Against the backdrop of the ongoing COVID-19 pandemic, Merlin Entertainments has published its 2019 Annual Report and Accounts, along with additional information which provides an insight into the effect on its business of the ongoing economic disruption of the global outbreak and how it has responded to the challenges posed.

With governments across the world implementing policies to restrict travel, mandate social distancing and close non-essential businesses, Merlin Entertainments is one of countless companies to be impacted, with it noting that as of Tuesday 21st April 2020 all but nine of its 130 attractions were closed. This includes all of its UK attractions, which have now been closed for just over a month, and are expected to remain closed until at least 1st June 2020, following announcements made this week. Despite the significant negative commercial impact that this has unsurprisingly had, Merlin stresses that its priority remains the health, safety, and well-being of its employees and visitors around the globe.

As would be expected, Merlin have implemented a number of measures to reduce costs and conserve cash across the group. This has included furloughing approximately 80% of its global workforce and freezing recruitment of seasonal staff, voluntary salary reductions, nearly all but eliminating marketing and advertising spending, and reducing its variable staffing and rental costs. Collectively these measures have meant a 45% reduction of operating expenditure against what was originally budgeted during the period. Other measures have included seeking government support where available and engaging with landlords to defer rent or obtain rent-free periods whilst attractions remain closed.

The group has also reduced its planned capital expenditure by 40% (excluding LEGOLAND New York and LEGOLAND Korea which are both currently under construction), so as to focus on current projects, essential maintenance and infrastructure work in the existing portfolio. In the context of the UK Resort Theme Parks, this could mean that new attractions planned to open in the next few years could now be postponed or scaled-back. In turn, it remains to be seen whether attractions scheduled to open in the 2020 season, such as Gangsta Granny: The Ride at Alton Towers Resort and Black Mirror Labyrinth at THORPE PARK Resort, could be relaunched next year, if indeed they are able to open this year at all. Others in the industry have already made such decisions, with Paultons Park this week announcing that Tornado Springs will now open in Easter 2021, rather than next month as scheduled.

After all of the above, Merlin are estimating that they will still have average net cash outflows of approximately £50m per month, which is in the context of a cash position of £520m for the Merlin group and its parent company, Motion Acquisition Limited, as at the end of March. With this in mind, Merlin note that there is a material uncertainty on their ability to continue as a going concern, which is to say that they cannot be completely sure that they will still be able to operate in 12 months’ time. More detail is given in the group’s financial statements in relation to this, which reveal that Merlin’s ‘base case’ assumption is that the current situation will continue until mid-May, but they then anticipate the lifting of governmental restrictions on businesses opening and the ability of citizens to move freely. It is then assumed that once attractions open, ongoing revenue would recover to over 90% of normal levels after two months. Under this scenario, the company’s forecasts for the next 18 months indicate that it would have sufficient funds to meet its liabilities.

However, Merlin have also given consideration to a ‘downside’ scenario that models a four month shut-down lasting until mid-July 2020, where it would be more than five months before ongoing revenue would recover to over 90% of normal levels. In this situation, without any new sources of funds, the Group’s currently available liquidity could be exhausted by September 2020. With Merlin also announcing the issuance of €500m of new debt via the wider consortium group, this could suggest that management are now expecting that reality may be in line with the more pessimistic forecasts. Despite this uncertainty, Merlin note that their shareholders remain “highly supportive” of the business and “optimistic about its long-term prospects”.

With this in mind, although Merlin are clear that they will remain in compliance with government guidance, or even go beyond it where considered socially responsible to do so, thought is being given to how their attractions can open safely, when permitted to do so. Some Merlin Annual Passholders this week received a questionnaire, which provided an insight into some of the measures being considered. These included requiring guests and staff to wear face masks, undertaking temperature checks of guests and daily staff health checks, enhanced cleaning regimes and the offering of hand sanitisers, only allowing cashless payments and online booking, and restricting attraction capacity. However, it still remains unclear how practical it will be to operate visitor attractions in a situation where social distancing is likely to be a continued requirement.

TowersTimes and SouthParks will continue to bring all the latest updates on the ongoing situation as we have them.

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