Report and Accounts 2016Performance in 2016
The financial and operating performance of Merlin in 2016 is
set out on pages 2 to 59 in the Strategic Report.

The Group delivered a solid set of financial results. The
LEGOLAND Parks Operating Group continued to deliver
growth and the Resort Theme Parks Operating Group delivered
a stronger year supported by the recovery at Alton Towers.
However, a combination of security concerns and exchange
rate volatility impacted trading at some of our largest city
centre locations in the Midway Attractions Operating Group.
Taken together, the Group reported revenue of £1,457 million
and generated an underlying operating profit of £320 million
for the 53 weeks ended 31 December 2016.

As a result of financial performance falling below the threshold
for payment of profit related bonus, no bonus will be paid to
the CEO or the current or previous CFO in relation to
2016 performance.

The Performance Share Plan awards granted on IPO in
November 2013 will partially vest on 1 April 2017. Details
of the awards are set out on page 100 of this report.

Pay decisions for 2017
The proposed pay structure for the Executive Directors for
2017 is outlined on pages 93 to 94. Key decisions made by
the Committee in relation to 2017 include:
• The CEO received a 1.0% increase in his salary as part of the
pay review effective from 1 October 2016. The annual pay
review date for the Group has moved from 1 October to
1 April and as a result it is proposed to grant a further
increase of 2.25% from that date. The average salary increase
for the Merlin UK workforce effective from 1 October 2016
was 1.0% and effective from 1 April 2017 is 2.25%. Under the
terms of her contract, the salary of the CFO is fixed until
October 2017 when a 2.25% increase will be awarded.
• The Committee has agreed the same basic structure to the

bonus plan as 2016 with individual objectives for the Executive
Directors appropriately reflecting Company priorities. For the
Executive Directors 100% of bonus award depends on profit
performance and of that 20% also depends on achievement
against specific personal objectives.

• The Committee has also maintained the same basic

structure for the PSP with unchanged threshold and maximum
performance conditions. In addition, for awards from April
2017 onwards a health and safety underpin will be attached
to all PSP awards. Further details are set out on page 94.

DIRECTORS' Remuneration Report

Review of Remuneration Policy for 2017
The Committee has reviewed the application of the
Remuneration Policy in place since 2014 and concluded that the
structure of the current approach to salary, short term and long
term incentives for the Executive Directors remains aligned to
our remuneration principles. In light of this, no significant
amendments are proposed.

As previously communicated the Company has put in place
malus and clawback provisions and a health and safety underpin
for all PSP awards from 2017 onwards. We have also taken this
opportunity to clarify that the Committee already has the ability
to adjust bonus awards to ensure they reflect underlying business
performance, including health and safety matters.

These important safeguards are incorporated into the proposed
new Remuneration Policy.

Recent economic uncertainty along with suggestions for
alternative approaches to Executive Remuneration structures
and other guidelines from investors mean that the Committee
will keep the policy under active review. Any future proposals
will be driven by the Company’s strategy and will take account
of the increasing complexity of the Group.

I hope you will find this report to be clear and helpful in
understanding our remuneration practices and that you will be
supportive of the resolution relating to remuneration at the AGM.
As ever, the Committee welcomes any questions or comments
from shareholders.

Charles Gurassa
Chairman of the Remuneration Committee
1 March 2017

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

POLICY REPORT

This part of the Remuneration Report sets out our updated
Directors’ Remuneration Policy (Policy). The Policy will be subject
to a binding shareholder vote at the 2017 AGM. This Policy will
apply to payments made from 13 June 2017. The current
policy was approved in 2014 by a vote in favour of 99.4%.
The information provided in this section of the Remuneration
Report is not subject to audit.

Policy table
The following table sets out details of each component of the
Executive Director remuneration package. Our aim is to provide
pay packages that will:
• Motivate and retain our industry leading employees.
• Attract high quality individuals to join us.
• Encourage and support a high performance culture.
• Reward delivery of our business plan and key strategic goals.
• Align our employees with the interests of shareholders and

other external stakeholders.

Key changes to the previous Policy are as follows with
details included in the relevant sections of the updated
Policy below.

• Effective from 2016, malus and clawback conditions apply

to bonus payments, deferred share awards and Performance
Share Plan awards. In addition, effective from 2017, a health
and safety underpin will apply to all PSP awards. The Policy
also specifically sets out that the Remuneration Committee
has discretion to amend the bonus payout should any
formulaic output not reflect the Committee’s assessment
of overall business performance, including for health and
safety issues.

• To reflect the international composition of the Non-executive
Directors (NED), where a NED lives outside the UK a travel
allowance may be paid for attendance at Board meetings.
• The updated Policy clarifies payments that can be made
in connection with a Director’s cessation of office or
employment where the payments are made in good faith
in discharge of an existing legal obligation or by way of a
compromise or settlement of any claim arising in connection
with the cessation of a Director’s office or employment.
• The updated Policy clarifies the discretion of the Committee
to make appropriate remuneration decisions outside the
standard Policy in the exceptional circumstances when the
Chairman or a NED or an interim appointment takes on
an Executive Director role on a short term basis.

Operation

Maximum opportunity

Performance conditions (1)

Generally reviewed annually with any increase
normally taking effect from 1 April 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.

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 UK 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.

Purpose and link
to strategy

Fixed pay

Base salary
To appropriately
recognise responsibilities
and attract and retain
talent by ensuring salaries
are market competitive.

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Purpose and link
to strategy

Benefits
To provide market
competitive
benefits.

Operation

Maximum opportunity

Performance conditions (1)

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

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 appropriate circumstances,
to add to or remove benefits provided to
Executive Directors.

Pension
To provide market
competitive retirement
benefits.

Variable pay

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 base 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 base salary.

Each year the Remuneration Committee
determines the maximum bonus
opportunity for individual Executive
Directors within this limit.

Annual bonus (2), (3)
To link reward to key
business targets for the
forthcoming year and to
individual contribution.

The Executive Directors are participants in the
central bonus plan which is reviewed annually
to ensure bonus opportunity, performance
measures and targets are appropriate and
supportive of the business strategy.

Additional alignment with
shareholders’ interests
through the operation
of bonus deferral.

Two-thirds of an Executive Director’s annual
bonus is delivered in cash following the release
of audited results and the remaining third is
deferred into an award over Company shares
under The Merlin Entertainments plc
Deferred Bonus Plan.
• Deferred awards are usually granted in the
form of conditional share awards or nil-cost
options (and may also be settled in cash).
• Deferred awards usually vest three years
after award although may vest early on
leaving employment or on a change of
control (see later sections).

• An additional payment (in the form of

cash or shares) may be made in respect
of shares which vest under deferred awards
to reflect the value of dividends which would
have been paid on those shares during the
vesting period (this payment may assume
that dividends had been reinvested in
Company shares on a cumulative basis).
• Bonus payments and deferred share awards
will be subject to withholding or clawback
at the Remuneration Committee’s discretion
during the three year period following
the award of the bonus 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 or any other error in calculation
which has led to an overpayment of bonus.

The bonus is based on
performance assessed
over one year using
appropriate financial,
strategic and individual
performance measures.

The majority of the bonus
will be determined by
measure(s) of Group
financial performance.
The selected measure(s)
for the relevant 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 relevant financial
year are set out in the
Annual Report on
Remuneration section
of this Remuneration
Report.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Purpose and link
to strategy

Operation

Maximum opportunity

Performance conditions (1)

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.

Any bonus payout is
ultimately at the
discretion of the
Committee.

Vesting of PSP awards
is usually dependent on,
but not limited to,
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 discretion available to the Committee
remains unchanged and continues to provide
wide-ranging discretion on the award and
vesting of bonuses. In particular the Committee
has discretion to amend the payout should any
formulaic output not reflect the Committee’s
assessment of overall business performance,
including health and safety issues.

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).

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.

In the event of a material health and safety
breach by the Group during the period
between grant and vesting of an award, the
Remuneration Committee may reduce the
number of shares which would otherwise vest
as a result of the EPS and ROCE performance
conditions to ensure that the vesting outcome
is appropriate.

Performance Share Plan
(PSP) (3), (4)
To link reward to key
business targets for the
longer term and to retain
executives and the
creation of value for
shareholders by
rewarding long term
objectives.

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Purpose and link
to strategy

Operation

Maximum opportunity

Performance conditions (1)

All Employee Share Plan
(UK Sharesave Scheme)
(3), (5)

To create staff alignment
with the Group and
promote a sense of
ownership.

Company Share Option
Plan (CSOP) (3)
Executive Directors
will only receive CSOP
awards in exceptional
circumstances.

Individuals who are
promoted to the Board
may have outstanding
awards under this plan.

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 £500 (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.

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).

Options are usually exercisable between
three and ten years following grant although
may have a different exercise period on leaving
employment or on a change of control
(see later sections).

Options that are HMRC unapproved may, if
appropriate, be settled in cash or be net-settled.

The 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.

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).
The Committee may also adjust the calculation of performance targets and vesting
outcomes (for instance for material acquisitions, disposals or investments and events
not foreseen at the time the targets were set) to ensure they remain a fair reflection
of performance over the relevant period. In the event that the Committee were to
make an adjustment of this sort, a full explanation would be provided in the next
Remuneration Report.

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 budget 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)

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/or
payments for loss of office (including exercising any discretions available to it in
connection with such payments) notwithstanding that they are not in line with the
policy set out above where the terms of the payment were agreed (i) before the
2014 AGM (the date the Company’s first shareholder-approved Directors’
remuneration policy came into effect); (ii) before the policy set out above came into
effect, provided that the terms of the payment were consistent with the shareholder-
approved Directors’ remuneration policy in force at the time they were agreed; or
(iii) at a time when the relevant individual was not a Director of the Company and,
in the opinion of the Committee, the payment was not in consideration for the
individual becoming a Director of the Company. For these purposes “payments”
includes the Committee satisfying awards of variable remuneration and, in relation
to an award over shares, the terms of the payment are “agreed” at the time the
award is granted.

(7)

The Committee may make minor amendments to the policy set out in this Policy
Report (for regulatory, exchange control, tax or administrative purposes or to take
account of a change in legislation) without obtaining shareholder approval for
that amendment.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Differences in policy from broader employee population
There are differences in the precise components within the pay policy for Executive Directors and for our employees generally and a
greater proportion of Executive Directors’ pay is ‘at risk’ and determined by performance than for our employees generally. However, as
outlined in the Committee Chairman’s Statement, common principles underlie the pay policy throughout the Company including for the
Executive Directors. In particular, we place great emphasis throughout the Company on reward being linked to performance (either
Group performance or of an employee’s particular attraction) and on encouraging share ownership (through participation in the PSP,
CSOP or the All Employee Share Plan).

Non-executive Directors

Purpose and link to strategy

Operation

Opportunity

Non-executive Director (NED) fees
To appropriately recognise responsibilities
by ensuring fees are market competitive.

Fees are set at an appropriate level that is
market competitive and reflective of the
responsibilities and time commitment
associated with specific roles.

No absolute maximum has been set for
individual NED fees / allowances. 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.
• where a NED lives outside the UK in

which case a travel allowance may be paid.

Fees are generally reviewed annually.

NEDs whose appointment is in respect of their
position as shareholder representatives do not
receive a fee.

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Illustrations of application of remuneration policy
Merlin’s remuneration arrangements have been designed to ensure that a significant proportion of pay is dependent on the delivery
of stretching short term and long term performance targets.

The charts below provide illustrative values of the remuneration package for Executive Directors under three assumed performance
scenarios. The charts are for illustrative purposes only and actual outcomes may differ from those shown.

Assumed performance

Assumptions used

All performance scenarios (Fixed pay)

• Consists of total fixed pay, including base salary, benefits and pension.
• Base salary - salary effective as at 1 January 2017.
• Benefits - estimated value of 5% of base salary.
• Pension - amount expected to be received in 2017 (25% of base salary).

Minimum performance (Variable pay)

• No payout under the annual bonus.
• No vesting under the PSP.

Performance in line with expectations (Variable pay)*

Maximum performance (Variable pay)*

• 50% of the maximum payout under the annual bonus.
• 50% vesting under the PSP.

• 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 2017 (135% of salary) is lower than the scheme maximum and the face value of the PSP awards to be granted to the CEO and CFO in 2017 (250% of
salary and 225% of salary respectively) will be lower than the scheme maximum.

4,000

3,500

3,000

2,500

0
0
0
£

2,000

1,500

1,000

500

3,699

55%

24%

2,231

46%

20%

763

100%

34%

21%

PSP

Annual Bonus

Fixed Pay

2,426

55%

24%

21%

1,463

46%

20%

34%

501

100%

Minimum

Meeting
expectations

Maximum

Minimum

Meeting
expectations

Maximum

CEO

CFO

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Approach to recruitment remuneration

Principles
In determining remuneration arrangements for new
appointments to the Board (including internal promotions),
the Committee applies the following principles:
• The Committee takes into consideration all relevant factors,

including the calibre of the individual, market data and existing
arrangements for other Executive Directors, with a view that
any arrangements should be in the best interests of Merlin
and our shareholders, without paying more than is necessary.
• Typically, the new appointment will have (or be transitioned
onto) the same package structure as the other Executive
Directors, in line with the Policy Table presented above.
• Where an Executive Director is appointed from within the
organisation, the normal policy of the Company is that any
legacy arrangements would be honoured in line with the
original terms and conditions. Similarly, if an Executive Director
is appointed following the Company’s acquisition of or merger
with another company or business, legacy terms and
conditions would be honoured.

• Upon appointment, the Committee may consider it

appropriate to offer additional remuneration arrangements
in order to secure the appointment. In particular, the
Committee may consider it appropriate to ‘buy out’ terms
or remuneration arrangements forfeited on leaving a
previous employer (discussed below).

• The Committee may provide costs and support if the

recruitment requires relocation of the individual.

• The Committee retains discretion to make appropriate
remuneration decisions outside the standard Policy to
meet the individual circumstances of recruitment when:
• An interim appointment is made to fill an Executive

Director role on a short term basis; or

• Exceptional circumstances require that the Chairman

or a Non-executive Director takes on an executive
function on a short term basis.

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 incentives 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.

Merlin Entertainments plc Annual Report and Accounts 2016Service contracts
Key terms of the current Executive Directors’ service agreements
and Non-executive Directors’ letters of appointment (other than
the Non-executive Director whose appointment is in respect of
their position as representative of KIRKBI) 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.

Søren Thorup Sørensen, as the Non-executive Director
nominated by KIRKBI is appointed pursuant to the Relationship
Agreement with his nominating shareholder and does not
have an individual letter of appointment with the Company.
The Relationship Agreement provides for KIRKBI 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 this Director should
the relevant shareholding fall below 10% and no fees or
termination payments are payable. All Executive Directors’
service agreements and Non-executive Directors’ letters of
appointment are available for inspection at the Company’s
registered office at 3 Market Close, Poole, Dorset BH15 1NQ.

