INSPIRING TOMORROW’S MEMORIES MERLIN ENTERTAINMENTS PLC ANNUAL REPORT AND ACCOUNTS 2018 AT A GLANCE GLOBAL OPPORTUNITIES AND EXPANSION A BALANCED, GLOBAL PORTFOLIO SINCE OUR FORMATION IN 1999, THE PURSUIT OF OUR STRATEGY HAS RESULTED IN A PORTFOLIO OF ASSETS DIVERSIFIED BY GEOGRAPHY, BY FORMAT, AND BY CUSTOMER TYPE. • Operating across 25 countries and 4 continents, • Our portfolio of Midway attractions and theme we now generate over 70% of our profits from parks means that we are relatively balanced against outside the UK. weather fluctuations, with approximately 60% of • Whilst Merlin is not immune to external, revenue coming from outdoor attractions. geo-political shocks, the breadth and scale • With over two-thirds of our visitors being domestic, of the portfolio helps limit their impact. we are not reliant upon the ‘fly-in’ markets. OUR BRANDS MIDWAY ATTRACTIONS Amazing Discoveries Famous Fun Playful Learning Continental Europe: 1 United Kingdom: 1 Asia Pacific: 2 United Kingdom: 11 United Kingdom: 2 United Kingdom: 2 Asia Pacific: 1 Continental Europe: 18 Continental Europe: 4 Continental Europe: 3 North America: 8 North America: 7 North America: 11 Asia Pacific: 9 Asia Pacific: 10 Asia Pacific: 4 Asia Pacific: 1 Asia Pacific: 1 Asia Pacific: 2 Scary Fun Eye Opening United Kingdom: 5 United Kingdom: 2 Continental Europe: 3 Asia Pacific: 1 North America: 1 Asia Pacific: 1 Asia Pacific: 1 United Kingdom: 1 Geography(1) Tourist/domestic(2) Weather exposure(1) UK: 31% DOMESTIC: 72% OUTDOOR: 62% CONTINENTAL TOURIST: 28% INDOOR: 38% EUROPE: 25% NORTH AMERICA: 27% ASIA PACIFIC: 17% (1) Based on 2018 revenue (2) Based on a sample of visitors answering the question ‘What is your home country?’ 27 THEME PARKS Playful Learning Fantastical Escapism Wild Adventure Big Fantasy Adventure United Kingdom: 1 United Kingdom United Kingdom Italy Continental Europe: 2 North America: 2 Asia Pacific: 3 Key Extraordinary Insane Fun Ultimate Castle Adventure United Kingdom United Kingdom Existing Merlin attractions Germany Existing UK attractions 2018 new attractions CONTENTS OUR PURPOSE Company Overview 02 Chairman’s Statement 04 DELIVERING MEMORABLE Strategic Report EXPERIENCES TO OUR GUESTS Market Overview 06 Business Model 08 In a busy and increasingly fragmented world, time is at a premium. Chief Executive’s Report 10 Especially time together with friends and family. Our Six Strategic Growth Drivers 14 Case Studies 16 At its heart, Merlin is about creating truly memorable experiences Q&A – Operating Groups 22 from these moments together. Memories to be shared at the school Q&A – MMM and New Openings 24 gates, on social media or on the journey home, but remembered forever. Financial and Operating Review 26 Principal Risks 34 People 42 Responsible Business 48 Governance Corporate Governance Statement 58 Board of Directors 60 Corporate Governance Report 62 Nomination Committee Report 66 Health, Safety and Security Committee Report 68 Audit Committee Report 70 Directors’ Remuneration Report 74 Directors’ Report 90 Directors’ Responsibilities Statement 92 Independent Auditor’s Report 93 Financial statements Consolidated income statement 100 Consolidated statement of comprehensive income 101 Consolidated statement of financial position 102 Consolidated statement of changes in equity 103 Consolidated statement of cash flows 104 Notes to the accounts 105 Merlin Entertainments plc Company financial statements 148 Notes to the Company financial statements 150 Other information Financial record 155 Glossary 156 Other financial information 158 Shareholder information 159 INFORMATION ONLINE Visit our website: www.merlinentertainments.biz MERLIN ENTERTAINMENTS PLC 01 HIGHLIGHTS AND KPIs How we report our results Details on the period under review and performance measures used are set out in the Financial and Operating Review on page 33. We use certain ‘alternative performance measures’ in our reporting in 67.0 m order to present our trading performance in the most helpful and meaningful way; that section explains the measures used and why we use them. VISITORS +1.4% Executive Directors’ remuneration is linked to certain KPIs, as indicated by the following symbol . More details on Directors’ remuneration are set out in the Directors’ Remuneration Report on pages 74 to 89. Terms used throughout this document are defined in the Glossary on pages 156 to 157. 2018 67.0 2017 66.0 2016 63.8 £1,688 m £327m £323m REVENUE UNDERLYING TOTAL OPERATING Reported growth +5.9% OPERATING PROFIT PROFIT Organic growth +5.2% Reported growth +1.3% Like for like growth +1.8% Organic growth +3.4% 2018 1,688 2018 327 2017 1,594 2017 323 £285m 2016 1,428 2016 302 PROFIT BEFORE TAX 22.5p 22.9p 8.9% BASIC EPS ADJUSTED EPS RETURN ON +9.5% +11.7 % CAPITAL EMPLOYED 2018 22.5 2018 22.9 2018 8.9% 2017 20.5 2017 20.5 2017 9.1% 2016 19.5 2016 19.5 2016 9.6% 95% 86% 0.03 GUEST SATISFACTION EMPLOYEE HEALTH AND SAFETY Based on guest satisfaction surveys. Our target is a ENGAGEMENT The Medical Treatment Case (MTC) rate score over 90%. Based on our annual employee survey (see captures the rate of guest injuries requiring page 42). Our target is a score over 80%. external medical treatment relative to 10,000 guest visitations. The reduction in the rate in 2018 is therefore a positive outcome. 