A view of Legoland from the Sky Rider in Windsor, Berkshire, UK, Sunday, May 29, 2005. Photographer: Eleanor Bentall/Bloomberg News. HOLD FOR FEATURE 29th May 2005 Photo: Eleanor Bentall
Legoland in Windsor, Berkshire. © Bloomberg

Shares in theme park operator Merlin Entertainments fell in early trade on Tuesday after it revealed sales had flatlined at its fast-growing Legoland theme parks.

Growth at the Lego attractions has previously been supported by releases of blockbuster Lego films and investment in rides and activities. “For this year, with no Lego movies and no capex [on new attractions] we signalled low single-digit growth and we ended up flat,” said chief executive Nick Varney.

He added the worse than expected performance at the global business of eight Legoland parks was partly down to several weeks of extremely hot summer weather in Germany, which dissuaded families with young children from visiting.

The shares fell 8 per cent on Tuesday morning to 339p.

At Merlin’s resorts business, which includes theme parks Alton Towers and Thorpe Park, like-for-like revenues rose 8.3 per cent in the 40 weeks to October 6, compared to the same period last year.

A year ago, the group gave a profit warning and said like-for-like sales at its resorts business fell 2.1 per cent in the aftermath of UK terror attacks.

Legoland typically makes up 40 per cent of Merlin’s profits, with attractions in its “Midway” business — such as Madame Tussauds and the London Eye — providing another 40 per cent, and its resorts making up the balance.

Over the past five years, the Legoland parks have grown much faster than the more mature Midway destinations, with an average compound annual growth rate of 7 per cent, Mr Varney said. This has made Merlin’s share price sensitive to any signs of a slowdown in the Lego business.

“Top line revenues might be moving in the right direction, but under the surface Merlin is struggling to get customers through the gates,” said Nicholas Hyett of investment group Hargreaves Lansdown.

“The smaller Midway attractions have been weak for some time, largely because of terrorist attacks on London dampening the tourist market in the group’s single largest destination. But the worrying thing in these numbers is that the previously strong Legoland business seems to be joining the slump.”

Mr Varney, however, said that 2018 would come to be seen as “one fallow year” for Legoland, which he forecast would return to growth next year after a planned series of investments.

Merlin also warned that its costs are rising because of the impact of a higher national minimum wage, increases in business rates and a tighter UK labour market.

“We remain focused upon maintaining this cost discipline across the group, but are mindful of increasing cost pressures,” Mr Varney said.

He reassured investors, however, that the group’s upcoming results were likely to meet City expectations.

Merlin is also opening new attractions this year, including Peppa Pig World in China, with a Shanghai launch planned for the end of this month. The pink cartoon pig, which is wildly popular among Chinese children, has been censored by Beijing, after a series of online videos used stills from the show to create memes with alternative captions.

Mr Varney said these developments “gave us a bit of a palpitation” but that he now felt confident the censorship was focused on what Chinese state-run media have referred to as the “subversive” use of Peppa’s image instead of the core brand.

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