Policy on payment for loss of office
As outlined above, there are no contractual obligations to make
any payments to Executive Directors in relation to loss of office
and any termination payment would be subject to negotiation
although would not be expected in normal circumstances to
exceed salary, pension and benefits in relation to the individual’s
outstanding notice period.

DIRECTORS' Remuneration Report

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 based on appropriate performance measures
as determined by the Committee.

• The treatment of outstanding share awards is governed by

the relevant share plan rules.

The Committee reserves the right to make any other payments
in connection with a Director’s cessation of office or employment
where the payments are made in good faith in discharge of an
existing legal obligation (or by way of damages for breach of such
an obligation) or by way of a compromise or settlement of any
claim arising in connection with the cessation of a Director’s
office or employment. Any such payments may include but are
not limited to paying any fees for outplacement assistance and/or
the Director’s legal and/or professional advice fees in connection
with his cessation of office or employment.

The table overleaf summarises the treatment of share awards
for leavers and on a change of control in share plans under
which Executive Directors could hold awards.

Consideration of employment conditions elsewhere in
the Group
The Committee does not formally consult with employees
as part of its process when determining Executive Director pay.
However the Committee is kept informed of general decisions
made in relation to employee pay and related issues by the
Group HR Director and is conscious of the importance of
ensuring that its pay decisions for Executive Directors are
regarded as fair and reasonable within the business. As outlined
in the Policy Table, pay and conditions in the Group are one
of the specific considerations taken into account when
the Committee is determining salary levels for the
Executive Directors.

Consideration of shareholders’ views
The Company’s largest shareholder (KIRKBI) has an observer
at the Committee. In addition we have sought the views of our
largest institutional shareholders (for instance through discussion
with the Chairman of the Board and/or the Remuneration
Committee Chair) and leading advisory bodies.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

The following table summarises the treatment of share awards for leavers and on a change of control in share plans under which
Executive Directors could hold awards.

Good leaver
categories

Treatment for
good leaver

Treatment
for any
other leaver

Treatment on a change
of control / voluntary
winding-up

• Death.
• Injury.
• Disability.
• Ill-health.
• Retirement.
• Redundancy.
• Transfer of employing
company or business to
which an individual’s
employment relates
out of the Group.
• Any other scenario in
which the Remuneration
Committee determines
that good leaver
treatment is appropriate
(other than circumstances
justifying summary dismissal).

Deferred bonus awards vest on
cessation of employment / death.

Deferred bonus
awards lapse.

Deferred bonus awards
vest in full.

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.

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.

Options become exercisable immediately on death, ceasing employment due to injury, disability, retirement, redundancy, sale of
the employing company or business to which an individual’s employment relates out of the Group or on a change of control of
the Company.

Options become exercisable on death, ceasing employment due to injury, permanent disability, reaching normal retirement age, sale
of the employing company or business to which an individual’s employment relates or on a change of control of the Company.

Plan

Deferred
Bonus Plan

Performance
Share Plan

Company Share
Option Plan
Executive
Directors will
only receive
CSOP awards
in exceptional
circumstances.

Individuals who
are promoted to
the Board may
have outstanding
awards under
this plan.

UK Sharesave
Scheme /
Overseas
Sharesave
Scheme

US Employee
Stock Purchase
Plan

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

ANNUAL REPORT ON REMUNERATION

The Annual Report on Remuneration will be subject to an advisory shareholder vote at the 2017 Annual General Meeting.

UNAUDITED INFORMATION

Implementation of remuneration policy in 2017
This section provides an overview of how the Committee is proposing to implement our remuneration policy, as set out in the
Policy Report, in 2017 for the current Executive Directors.

Base salary
Salary details for the current Executive Directors are set out below.

Nick Varney (CEO)

Anne-Francoise Nesmes (CFO) - on joining

Salary
1 October 2015

Salary
1 October 2016

£581,400

£587,214

£385,000

% increase

Following a review of the timing of the Group’s annual pay review it was decided to move the review date from 1 October to 1 April,
effective from 2017. To effect this transition, small interim pay awards were made in October 2016 with a full annual award to be made
in April 2017. As a result, Nick Varney received an increase of 1.0% in October 2016 and will receive an increase of 2.25% in April 2017
in line with the average increase for all UK permanent employees. In accordance with her contract Anne-Francoise Nesmes will receive
a first review of her salary in October 2017, also reflecting a 2.25% increase.

Pension and benefits
As in 2016, the current Executive Directors will receive a Company contribution worth 25% of salary. Nick Varney will receive this
contribution as a cash allowance and Anne-Francoise Nesmes will receive a contribution to the Group Pension Plan of no more than
the minimum annual allowance for pensions 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 2016.

Annual bonus
The structure of the annual bonus plan for 2017 remains broadly consistent with the 2016 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.

• As noted in the new Policy, the Committee’s discretion remains unchanged and we have specifically noted that the Committee has

the ability to adjust bonus awards to ensure they reflect underlying business performance, including health and safety issues.

The annual bonus for 2017 for Executive Directors will be determined as detailed below:

As a percentage of maximum bonus opportunity

Measure

Underlying operating profit

Personal objectives

Total

CEO

80%

20%

100%

CFO

80%

20%

100%

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

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 the personal element of the bonus irrespective of performance against the aforementioned
individual measures. The targets themselves, as they relate to the 2017 financial year, are deemed to be commercially sensitive.
However, retrospective disclosure of the targets and performance against them will be provided in next year’s remuneration report
to the extent that they do not remain commercially sensitive at that time.

Performance Share Plan
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. In addition, for awards from April 2017 onwards a health and safety
underpin will be attached to all PSP awards.

The CEO and CFO will be amongst the participants in the PSP award to be granted in April 2017. Awards will be over shares worth, at
the date of grant, 250% of salary for the CEO and 225% of salary for the CFO. Vesting of these awards will be subject to satisfaction of
the following performance conditions measured over the three financial years to December 2019.

EPS performance condition (50% of award)

ROCE performance condition (50% of award)

Adjusted EPS growth

% of award vesting

Average ROCE

% of award vesting

Below threshold

Threshold

<7% p.a.
cumulative growth

7% p.a.
cumulative growth

Below threshold

10%

Threshold

<9%

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 172.

ROCE is defined on page 173.

Adjusted EPS growth will be calculated by comparing Adjusted EPS for the
2019 financial year with Adjusted EPS for the 2016 financial year.

Average ROCE will be calculated as an average of ROCE for the 2017, 2018
and 2019 financial years.

As noted elsewhere we are exploring the opportunity for a third LEGOLAND park in North America. Because of the large scale and
early stage of this potential development and the fact that a park is yet to be confirmed, all costs and revenues related to this project
will be excluded from the calculation of vesting of the 2017 PSP award and added back into the calculation of future awards.

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, 2015 and 2016. 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 commence in March 2017.

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Non-executive Director remuneration
The table below shows the fee structure for Independent Non-executive Directors for 2017. 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

2017

£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

£250,000

There are no fees paid for membership of Board Committees nor to the shareholder representative Non-executive Director.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

AUDITED INFORMATION

The information provided in this section of the Remuneration Report up until the ‘Unaudited information’ heading on page 101
is subject to audit.

Single total figure of remuneration in 2016
The following table sets out the total remuneration for Executive Directors and Non-executive Directors for 2016 with prior year
comparatives for 2015.

All figures shown in £000

Executive Directors

Nick Varney

Anne-Francoise Nesmes

Former Executive Director

Andrew Carr (10)

Non-executive Directors

Sir John Sunderland

Charles Gurassa

Ken Hydon

Fru Hazlitt

Trudy Rautio

Rachel Chiang (9)

Søren Thorup Sørensen

All figures shown in £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

2016

Salary
and fees (1)

Benefits (2)

Annual
bonus (3)

Long term
incentives (4)

Other (5)

Pension (6)

Total

583

160

205

250

2015

1,193

572

128

1,925

204

832

250

Salary
and fees (1)

Benefits (2)

Annual
bonus (3)

Long term
incentives (4)

Other (5)

Pension (6)

Total

581

352

250

128

733

454

250

Notes to the table - methodology:
(1) Salary and fees - this represents the cash paid or receivable in respect of the period. For Non-executive Directors based outside the UK this includes any travel allowance payable.
(2)

Benefits - this represents the taxable value of all benefits paid or receivable in respect of the period. Executive Directors receive a company car or car allowance, phone costs, income
protection insurance, an annual medical, private medical insurance and life assurance of four times annual salary.
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 2016 bonus are disclosed below.
Long term incentives - this column relates to the value of long term awards the performance period for which ends in the year under review. The first long term incentive award
granted post Listing had a performance period that ended in 2016. As a result, this column has a zero figure in 2015 and the figure for 2016 reflects the vesting of the award
based on the average closing share price for the final quarter of 2016 (£4.428). Further details are given in the ‘Outstanding awards under the PSP’ note on page 100.
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. None of the Executive Directors participated in the 2016 UK Sharesave Plan.

(3)

(4)

(5)

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Notes to the table - methodology (continued):
(6)

Pension - Executive Directors receive a Company contribution worth 25% of salary. Nick Varney receives this contribution as a cash allowance and Anne-Francoise Nesmes 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.

(7) Miguel Ko 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) Rachel Chiang joined the Board on 1 January 2016. Fees shown in the table are from that date to 31 December 2016.
(10) Details shown for Andrew Carr for 2016 are his salary, pension and benefits from 27 December 2015 to 31 July 2016 plus the estimated vesting value of his 2013 PSP award,
the performance period for which ended in 2016. Andrew continued to work for the Company until 31 October 2016 and details of his pay for that period are set out on pages
98 to 99. Andrew was ineligible for the 2016 bonus plan. Andrew Carr retired on 31 October 2016 at which date his salary was £351,900.

Additional disclosures in respect of the single figure table

Annual bonus
Executive Directors are participants in the central bonus plan. The maximum annual bonus opportunity for the Executive Directors for
2016 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.

In 2016, Andrew Carr was not eligible for bonus due to his retirement and Anne-Francoise Nesmes was eligible on a pro-rated basis for
the period from joining until 31 December 2016.

The maximum potential annual bonus that could be paid to Executive Directors in respect of 2016 performance was determined by
underlying operating profit performance with targets set by reference to the Group budget. 20% of that potential bonus was additionally
subject to satisfaction of individual objectives. Performance measures and targets applying to the 2016 annual bonus are set out below.

In 2016 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

Proportion of
bonus determined
by measure

Underlying
operating profit

80%

Individual
objectives

20% (1)

Threshold
performance

£338.8 million
(0% of bonus
payable)

Target
performance

Maximum
performance

£360.4 million
(40% of bonus
payable)

£382.0 million
(80% of bonus
payable)

Following the year end, the Committee assessed performance
against the individual objectives for each Director for 2016.
CEO: The CEO met the majority of his personal objectives which
comprised health and safety, development of the pipeline in
support of the 2020 targets for new LEGOLAND parks,
accommodation and Midway openings, visitor satisfaction
and talent management.

CFO: The CFO met the majority of her personal objectives which

comprised simplifying processes, with a particular focus on
budget and business plans, and assessing the future finance
organisation model to support Merlin’s international growth.

Actual
performance

% of
maximum
bonus payable

£320 million (2)

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 actual underlying operating profit falls short of the
maximum payout.

(2) As reported on a statutory 53 week basis.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Scheme interests awarded during the financial year

Performance Share Plan awards
An award was granted under the PSP to selected senior executives, including Nick Varney, on 1 April 2016.

Following her recruitment, as disclosed in last year’s Remuneration Report, a PSP award was granted to Anne-Francoise Nesmes
on 1 September 2016.

These awards are subject to the performance conditions described below and will vest on 1 April 2019 and 1 September 2019 respectively.

Type of award

Maximum
number of
shares

Face value
(£)

Face value
(% of base
salary)

Threshold vesting
(% of award)

End of
performance
period

Nick Varney (1)

Performance
shares

313,592

£1,453,500

250%

For EPS element
10% of award (max 50%)

29 December 2018

Anne-Francoise
Nesmes (2)

Performance
shares

180,431

£866,250

225%

For ROCE element
12.5% of award (max 50%)

(1)

(2)

The maximum number of shares that could be awarded has been calculated using the closing share price on 31 March 2016 of £4.635 and is stated before the impact of
reinvestment of the dividends paid since grant.
The maximum number of shares that could be awarded has been calculated using the closing share price on 31 August 2016 of £4.801 and is stated before the impact of
reinvestment of the dividends paid since grant.

EPS performance condition (50% of award)

ROCE performance condition (50% of award)

Adjusted EPS growth

% of award vesting

Average ROCE

% of award vesting

Below threshold

Threshold

<7% p.a.
cumulative growth

7% p.a.
cumulative growth

Below threshold

10%

Threshold

<9%

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 172.

ROCE is defined on page 173.

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.

Payments to past Directors
There were no payments to past Directors during 2016.

Payments for loss of office
There were no payments for loss of office to Directors during 2016.

Andrew Carr stepped down as a Board Director on 31 July 2016 and continued to work for the Company until 31 October 2016 in
order to provide transitional support to the new CFO. His salary, pension and benefits until 31 July 2016 are included in the single total
figure of remuneration on page 96. He received an additional £111,622 for salary, pension and benefits earned as an employee between
1 August and 31 October 2016. He received no additional payments in relation to his notice period.

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

As disclosed in last year’s Remuneration Report, Andrew Carr was not eligible for a bonus or PSP award in 2016. His outstanding PSP
awards will vest, to the extent that performance conditions are satisfied, on a time pro-rated basis and on the normal vesting date.
The estimated vesting value of his 2013 PSP award, the performance period for which ended in 2016, is included in the single total
figure of remuneration on page 96.

Statement of Directors’ shareholding and share interests
A shareholding requirement of 200% of base salary by the fifth anniversary of appointment applies to the Executive Directors. The CEO
had a shareholding that exceeded that requirement at 31 December 2016. The CFO joined in August 2016 and is in the process of
building up her shareholding to meet the requirement by her fifth anniversary.

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.

Number of shares

Value of shareholding at 31
December 2016 as a % of
salary (Shareholding
requirement target)

Shares
owned
outright at
31 December 2016

Interests in share incentive
schemes, awarded without
performance conditions at
31 December 2016

Interests in share
incentive schemes,
awarded subject to
performance conditions
at 31 December 2016 (2)

Director

Nick Varney (3)

Anne-Francoise
Nesmes (3) (5)

Sir John Sunderland

Charles Gurassa

Ken Hydon

Fru Hazlitt

Trudy Rautio

Rachel Chiang

Søren Thorup Sørensen

Deferred
Sharesave Bonus (1)

4,949% (200%)

6,477,823

5,816

66,086

5% (200%)

4,500

511,122

31,746

31,920

31,746

11,250

PSP

1,234,085

181,452

Andrew Carr (4)

2,658% (200%)

2,085,123

5,816

34,006

375,330

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 1,722 shares for Nick Varney which relate to assumed reinvestment of the dividends
paid since grant on Deferred Bonus Plan awards. As a good leaver, shares held under the Deferred Bonus plan for Andrew Carr vested on his retirement on 31 October 2016.

