DELIVERING MEMORABLE EXPERIENCES MERLIN ENTERTAINMENTS PLC ANNUAL REPORT AND ACCOUNTS 2017 AT A GLANCE To find out more information about GEOGRAPHIC our brand diversification, go online at: AND BRAND www.merlinentertainments.biz DIVERSIFICATION OUR GLOBAL PORTFOLIO Our international footprint and variety of attraction types means we are not dependent on any one market. We operate in Europe, North America and Asia Pacific, with a long term ambition of an even split between these three regions. We have a broadly 60/40 balance of outdoor and indoor attractions, and with over 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. SEA LIFE THE DUNGEONS Amazing Discoveries Scary Fun United Kingdom: 13 United Kingdom: 5 Continental Europe: 18 Continental Europe: 3 North America: 8 North America: 1 Asia Pacific: 9 LEGOLAND MADAME DISCOVERY TUSSAUDS CENTRE Famous Fun Playful Learning United Kingdom: 2 United Kingdom: 1 Continental Europe: 4 Continental Europe: 3 North America: 7 North America: 10 Asia Pacific: 10 Asia Pacific: 4 THE EYE BRAND Eye Opening United Kingdom: 2 North America: 1 Asia Pacific: 1 DIVERSIFIED PORTFOLIO Geography(1) Tourist/domestic(2) Weather exposure(1) UK: 31% Domestic: 69% Outdoor: 61% Europe: 24% Tourist: 31% Indoor: 39% North America: 27% Asia Pacific: 18% (1) Based on 2017 revenue (2) Based on a sample of visitors answering the question ‘What is your home country?’ 29 LEGOLAND GARDALAND WARWICK Playful Learning Big Fantasy CASTLE United Kingdom: 1 Adventure Ultimate Castle Continental Europe: 2 Italy United Kingdom North America: 2 Asia Pacific: 3 ALTON TOWERS HEIDE PARK OTHERS Fantastical Escapism Extraordinary Little BIG City: 1 United Kingdom Adventure Shrek’s Adventure!: 1 Germany Ski Resorts: 2 Tree Top Walks: 2 WILD LIFE: 2 CHESSINGTON THORPE PARK Key WORLD OF Insane Fun ADVENTURES United Kingdom Existing Merlin attractions Wild Adventure Existing UK attractions United Kingdom 2017 new attractions Our vision – CONTENTS to become the Company Overview 2 worldwide leader Chairman’s Statement 4 in branded, Strategic Report location based Market Overview 6 Business Model 8 entertainment. Our Six Growth Drivers 10 Case Studies 12 Chief Executive’s Report 18 Q&A – Operating Groups 22 Q&A – MMM and New Openings 24 Financial and Operating Review 26 Principal Risks 34 Team Merlin 40 Responsible Business 44 Governance Corporate Governance Statement 50 Board of Directors 52 Corporate Governance Report 54 Nomination Committee Report 58 Health, Safety and Security Committee Report 59 Audit Committee Report 61 Directors’ Remuneration Report 66 Directors’ Report 88 Directors’ Responsibilities Statement 89 Independent Auditor’s Report 90 Financial statements Consolidated income statement 96 Consolidated statement of comprehensive income 97 Consolidated statement of financial position 98 124 Consolidated statement of changes in equity 99 attractions in Consolidated statement of cash flows 100 Notes to the accounts 101 Merlin Entertainments plc Company financial statements 143 Notes to the Company financial statements 145 Additional information Financial record 150 Other financial information 151 25 Glossary 152 countries across Shareholder information 154 Information online 4 Visit our website: continents www.merlinentertainments.biz MERLIN ENTERTAINMENTS PLC 01 ANNUAL REPORT AND ACCOUNTS 2017 FINANCIAL KPIS OUR STRATEGY To create a high growth, high 66.0m £1,594 m return, family entertainment VISITORS REVENUE company based on strong +3.5% Total growth +11.6% Like for like growth +0.7% brands and a global portfolio 2017 66.0 2017 1,594 that is naturally balanced 2016 63.8 2016 1,428 against the impact of 2015 62.9 2015 1,278 external factors. These four strategic elements are identified by the following icons throughout this £474m £323m Annual Report. UNDERLYING UNDERLYING EBITDA +9.5% OPERATING PROFIT +6.8% Delivering high growth 2017 474 2017 323 2016 433 2016 302 2015 402 2015 291 High return Strong brands 20.5p £271m BASIC EPS PROFIT BEFORE +5.5% TAX +4.8% Global portfolio 2017 20.5 2017 271 2016 19.5 2016 259 2015 16.8 2015 237 20.5p 9.1% ADJUSTED RETURN ON EPS +5.5% CAPITAL EMPLOYED 2017 20.5 2017 9.1 2016 19.5 2016 9.6 2015 17.8 2015 9.7 How we report our results NON-FINANCIAL KPIs Last year’s financial statements were prepared on CUSTOMER SATISFACTION HEALTH AND SAFETY a 53 week basis, to 31 December 2016. Reported Based on customer satisfaction surveys. The Medical Treatment Case (MTC) rate captures figures were revenue £1,457 million, underlying Our target is a score over 90%. the rate of guest injuries requiring external medical operating profit £320 million, profit before tax treatment relative to 10,000 guest visitations. 2017 96% £277 million and basic EPS 20.8 pence. 