14 Apr 2015 18:00
14 April 2015
Merlin Entertainments plc
AGM Notice
Publication of Annual Report and Accounts
Further to the release of the Company's final results on 26 February 2015, Merlin Entertainments plc announces that:
(i) the 2015 Annual General Meeting will be held on 14 May 2015 at LEGOLAND Windsor Hotel, Winkfield Road, Windsor, SL4 4AY commencing at 11.00 am;
(ii) its Annual Report and Accounts for the year ended 27 December 2014 are published today.
The following documents are being posted or made available to shareholders today:
(a) AGM Circular (incorporating the Notice of Annual General Meeting);
(b) Form of Proxy in relation to the Annual General Meeting;
(c) The Annual Report and Accounts for the year ended 27 December 2014.
Copies of these documents are also being submitted to the National Storage Mechanism and will shortly be available for inspection at: www.hemscott.com/nsm.
(d) The AGM Circular (incorporating the Notice of Annual General Meeting); is also available to view on the Company's website at www.merlinentertainments.biz/investor-relations.
A condensed set of Financial Statements and information on important events that have occurred during the year ended 27 December 2014 and their impact on the Financial Statements were included in the Company's Preliminary Results Announcement on 26 February 2015, which is available on the Company's website referred to above. That information together with the information set out below in the Appendix to this Announcement (which is extracted from the Annual Report and Accounts for the year ended 27 December 2014), fulfil the requirements of DTR 6.3.5. This Announcement is not a substitute for reading the full Annual Report and Accounts. Page and note references in the text in the Appendix refer to page numbers in the Annual Report and Accounts and references in the Appendix to "this Report" are to the Annual Report and Accounts.
For further information please contact:
Merlin Entertainments plc
+44 (0)1202 440 082
Alistair Windybank, Investor Relations
Simon Whittington, Investor Relations
Tulchan Communications
+44(0)207 353 4200
Susanna Voyle
Stephen Malthouse
About Merlin Entertainments plc
Merlin Entertainments plc is the leading name in location-based, family entertainment. Europe's Number 1 and the world's second-largest visitor attraction operator, Merlin now operates over 100 attractions, 11 hotels and 3 holiday villages in 23 countries and across 4 continents. The company aims to deliver memorable and rewarding experiences to its more than 60 million visitors worldwide, through its iconic global and local brands, and the commitment and passion of its circa 26,000 employees.
APPENDIX
(Extracted from the Annual Report and Accounts for the year ended 27 December 2014)
A. RISKS AND UNCERTAINTIES
Overview of Merlin's risk management approach
Evolution in approach
During the course of 2014, Merlin has reviewed its overall risk management approach to further align it to the management of the business and the Board Committee structure.
Prior to this change in approach, risks were categorised into: health and safety matters; current trading and future expansion risks. All matters were overseen by a Corporate Risk Management Committee which reported to the Executive Committee and, through the CEO, to the Board. In addition, there was a dedicated Health, Safety and Security Committee of the Board chaired by the Chairman to oversee all health and safety matters.
In the latter part of 2014, an amended approach to risk management has been implemented. The Group has now separated risk management into three components to reflect the varying functions and committees that manage and oversee such risks on an ongoing basis. The three components are:
· Health, safety and security risk.
· Commercial and strategic risk.
· Financial process risk.
Whilst the Board retains overall responsibility, specific Committees are appointed by the Board to oversee the management of the risks in each category:
· The Health, Safety and Security Committee and the Audit Committee comprise Board members to oversee health, safety and security matters and financial process risks respectively.
· The Group's Executive Committee, a non-Board committee, oversees commercial and strategic risk through a Commercial and Strategic Risk Management Committee made up of members of the Executive Committee and other relevant senior managers. It reports quarterly to the Board on such matters, through the CFO.
Risk appetite
The Board has defined the Group's risk appetite (tolerance of risk) according to whether a risk is pure or speculative.
Pure risk refers to situations where there is clear regulatory guidance and matters are strictly defined, such as ride safety, accounting practices or food hygiene. The Group has a very low appetite for pure risk. In practice this means that wilful breach of any national or local legislation is unacceptable.
Speculative risk relates to decisions for which acceptance of a risk can bring commercial benefit. The Group has a greater appetite for speculative risk, which it assesses based on an appropriate analysis of threats and opportunities, along with appropriate 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 speculative risk decisions.
