Terrorism Threat Clouds Horizon at London Eye Operator Merlin

(Bloomberg) -- The increased threat of terrorism means London Eye and Legoland theme-parks operator Merlin Entertainments Plc is restrained in its optimism over the outlook for 2017.

“In the short term, we're planning prudently because we don't know what might happen,” Chief Executive Officer Nick Varney said in a telephone interview Thursday after the company reported 2016 earnings that beat analyst estimates.

Terrorism is the main cloud on the horizon for Merlin, which is set to benefit from sterling's decline after the U.K.'s vote to leave the European Union. The reduced value of the currency could lift foreign visits to the U.K., where the company's attractions include Madame Tussauds waxworks and the Alton Towers theme park. It will also provide a boost on translation of the 70 percent of profit that Merlin earns outside Britain.

Merlin shares fell in early London trading on what Barclays analysts described as “conservative” guidance. The stock was down 4.2 percent at 476.6 pence as of 10:12 a.m., although it's still up 6.3 percent this year. The company, a member of the FTSE 100 stock index, has a market value of almost 5 billion pounds.

Security at Merlin's attractions and theme parks has been stepped up as a result of the increased threat of terrorism, Varney said. “We're taking steps to prevent it and are right on top of it,” the CEO said.

Legoland Plans

Merlin operates attractions in Istanbul, Munich and Berlin, cities that have witnessed incidents in the last year. The immediate falloff in visitation after an attack tends to be relatively short, with attendance usually bouncing back in five to six months, Varney said.

“If there's a terrorist attack, we know that can hit business in the location it happens,” he said, meaning that the company has to be cautious in its outlook.

With long-term projections pointing to increased levels of international travel, the theme-park operator is keen to expand its geographic footprint. A new Legoland park opens in Tokyo next month, and the company is evaluating sites in New York, Beijing and Shanghai, Varney said.

In the U.K., business is recovering at Alton Towers after a roller-coaster accident in 2015 for which the company was fined 5 million pounds. Merlin reviewed safety in the wake of the incident, Varney said. It also took steps to cut costs, including more than 100 job losses.

To contact the reporter on this story: Paul Jarvis in London at pjarvis@bloomberg.net.

To contact the editor responsible for this story: Eric Pfanner at epfanner1@bloomberg.net.