(2) Further details relating to the PSP grants are summarised in the table below.
(3) For the purposes of determining Executive Director shareholdings, the individual’s salary and the share price as at 31 December 2016 has been used (£4.486).
(4)
(5)

Information regarding Andrew Carr relates to shareholdings at his date of ceasing to be an Executive Director (31 July 2016) and his salary at that time.
Anne-Francoise Nesmes is required to build up her shareholding by the fifth anniversary by retaining at least 50% of shares that vest under the Deferred Bonus Plan or the Performance
Share Plan or the Company Share Option Plan (after selling sufficient shares to satisfy the tax liability on vesting and any exercise price payable in relation to the share awards) until the
value of her share interest satisfies these guidelines.

Between 31 December 2016 and the date of this report there were no changes in the shareholdings outlined in the above table.

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Outstanding awards under the PSP

Date
of grant

Date
of vesting

Maximum
number of
shares

Dividend
equivalent
shares (2)

Performance
period

Nick
Varney

12 November 2013
2 April 2015
1 April 2016

1 April 2017
2 April 2018
1 April 2019

560,952
328,846
313,592

18,326
8,807
3,562

2014-2016
2015-2017
2016-2018

Andrew
Carr (1)

12 November 2013
2 April 2015

1 April 2017
2 April 2018

269,202
94,797

8,793
2,538

2014-2016
2015-2017

Anne-
Francoise
Nesmes

1 September 2016

1 September 2019

180,431

1,021

2016-2018

Performance condition

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%

Full details of performance
conditions can be found in the
Remuneration Reports for the
year in which the grants
was made.

(1)
(2)

In the table above the maximum number of shares for Andrew Carr has been time pro-rated from the date of grant to his retirement date of 31 October 2016.
In accordance with the PSP rules, the Committee has determined that an additional award of shares will be made in respect of shares which vest under PSP awards to reflect the
value of dividends which would have been paid on those shares during the vesting period (calculated on the assumption that dividends are reinvested in Company shares on a
cumulative basis). The figures in the table above relate to assumed reinvestment of the dividends paid since grant.

As disclosed in the 2013 Annual Report and Accounts the performance period for the 12 November 2013 awards was the three
financial years to 31 December 2016. The calculation of the performance conditions is as follows:
• Adjusted EPS growth - by comparing EPS for the financial year ending 31 December 2016 (comprising 53 weeks) with EPS for the
financial year ending 28 December 2013. The Adjusted EPS for the financial year ended 28 December 2013, taking account of the
full year impact of the post Listing financing structure was 15.7p.

• Average ROCE - an average of ROCE for the three individual financial years ending 27 December 2014, 26 December 2015

and 31 December 2016 (53 weeks).

The compound annual growth rate of Adjusted EPS over the performance period was 9.8% and the average Return on Capital
Employed was also 9.8%. The performance conditions set out above yield a vesting of 46.5% of maximum.

100

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

UNAUDITED INFORMATION

The information provided in this section of the Remuneration Report is not subject to audit.

Performance graph and CEO remuneration table
The chart below compares the Total Shareholder Return performance of the Company over the period from Listing to 31 December
2016 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.

Merlin Entertainments

FTSE 350

146

115

101

100

126

103

)
n

i
l
r
e
M

(

e
c
i
r
P
r
e
f
f

O
e
h
t

t
a

d
e
t
s
e
v
n

0
0
1
£

o
e
u
l
a
V

)
0
5
3
E
S
T
F
(

g
n
i
t
s
i
L

o
e
t
a
d

e
h
t

n
o

£150

£145

£140

£135

£130

£125

£120

£115

£110

£105

£100

£95

£90

148

120

Listing
(13 November
2013)

2013 year end
(28 December
2013)

2014 year end
(27 December
2014)

2015 year end
(26 December
2015)

2016 year end
(31 December
2016)

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.

Salary and Benefits (2) £000

Pension £000

Bonus £000

PSP Long Term Incentive Plan (3) £000

CEO single figure of remuneration £000

Annual bonus payout
(as a % of maximum opportunity)

PSP vesting outturn
(as a % of maximum opportunity)

2013 (1)

n/a

151

n/a (no maximum
limit applied in 2013)

2014

596

127

859

1,582

100%

2015

605

128

733

n/a (no award
vested in 2013)

n/a (no award
vested in 2014)

n/a (no award
vested in 2015)

(1) From Listing on 13 November 2013 to 28 December 2013.
(2) Includes value of options under UK Sharesave Plan.
(3) Relates to performance from 28 December 2013.

2016

604

128

1,193

1,925

46.5%

101

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016

DIRECTORS' Remuneration Report

Percentage change in remuneration of the CEO
The table below indicates the change in the CEO’s remuneration between 2015 and 2016 and the change in average remuneration for
other UK permanent employees between 2015 and 2016. The Remuneration Committee believes that the UK workforce is the most
appropriate comparator for this analysis for the UK based CEO.

Salary increase (1)

Benefits increase/decrease (2)

Annual bonus increase/decrease (3)

CEO

Average for all UK employees

(1) The CEO’s salary was increased by 1% effective 1 October 2016. There has been no further increase since that time.
(2) The CEO’s benefits remained at the same level as the previous year.
(3) For comparative purposes the annual bonus % for the CEO is compared to the average for the participants in the central bonus plan.

Relative importance of the spend on pay
This table 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.

Employee costs

Distribution to shareholders

Underlying operating profit

2015
£m

327

291

2016
£m

382

320

Increase/decrease

17.0%

4.7%

9.7%

102

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Remuneration Report

Consideration by the Directors of matters relating to Directors’ remuneration
The Committee has been chaired throughout the year by Charles Gurassa. The Committee has comprised the Chairman of the Board,
the Chairman of the Committee, Ken Hydon, Fru Hazlitt and Trudy Rautio.

The Committee met three times during 2016. The CEO, CFO, Group HR Director, Group Compensation and Benefits Director,
Søren Thorup Sørensen and the Group General Counsel and Company Secretary (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 £56,800 in fees during 2016 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.

Shareholder voting on the Remuneration Report
At the relevant Annual General Meetings, strong shareholder support was received for our resolutions on remuneration as
summarised below.

Approval of the Policy Report (2014)

896.7 million (99.4%)

5.2 million (0.6%)

Approval of the Annual Report on
Remuneration (2016)

840.5 million (96.4%)

31.5 million (3.6%)

7.3 million

0.1 million

Votes for

Votes against

Votes withheld

External Board appointments
Executive Directors are normally entitled to accept external appointments outside the Company with the consent of the Board.
Any fees received may be retained by the Director.

As at the date of this report, neither of the Executive Directors held an external appointment for which they received a fee.

Annual General Meeting
The Annual Report on Remuneration section of this Remuneration Report will be submitted for an advisory shareholder
vote at our Annual General Meeting to be held on 13 June 2017.

On behalf of the Board

Charles Gurassa
Chairman of the Remuneration Committee
1 March 2017

103

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016NOMINATION
Committee Report

STATEMENT FROM THE CHAIRMAN OF THE NOMINATION COMMITTEE

The Nomination Committee is satisfied
that management has implemented
credible and effective succession planning
across its senior management and has a
management structure which is
appropriate to its strategy.

Diversity
Merlin’s diversity policy, along with the
Committee’s Terms of Reference, was
reviewed during the year. Our policy is for
our employees to have a diversity of
thinking, experience, gender, nationality
and cultural background. Each Operating
Group has a Diversity Development Plan
which focuses on improving diversity
across the business. We believe a diverse
Board and management team is more in
touch with our customers, employees and
investors and this policy is reflected in our
recruitment approach at all levels.

Sir John Sunderland
Chairman of the
Nomination Committee
1 March 2017

Dear Shareholder

This report describes the activities of
the Nomination Committee during 2016.
The Committee met twice during the
year and focused its attention on
Board appointments, succession
planning and diversity.

Board appointments
During the year the following Board
appointments were made:

• Rachel Chiang was appointed as
a Non-executive Director with
effect from 1 January 2016; and

• Anne-Francoise Nesmes was

appointed as Chief Financial Officer
on 1 August 2016 to replace
Andrew Carr who retired as
Chief Financial Officer on
31 July 2016.

The Nomination Committee completed
rigorous selection processes for these
appointments. To assist us we retained
the services of search consultancy firms,
Russell Reynolds (Rachel Chiang) and
Korn Ferry (Anne-Francoise Nesmes),
neither of which has any links with Merlin.

These two Board appointments ensure
that its composition continues to bring
the appropriate balance of skills and
experience. Rachel Chiang brings
significant knowledge and experience
of the Asia Pacific market, particularly as
this region continues to be a key focus
of strategic development. Anne-Francoise
Nesmes brings extensive finance and
international experience to the Board.

The Board is fully compliant with the
Board composition provisions of the
Code and reflects a wide diversity of
skills, experience, regional knowledge
and backgrounds.

Committee Memberships
During the year, a number of changes
were made to the membership of
the Committees.

Following the Nomination Committee
meeting on 24 February 2016, Fru Hazlitt
stepped down from, and both Trudy
Rautio and Rachel Chiang joined the
Audit Committee. Trudy Rautio stepped
down from the Nomination Committee
and joined the Remuneration Committee.
Rachel Chiang joined the Health, Safety
and Security Committee.

On joining the Board on 1 August 2016
Anne-Francoise Nesmes joined the
Health, Safety and Security Committee.

Succession planning
The Board and Nomination Committee
continued to assess the succession
planning arrangements during 2016,
focusing on Executive Director positions
as well as other senior manager roles
within the Group. This review identified
key individuals already in the Group,
for whom high level training and
development opportunities have
been established and implemented.

We continue to discuss the Group’s
senior management and operational
structure and how that might
evolve as Merlin continues its
international expansion.

104

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS’
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 period ended and as
at 31 December 2016 together with
information on the approach of the
Company to Corporate Governance and
the constitution, work and effectiveness of
the Board and its principal Committees.

The following sections are therefore
incorporated by reference into this
Directors’ Report:

• The Strategic Report on pages 2 to 59.
• The Corporate Governance
Statement on pages 60 to 61.
• The section entitled ‘Board of
Directors’ on pages 62 to 65.
• The Corporate Governance
Report on pages 66 to 69.
• The Health, Safety and Security

Committee Report on pages 70 to 75.

Pages

2 to 59

20 to 23

43 to 46

53 to 59

Disclosure

Section title

Future Developments

Strategic Report

Research and Development

Merlin Magic Making

Employee diversity
and engagement

Team Merlin

Greenhouse Gas Emissions

Disabled persons

Relationship Agreements
(additional details)

‘Being a Force for Good’ - Corporate
Social Responsibility The Merlin Way

Corporate Governance Report

66 to 69

Internal Controls

Audit Committee Report

76 to 81

Financial Instruments

Note 4.3 to the Accounts

142 to 145

Share Capital and
Movements therein

Subsidiary and
Associated Undertakings

Note 4.5 to the Accounts

148 to 149

Note 5.7 to the Accounts

157 to 162

Directors
The names of the persons who, at any
time during the financial year, were
Directors of the Company are:

Name

• The Audit Committee Report on

Sir John Sunderland

pages 76 to 81.

• The Directors’ Remuneration
Report on pages 82 to 103.
• The Nomination Committee

Report on page 104.

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.

Nick Varney

Anne-Francoise Nesmes

Charles Gurassa

Ken Hydon

Fru Hazlitt

Trudy Rautio

Yun (Rachel) Chiang

Søren Thorup Sørensen

Andrew Carr

Andrew Carr was a Director from the
start of the financial year until 31 July
2016. Anne-Francoise Nesmes has been
a Director since 1 August 2016. Rachel
Chiang was appointed a Director with
effect from 1 January 2016.

Each Director in post at the time of
the AGM offered themselves for
re-election at the 2016 AGM of the
Company and their re-election was
approved by shareholders. All Directors
(other than Andrew Carr) remained in
office at the end of the financial year.

105

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016It 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.

Details of the KIRKBI Relationship
Agreement are provided in the
Corporate Governance section
on page 66.

Significant contracts
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.

DIRECTORS' Report

Directors’ indemnities and insurance
The Articles of Association of the
Company permit it to indemnify the
Directors of the Company or any Group
company against liabilities arising from or
in connection with the execution of their
duties or powers to the extent permitted
by law. The Company has not given
any specific indemnity in favour of
the Directors during the year but the
Company has purchased Directors’
and Officers’ Liability Insurance during
the year, which provides cover for
liabilities incurred by Directors in the
performance of their duties or powers.

No amount was paid under any Director’s
indemnity or the Directors’ and Officers’
Liability Insurance during the year other
than the applicable insurance premiums.

Appointment and removal
of Directors
A Director may be appointed by an
ordinary resolution of shareholders in a
general meeting following nomination by
the Board or a member (or members)
entitled to vote at such a meeting or
following retirement by rotation if the
Director chooses to seek re-election
at a general meeting.

In addition, the Directors may appoint
a Director to fill a vacancy or as an
additional Director, provided that the
individual retires at the next AGM.
A Director may be removed by the
Company in certain circumstances set
out in the Company’s Articles of
Association or by a special resolution
of the Company. All Directors will stand
for re-election on an annual basis, in line
with the recommendations of the Code.

Specific details relating to KIRKBI and
their rights to appoint Directors are set
out in the Corporate Governance
section on page 66.

106

Share capital and related matters
The Articles of Association do not
contain any restrictions on the transfer
of shares in the Company other than
customary restrictions applicable where
any amount is unpaid on a share (all the
issued share capital of the Company as
at the date of this Annual Report 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.

Amendment to the Company’s
Articles of Association
The Company’s Articles of Association
may only be amended by a special
resolution of its shareholders passed at
a general meeting of its shareholders.

Power of Directors in respect
of share capital
The Directors may exercise all the
powers of the Company (including,
subject to obtaining the required
authority from the shareholders in
general meeting, the power to authorise
the issue of new shares and the purchase
of the Company’s shares).

During the year, in connection with the
Company’s employee share incentive
plans, 2,063,234 ordinary shares of
1 pence each were issued.

Contracts with related parties
The only material agreement with
related parties during the year was the
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.

Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS' Report

Audit information
So far as the Directors are aware,
there is no relevant audit information
of which the auditors are unaware.
The Directors have taken all reasonable
steps to ascertain any relevant audit
information and ensure the auditors
are aware of such information.

Re-appointment of auditors
As recommended by the Audit
Committee, a resolution for the
re-appointment of KPMG LLP as
auditors to the Company will be
proposed at the 2017 Annual
General Meeting.

Approval of annual report
The Strategic Report, Corporate
Governance Statement and Report and
the Directors' Report were approved
by the Board on 1 March 2017.

For and on behalf of the Board

Matthew Jowett
General Counsel and
Company Secretary
1 March 2017

Merlin Entertainments plc
Registered number 08700412

Branches outside the UK
Merlin Entertainments plc has no
branches outside the UK.

