Merlin Entertainments has announced its earnings will suffer from the ‘adverse impact’ of the Smiler rollercoaster disaster at Alton Towers. No. Kidding. Shares in the firm slid 7% this morning on the ‘news’, before recovering to 406.5p by mid-morning, 3.9% down.
No one will have been surprised that last month’s crash, which injured 16 and caused two young people to lose legs, should have affected Merlin’s business. The fact that Merlin released this information a few days ahead of its first half results may have raised some twitchy investors’ eyebrows, however.
Merlin said its projected underlying earnings (EBITDA) for the full year would be between £40m and £50, compared to £87m last year. It faces a ‘significant reduction in revenue’ over the crucial summer months, affecting Alton Towers in particular but also its other theme parks, and said the disaster could hit profitability in 2016 too.
That might sound pretty grim, but for Merlin as a group this is a setback, not a catastrophe. Alton Towers may have been described as a ghost town when it reopened after a week’s closure, and revenues for the UK theme park division as a whole may have fallen 2% as a result, but that’s unlikely to have dissuaded safety conscious parents from taking their children to Madame Tussaud’s, is it?
The firm operates dozens of attractions worldwide, and as a group it’s still performing well. Indeed, giving a taster of the results for the previous six months that it will formally publish on Thursday, Merlin said pre-tax profits rose 24% to £49m, on revenues of £544m, up 6.6%.
Just as importantly, Merlin boss Nick Varney handled the disaster with great skill, doing the right things and doing them quickly. Merlin closed Alton Towers for a week, instituted immediate safety improvements at all parks and crucially said sorry, accepting ‘full responsibility’ and offering to help the victims financially. The firm even advised them to hire a personal injury lawyer after admitting liability.
It’s one of those occasions where doing the right thing morally is also what’s best for the company. Yes, revenues will have suffered in the short term from keeping the place closed, but the longer-term impact will be less, because there won’t be a prolonged legal battle with ugly newspaper headlines attached. Thomas Cook comes to mind...
Accidents are rare at theme parks, and memories are short. In time, the association between Alton Towers and last month’s horrific crash will fade in customers’ minds, though of course that’s more than can be said for the victims.