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Jan. 8, 2004. BUSINESS NEWSWIRE
LEGO® fires two executives, mulls layoffs
COPENHAGEN, Denmark -- Danish toy maker LEGO® said Thursday it would post a
steep loss for 2003 expecting a $237.6 million pretax loss, the worst in the
privately held company’s 72-year history. LEGO preliminary loss before interest
and taxes (EBIT) is seen at 1.4 billion Danish crowns ($237 million), down from
an 830-million-crown gain in 2002, the company said in a statement.
The company, whose colored plastic building blocks have been a favorite
children’s toy for decades, fired executive vice president and COO (chief
operating officer) Poul Plougmann, over failed marketing strategies. LEGO also
dismissed Francesco Ciccolella, who was responsible for corporate development.
Additionally, the company said would possibly lay off some of its 8,000 workers
worldwide. LEGO has several retail outlets in the United States and a theme park
in California, but no U.S. production facilities. It was not known if the
reductions would affect the company’s U.S. staff.
Kjeld Kirk Kristiansen, CEO (chief executive officer) and grandson of the
company’s founder, said LEGO push to develop new products did not generate the
results it wanted.
Last year was “very, very bad,” he said.
Since it reported its first loss of $47.8 million in 1998, Lego has been hit
hard by increasing competition from the makers of electronic toys.
Under Plougmann, the company reacted by expanding its electronic offerings,
including making high-profile deals to use characters from Disney, the Star Wars
films and Harry Potter books in its toys. It also developed popular CD-ROM games
and its lauded Mindstorms series, high-tech robots that are made of building
blocks but can be controlled by personal computers.
As a result, sales rose but profits stagnated because of the higher cost of
producing the new products. The company now plans to stop making the
electronics and movie tie-in products and return to its core mission: producing
colored plastic building blocks for children.
“We would rather be in control of our own products, the things that we can
decide,” Kirk Kristiansen said. “We want to go back to our core products, and
that is a key part of our future strategy.”
Figures for 2003 were not released, but in 2002, LEGO posted a 7 percent
increase in sales, to $1.9 billion and a 1 percent gain in its net profit to
$72.5 million. Until 1997, LEGO did not release its financial results.
The number of top management will be reduced to nine from 14.
“We will focus on profitability, especially the attractive profit potential of
core products. Our aim for 2004 is to break even...it is realistic given the
initiatives we have already taken,” Chief Executive Kjeld Kirk Kristiansen said
in the statement.
LEGO will also make “necessary organizational adjustments” among its 8,000
employees in nearly 30 countries. It gave no further details but said an
announcement would be made in a couple of months.
Founded in 1932 by Ole Kirk Christiansen, the name LEGO was invented by combing
the first two letters of the Danish words “Leg godt” (play well) without knowing
that that the word in Latin means “I assemble.”
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Note: Main competitors, Mattel Inc., and Mega Bloks have not yet released
full-year 2003 figures. However Mattel Inc. reported on October 16 a rise
in third-quarter earnings thanks to strong international sales partially
offsetting sluggish U.S. sales.
-end of report-
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