Dividend
An interim dividend of 2.2 pence per
share was paid on 19 September 2016
to shareholders on the Register on
12 August 2016. A final dividend for the
year ended 31 December 2016 of 4.9
pence per share will be recommended
for payment to shareholders. The final
dividend will be proposed to shareholders
for approval at the next Annual General
Meeting of the Company.

Political donations
No political donations were made
during the year.

Going concern
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 49.

Change of control
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:

• 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 £250 million, $540
million and €50 million in floating rate
term debt and a £300 million revolving
credit facility, both to mature in 2020.

• 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.

107

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016DIRECTORS’
Responsibilities Statement

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.

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
Adopted IFRS), when taken as a whole,
give a true and fair view of the assets,
liabilities, financial position and profit
of the Group.

• 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.

Nick Varney
Chief Executive Officer
1 March 2017

Anne-Francoise Nesmes
Chief Financial Officer
1 March 2017

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.

• For the Company financial statements,

state whether applicable UK
Accounting Standards have been
followed, subject to any material
departures disclosed and explained
in the Company financial statements.
• Prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and the Company will
continue in business.

108

Merlin Entertainments plc Annual Report and Accounts 2016INDEPENDENT
Auditor’s Report

TO THE MEMBERS OF MERLIN ENTERTAINMENTS PLC ONLY

OVERVIEW

Materiality: Group financial statements as a whole

• £14.5 million (2015: £14.3 million)
• 5.2% (2015: 6.0%) of Group profit before tax

Coverage

• 79% (2015: 75%) of Total Profits and Losses (1)

(1) Total Profits and Losses coverage is calculated by

considering absolute profits and losses before tax, after
eliminating intra-group interest income and expense,
foreign exchange movements on intra-group loans,
and intra-group dividends.

RISK OF MATERIAL MISSTATEMENT vs 2015

Recurring risks

• Carrying value of non-current assets 
• Revenue recognition 

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 53 week period ended 31 December
2016 set out on pages 115 to 169. 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
31 December 2016 and of the Group’s profit for the 53
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;

• 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;

• no significant change to the Group’s strategy and operations
that our audit has had to address (we have considered the
accesso® admissions system where it was relevant to our
audit in this period); and

• a slight, but not significant increase in our assessed

materiality given the growth of the Group in the period.

We summarise below the risks of material misstatement
(unchanged from 2015) that had the greatest effect on our
audit (in decreasing order of audit significance) and our key
audit procedures to address those risks:

109

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016

INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only

Carrying value of non-current assets

£2,958 million (2015: £2,475 million)

Refer to pages 76 to 81 (Audit Committee Report)
and pages 136 to 138 (accounting policy and
financial disclosures).

Risk vs 2015: 

The risk

Our response

Forecast based valuation:
A history of business combinations and the
capital intensive nature of the business model
increases the magnitude of non-current assets.

There is a risk that the future performance
may lead to the value of non-current assets
not being recoverable in full.

The estimated recoverable amount is subjective
due to the inherent uncertainty involved in
forecasting and discounting future cash flows.

This uncertainty arises due to challenges in
forecasting - expected changes in visitation
at existing attractions, particularly where there
have been recent changes in the overall offering,
promotions or planned customer experience
improvements. Other factors such as the
unpredictable impact of competition, the
weather, and the political and economic
environment on trading performance
also add to the uncertainty.

Specifically in relation to the Resort
Theme Parks goodwill, events during 2015 at
Alton Towers reduced valuation headroom,
disrupted previous trading patterns and
created greater uncertainty over forecasts.

Our procedures included:
• Extrapolating past forecasting accuracy:

assessing five years’ historical accuracy of the
Group’s forecasting, and subsequently building
comparable variations in forecasting accuracy
into our own model that reperformed and
sensitised the valuation;

• Challenging forecasts: comparing expected
changes in cash flows (from activities such as
new promotions and customer experience
improvements) and the planned cost base
against the past results of similar activities
carried out by the Group;

• Benchmarking assumptions: supported

by valuation experts, benchmarking Group
earnings multiple and discount rates against
market data, including publicly available
analysts’ reports and peer comparison;

• Sensitivity analysis: calculating the impact of
changes in key assumptions and performing
breakeven analysis of the earnings multiple,
discount rates and forecast cash flows;

• Comparing valuations: comparing the sum
of all the discounted cash flows across the
Group to the Group’s market capitalisation
to assess the reasonableness of the
underlying assumptions; and

• Assessing transparency: assessing whether
the Group’s sensitivity disclosures regarding
the impairment testing adequately reflect the
risks inherent in the valuation of goodwill.

Revenue recognition

£1,457 million (2015: £1,278 million)

Refer to pages 76 to 81 (Audit Committee Report)
and page 123 (accounting policy).

Risk vs 2015: 

Accurate recording:
Merlin’s revenues arise from a number of
different sources, locations and systems,
sometimes featuring manual processes to
match cash payments to redemptions or
to transfer data to the finance systems.

The low value of individual transactions means
individual errors would be insignificant, but
difficult to detect, and the high volume of
transactions mean systemic failure could
lead to errors that aggregate rapidly into
material balances.

Our procedures are performed by each
component auditor, under guidance issued
by the Group team, and included:
• System design: testing of the general IT

control environment of the systems used
to record revenue, followed by testing of
the controls that check completeness and
accuracy of revenue entries arising from
these systems;

• Control design: testing of the design,

implementation and operating effectiveness
of manual controls supporting the systems,
including reconciliations of till records
to revenue journal entries in the
accounting records;

• Analytical review: predictive analytical

procedures (taking into account factors
such as trends in seasonality, changes in
pricing and visitation); and

• Tests of detail: performing reconciliations
of total cash received to revenue recorded,
confirming 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.

110

Merlin Entertainments plc Annual Report and Accounts 2016
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

Materiality of the Group financial statements

Profit before tax
£277 million

Materiality
£14.5 million

5.2%

£14.5 million
Whole financial
statements materiality

£4.5 million
Highest component
materiality

£0.7 million
Misstatements reported
to the Audit Committee

Materiality for the Group financial statements as a whole was set
at £14,500,000 (2015: £14,300,000), determined with reference
to a benchmark of profit before tax, of which it represents 5.2%
(2015: 6%). This is lower than the benchmark percentage used in
2015 to align with emerging industry consensus for audits of
businesses of this size and profile.

We reported to the Audit Committee any corrected or
uncorrected identified misstatements affecting profit with a value
in excess of £700,000 (2015: £715,000) or otherwise in excess
of £2,000,000 (2015: £1,600,000), in addition to other audit
misstatements that warranted reporting on qualitative grounds.

Scope of the Group audit
We audited 79% (2015: 75%) of the Total Profits and Losses
that made up Group profit before tax, 74% (2015: 75%) of total
Group revenue and 70% (2015: 72%) 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.

The remaining 21% (2015: 25%) of Total Profits and Losses
that made up Group profit before tax, 26% (2015: 25%) of total
Group revenue and 30% (2015: 28%) of total Group assets were
represented by a large number of smaller reporting components.
None of these components individually represent more than
1.8% (2015: 4.4%) of any of the Total Profits and 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 22 of these reporting components covering
a further 8% (2015: 7%) of Total Profits and Losses that made up
Group profit before tax. These components are largely Midway
attractions where, although individual sites tend to be relatively
small, the Group is growing via the roll out of new attractions.
We select these sites on a rotational basis, setting a financial
threshold on each of Group profit before tax, Group revenue
and Group assets and using our assessment of risk to select
a sample of sites from those that meet at least one of
these thresholds.

Audits for Group reporting purposes, including those performed
by the Group audit team, were performed at components in the
following locations: Australia, China (including Hong Kong),
Denmark, Germany, Italy, UK and USA.

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.

111

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016
INDEPENDENT AUDITOR’S REPORT
To the members of Merlin Entertainments plc only

Revenue

Total Profits and Losses

Assets

Key

Full scope for group audit purposes 2015

Full scope for group audit purposes 2016

Specified risk-focused audit procedures 2015

Specified risk-focused audit procedures 2016

Analysis at an aggregated group level

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 two key component locations in
the USA and one in Denmark, which included inputting to the
audit risk assessment and strategy. Teleconferences were also
held with these component auditors and all other reporting
components that were not visited. During these meetings, the
findings reported to the Group audit team were discussed in
more detail and any further work required by the Group audit
team was then performed by the component auditor.

Performance and oversight of component audits
The audits undertaken for group reporting purposes at the
key reporting components of the Group were all performed
to component materiality levels, where applicable giving
consideration to the local statutory materiality set by the
component teams where this was lower. These component
materiality levels were set individually for each component
by the Group audit team and ranged from £450,000 to
£4,500,000 having regard to the mix of size and risk
profile across components.

The Group audit team carried out audits for group reporting
purposes of the financial information of components covering
34% (2015: 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
on certain total Group account balances as mentioned above,
gaining coverage over a further 3% (2015: 6%) of the Total Profits
and Losses that made up Group profit before tax. The largest
component audited by a component audit team represented
17% (2015:12%) of the Total Profits and Losses that made up
Group profit before tax.

112

Merlin Entertainments plc Annual Report and Accounts 2016INDEPENDENT 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

Under the Companies Act 2006 we are required to report to
you if, in our opinion:

In our opinion:
• the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with
the Companies Act 2006; and

• the information given in the Strategic Report and the
Directors’ Report for the period is consistent with
the financial statements.

Based solely on the work required to be undertaken in the
course of the audit of the financial statements and from
reading the Strategic Report and the Directors’ Report:
• we have not identified material misstatements in

those reports; and

• in our opinion, those reports have been prepared
in accordance with the Companies Act 2006.

5 We have nothing to report on the disclosures of

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’ Viability Statement on page 49, 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 2020; 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.

• adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the parent Company financial statements and the part of

the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration specified

by law are not made; or

• we have not received all the information and explanations

we require for our audit.

Under the Listing Rules we are required to review:

• the Directors’ statement, set out on page 107, in relation

to going concern and longer term viability; and

• the part of the Corporate Governance Statement on pages
60 to 61 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 108, 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

1 March 2017

113

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016FINANCIAL STATEMENTS
Table of contents

PRIMARY STATEMENTS

CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS

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

INVESTMENTS
EMPLOYEE BENEFITS
RELATED PARTY TRANSACTIONS
CONTINGENT LIABILITIES
NEW STANDARDS AND INTERPRETATIONS
ULTIMATE PARENT COMPANY INFORMATION
SUBSIDIARY AND JOINT VENTURE UNDERTAKINGS

114

115
116
117
118
119

120

122
125
126
127
131

132
134
136
138
140

141
141
142
146
148
149

152
153
155
156
156
157
157

Merlin Entertainments plc Annual Report and Accounts 2016CONSOLIDATED INCOME STATEMENT
For the 53 weeks ended 31 December 2016 (2015: 52 weeks ended 26 December 2015)

2016

2015

Underlying
trading
£m

Exceptional
items (4)
£m

1,457

(227)

1,230

(382)

(75)

(93)

(229)

451

(131)

320

(46)

277

(66)

211

Note

2.1

3.1, 3.2

2.3

2.4

2.5

4.5

Underlying
trading
£m

Exceptional
items (4)
£m

1,278

(193)

1,085

(327)

(68)

(87)

(201)

402

(111)

291

(46)

250

(70)

180

(14)

(13)

(10)

Total
£m

1,457

(227)

1,230

(382)

(75)

(93)

(229)

451

(131)

320

(46)

277

(66)

211

20.8

20.7

7.1

Total
£m

1,278

(193)

1,085

(327)

(68)

(87)

(201)

402

(111)

291

(60)

237

(67)

170

16.8

6.5

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 earnings per share (p)

Diluted earnings per share (p)

Dividend per share (3) (p)

(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 2016 and 2015 is wholly attributable to the owners of the Company.
(3) Dividend per share represents the interim paid and final proposed dividend for the year.
(4) Details of exceptional items are provided in note 2.2.

115

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 53 weeks ended 31 December 2016 (2015: 52 weeks ended 26 December 2015)

Profit for the year

Other comprehensive income

Items that cannot be reclassified to the consolidated income statement

Defined benefit plan remeasurement gains and losses

Income tax on items relating to components of other comprehensive income

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

2016
£m

211

2015
£m

170

5.2

2.4

2.2

2.4

(6)

(5)

176

(45)

(3)

(1)

127

122

333

(1)

(36)

(2)

(23)

(24)

146

(1) Total comprehensive income for 2016 and 2015 is wholly attributable to the owners of the Company.

116

Merlin Entertainments plc Annual Report and Accounts 2016CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2016 (2015: 26 December 2015)

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

4.1

4.2

3.4

3.5

4.2

4.4

3.4

3.5

5.2

2.4

4.5

The financial statements were approved by the Board of Directors on 1 March 2017 and were signed on its behalf by:

Nick Varney
Chief Executive Officer

Anne-Francoise Nesmes
Chief Financial Officer

2016
£m

1,841

1,017

2015
£m

1,495

923

2,958

2,475

215

340

152

260

3,298

2,735

300

352

235

266

1,147

1,003

179

1,518

1,870

1,428

1,424

1,428

155

1,320

1,586

1,149

1,145

1,149

117

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 53 weeks ended 31 December 2016 (2015: 52 weeks ended 26 December 2015)

Share
capital
£m

Share
premium
£m

Note

At 28 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 payments

4.5

4.6

At 26 December 2015

Profit for the year

Other comprehensive
income for the year net
of income tax
Total comprehensive
income for the year

Shares issued

Equity dividends

Equity-settled
share-based payments

At 31 December 2016

4.5

4.6

4.5

Trans-
lation
reserve
£m

(101)

(34)

(135)

130

Hedging
reserve
£m

Retained
earnings
£m

Total
parent
equity
£m

Non-
controlling
interest
£m

(11)

(3)

1,161

1,059

170

(1)

(24)

169

(64)

146

(64)

1,270

1,145

211

(5)

206

(67)

211

122

333

(67)

Total
equity
£m

1,063

170

(24)

146

(64)

1,149

211

122

333

(67)

(5)

(3)

1,420

1,424

1,428

118

Merlin Entertainments plc Annual Report and Accounts 2016CONSOLIDATED STATEMENT OF CASH FLOWS
For the 53 weeks ended 31 December 2016 (2015: 52 weeks ended 26 December 2015)

Note

2016
£m

2015
£m

Cash flows from operating activities

Profit for the year

Adjustments for:

Depreciation and amortisation

Finance income

Finance costs

Taxation

Profit on sale of property, plant and equipment

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 remaining share of joint venture

Acquisition of investments

Acquisition of property, plant and equipment

Disposal of property, plant and equipment

Net cash outflow from investing activities

Cash flows from financing activities

Proceeds from issue of share capital

Equity dividends paid

Proceeds from borrowings

Financing costs

Interest paid

Settlement of interest rate swaps

Repayment of borrowings

Net cash outflow from financing activities

Net increase/(decrease) 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

211

131

(3)

451

(1)

483

(50)

433

(1)

(32)

(259)

(287)

(67)

(41)

(106)

152

215

3.1, 3.2

2.3

2.4

5.1

4.5

2.2

4.1

170

111

(6)

402

(19)

384

(59)

325

(5)

(215)

(219)

(64)

1,002

(14)

(42)

(13)

(1,112)

(243)

(137)

285

152

119

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016SECTION 1 BASIS OF PREPARATION
53 weeks ended 31 December 2016 (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).

