THE profits warning from Merlin Entertainments is hardly a bombshell given the devastating accident at its Alton Towers site last month. Apart from the personal tragedy of the 16 people who were injured, five seriously, when two carriages on the Smiler ride crashed into each other, the accident could not have come at a worse time commercially for Merlin.
Alton Towers closed for five days, while the company suspended theme park marketing and temporarily closed rides at two other sites just when the company should have been going full throttle as we entered the peak marketing season.
Merlin reckons the effect could be to knock profits down to between £40 million and £50m this year from £87m in 2014, and might also affect earnings in 2016. Having said that, the market’s response of a 4 per cent fall in the shares yesterday looked about right. It betokened concern and some disappointment, but was not overdone.
And the truth is that history shows the public has relatively short memories of such horrifying events at theme parks, fun fairs etc. Particularly when the company, as Merlin has done, moves rapidly to address the safety issues. So while Merlin may be affected this year and next in terms of reduced earnings, the Alton Towers disaster is likely to be a relatively short-term financial and public relations hit. It is not a threat to the underlying business model, which is why the investment case for the shares should be largely unaffected.
Similarly, Merlin has been hit recently by a dearth of European visitors given the weakness of the euro, but that is a cyclical headwind rather than systemic change. If shareholders are taking an 18-month to two-year view, they are unlikely to exit because of these factors.
Dram good for lowlands
IT IS heartening that the mothballed Bladnoch Distillery in Galloway is set to be reopened and distilling by late 2016 after being closed for the past six years.
Most of the Scotch whisky industry is associated with areas such as Speyside and the Scottish islands, but the reopening of Bladnoch means the number of working malt distilleries in the south will have risen from two to eight in the past decade.
It shows why recent headwinds for the Scotch whisky sector, such as reduced global exports in 2014 on the back of political and economic volatility, need to be put in perspective.
The industry has shown itself resilient, and malt whisky in particular is riding the persistent sociological trend worldwide of a growing aspirational middle class with a keenness for products with cachet.
Scotland’s 115th working whisky distillery was opened last month. Despite the short-term turbulence, it is an industry that remains in rude health.
Banking on déjà vu
BARCLAYS (tomorrow), and Lloyds Banking Group and Royal Bank of Scotland later in the week kick off the big banks’ interim results season.
It is likely to conjure up a sense of déjà vu. Expect more cost-cutting, more costs linked to legacy issues, falling bad debts, a better underlying earnings performance and perhaps some obligatory stuff about much done, much still to do.
The truth is we are a long way from the financial crash, but for the banks it remains a case of two steps forward, one back.