2017 0.04 2016 94% Consistent with our approach in previous years, 2016 0.06 and to provide a more direct comparison between reporting periods, the operating performance STAFF ENGAGEMENT commentary is stated on a 52 week basis, unless Based on annual employee surveys (see page 40). Our target is a score over 80%. otherwise noted. More details on the period under review (‘52’ and ‘53’ week data) and the 2017 86% performance measures used are set out in the 2016 89% Financial and Operating Review on page 33. 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 66 to 87. Terms used throughout this document are defined in the Glossary on pages 152 to 153. 02 MERLIN ENTERTAINMENTS PLC ANNUAL REPORT AND ACCOUNTS 2017 COMPANY OVERVIEW DELIVERING MEMORABLE EXPERIENCES MIDWAY ATTRACTIONS Merlin Entertainments is Europe’s leading and the world’s second largest visitor attraction operator. We are first and foremost an entertainment company, with an 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 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. For all our stakeholders, Merlin will always be an exciting company with which to be involved. 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, resorts or shopping malls, providing visits of shorter duration. • Our Theme Parks are outdoor attractions We have high quality, chainable brands and offering accommodation, rides, shows and are the only company to successfully operate interactive experiences around a central theme. the Midway model on a global scale. We are They are managed in two Operating Groups – developing new brands to complement the LEGOLAND Parks and Resort Theme Parks. portfolio and broaden our appeal across all key target demographics. GLOBAL BRANDS • SEA LIFE 40.7m • Madame Tussauds Visitors • LEGOLAND Discovery Centre • The Dungeons £656m • The Eye Revenue WE ARE FIRST AND FOREMOST AN ENTERTAINMENT COMPANY, WITH AN AIM TO DELIVER UNIQUE, SAFE AND MEMORABLE EXPERIENCES TO MILLIONS OF VISITORS More on pagee 2222 MERLIN ENTERTAINMENTS PLC 03 ANNUAL REPORT AND ACCOUNTS 2017 LEGOLAND PARKS RESORT THEME PARKS LEGOLAND Parks are aimed at families with Resort Theme Parks are national brands aimed at younger children and have LEGO as the central families, teenagers and young adults, with themed theme. Highly themed accommodation is central accommodation at all locations. They have high to our strategy to develop the customer offering. brand and customer awareness in their local Merlin holds the global, exclusive rights to the markets and include the leading theme parks LEGOLAND brand. in the UK, Italy and Northern Germany. BRANDS • Alton Towers Resort, UK 15.3 m 10.0 m • Chessington World Visitors Visitors of Adventures Resort, UK • Gardaland Resort, Italy • Heide Park Resort, Germany £609m £329m • THORPE PARK Resort, UK Revenue Revenue • Warwick Castle, UK LOCATIONS • Billund, Denmark • California, USA • Dubai, UAE • Florida, USA • Günzburg, Germany • Johor, Malaysia • Nagoya, Japan • Windsor, UK More on pages 22 to 23 More on page 23 04 MERLIN ENTERTAINMENTS PLC ANNUAL REPORT AND ACCOUNTS 2017 CHAIRMAN’S STATEMENT A SOLID PERFORMANCE MERLIN ENTERTAINMENTS’ RESULTS REPRESENT A SOLID PERFORMANCE IN A CHALLENGING MARKET ENVIRONMENT MERLIN ENTERTAINMENTS PLC 05 ANNUAL REPORT AND ACCOUNTS 2017 Trading and strategy Governance and the Board Merlin is uniquely placed to be a ‘Force for Merlin Entertainments’ results represent a The Board and its Committees have each Good’ in other areas. Our partner charity, solid performance in a challenging market continued to provide strong governance and the SEA LIFE Trust, protects marine wildlife environment, where a combination of ongoing oversight throughout 2017. I am pleased that through its worldwide campaigns. In 2017 this security concerns impacted the Group’s city the recent externally facilitated evaluation has focused on plastic pollution, overfishing centre tourist destinations, together with exercise confirmed they each remain effective. and habitat destruction, with a particular extreme weather at peak trading periods I would note in particular that in 2017 we emphasis on protecting sea turtles. in Northern Europe, Italy and Florida. appointed a specialist with experience in high- Merlin’s Magic Wand, our children’s charity The trading performance is reviewed in hazard industries, as an independent adviser partner, continues to deliver magical experiences further detail within this Annual Report. to the Health, Safety and Security Committee. around the world to children who are The Company’s long-standing strategy to This has provided independent oversight disadvantaged through sickness or disability. diversify its asset portfolio across brands and and challenge, as well as further advice and These activities include arranging visits to our geographies continues.