Risk management
Each attraction and central function maintains a risk register, being a record of the material risks it faces categorised into the three components of risk as identified above. The registers include a rating of each risk, based on an assessment of the likelihood and impact after taking into account existing mitigating control measures. Where this assessment indicates a high residual risk, additional actions are considered to further mitigate the risk. In respect of financial risks, such actions may include the use of hedging instruments to protect against movements in foreign exchange and interest rates, following an assessment of the perceived risks in each case. Risk registers provide the basis for ongoing risk management and all are formally reviewed at least once a year.
In addition to the ongoing risk management processes, periodic detailed reviews of specific risk issues are also undertaken. This review process, together with structured audit programmes covering both financial processes and health, safety and security controls across the Group, allow the Board to gain assurance over the robustness of risk management systems.
Health, safety and security risks
Integral to Merlin's strategic vision is our absolute commitment to continuously achieve high standards of health, safety and security (HSS). Merlin's number one priority is delivering safe and memorable experiences to guests. Our unequivocal focus is on ensuring that our operations are as safe as possible at all times, thereby honouring the trust that our guests, employees and shareholders place in us. Our ultimate aim is to proactively and continuously improve HSS performance.
HSS management
Responsibility for the management of HSS resides with the Board, with day to day management delegated, via the Executive Committee, to the relevant management teams throughout the Group with local HSS committees in place at both Operating Group and attraction levels.
Merlin's HSS Policy and health and safety management system together set mandatory obligations for standards and performance across all our operations. Our approach, which is well embedded across the Group, incorporates the requirements contained within the UK official guidance on the safe practice of fairgrounds and amusement parks (HS(G)175), as endorsed by the UK Health and Safety Executive. Similar guidance, including in respect of robust independent inspection regimes, is applied in all territories in which we operate.
HSS assurance
Merlin conducted 78 HSS audits during 2014 to assess compliance with our HSS policy and manual, which are reported to the HSS Committee. These audits are in addition to the regional and attraction based self-inspections that also take place throughout the year. In addition, thorough in-service annual inspections were conducted on all our rides during the reporting period, meeting UK requirements (or other national equivalents) as a minimum. These are typically performed by accredited independent third party inspectors.
All attractions that prepare and serve food and beverages are subject to half-yearly or annual food safety audits, performed by specialist independent third party inspectors, to verify compliance with Merlin's comprehensive food safety policy.
Commercial and strategic risks
Commercial and strategic risk management is delegated from the Board, via the CEO and the Executive Committee, to the Commercial and Strategic Risk Management Committee (CSRMC). This latter Committee comprises, the CFO, who is a member of the Board, relevant members of the Executive Committee and other relevant senior managers and is chaired by the CFO. It meets four times per year with matters arising being reported to both the Executive Committee and the Board on a quarterly basis by the CFO. To provide the Non-executive Directors with sufficient information to gain assurance over the process of commercial and strategic risk management, a fuller document is provided annually detailing the items discussed and output of the CSRMC. Furthermore, in 2015 the minutes of each meeting will be issued to the Non-executive Directors.
The management of commercial and strategic risk is embedded across the Group through normal business review processes. In addition, from 2014 onwards, each attraction and central function is required to perform a full risk assessment workshop on an annual basis. The purpose of this process is to review any material changes in the external commercial landscape and to assess whether recent trading trends may require an alternative risk management approach. These annual assessments are incorporated into the commercial and strategic section of the risk register for each Operating Group and are aggregated at Group level.
Financial process risk
Financial processes within the Group are led and co-ordinated by the central finance function. Financial process risks are managed by that team through an ongoing assessment of external regulatory changes, the quality and timeliness of internal financial reporting and other financial risk areas such as taxation and treasury. Key issues are reviewed on a quarterly basis by a senior finance team within Merlin.
Further assurance is gained from both the internal and external audit processes. In 2014 the internal audit function, based on an annual assessment of risk, provided audit coverage of material central functions and attractions covering over 70% of revenue generated, identifying procedural weaknesses and providing a structure to assess management's response. The Group is also subject to external audit. Matters arising from both audit functions are reported to the Audit Committee.
Business continuity planning
Disaster recovery plans are in place at all attractions, incorporating escalation procedures and crisis management protocols that are regularly updated on a groupwide basis.