2018 95% 2018 86% 2018 0.03 2017 96% 2017 86% 2017 0.04 2016 94% 2016 89% 2016 0.06 02 MERLIN ENTERTAINMENTS PLC ANNUAL REPORT AND ACCOUNTS 2018 COMPANY OVERVIEW A YEAR OF MEMORABLE EXPERIENCES MERLIN ENTERTAINMENTS IS A GLOBAL LEADER IN LOCATION BASED, FAMILY ENTERTAINMENT. As Europe’s number one and the world’s second-largest JUNE visitor attraction operator, Merlin now operates over 120 World’s first sanctuary for beluga whales announced. attractions, 18 hotels and 6 holiday villages in 25 countries and across 4 continents. In 2018 the Company delivered memorable experiences to 67 million visitors worldwide, through its iconic global and local brands and the commitment and passion of its c.28,000 employees (peak season). We operate two distinct types of visitor attraction; • Our Midway Attractions are high quality, branded, predominantly indoor attractions with a typical one to two hour dwell time located in city centres, shopping malls or resorts. • Our Theme Parks are larger multi-day outdoor destination venues, incorporating on-site themed accommodation. These are organised into two Operating Groups, based on the brands – LEGOLAND Parks and Resort Theme Parks. APRIL 252 room hotel and SEA LIFE Centre open at LEGOLAND Japan, developing the park into a resort. 250 room LEGOLAND California Castle Hotel opens, doubling the capacity of on-site accommodation. MIDWAY ATTRACTIONS We have high quality, chainable brands and are the only company to successfully operate the Midway model on a global scale. We are increasingly partnering with third party Intellectual Property owners to create new brands which complement the portfolio and broaden our appeal across all key target demographics. GLOBAL BRANDS MARCH SEA LIFE ‘Wicker Man’ roller coaster opens at m £ m Madame Tussauds Alton Towers Resort (see case study 40.4 677 LEGOLAND Discovery Visitors Revenue on pages 16 to 17). Centre 142 room Pirate Island Hotel The Dungeons opens at LEGOLAND Deutschland The Eye (see case study on pages 18 to 19). Opening of ‘Peppa Pig Lands’ at Gardaland and Heide Park Resorts. 2017 Find out more on page 23 MERLIN ENTERTAINMENTS PLC 03 2018 JULY LEGOLAND Discovery Centre Birmingham opens. ‘LEGO City: Deep Sea Adventure’ opens at LEGOLAND California. OCTOBER The Bear Grylls Adventure in Birmingham, UK, Peppa Pig World of Play in Shanghai (see case study on pages 20 to 21) and the Shanghai Dungeon open. SEPTEMBER Little BIG City Beijing and LEGOLAND Discovery Centre Columbus open. Merlin Magic Wand celebrates tenth anniversary. LEGOLAND PARKS RESORT THEME PARKS Located worldwide, LEGOLAND Parks are aimed at families with Resort Theme Parks are national brands aimed at families, teenagers younger children and have LEGO as the central theme. Highly and young adults, with themed accommodation at all locations. themed accommodation is central to our strategy to develop the They have high brand and customer awareness in their local customer offering. Merlin holds the global, exclusive rights to the markets and include the leading theme parks in the UK, Italy and LEGOLAND brand. Northern Germany. LOCATIONS BRANDS Billund, Denmark Alton Towers Resort, m £ m California, USA m £ m UK 15.6 637 Dubai, UAE 11.0 367 Chessington World of Visitors Revenue Visitors Revenue Adventures Resort, UK Florida, USA Gardaland Resort, Italy Günzburg, Germany Heide Park Resort, Johor, Malaysia Germany Nagoya, Japan THORPE PARK Resort, Windsor, UK UK Warwick Castle, UK Find out more on page 23 Find out more on page 22 04 MERLIN ENTERTAINMENTS PLC ANNUAL REPORT AND ACCOUNTS 2018 CHAIRMAN’S STATEMENT STRATEGIC PROGRESS AND ORGANIC GROWTH MERLIN ENTERTAINMENTS CONTINUES TO MAKE STRATEGIC PROGRESS AND REPORTS CONTINUED ORGANIC GROWTH. INVESTMENT CASE 1. A ttractive markets, with underlying growth characteristics and favourable dynamics 2. D iversified portfolio of world class brands and assets 3. M ultiple levers of growth through our Six Strategic Growth Drivers (see pages 14 to 15) 4. St rict financial discipline and investment criteria 5. C ommitted to Being a Force for Good MERLIN ENTERTAINMENTS PLC 05 Trading and strategy Governance and the Board worldwide as part of a number of initiatives to After several challenging years, 2018 saw a number The recent externally facilitated evaluation exercise remove single-use plastics from the business. of important strategic developments and a year of confirmed that the Board and its Committees each continued steady organic growth. remain effective. No major concerns were Our partner charity, the SEA LIFE Trust, continues identified and the Board was described as strong, with activities to protect marine wildlife. Supported Our strategy to expand the LEGOLAND parks with a good mix of skills, experience and culture, by the Group, in 2018 it announced a world first footprint continued.