This section sets out the Group’s accounting policies that relate to the financial statements as a whole. Where an accounting policy is
specific to one note, the policy is described in the note to which it relates. The accounting policies 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 53 weeks ended 31 December 2016 (2015: 52 weeks ended 26 December 2015). 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 £211 million (2015: £170 million) and generated operating cash inflows of £433 million
(2015: £325 million). The Group is funded by senior unsecured bank facilities due for repayment in 2020 and senior unsecured notes
due for repayment in 2022. 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 sound 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 and its subsidiaries 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.

120

Merlin Entertainments plc Annual Report and Accounts 2016
SECTION 1 BASIS OF PREPARATION (continued)
53 weeks ended 31 December 2016 (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.

The reporting date foreign exchange rates by major currency are provided in note 4.3.

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 following areas involve a higher degree of judgement, estimation or complexity and are explained in more detail in
the related notes:
• Taxation (note 2.4) - recognition of deferred tax balances and accounting for tax risks.
• Impairment testing (note 3.3) - estimation of discounted cash flows when calculating the value in use of assets.

Other judgements and estimates which are less significant include:
• Provisions (note 3.5) - estimated outflow to settle the obligation and where relevant, the appropriate discount and inflation rates to apply.
• Interest-bearing loans and borrowings (note 4.2) - expected period of borrowings when calculating the effective interest rate on

those borrowings.

• Share-based payment transactions (note 4.6) - estimation of future performance when estimating vesting rates on share schemes.
• Investments (note 5.1) - expected period of and eventual return on investments when calculating the effective interest rate for

interest income recognised.

• Employee benefits (note 5.2) - assumed discount rate, inflation rate and mortality when valuing defined benefit liabilities.

New standards and interpretations
A full list of new accounting standards and interpretations can be found in note 5.5. This includes standards that have been implemented
in the year, which have had no significant impact. It also includes those standards that will be implemented next year or in future years,
including our assessment of the potential impacts of the new standards on Revenue and Leasing.

121

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016SECTION 2 RESULTS FOR THE YEAR
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

2.1 Profit before tax

Segmental information
An operating segment, as defined by IFRS 8 ‘Operating Segments’, 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, and
the Board. 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.

2016

Segment revenue

Segment profit, being segment EBITDA

Segment depreciation and amortisation

Segment operating profit

2015

Segment revenue

Segment profit, being segment EBITDA

Segment depreciation and amortisation

Segment operating profit

Midway
Attractions
£m

LEGOLAND
Parks
£m

Resort
Theme Parks
£m

Segment
results
£m

Other
items (1)
£m

638

236

(64)

172

561

221

(54)

167

495

193

(28)

165

429

169

(23)

146

322

(32)

285

(29)

1,455

499

(124)

375

1,275

437

(106)

331

(48)

(7)

(55)

(35)

(5)

(40)

Total
£m

1,457

451

(131)

320

1,278

402

(111)

291

(1) Other items include Merlin Magic Making, head office costs and various other costs, which cannot be directly attributed to the reportable segments.

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 (note 2.4)

Investments (note 5.1)

122

Revenues
2016
£m

Non-current
assets
2016
£m

Revenues
2015
£m

Non-current
assets
2015
£m

486

367

404

200

881

919

628

443

467

300

336

175

851

764

481

333

1,457

2,871

1,278

2,429

2,958

2,475

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 2 RESULTS FOR THE YEAR (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

2.1 Profit before tax (continued)

Revenue accounting policy
Revenue arises from the operation of visitor attractions and theme park resorts. Revenue represents the amounts received
from customers (excluding VAT and similar taxes) for admissions tickets, accommodation revenue, retail, food and beverage
sales and sponsorship.

Ticket revenue is recognised at point of entry. Revenue from the sale of annual passes is deferred and then recognised over the
period that the pass is valid. Retail and food and beverage sales revenues are recognised at the point of sale. Accommodation revenue
is recognised at the time when a customer stays at Merlin accommodation. Sponsorship revenue is recognised over the relevant
contract term. 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 2016 and 2015 is not material.

The IASB has issued IFRS 15 ‘Revenue from contracts with customers’ which will become effective from the 2018 accounting period.
Details on our assessment of the impact of this new standard and how we are approaching its implementation are set out in note 5.5.

Cost of sales
Cost of sales of £227 million (2015: £193 million) represents variable expenses (excluding VAT and similar taxes) incurred from revenue
generating activities. Retail inventory, food and beverage consumables and costs associated with the delivery of accommodation are the
principal expenses included under this category.

Operating expenses

Staff numbers and costs
The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:

Operations

Attraction management and central administration

The aggregate payroll costs of these persons were as follows:

Wages and salaries

Share-based payments (note 4.6)

Social security costs

Other pension costs

2016

17,422

2,067

19,489

2016
£m

321

382

2015

16,980

1,841

18,821

2015
£m

279

327

123

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016SECTION 2 RESULTS FOR THE YEAR (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

2.1 Profit before tax (continued)

Related party transactions
Key management comprises Executive and Non-executive Directors of the Board and the members of the Executive Committee.
Details of the remuneration, shareholdings, share options, pension contributions and payments for loss of office of the Executive
Directors are included in the Directors’ Remuneration Report on pages 82 to 103.

The remuneration 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

Auditor’s remuneration

Audit of these financial statements

Audit of financial statements of subsidiaries

Other assurance services

Other services relating to taxation compliance

2016
£m

4.8

0.2

2.8

7.8

2016
£m

1.3

0.3

0.4

2.3

2015
£m

4.2

0.3

1.4

5.9

2015
£m

1.2

0.3

0.4

2.3

124

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 2 RESULTS FOR THE YEAR (continued)
53 weeks ended 31 December 2016 (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
There were no exceptional items in 2016. The following items were exceptional in 2015 and were shown separately on the face of the
consolidated income statement:

Within finance income and costs

Foreign exchange gain

Cash flow hedges - reclassified to profit and loss

Exceptional items before income tax

Income tax credit on exceptional items above

Exceptional items for the year

2016
£m

2015
£m

(1)

(3)

As part of the refinancing undertaken during 2015, 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.

125

2.3 Finance income and costs

Accounting policies

Income and costs
Finance income comprises interest income from financial assets and investments, 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
Where assets take a substantial time to complete, the Group capitalises borrowing costs directly attributable to the acquisition,
construction or production of those assets.

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

Cash flow hedges - reclassified to profit and loss (note 2.2)

2016
£m

2015
£m

2016
£m

2015
£m

Capitalised borrowing costs amounted to £2 million in 2016 (2015: £2 million), with a capitalisation rate of 2.9% (2015: 3.2%). Tax relief
on capitalised borrowing costs amounted to £1 million in 2016 (2015: £nil).

126

Merlin Entertainments plc Annual Report and Accounts 2016
SECTION 2 RESULTS FOR THE YEAR (continued)
53 weeks ended 31 December 2016 (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. This assessment is made after considering a number of factors, including the
Group’s budget and strategic plan.

A current tax provision is recognised when the Group has a present obligation as a result of a past event and it is probable that the
Group will be required to settle that obligation. Tax provisions are based on management’s judgement of the amount of tax payable and
the likelihood of settlement in relation to matters which have yet to be concluded. These include matters arising from ongoing audits, as
well as other uncertain positions. A combination of in-house tax experts, previous experience and professional firms is used when
assessing tax risks. It is currently unclear when these matters will be settled.

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

2016
£m

2015
£m

(5)

(1)

(4)

127

2.4 Taxation (continued)

Reconciliation of effective tax rate

Profit before tax

Income tax using the UK 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

2016
%

20.0%

Effect of recognising deferred tax assets previously unrecognised

Adjustment for prior periods

Total tax expense in income statement

23.8%

2016
£m

277

(12)

(5)

(1)

2015
%

20.3%

28.1%

2015
£m

237

(4)

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 23.8% and the UK standard tax rate of 20.0% is largely attributable to the Group’s
geographic mix of profits and reflects higher rates in certain jurisdictions, such as the US. In addition, the reported rate is favourably
affected by the Group’s internal financing arrangements which have been put in place to support development and ongoing funding
needs in overseas territories. This is offset by non-deductible expenses which primarily arise as a result of depreciation on capital
expenditure from continued investment in our attractions.

The Group’s ETR has fallen from 27.9% (based on underlying results) to 23.8%, primarily due to the restructure of the Group’s external
debt and internal financing arrangements in 2015. In addition, the revaluation of deferred tax liabilities due to the future fall in the Italian
tax rate resulted in a one off benefit.

The Group’s future ETR will primarily be affected by the geographic mix of profits and any changes to local tax rates, particularly in the
USA. Other significant factors include the ability to continue current financing arrangements and changes to local or international tax laws.

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

Remeasurement gains and losses on defined benefit plans

Total tax expense in statement of other comprehensive income

2016
£m

2015
£m

(1)

128

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 2 RESULTS FOR THE YEAR (continued)
53 weeks ended 31 December 2016 (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

2016
£m

2015
£m

(25)

(21)

Liabilities

Net

2016
£m

(148)

(6)

(50)

(204)

(179)

2015
£m

(123)

(6)

(47)

(176)

(155)

2016
£m

(128)

(50)

2015
£m

(102)

(47)

(141)

(120)

(141)

(120)

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 assets/(liabilities)

27 December
2015
£m

Recognised in
income
£m

Recognised
in other
comprehensive
income
£m

Effect of
movements
in foreign
exchange
£m

31 December
2016
£m

(102)

(47)

(120)

(5)

(2)

(1)

(21)

(5)

(21)

(128)

(50)

(141)

In 2016 movements recognised in the income statement in respect of property, plant and equipment were principally due to tax
allowances utilised in the UK and USA offset by the impact of rate reductions in Italy. Movements in other short term temporary
differences were mainly due to providing for future deductions in respect of employee share options.

129

2.4 Taxation (continued)

Movement in deferred tax during the previous year

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

Property, plant and equipment

Other short term temporary differences

Intangible assets

Tax value of loss carry-forwards

(84)

(47)

(18)

Net tax liabilities

(107)

(11)

(2)

(102)

(47)

(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.

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

2016
£m

2015
£m

The unrecognised deferred tax assets relating to loss carry-forwards include £2 million (2015: £1 million) expiring in 0-5 years and
£2 million (2015: £1 million) expiring 6-10 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.

130

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 2 RESULTS FOR THE YEAR (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

2.5 Earnings per share

Accounting policy
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

2016
£m

211

2015
£m

170

180

2016

2015

1,014,358,232

1,013,746,032

3,785,770

1,720,789

1,018,144,002

1,015,466,821

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 2016 and 2015, the PSP has a dilutive effect as the performance measures have been partially achieved. 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.

Earnings per share

Basic earnings per share on profit for the year

Exceptional items net of tax

Adjusted earnings per share on adjusted profit for the year

Diluted earnings per share

Diluted earnings per share on profit for the year

Exceptional items net of tax

Diluted adjusted earnings per share on adjusted profit for the year

2016
Pence

20.8

2016
Pence

20.7

2015
Pence

16.8

1.0

17.8

2015
Pence

16.8

1.0

17.8

131

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016SECTION 3 OPERATING ASSETS AND LIABILITIES
53 weeks ended 31 December 2016 (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
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. Depreciation is then charged to the income statement on a straight-line basis over the estimated
useful lives of each part of an item of PPE. Asset lives for plant and equipment vary depending on the nature of the asset, from short life
assets such as IT assets, up to long term infrastructure assets. No residual values are typically considered.

The estimated useful lives are as follows:

Asset class

Freehold / long leasehold buildings

Leasehold buildings

Plant and equipment

Depreciation policy

50 years

20 - 50 years (dependent on life of lease)

5 - 30 years

132

Merlin Entertainments plc Annual Report and Accounts 2016
SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
53 weeks ended 31 December 2016 (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

Cost

Balance at 28 December 2014

Additions

Movements in asset retirement provisions

Disposals

Transfers

Effect of movements in foreign exchange

Balance at 26 December 2015

Acquisition of remaining share of joint venture (note 5.1)

Additions

Movements in asset retirement provisions (note 3.5)

Disposals

Transfers

Effect of movements in foreign exchange

Balance at 31 December 2016

Depreciation

Balance at 28 December 2014

Depreciation for the year - owned assets

Depreciation for the year - leased assets

Disposals

Effect of movements in foreign exchange

Balance at 26 December 2015

Depreciation for year - owned assets

Depreciation for year - leased assets

Disposals

Effect of movements in foreign exchange

Balance at 31 December 2016

Carrying amounts

At 28 December 2014

At 26 December 2015

At 31 December 2016

919

(6)

(17)

977

(5)

157

1,186

187

(6)

210

(3)

281

732

767

905

954

(10)

(16)

1,058

(8)

116

1,309

367

(10)

(8)

430

(7)

563

587

628

746

151

(141)

(1)

100

205

(125)

190

100

190

Total
£m

1,964

218

(16)

(34)

2,135

273

(13)

283

2,685

554

106

(16)

(8)

640

125

(10)

844

1,410

1,495

1,841

133

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

3.1 Property, plant and equipment (continued)

Depreciation is calculated in line with the policy stated above. During the year the Group reviews useful economic lives and tests PPE
for impairment in accordance with the Group’s accounting policy, as referred to in note 3.3. As a result no material adjustments were
made in either 2015 or 2016.

The Group leases buildings and plant and equipment under finance lease agreements secured on those assets. At 31 December 2016
the net carrying amount of leased buildings was £16 million (2015: £16 million) and the net carrying amount of leased plant and
equipment was £29 million (2015: £30 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,
including accommodation, 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 £82 million (2015: £32 million) for which no provision has been made.

At year end foreign exchange rates, the Group is expecting to invest a further £62 million (2015: £36 million) in the LEGOLAND
Japan Resort. In addition, at year end foreign exchange rates, the Group is intending to invest £72 million (2015: £62 million) in
LEGOLAND Korea.

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 ability to roll out our 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)

134

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

3.2 Goodwill and intangible assets (continued)

Goodwill and intangible assets

Cost

Balance at 28 December 2014

Additions

Effect of movements in foreign exchange

Balance at 26 December 2015

Additions

Effect of movements in foreign exchange

Balance at 31 December 2016

Amortisation

Balance at 28 December 2014

Amortisation for the year

Effects of movements in foreign exchange

Balance at 26 December 2015

Amortisation for the year

Effect of movements in foreign exchange

Balance at 31 December 2016

Carrying amounts

At 28 December 2014

At 26 December 2015

At 31 December 2016

Intangible assets

Goodwill
£m

Brands
£m

Other
£m

925

(19)

906

993

171

(2)

169

177

754

737

816

186

(4)

182

196

174

170

183

(1)

Total
£m

1,137

(24)

1,116

105

1,222

195

(3)

193

205

942

923

1,017

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 (2015: £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 foreign
exchange rates.