More broadly, business continuity plans exist to allow the attractions to recover performance in the event of various adverse incidents. Examples of such incidents could include prolonged power failure, major IT failure or life support system failure within a SEA LIFE attraction. It is recognised that only limited contingency planning can be made against natural disasters such as major flooding or earthquakes, however the Group's geographic diversity provides protection against the financial impact of such occurrences.
The tables on the following pages highlight the main risks that have been identified through the Group's risk assessment processes and that have the potential to impact on our strategic development. The tables show whether, in the opinion of the Board, such risks are increasing, stable or decreasing based on management assessment, review of available data and after taking account of the mitigating factors identified.
Description | Mitigating factors |
Risk trend | ||
Health, safety and security (HSS) | ||||
Ride and attractions safety
| Health and safety is one of Merlin's Key Performance Indicators.
A serious accident to a guest or staff member on a ride or at an attraction could cause harm to an individual and impact confidence in the Group's brands. | Ÿ Proactive ownership of HSS risks by line management based on the provision and adoption of HSS policies, Codes of Practice and guidance notes. Ÿ Competent and trained operational and engineering staff, backed up by professional HSS teams supporting, monitoring and inspecting attractions. Ÿ Utilisation of HSS systems to support the management of risks with annual risk register and action planning processes by each attraction. Ÿ Regular internal and annual independent external auditing regimes. Ÿ Regular review of performance as well as key policies and procedures.
| Stable | |
Contractor management | The delivery of new attractions and experiences, which often involve work by sub-contractors. Poor standard of work or unreliable delivery could impact the Group's safety and growth expectations. | Ÿ Contractor approval procedures. Ÿ Major contracts are managed by qualified project managers and are subject to strict tendering processes. Ÿ Contractor performance is managed by in-house project management teams. | Stable | |
Macro event | A material macro event such as the spread of a worldwide pandemic or malicious attempt to sabotage a ride or attraction could impact visitation. | Ÿ Detailed security protocols. Ÿ Regularly tested major incident management plans. | Increasing | |
Description | Mitigating factors |
Risk trend | ||||
Commercial and strategic | ||||||
Customer satisfaction
| Customer satisfaction is one of Merlin's Key Performance Indicators.
A downturn in customer enjoyment of our attractions could impact repeat visitation. Similarly subsequent adverse social media feedback could adversely affect customer likelihood to visit. | Ÿ Regular and detailed customer feedback collected at every location. Data analysed against challenging satisfaction targets and actions taken accordingly. Ÿ Ongoing investment in our attractions continually refreshes the experiences for customers.
| Stable | |||
People availability and expertise
| Staff engagement is one of Merlin's Key Performance Indicators.
Merlin is a people business. The inability to attract and retain motivated, customer service orientated staff could impact guest satisfaction and future expansion. | Ÿ Personal development plans in place at all levels of the business to encourage long term employment stability. Ÿ Succession planning processes embedded across the Group and proactively managed. | Increasing | |||
Animal welfare | Growth would be impacted if animals were lost to disease or other welfare issues. | Ÿ External Zoo Licence audits ensure appropriate animal care. Ÿ Internal ethics committee and the Merlin Animal Welfare and Development team ensure the ethical treatment of animals in our care.
| Stable | |||
Availability and delivery of new sites and attractions | The Midway and LEGOLAND Parks growth strategy is predicated on the availability of suitable sites. A decline in the pipeline of suitable and economically viable sites could inhibit this growth. Planning permission is often required for new rides and attractions so growth could be impacted if planning permission were not able to be obtained. | Ÿ Experienced site search and business development teams, working several years in advance to maintain a strong pipeline of expansion opportunities. Ÿ In 2014 the LEGOLAND development and site search teams have been expanded to support the development of new parks and other sites. Ÿ Sites regularly update their development masterplans and teams work closely on fostering links with their local communities. | Stable | |||
Competition | Competition for leisure time and new entrants to the market could reduce opportunities for growth. | Ÿ Diversification to reduce reliance on individual attractions or locations. Ÿ Ongoing investment in sites to ensure continued appeal to visitors. | Increasing | |||
IT robustness, technological developments and cyber security | The Group has grown in the past both organically and through acquisition and as a consequence has varied IT systems across its portfolio. Such systems are integral to the Group's operations and financial reporting integrity. The Group is conscious of the increasing threat of cyber crime. | Ÿ 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. Ÿ Significant 2014 investment to ensure the Group remains compliant with payment card industry standards. Ÿ Additional measures put in place to mitigate the increasing threat of cyber security risk. Ÿ Regular updates to the Board on the progress of the IT strategy.
