Merlin puts faith in Lego blocks

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Nick Varney does not like heights. It is a curious phobia for the chief executive of Merlin Entertainment, the world’s biggest theme park company after Disney. Its latest creation is a mountainous rollercoaster at Thorpe Park, near London, in which riders are suspended on either side of a monorail.

“When a rollercoaster takes me up to a very high place, I’m not always that keen on it,” he says. “But I like ones with twists and turns.”

Mr Varney, who harboured aspirations to be prime minister while studying at the London School of Economics, has been in the theme park industry for 22 years. He was headhunted as a marketing director for the group’s best-known attraction, Alton Towers.

Visiting his next project, however, should cause him less discomfort. In two weeks’ time he will be in Malaysia to visit Merlin’s first Legoland resort in Asia. It is a comparatively low-rise structure.

Speaking at the group’s wood-panelled offices on Westminster Bridge, central London, Mr Varney, who is based in Dorset, has just finished a serious bout of diary shuffling after rescheduling the attraction’s opening ceremony. The reason? To allow the sultan of Malaysia to attend both Legoland and the Singapore Grand Prix.

Mr Varney was keen to oblige. “To not go would not be politically acceptable,” he says.

The Malaysian government invested the bulk of the $300m to build the theme park, and Merlin plans to transform the south of the country into “an Asian Orlando” – a reference to the Florida city that is the theme park industry’s de facto capital.

The state investment comes with the licence to operate the attraction, and Merlin – as the Legoland franchise owner – will receive management fees, plus an option to buy 20 per cent of the business.

“The Singapore southern-Malaysia nexus will be the Orlando of South-east Asia for the foreseeable future,” says Mr Varney.

“You’ve got big casino developments and, on the back of that, and Universal Studios [a Florida-based theme park group], there are huge inflows of people from China, Australia, Indonesia and India.”

In 2000, Merlin had just two attractions in the Asia-Pacific region. With the opening of Legoland Malaysia, it now has 21 – and Mr Varney says it is “aggressively” looking for sites for other theme parks.

This year it bought an Australian company, with a A$140m ($144m) pricetag, primarily because it owned aquariums in China and Thailand. But Legoland is at the centre of its eastern plans. Mr Varney says Merlin is negotiating to have a Legoland in Japan and is considering options for a third one elsewhere in the region.

“Legoland has a strong empathy with Asian cultures because it’s all about fun learning and not just about rides,” he says.

The group also plans to build smaller, indoor attractions – dubbed “midways” – in conjunction with shopping precinct developers, at a cost of £5m to £8m each. But the Asian strategy is also part of a wider plan for Merlin to endear itself to London investors.

The company, which is primarily owned by the private equity companies CVC Capital Partners and Blackstone, pulled out of a proposed £2bn initial public offering in 2010. Mr Varney says 2014 is the earliest he can foresee a listing.

“I have always been anxious to settle the long-term ownership structure and make sure we’ve got access to the capital to exploit the many opportunities worldwide we’re presented with,” he says. “It won’t be before [2014] because the IPO market in Europe is as dead as the dodo.”

Before its aborted IPO, Merlin had achieved nine consecutive years of double-digit growth in earnings before interest, tax, depreciation and amortisation, which reached £238m in 2009.

In its latest annual results, Merlin Entertainment registered a 7.2 per cent increase in like-for-like operating profit to £212m last year and reported net debt of £1.2bn.

This year UK earnings have been adversely affected by the poor summer weather. But Mr Varney sees Merlin’s recent investment in theme park hotels as a way to overcome this.

“Most people are pretty pressed for leisure time, and they want it to be special,” he says. “They want to stay in the [cartoon] Ice Age theme room ... It’s escapism.”

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