Midway Attractions

LEGOLAND Parks

Resort Theme Parks

2016
£m

572

202

816

2015
£m

524

176

737

135

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 foreign exchange rates.

Midway Attractions

Madame Tussauds

SEA LIFE

London Eye

Other

Resort Theme Parks

Gardaland Resort

Alton Towers Resort

THORPE PARK

Heide Park

Other

2016
£m

2015
£m

120

183

111

170

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 at the end of each reporting period 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:

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.

Asset

Goodwill

Brands

PPE

136

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
53 weeks ended 31 December 2016 (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 being extrapolated by
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 where
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% (2015: 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 9.0% and 12.9% (2015: 9.1% and 12.7%), derived
from the Group’s post-tax weighted average cost of capital of between 7.1% and 9.6% (2015: 7.2% and 9.4%).

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
£26 million (2015: £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.

137

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 peak summer trading season, revised amounts have been included in the
four year outlook period that reflect management’s latest best estimates of future performance. These take into account trading in this
first full year following the accident at Alton Towers in 2015. This first full year of trading also informs management’s forecasts of the
ongoing anticipated recovery of Alton Towers.

In undertaking sensitivity analysis for RTP, consideration has been given to increases in discount rates, movements in EBITDA and long
term growth rates. 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 ongoing 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 drives the terminal value) would have a more significant impact.
If EBITDA for RTP as a whole were forecast to be 3% (2015: 6%) lower than currently anticipated for 2021, 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 3% (2015: 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 2.1% (2015: 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

138

2016
£m

2015
£m

Merlin Entertainments plc Annual Report and Accounts 20163.4 Working capital (continued)

Trade and other receivables

Trade receivables

Other receivables

Prepayments and accrued income

SECTION 3 OPERATING ASSETS AND LIABILITIES (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

Current assets

Non-current assets

2016
£m

2015
£m

Ageing of trade receivables
The ageing analysis of trade receivables, net of allowance for non-recoverable amounts, is as follows:

2016
£m

2015
£m

Current liabilities

Non-current liabilities

2016
£m

139

300

2015
£m

108

235

2016
£m

2015
£m

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.

139

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

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 27 December 2015

Provisions made during the year

Utilised during the year

Unused amounts reversed

Unwinding of discount

Effect of movements in foreign exchange

Balance at 31 December 2016

2016

Current

Non-current

2015

Current

Non-current

Asset retirement
provisions
£m

Other
£m

Total
£m

(2)

(1)

(2)

(1)

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 reviewed annually. The provisions are discounted back to present value with the discount then
being unwound through the income statement as part of finance costs. The cost of establishing these provisions is capitalised within
the cost of the related asset.

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.

140

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 4 CAPITAL STRUCTURE AND FINANCING
53 weeks ended 31 December 2016 (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

27
December
2015
£m

152

(1,007)

(855)

(82)

(937)

Net
cash flows
£m

Non-cash
movement
£m

(4)

(1)

(5)

Effect of
movements
in foreign
exchange (1)
£m

31
December
2016
£m

(141)

(118)

(5)

(123)

215

(1,152)

(937)

(88)

(1,025)

(1) As disclosed in note 4.2 a substantial proportion of the Group’s borrowings are denominated in Euros and US Dollars.

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

Non-current

Floating rate bank facilities due 2020

£300 million floating rate revolving credit facility due 2020

€500 million fixed rate notes due 2022

Current

Interest payable

2016
£m

723

424

2015
£m

640

363

1,147

1,003

1,152

1,007

141

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

4.2 Interest-bearing loans and borrowings (continued)

The Group’s 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 0.37%, 0.99% and (0.32)% respectively at
31 December 2016 (2015: 0.59%, 0.57% and (0.13)%). The margin on the bank facilities is dependent on the Group’s adjusted
leverage ratio and at 31 December 2016 was 2.0% (2015: 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 at 31 December 2016 was at a margin of 1.75% (2015: 1.75%) over the same floating interest rates when drawn.

• A bond in the form of €500 million seven year notes with a coupon rate of 2.75% to mature in March 2022.

The fees related to the facilities are being amortised to the maturity of the debt as the debt is currently expected to be held for its full
term. The borrowings under the bank facilities (including the revolving credit facility) and the €500 million bonds are unsecured but
guaranteed by the Company and certain of its subsidiaries.

The Group 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. It is also required to comply with certain non-financial
covenants in the €500 million notes. All covenant requirements were satisfied throughout the year.

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 countries bank cash pooling
arrangements are in place to optimise the use of cash.

As at the reporting date the Group had £215 million of cash and cash equivalents (2015: £152 million) and a £300 million revolving
credit facility, of which £nil was drawn down (2015: £300 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. 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

(20)

(12)

(7)

(66)

(105)

(17)

(10)

(6)

(45)

(78)

(20)

(12)

(7)

(3)

(42)

(17)

(10)

(6)

(4)

(37)

(754)

(24)

(20)

(4)

(802)

(685)

(31)

(19)

(8)

(743)

(444)

(170)

(614)

(382)

(162)

(544)

(794)

(492)

(204)

(73)

(1,563)

(719)

(433)

(193)

(57)

(1,402)

2016

Floating rate bank facilities due 2020

€500 million fixed rate notes due 2022

Finance lease liabilities

Trade payables and derivatives

2015

Floating rate bank facilities due 2020

€500 million fixed rate notes due 2022

Finance lease liabilities

Trade payables and derivatives

142

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
53 weeks ended 31 December 2016 (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 31 December 2016 the Group had €500 million of fixed rate debt (2015: €500 million). Taken together with those 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 74%
(2015: 75%) of the year end interest-bearing loans and borrowings is at a fixed rate for a weighted average period of 4.2 years
(2015: 5.2 years).

Interest rate swaps are recognised at fair value which is determined by reference to market rates. The fair value 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 31 December 2016, 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 £1 million (2015: £nil). 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.

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 31 December 2016 the
fair value of foreign currency swaps was £1 million (2015: £1 million).

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 31 December 2016 consisted of €550 million, $540 million and £250 million.

Gains or losses arise on the retranslation of the net assets of foreign operations at different reporting dates and are recognised
within the consolidated statement of comprehensive income. They will predominantly relate to the retranslation of opening net assets
at closing foreign exchange rates, together with the retranslation of retained foreign profits for the year (that have been accounted
for in the consolidated income statement at average rates) at closing rates. Exchange rates for major currencies are set out on the
following page.

143

4.3 Financial risk management (continued)

Gains or losses also 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 following exchange rates have been used in the translation of the results of foreign operations:

US Dollar

Euro

Australian Dollar

Closing rate
for 2014

Weighted
average rate
for 2015

Closing rate
for 2015

Weighted
average rate
for 2016

Closing rate
for 2016

1.56

1.28

1.92

1.54

1.39

2.04

1.49

1.36

2.05

1.37

1.23

1.83

1.24

1.17

1.71

The Sterling equivalents of financial assets and liabilities denominated in foreign currencies were:

2016

Cash and cash equivalents

Floating rate bank facilities due 2020

€500 million fixed rate notes due 2022

Finance lease liabilities

2015

Cash and cash equivalents

Floating rate bank facilities due 2020

€500 million fixed rate notes due 2022

Finance lease liabilities

Carrying value

Sterling
£m

Euro
£m

US Dollar
£m

Other
£m

117

(248)

(54)

(185)

(247)

(54)

(211)

(42)

(424)

(34)

(490)

(36)

(363)

(28)

(420)

(433)

(406)

(357)

(347)

Total
£m

215

(723)

(424)

(88)

(1,020)

152

(640)

(363)

(82)

(933)

Sensitivity analysis on foreign currency risk
A 10% strengthening of all currencies against Sterling would increase net debt by £83 million (2015: £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 £5 million (2015: £4 million).

144

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

4.3 Financial risk management (continued)

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.

The Group robustly appraises investments before they are made to ensure the associated credit risk is acceptable. Performance
of investments are closely monitored, in some cases through Board participation, to ensure returns are in line with expectations and
credit risk remains acceptable. There were no overdue amounts in respect of investments and no impairments have been recorded
(2015: £nil). The Group has no collateral in respect of its investments.

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

€500 million fixed rate notes due 2022

Finance lease liabilities

Investments

Held at fair value

Derivative financial instruments

Investments

2016

Carrying
amount
£m

Fair value
hierachy

Level 2

Level 1

Level 3

Level 2

Level 3

(723)

(424)

(88)

(2)

Fair
value
£m

(724)

(445)

(88)

(2)

2015

Carrying
amount
£m

(640)

(363)

(82)

Fair
value
£m

(631)

(358)

(82)

(1,188)

(1,210)

(1,073)

(1,059)

The fair values shown above for the bank facilities and fixed rate notes have been calculated using market values. The fair values of the
finance leases are determined by reference to similar lease agreements. There is no difference between the carrying value and the fair
value of investments that has been estimated by reference to discounted cash flows.

There have been no transfers between levels in 2016 or 2015.

145

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. In January 2016 the IASB issued IFRS 16 ‘Leases’ which is expected to become
effective from the 2019 accounting period. Details on our assessment of the impact of this new standard and how we are approaching
its implementation are set out in note 5.5.

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 2016 £96 million (2015: £89 million) was recognised as an expense in the income statement in respect of operating leases.
Of this £13 million (2015: £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.

146

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
53 weeks ended 31 December 2016 (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
2016
£m

Present value
of minimum
lease payments
2016
£m

Future
minimum lease
payments
2015
£m

Interest
2016
£m

Present value
of minimum
lease payments
2015
£m

Interest
2015
£m

Less than one year

Between one and five years

More than five years

258

292

170

204

244

275

Finance lease liabilities

Currency

Nominal
interest rate

Year of
maturity

GBP

EUR

5.64%

9.11%

2042

162

193

2016
£m

2015
£m

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

2016
£m

329

1,325

1,737

2015
£m

291

1,271

1,638

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.

147

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 ensure 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

2016
Number

2016
£m

2015
Number

2015
£m

On issue and fully paid at beginning of year

1,013,746,032

Issued in the year

2,063,234

On issue and fully paid at end of year

1,015,809,266

1,013,746,032

Issue of new shares
During the year the Company issued 2,063,234 ordinary shares for consideration of £2 million (taken to the share premium account)
in connection with the Group’s employee share incentive plans (note 4.6).

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.

The nominal value of shares in issue is shown in share capital, with any additional consideration for those shares shown in share premium.

148

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
53 weeks ended 31 December 2016 (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.

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

Final dividend for the 52 weeks ended 26 December 2015 of 4.4 pence per share

Interim dividend for the 53 weeks ended 31 December 2016 of 2.2 pence per share

Total dividends paid

2016
£m

2015
£m

The Directors of the Company propose a final dividend of 4.9 pence per share for the year ended 31 December 2016 (2015: 4.4 pence
per share). The total dividend for the current year, subject to approval of the final dividend, will be 7.1 pence per share (2015: 6.5 pence
per share).

Translation reserve
The translation reserve of £(5) million (2015: £(135) million) comprises all foreign exchange differences arising from the translation of
the financial statements of foreign operations, primarily relating to the statement of position at reporting dates. The reporting date
foreign exchange rates by major currency are provided in note 4.3.

Hedging reserve
The hedging reserve of £(3) million (2015: £nil) comprises the effective portion of the cumulative net change in interest rate swaps
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.

149

4.6 Share-based payment transactions (continued)

Analysis of share-based payment charge

PSP

DBP

CSOP

AESP

Analysis of awards

2016
£m

2015
£m

Date of grant

Exercise
price (£)

Period when
exercisable

November 2013 - September 2016

March 2015 - March 2016

2017 - 2019

2018 - 2019

November 2013 - September 2016

3.15 - 4.81

2017 - 2026

January 2014 - March 2016

2.96 - 3.53

2017 - 2019

PSP

DBP

CSOP

AESP

Total

The weighted average exercise prices (WAEP) over the year were as follows:

Average
remaining
contractual
life (years)

1.2

1.3

8.0

1.6

Number
of shares
2016

Number
of shares
2015

7,430,215

5,633,093

308,272

361,734

3,893,704

3,192,347

6,311,715

5,502,199

17,943,906

14,689,373

At 28 December 2014

PSP (1)
Number

3,611,209

2,305,252

DBP (1)
Number

CSOP

AESP

Number

WAEP (£)

Number

WAEP (£)

3.19

4.38

3.46

3.58

4.61

3.89

3.19

3.61

3.93

3.15

3,180,962

2,823,813

(473,366)

(4,213)

(24,997)

5,502,199

1,692,389

(530,897)

(235,360)

(116,616)

6,311,715

2.98

3.24

3.11

2.98

3.10

3.19

3.13

3.10

3.12

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

At 26 December 2015

5,633,093

361,734

3,192,347

Granted during the year

Forfeited during the year

Exercised during the year

Expired during the year

2,300,004

(502,882)

27,519

(5,518)

1,337,925

(382,014)

(75,463)

(239,561)

(14,993)

At 31 December 2016

7,430,215

308,272

3,893,704

1,584,579

Exercisable at end of year

At 26 December 2015

At 31 December 2016

(1) Nil cost options

150

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 4 CAPITAL STRUCTURE AND FINANCING (continued)
53 weeks ended 31 December 2016 (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 2015 and 2016 are as follows:

Scheme

Date of grant

PSP

2 April 2015

1 April 2016

DBP

25 March 2015

CSOP

24 March 2016

1 April 2015

1 April 2016

AESP

17 February 2015

17 March 2015

16 February 2016

16 March 2016

Exercise
price (£)

Share price
at grant
date (£)

Fair
value per
award (£)

Expected
dividend
yield

Expected
volatility

Award life
(years)

Risk free
rate

4.42

4.60

3.43

3.23

3.53

3.15

4.47

4.65

4.45

4.54

4.42

4.65

4.04

4.38

4.15

4.62

4.47

4.65

4.45

4.54

0.99

0.91

0.71

1.20

0.77

1.46

n/a

1.4%

1.5%

1.4%

1.6%

1.4%

n/a

24%

21%

18%

20%

21%

3.0

4.7

4.6

2.2

3.3

2.2

3.3

n/a

1.0%

0.7%

0.9%

0.4%

0.7%

The key assumptions used in calculating the share-based payments were as follows:
• The binomial valuation methodology is used for the PSP, CSOP and DBP. The Black-Scholes model is used to value the AESP.
• The expected volatility is based on the historical volatility of the Company’s shares.
• 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.

151

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016SECTION 5 OTHER NOTES
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

5.1 Investments

Accounting policy
The Group holds investments in two forms. Investments in loan notes are accounted for as financial assets at historic cost with interest
accrued on an effective interest rate basis. This calculation requires estimation of the expected period over which the investment will
be held together with the value of the investment at the end of that period. Interest on loan notes is recognised within finance income
(see note 2.3).

