Merlin Entertainments: General Discussion

[Tom]

The company is using cash, i.e. the amount coming in is less than what is going out.

I think most people now understand the half-billion pre-tax loss is asset write-offs but the trajectory is clear: it is worse year-on-year and the numbers are eye watering. These pre-tax losses tend to be over-trivialised by those that think they have been overstated by "YouTubers" or whoever else they dismiss.

Merlin in its current form is under considerable existential threats. Yes, it can turn around, but this requires a significant step-change in both guest numbers and spend, and/or a major strategic restructure. They have already attempted the latter in the Sea Life offload, which failed. They are now forced to manage those assets longer, all the time while burning cash.

Their credit rating has tanked as a result of their finical performance. In a company so heavily laden and reliant on debt, it is the lenders that determine how well it is doing, and ultimately decide said business' fate.

 

[Squiggs]

Probably also worth mentioning that it doesn't look like they've had any luck selling the two Australian Fly attractions that they announced they were looking to offload last October.

So that's another couple of assets they are still having to maintain for a longer period than they were likely expecting.

 

[Tom]

Eventually they might have to offload for nothing, close/mothball, or even pay people to take them rather than allow them to continue draining cash out the business.

 

[Bert2theSpark]

If they can’t strip assets from the company, I wonder whether it might be worth spinning a part of the company into a new entity. CdA spun off a lot of its smaller theme parks about a decade ago and the Looping Group has only gone from strength to strength in recent years.

We’ve seen how problematic the Six Flags merger has been, so a merger with another theme park operator would likely be equally problematic. But I’m honestly surprised how Merlin keeps ticking over when the rest of the regional theme park operators have evolved over the past decade or so.

 

[Tom]

They've just done the opposite and amalgamated theme parks, Legoland parks, and so-called Midways.

I agree however that it's a credible prospect that the banks may force their hand eventually. They could be forced to sell multiple/all Midways as a package for example, to make it more appealing to a buyer.

They are clinging on to the old model as long as they can. but times seem to have moved on. Madame Tussauds shutting at 3pm says it all really.

 

[GooseOnTheLoose]

Eventually they might have to offload for nothing, close/mothball, or even pay people to take them rather than allow them to continue draining cash out the business.

If the assets weren't profitable, they already would have closed them and banked the tax write-offs. That they continue to run the attractions, whilst looking to sell them to another operator, and not succeeding, suggests that they're not "draining cash out of the business". They're just small fry.

The offloading is likely because the profit is minimal for them, leading to a lack of interest in continuing to run them. Whilst profit is profit, it does seem as though Fiona Eastwood's Merlin isn't as commited to midways as previous administrations.

Madame Tussauds shutting at 3pm says it all really.

I grew up outside Tussaud's in London. Fighting through the crowds to get to my front door was a daily ritual.

The crowds of tourists spewing along the Marylebone Road, making getting to Baker Street Station a battle within itself, have been long gone since 2020; but it's not just Tussaud's.

The West End theatre ticket booth is gone. The incredibly large gift emporium is long shut, with the smaller ones next to it also gone. The small restaurants and cafés along that strip are no more. The live actor pretending to be Sherlock Holmes, and directing people around the corner to the "museum", is also no more.

The issue isn't that Tussaud's in London has been mismanaged, or run into the ground, it's just another victim of economic issues and the lack of a monoculture.

It's more difficult for tourists to visit the UK than it was 6 years ago, and the country is a lot more hostile toward them.

Tussaud's worked because we all listened to the same music, we watched the same shows and films, we followed the same news. We had a shared existence of celebrities, we knew who they were. Monoculture has been in a nosedive decline since 2007, which is likely the issue that Tussaud's is facing.

We no longer have the same celebrities within the UK, let alone the world over. Someone you recognise as famous is someone I'm likely never to have heard of. This was reflected in my most recent waddle around the attraction in June, not knowing who half of the waxworks were. Who wants to go and see waxworks of people they're not familiar with?

 

[Dave]

I think most people now understand the half-billion pre-tax loss is asset write-offs but the trajectory is clear: it is worse year-on-year and the numbers are eye watering. These pre-tax losses tend to be over-trivialised by those that think they have been overstated by "YouTubers" or whoever else they dismiss.

People criticised the conclusions the click baters on YouTube made with the accounting adjustment (plus the YouTubers did say months ago Merlin was imminently collapsing which it hasn’t).

What was more informative was the change in credit rating (it didn’t exactly tank but it dropped), again the idea the group is collapsing isn’t likely but it’s definitely got a cash flow problem. I think next season will be a year of cuts.

 

[Tom]

Indeed, and I've never been in the camp of imminent collapses as they are rare for billion pound companies, but things need to change and change dramatically. Banks don't want any business to go bust, they want them to pay their bills, often of course at an increased rate of interest.

The accounting adjustment is however severe. It's the basis on which they secure the debt and refinancing of it they need to run. £200m loss one year then £500m the next.

It will be interesting if the operational cuts and capital pauses - at worst case seen as tinkering around the edges - will satisfy the creditors, or that their hand will be forced into something much more dramatic like spin-offs, mothballs, closures, etc.

 

[Alsty]

At this point it sounds like a downward spiral with little way to stop it. If Merlin cut more then it will just make their parks even more depressing to visit, guest satisfaction will keep dropping and visitors will drop even further, putting more pressure on their finances.

 

[Tom]

The ideal (and somewhat fantasy) outcome would be that Blackstone or some other key owner realises that Merlin has built up an empire of relative tat and generalism, then decide to invest £100m or more in Alton Towers, and double down on it as a long term investment as a stand-alone asset.

 

[MaxPower]

I'd say Alton Towers would be the first one they'd try and offload if anything given the overheads and ancient ride hardware.

There really aren't many operators who could realistically afford to buy the Merlin parks even if they wanted to sell.

 

[Tom]

They don’t own Alton Towers, but more importantly it probably has more earning potential than anything else.

If you can add a million or more to the gate through a business plan for investment, then suddenly it looks way more appealing than virtually anything else in their portfolio.

Currently though it has been run down to a near-budget quality attraction in many areas, while maintaining a semi-premium pricing structure. A million or so people are probably staying away based on the quality of their recent visit(s).