| Increasing | |||
Weather / seasonality | Individual attractions performance can be affected by particularly adverse weather at key trading periods. | Ÿ Increased portfolio hedging as the proportion of revenue generated from Asia Pacific and North America regions increases. Ÿ Healthy mix of indoor and outdoor attractions. Ÿ Strategy to drive an increased percentage of pre-booked business.
| Reducing | |||
Description | Mitigating factors |
Risk trend | ||||
Financial process | ||||||
Anti-bribery and corruption | An incident of bribery or corruption could lead to prosecution and fines and could cause reputational damage to the Company. Merlin's business model is lower risk relative to other industries as the majority of transactions are of low value and to individual customers. Merlin has a well embedded culture across the Group in which fraud and bribery at any level are not tolerated. Merlin does however operate globally and increasingly within territories with a historically higher propensity to bribery and corruption. | Ÿ Global fraud and bribery training programme in place alongside a fraud policy sign off for all staff. Ÿ Regular assessment of bribery exposure, and in 2014 performed an assessment workshop to reassess risks across the Group. Ÿ Robust financial and contractual controls with regard to procurement activities. Internal audit monitors purchasing processes on a rotational basis. Ÿ 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. Ÿ A whistleblowing policy is in place together with an independently operated employee hotline.
| Stable | |||
Credit risk | Merlin has relationships with a number of banks and is therefore inherently exposed to some credit risk. Merlin has very limited credit risk with its customers, the vast majority of whom pay in advance or at the time of their visit. | Ÿ Counterparty credit ratings are regularly monitored and there is no significant concentration of credit risk with any single counterparty. | Stable | |||
Foreign exchange risk | Merlin has its main borrowings and revenues in Sterling, Euros, US Dollars and Australian Dollars so is inherently exposed to exchange rate fluctuations which could impact on financial performance. Merlin reports its results in Sterling and as such is subject to translation risk in reporting its consolidated results. | Ÿ Broad match of borrowings in the currencies of underlying revenues. Ÿ Treasury policies in place and reviewed annually with regular reviews of currency exposures. Ÿ Currency exposures hedged where appropriate. Ÿ 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.
| Increasing | |||
Interest rate risk | Merlin continues to finance its operations through a combination of predominantly floating rate debt and equity. It is therefore inherently exposed to interest rate fluctuations which could impact on financial performance. | Ÿ Interest rate swap arrangements in place to fix the majority of the debt and substantially all of these are hedge accounted. Ÿ Group policies in place in terms of counterparty relationships and minimum credit rating criteria. | Stable | |||
Liquidity / Cash flow risk | Many of Merlin's businesses are seasonal in nature, generating cash in peak trading periods and utilising cash out of season, when capital investments are undertaken and fixed costs continue to be incurred. Merlin's growth plans include both the roll out of existing Midway and LEGOLAND brands, as well as strategic acquisitions when appropriate opportunities present themselves. The Group needs to have sufficient cash to fund these activities. Lack of liquidity and changes to the global credit market could impact the Group's long term ability to meet current growth targets. | Ÿ Short term cash flow forecasts are updated frequently in order to ensure liquidity for business operations on an ongoing basis. Ÿ Forecasts look forward for at least three 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. Ÿ Merlin maintains strong relationships with a number of lenders and keeps the debt markets under review in order to ensure that funding is obtained at the right time and at the right price to ensure the availability of funds to meet its strategic growth plans. | Stable | |||
B. DIRECTORS' RESPONSIBILITIES STATEMENT
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. However, the Directors are permitted to, and have elected to, prepare the Company financial statements in accordance with generally accepted accounting principles in the UK (UK GAAP).
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.
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.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.
The Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement.
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 Company's 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 IFRSs as adopted by the EU), when taken as a whole, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group.
· The Company financial statements (which have been prepared in accordance with applicable UK GAAP), 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
Andrew Carr
Chief Financial Officer