Minority equity investments are accounted for as ‘available for sale’ financial assets at fair value. They are not consolidated.
As no observable market data is available for these minority equity holdings, 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.

Balance at 27 December 2015

Additions

Interest income receivable

Movements in fair value

Effects of movement in foreign exchange

Balance at 31 December 2016

LEGOLAND
Malaysia
£m

LEGOLAND
Korea
£m

Big Bus
Tours
£m

Total
£m

LEGOLAND Malaysia
The Group has a minority equity investment in IDR Resorts Sdn. Bhd. (IDR). IDR and its subsidiaries are deemed to be related parties
as together they own LEGOLAND Malaysia (see note 5.3).

LEGOLAND Korea
The Group has a minority equity investment in the consortium company developing LEGOLAND Korea.

Big Bus Tours Group Holdings Limited
In 2016 the Group invested $44 million (£32 million) in Big Bus Tours Group Holdings Limited, the leading global owner-operator of
Hop On Hop Off City Tours. The investment was substantially all in the form of loan notes. The transaction also provided Merlin with
a minority equity investment valued at £nil.

Investments in joint ventures
On 16 June 2016 the Group acquired the remaining 50% of the SEA LIFE Helsinki joint venture (2015: carrying value of £nil).
The consideration was £1 million, settled in cash and the fair value of the net assets acquired was £1 million. SEA LIFE Helsinki
was accounted for as a wholly owned subsidiary from 16 June 2016.

152

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 5 OTHER NOTES (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

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 £11 million (2015: £10 million).

Defined benefit pension schemes
The principal scheme that the Group operates is a closed scheme for certain former UK employees of The Tussauds Group, which was
acquired in 2007. The scheme entitles retired employees to receive an annual payment based on a percentage of final salary for each
year of service that the employee provided. The pension schemes have not directly invested in any of the Group’s own financial
instruments or in properties or other assets used by the Group.

The most recent full actuarial valuation of the scheme was carried out as at 1 January 2013. As a result, the Group agreed to pay deficit
reduction contributions of £455,500 per annum until 2018, together with an additional one-off payment of £350,000 which was paid in
2014. The 2016 valuation is currently being finalised. We do not anticipate any material increase in ongoing contributions as a result.

The Group expects £1 million in ongoing contributions to be paid to its defined benefit schemes in 2017. The weighted average
duration of the defined benefit obligation at 31 December 2016 was 21 years (2015: 20 years).

The assets and liabilities of the schemes are:

Equities

Corporate bonds and cash

Property

Fair value of scheme assets

Present value of defined benefit obligations

Net pension liability

2016
£m

(43)

(11)

2015
£m

(33)

(5)

153

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016SECTION 5 OTHER NOTES (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

5.2 Employee benefits (continued)

Movement in the net pension liability

At 28 December 2014

Net interest

Contributions by employer

Benefits paid

Remeasurement loss

At 26 December 2015

Net interest

Contributions by employer

Benefits paid

Remeasurement gain/(loss)

Effect of movement in foreign exchange

At 31 December 2016

Present value
of scheme
assets
£m

Present value of
defined benefit
obligations
£m

Net pension
liability
£m

(1)

(33)

(1)

(33)

(1)

(9)

(1)

(5)

(1)

(5)

(6)

(1)

(43)

(11)

The amount recognised in the income statement was £nil (2015: £nil). The amount recognised in the statement of other comprehensive
income was a loss of £6 million (2015: loss of £1 million). This primarily results from changes in actuarial estimates in respect of
discount rates.

Actuarial assumptions
Principal actuarial assumptions (expressed as weighted averages) at the year end were:

Discount rate

Future salary increases

Rate of price inflation

2016

2.7%

3.7%

3.4%

2015

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 S2PxA. The mortality assumption adopted predicts that a current 65 year old male would have a life
expectancy to age 87 and a female would have a life expectancy to age 89.

154

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 5 OTHER NOTES (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

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.

Transactions entered into, including the purchase and sale of goods, payment of fees and royalties, and trading balances outstanding
at 31 December 2016 and 26 December 2015, were as follows:

2016

KIRKBI Invest A/S

LEGO Group

2015

KIRKBI Invest A/S

LEGO Group

Goods and services

Amounts owed
by related
party
£m

Sales
£m

Purchases
and royalties
£m

Amounts owed
to related
party
£m

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 1.2% (2015: 1.7%) of the voting shares of the Company.

The details of the remuneration, Long Term Incentive Plans, shareholdings, share options and pension entitlements of individual Directors
are included in the Directors’ Remuneration Report on pages 82 to 103. The remuneration of key management is disclosed in note 2.1.

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 (see note 5.1). On this basis, IDR and its subsidiaries
are deemed to be related parties.

Transactions entered into, including the purchase and sale of goods, payment of fees and trading balances outstanding at 31 December
2016 and 26 December 2015, are as follows:

Sales to related party

Amounts owed by related party

2016
£m

2015
£m

155

5.4 Contingent liabilities

The Group has no material contingent liabilities.

At 26 December 2015 the Group disclosed a contingent liability relating to the accident at Alton Towers Resort on ‘The Smiler’ ride.
This was settled in 2016.

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:

• 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.

EU endorsed IFRS and interpretations with effective dates after 31 December 2016 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 2017. The Group does not expect any significant impact on its consolidated financial statements from these amendments.

• IAS 7 ‘Statement of cash flows’ - disclosure initiative.
• IAS 12 ‘Income taxes’ - recognition of deferred tax assets for unrealised losses.

During 2014 the IASB issued IFRS 15 ‘Revenue from contracts with customers’, which will become effective from the 2018 accounting
period. Therefore the new standard will be relevant to the 2017 comparative period in that year’s financial statements. The Group’s
revenue is generated by high volumes of low value cash transactions. These are predominantly in respect of visits to the Group’s
attractions, stays in the Group’s accommodation, or spend on retail sales or food and beverage while at an attraction. They require
very limited judgement on the timing or pattern of revenue recognition 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 is expected to become effective from the 2019 accounting period and will
result in significant changes to the presentation of the Group’s consolidated financial statements. Under IAS 17 the Group has lease
commitments of £1,737 million (see note 4.4). Under IFRS 16 the Group’s lease commitments will be accounted for ‘on balance sheet’.
Typically IFRS 16 will result in an increase in reported EBITDA as rentals will predominantly be accounted for as finance costs rather
than as an operating expense. A combination of the ‘front loading’ impact of those finance costs together with depreciation charged
on the right of use asset also may result in an initial reduction in reported earnings albeit this would even out over the lease term.

We are currently performing impact assessments and financial modelling on the potential impact of the new standard. Substantially all
of the Group’s lease costs and ongoing commitments are in respect of leases for attractions and support functions so our initial focus
has therefore been on significant sites within the portfolio. We will expand this review across the estate during 2017.

156

Merlin Entertainments plc Annual Report and Accounts 2016
SECTION 5 OTHER NOTES (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

5.5 New standards and interpretations (continued)

IFRS 9 ‘Financial instruments’ is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted.
The Group currently plans to apply IFRS 9 initially on 1 January 2018. The actual impact of adopting IFRS 9 on the Group’s consolidated
financial statements in 2018 is not known and cannot be reliably estimated because it will be dependent on the financial instruments
that the Group holds and economic conditions at that time as well as accounting elections and judgements that it will make in the
future. The new standard may require the Group to revise its accounting processes and internal controls related to reporting financial
instruments. Based on its preliminary assessment, the Group’s accounting for investments may be altered, but is not expected to
be material.

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 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

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

Country of
incorporation

Class of
share held

Ownership
2016

Ownership
2015

Australia (1)

Australia (2)

Australia (1)

Australia (3)

Australia (1)

Australia (2)

Australia (4)

Australia (1)

Australia (2)

Australia (1)

Australia (5)

Ordinary

100.0%

57.0%

65.0%

100.0%

64.0%

100.0%

50.0%

100.0%

57.0%

65.0%

100.0%

64.0%

100.0%

50.0%

157

5.7 Subsidiary and joint venture undertakings (continued)

Subsidiary undertaking

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 (e)

Sydney Attractions Group Pty Ltd

Sydney Tower Observatory Pty Limited

Sydney Wildlife World Pty Limited

The Otway Fly Pty Ltd

The Otway Fly Unit Trust

The Sydney Aquarium Company Pty Limited

Underwater World Sunshine Coast Pty Ltd

US Fly Trust

White Crystal (Mount Hotham) Pty Ltd

Madame Tussauds Austria GmbH

MT Austria Holdings GmbH

SEA LIFE Centre Belgium N.V.

Christchurch Investment Company Limited

Merlin Entertainments (Canada) Inc

Madame Tussauds Exhibition (Beijing) Company Limited

Madame Tussauds Exhibition (Shanghai) Company Limited

Madame Tussauds Exhibition (Wuhan) Company Limited

Merlin Entertainments Hong Kong Limited

Merlin Exhibition (Chongqing) Company Limited

Merlin Indoor Children's Playground (Shanghai) Company Limited

Shanghai Chang Feng Oceanworld Co. Ltd

LEGOLAND ApS

Merlin Entertainments Group Denmark Holdings ApS

SEA LIFE Helsinki Oy (f)

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

158

Country of
incorporation

Australia (1)

Australia

Australia (2)

Australia (1)

Australia (2)

Australia (1)

Australia (3)

Austria (6)

Belgium (7)
British Virgin
Islands (8)
Canada (9)

China (10)

China (11)

China (12)

China (13)

China (14)

China (15)

China (16)

Denmark (17)

Finland (18)

France (19)

Germany (20)

Germany (21)

Germany (22)

Germany (20)

Germany (23)

Germany (22)

Germany (20)

Germany (24)

Germany (21)

Class of
share held

Ordinary

Ownership
2016

Ownership
2015

100.0%

82.6%

100.0%

82.6%

100.0%

50.0%

100.0%

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 5 OTHER NOTES (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

5.7 Subsidiary and joint venture undertakings (continued)

Country of
incorporation

Class of
share held

Ownership
2016

Ownership
2015

Subsidiary undertaking

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.

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. (b)

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

Busan Aquaria Twenty One Co. Ltd

LEGOLAND Korea LLC

Merlin Entertainments Korea Company Limited

SLCS SEA LIFE Centre Spain S.A.

Merlin Entertainments (Thailand) Limited

Siam Ocean World Bangkok Co Ltd

Istanbul Sualti Dunyasi Turizm Ticaret A.S

Madame Tussauds Museum LLC

Merlin Holdings Limited

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

100.0%

99.9%

100.0%

99.9%

100.0%

(a) 49.4%

India (25)

Ireland (26)

Ireland (27)

Italy (28)

Italy (29)

Italy (28)

Italy (30)

Italy (28)

Japan (31)

Japan (32)

Luxembourg (33)

Malaysia (34)

Malaysia (52)

Malaysia (34)

Netherlands (35)

Netherlands (36)

Netherlands (37)

Netherlands (38)

New Zealand (39)

Portugal (40)

Singapore (41)

South Korea (42)

South Korea (43)

South Korea (42)

Spain (44)

Thailand (45)

Thailand (46)

Turkey (47)

UAE (48)

UAE (53)

UK (49)

Ordinary

90.4%

100.0%

60.0%

100.0%

Ordinary

100.0%

90.4%

100.0%

60.0%

100.0%

159

5.7 Subsidiary and joint venture undertakings (continued)

Subsidiary undertaking

Iconic Images International Limited

KZ China Holdco Limited (d)

KZ Mexico Holdco Limited (d)

LEGOLAND US Holdings Limited

LEGOLAND Windsor Park Limited

London Aquarium (South Bank) Limited

London Dungeon Limited

London Eye Holdings Limited

London Eye Management Services Limited

Madame Tussaud’s Limited

Madame Tussauds Touring Exhibition Limited

M.E.G.H. Limited (d)

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

Merlin Entertainments (SEA LIFE) Limited

Merlin Entertainments Crown (UK) Limited

Merlin Entertainments Developments Limited

Merlin Entertainments Finance Limited (d)

Merlin Entertainments Group Employee Benefit Trustees Limited

Merlin Entertainments Group Holdings Limited

Merlin Entertainments Group International Limited (d)

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 (formerly Tussauds Hotels Limited)

SEA LIFE 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 (d)

Tussauds Limited

Tussauds Theme Parks Limited (d)

Warwick Castle Limited

Wizard AcquisitionCo Limited (d)

Wizard BondCo Limited (d)

Wizard EquityCo Limited (d)

160

Country of
incorporation

Class of
share held

Ownership
2016

Ownership
2015

UK (49)

Ordinary

100.0%

Merlin Entertainments plc Annual Report and Accounts 2016SECTION 5 OTHER NOTES (continued)
53 weeks ended 31 December 2016 (52 weeks ended 26 December 2015)

5.7 Subsidiary and joint venture undertakings (continued)

Subsidiary undertaking

Wizard NewCo Limited (d)

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 Tussauds Nashville 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 Short Breaks 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

Pirate Adventure Golf Limited

Country of
incorporation

UK (49)

USA (50)

USA (51)

Class of
share held

Ordinary

Ownership
2016

Ownership
2015

100.0%

UK (49)

Ordinary

50.0%

(a) 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.
Merlin Entertainments Group Luxembourg 3 S.à r.l. is held by the Company. All other subsidiaries are held by intermediate subsidiaries.

(b)

(c) Merlin Entertainments plc has 100% of the beneficial ownership of these entities.
(d) Company dissolved in 2016.
(e) Company disposed of in 2016.
(f) The Group acquired the remaining 50% of the SEA LIFE Helsinki joint venture in 2016.

161

5.7 Subsidiary and joint venture undertakings (continued)

Registered offices

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

Level 11, 50 Queen Street, Melbourne, VIC, 3000, Australia
Level 16, 201 Elizabeth Street, Sydney, NSW, 2000, Australia
3 Ireland Street Bright, VIC, 3741, Australia
Falls Creek Road, 3699 Falls Creek, Victoria, Australia
Doncaster Road 861, 3109 Melbourne - Doncaster East, Victoria, Australia
Riesenradplatz 5-6, 1020 Wien, Vienna, Austria
Koning Albert 1 Laan 116, 8370, Blankenberge, Belgium
P.O. Box 3340, Road Town, Tortola, British Virgin Islands
Suite 5300 Commerce Court West, 199 Bay Street, Toronto, ON, M5L 1B9, Canada

(10) No. 4, 6, 8, 10, 12, 14, 16, 18 Qianmen Avenue, Dongcheng District, Beijing, China
(11) 10/F New World Building, No 2-68 Nanjing Xi Road, Shanghai 200003, China
(12) 21, Han Street, Wuchang District, (Shops 40/41/42) Building 5, Lot J2, Wuhan, China
(13) Shop P101, The Peak Tower, The Peak, Hong Kong
(14) 4-11, Fu 9, No. 133, Nanpin Road, Nan’an District, Chongqing, China
(15) L2-25, 2F, 3F Parkside Plaza, Putuo District, Shanghai, China
(16) 189, Dadhue Road, Pu Tuo District, Shanghai, 200062, China
(17) Aastvej 10, 7190 Billund, Denmark
(18) Tivolitie 10, Helsinki 00510, Finland
(19) Centre Commercial Val d’Europe, Espace 502, 14 cours du Danube, Serris, 7711 MARNE LA VALLEE, France
(20) Cremon 11, 20457 Hamburg, Germany
(21) Heidenhof 1, 29614 Soltau, Germany
(22) Legoland Allee, 89312, Gunzburg, Germany
(23) Prinzregentenstrasse 18, 80538 Munich, Germany
(24) Klein Vehedig, Hafenstrasse 9, 78462 Konstanz, Germany
(25) 44, Regal Building, Connaught Place, New Delhi, Central Delhi DL, 110001, India
(26) 6th Floor, 2 Grand Canal Square, Dublin 2, Ireland
(27) First Floor, Fitzwilton House, Wilton Place, Dublin 2, Ireland
(28) Via Derna 4, Castelnuovo del Garda, 37014, Verona, Italy
(29) Via Vivaldi n.7, Castelnuovo del Garda Verona, 37014, Verona, Italy
(30) Loc Ronchi, Castel del Garda Verona, 37014, Verona, Italy
(31) 2-2-1, Kinjoufutou Minato-ku, Nagoya-shi, Japan
(32)

Island Mall, Decks Tokyo Beach, 1-6-1 Daiba, Minato-ku, Tokyo, Japan
(33) Polaris-Vertigo Building, 2-4 rue Eugene Rupprt, L-2453, Luxembourg
(34) Suite 2-4, Level 2, Tower Block, Menera Milenium, Jalan Damanlela, Pusat Bandar Damansara, 50490 Kuala Lumpur, Malaysia
(35) Fred. Roeskestraat 123, 1076 EE Amsterdam, Netherlands
(36) Dam 20 GEBOUW P&C, 1012 NP Amsterdam, Netherlands
(37) Croeselaan 18, Utrecht, Netherlands
(38) Rokin 78, 1012 KW Amsterdam, Netherlands
(39) Level 12, 55 Shortland Street, Auckland 1010, New Zealand
(40) Avenida Da Boavista 3265, 7th Floor, 4100 - 137 Porto, Portugal
(41) 10, Changi Business Park Central 2, #05-01, HansaPoint@CBP, 486030, Singapore
(42) 1411-4, Jung 1-dong, Haenudee-Gu, Busan, Republic of Korea
(43) Yoseon-dong, 8F Moorim Building, 16 Joongang-ro, Chuncheon-si, Gangwon-do, Republic of Korea
(44) Puerto Marina, Benalmadena-Costa, 29630 Benalmadena, Malaga, Spain
(45) 989 Siam Discovery Center 6th, 6Ath, 7th and 8th Floors, Rama I Road, Kwaeng Pathumwan, Khet Pathumwan, Bangkok 10330, Thailand
(46) B1-B2 Floor Siam Paragon, 991 Rama 1 Road, Khweng Patumwan, Bangkok 10330, Thailand
(47) Kocatepe Mah, Pasa Cad, Forum Istanbul AVM No. 5/5, Bayrampasa, Turkey
(48) Office 1601, 48 Burj Gate, Burj Khalifa, Dubai, United Arab Emirates
(49) 3 Market Close, Poole, Dorset, BH15 1NQ, United Kingdom
(50) 80 State Street, Albany, New York 12207-2543, United States
(51) 1209 Orange Street, Wilmington, New Castle County, Delaware, 19801, United States
(52) No. 7, Jalan LEGOLAND, Bandar Medini Iskandar Malaysia, 79250 Iskandar Puteri, Johor, Malaysia
(53) Emaar Square, Building 3, Level 5, P.O. Box 37172, Dubai, United Arab Emirates

162

Merlin Entertainments plc Annual Report and Accounts 2016MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
Company Statement of Financial Position at 31 December 2016 (2015: 26 December 2015)

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

Note

iii

vii

2016
£m

3,126

1,214

4,340

2015
£m

3,115

1,062

4,177

4,344

4,208

1,147

1,154

3,190

1,003

1,098

3,110

The notes on pages 165 to 169 form part of these financial statements.

The parent Company financial statements were approved by the Board of Directors on 1 March 2017 and were signed on its behalf by:

Nick Varney
Chief Executive Officer

Anne-Francoise Nesmes
Chief Financial Officer

163

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016

MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
Company Statement of Changes in Equity at 31 December 2016 (2015: 26 December 2015)

At 28 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

Profit for the year

Total comprehensive income for the year

Shares issued

Equity dividends

Share incentive schemes:
Movement in reserves for
employee share schemes

At 31 December 2016

Note

Share
capital
£m

iii

vii

Share
premium
£m

Retained
earnings
£m

3,157

(64)

Total
equity
£m

3,167

(64)

3,100

3,110

134

(67)

134

(67)

3,178

3,190

164

Merlin Entertainments plc Annual Report and Accounts 2016NOTES TO 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 (2015/16 Cycle) issued in July 2016 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.

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.

These financial statements have been prepared for the 53 weeks ended 31 December 2016 (2015: 52 weeks ended 26 December 2015).

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.

165

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016

NOTES TO 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.

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.

(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

166

Merlin Entertainments plc Annual Report and Accounts 2016NOTES TO 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 nine (2015: 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 82
to 103. One Director accrued benefits under defined contribution schemes during the year (2015: one).

iii Investment in subsidiary undertaking

Cost and carrying value

At 28 December 2014

Capital contributions to subsidiaries

At 26 December 2015

Capital contributions to subsidiaries

At 31 December 2016

Shares in
subsidiary
undertaking
£m

3,111

3,115

3,126

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 5.7 of the consolidated financial statements on page 157.

167

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016NOTES TO MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
(continued)

iv Other receivables

Amounts owed by group undertakings

Current assets

Non-current assets

2016
£m

2015
£m

2016
£m

1,214

2015
£m

1,062

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

£300 million floating rate revolving credit facility due 2020

€500 million fixed rate notes due 2022

Current

Interest payable

2016
£m

723

424

2015
£m

640

363

1,147

1,003

1,152

1,007

The 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 0.37%, 0.99% and (0.32)% respectively at
31 December 2016. The margin on the bank facilities is dependent on the Group’s adjusted leverage ratio and at 31 December
2016 was 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 at 31 December 2016 was at a margin of 1.75% over the same floating interest rates when drawn.
• A bond in the form of €500 million seven year notes with a coupon rate of 2.75% to mature in March 2022.

The Company 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. It is also required to comply with certain non-financial
covenants in the €500 million notes. All covenant requirements were satisfied throughout the year.

168

Merlin Entertainments plc Annual Report and Accounts 2016NOTES TO MERLIN ENTERTAINMENTS PLC COMPANY FINANCIAL STATEMENTS
(continued)

vii Equity

Share capital

Ordinary shares of £0.01 each

At beginning of the year

Shares issued

At end of the year

2016
Number

2016
£m

2015
Number

2015
£m

1,013,746,032

2,063,234

1,015,809,266

1,013,746,032

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.

Retained earnings
The profit after tax for the year in the accounts of Merlin Entertainments plc is £134 million (2015: profit after tax of £3 million).

All of the Company’s retained earnings are distributable (with the exception of those movements in reserves for employee share schemes).

Dividends

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

Final dividend for the 52 weeks ended 26 December 2015 of 4.4 pence per share

Interim dividend for the 53 weeks ended 31 December 2016 of 2.2 pence per share

Total dividends paid

2016
£m

2015
£m

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 120.

169

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016FINANCIAL RECORD

Results

Revenue

Underlying EBITDA

Underlying operating profit

Operating profit

Profit before tax

Adjusted earnings per share (p)

Dividend per share (p)

Consolidated statement of financial position

Property, plant and equipment

Intangible assets

Cash and cash equivalents

Non-current interest-bearing
loans and borrowings

Total equity

Consolidated statement of cash flows

Net cash flow from operating activities

Changes in working capital

Net increase/(decrease) in cash
and cash equivalents

2016
£m

2015
£m

2014
£m

2013
£m

2012
£m

1,457

1,278

1,249

1,192

1,074

451

320

277

20.8

7.1

1,841

1,017

215

1,147

1,428

433

402

291

237

17.8

6.5

1,495

923

152

1,003

1,149

325

(19)

(137)

411

311

226

17.7

6.2

1,410

942

285

1,131

1,063

357

(4)

390

290

260

172

16.9

n/a

1,321

961

264

1,179

944

365

125

346

258

199

n/a

1,290

970

142

1,333

617

348

170

Merlin Entertainments plc Annual Report and Accounts 2016OTHER FINANCIAL INFORMATION

Foreign exchange rate sensitivity
The Group’s income statement is exposed to fluctuations in foreign currency exchange rates principally on the translation of our
non Sterling earnings. The tables below show the impact on 2015 revenues and EBITDA of re-translating them at 2016 foreign
exchange (FX) rates.

2015
average
FX rates

2016
average
FX rates

%age
movement
in FX
rates

Revenue
impact
£m

1.54

1.39

2.04

1.37

1.23

1.83

11.3%

11.5%

10.4%

Currency

USD

EUR

AUD

Other

Currency

USD

EUR

AUD

Other

2015
average
FX rates

2016
average
FX rates

%age
movement
in FX
rates

EBITDA
impact
£m

1.54

1.40

2.06

1.37

1.21

1.81

11.3%

13.4%

12.1%

Increase in 2015 revenues at 2016 FX rates

101

Increase in 2015 EBITDA at 2016 FX rates

Return on capital employed (ROCE)
The return is based on underlying operating profit after tax. Tax is calculated for the purposes of ROCE by applying the Group’s
underlying ETR for the year (2016: 23.8%, 2015: 27.9%) to the Group’s underlying operating profit.

The capital employed element of the calculation is based on average net operating assets for the relevant period between the opening
and closing statements of financial position. Net operating assets include all net assets other than deferred tax, derivative financial assets
and liabilities, and net debt.

On a 52 week basis no change in net assets is assumed, except for the 53rd week return, which has adjusted net debt.

Underlying operating profit

Taxation

Return

Net assets

Less:

Deferred tax assets

Deferred tax liabilities

Net debt (note 4.1)

Derivative financial assets

Derivative financial liabilities

Net operating assets at the period end

Capital employed

ROCE

2016
(53 weeks)
£m

2016
(52 weeks)
£m

320

(76)

244

302

(72)

230

1,428

1,414

(38)

179

1,025

(3)

2,596

2,401

10.2%

(38)

179

1,039

(3)

2,596

2,401

9.6%

2015
£m

291

(81)

210

1,149

(35)

155

937

(2)

2,205

2,160

9.7%

171

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016GLOSSARY

Key terms

Adjusted EPS

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.

Capital Expenditure.

A group of attractions located in a city close to one another.

Constant currency growth

Using 2016 exchange rates.

DreamWorks Tours - Shrek’s Adventure!

This 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 can be 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

IPO

KIRKBI

KPI

LDC

Lead price

Like for like (LFL)

Listing

Little Big City

LLP

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 29.83% 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.

2016 LFL growth refers to the growth between 2015 and 2016 on a constant currency
basis using 2016 exchange rates and includes all businesses owned and operated before
the start of 2015.

Listing on the London Stock Exchange.

This is a new attraction opening in 2017. It is part of the Midway Attractions Operating Group.

LEGOLAND Parks Operating Group.

Merlin Magic Making (MMM)

MMM is the unique resource that sits at the heart of everything Merlin does. It is our specialist
in-house site-search and business development; creative design; production; and project
management team. MMM also pursues acquisition and investment opportunities.

172

Merlin Entertainments plc Annual Report and Accounts 2016GLOSSARY

Key terms

Definition

Merlin’s Magic Wand (MMW)

MMW forms a key element of Merlin’s Corporate Social Responsibility commitment.
Our very own children’s charity delivers magical experiences around the world to children
who are disadvantaged through sickness and disability.

Midway or Midway attractions

The Midway Attractions Operating Group and/or the Midway attractions within it.
Midway attractions are typically smaller, indoor attractions located in city centres or resorts.

Madame Tussauds attractions. These are part of the Midway Attractions Operating Group.

Net Promoter Score

How we measure the propensity of our customers to recommend our attractions.

New Business Development (NBD)

ROCE

ROIC

Rooms

RPC

RTP

SLC

Second gate

Top Box

Underlying

Visitors

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.

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, derivative
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.

The highest level of customer satisfaction that we record in our customer surveys.

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.

Terms used
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. Percentages are calculated based on figures before rounding and are then rounded
to one decimal place.

173

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016SHAREHOLDER 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 2.2 pence per share was paid on 19 September
2016 to shareholders on the share register on 12 August 2016.

A final dividend for the year ended 31 December 2016 of 4.9
pence per share will be recommended to shareholders for
approval at the 2017 Annual General Meeting of the Company.

Dividend Re-Investment Plan
The Company has 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 2017
Annual General Meeting.

Financial calendar
The principal dates in our financial calendar for 2017 are
as follows:

Preliminary Announcement of Results
Trading Update
Annual General Meeting
Interim Results Announcement
Trading Update

2 March
13 June
13 June
4 August
5 October

174

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 13 June 2017 at
LEGOLAND Windsor, Winkfield Road, Windsor, Berkshire,
SL4 4AY at 2.00pm. The Notice of AGM will be sent to
shareholders separately.

Registered in
England and Wales

Company number
08700412

EPIC/TIDM
MERL

ISIN
GB00BDZT6P94

LEI
549300ZTI0VEFO6WV007

Registered office
Merlin Entertainments plc
3 Market Close, Poole
Dorset, BH15 1NQ

Telephone:
Email:
Website:

+44 (0)1202 440082
investor.relations@merlinentertainments.biz
www.merlinentertainments.biz

Company secretary
Matthew Jowett

Head of investor relations
Simon Whittington

External auditors
KPMG LLP
Gateway House, Tollgate
Chandlers Ford
Southampton
SO53 3TG

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 2016

LEGO (including NINJAGO, Star Wars, Batman and The LEGO Movie) - LEGO, the LEGO logo, the
Brick and Knob configurations, the Minifigure, NINJAGO and LEGOLAND are trademarks of the
LEGO Group. ©2017 The LEGO Group.

The Madame Tussauds images shown depict wax figures created and owned by Madame Tussauds.

London Eye conceived and designed by Marks Barfield Architects.

175

Merlin Entertainments plc Annual Report and Accounts 2016Merlin Entertainments plc Annual Report and Accounts 2016Registered office

Merlin Entertainments plc
3 Market Close
Poole
Dorset
BH15 1NQ
United Kingdom

Registered number: 08700412
Registered in England and Wales

www.merlinentertainments.biz

D
e
s
i
g
n
e
d

a
n
d

p
r
o
d
u
c
e
d

b
y

L
M
C
D
e
s
i
g
n

P
r
i
n
t
e
d

t
h
e
U
K

o
n

F
S
C
c
e
r
t
i
fi
e
d
G
a
e
r
i
e

S
a
t
i
n