Skip to comments.Lego expecting worst loss yet, ponders layoffs
Posted on 01/09/2004 5:01:17 PM PST by Holly_P
COPENHAGEN, Denmark Danish toy maker Lego, which has its North American headquarters in Enfield, said Thursday it was expecting a $237.6 million pretax loss, the worst in the privately held company's 72-year history.
The company, whose colored plastic building blocks have been a favorite children's toy for decades, fired executive vice president and chief operating officer Poul Plougmann over failed marketing strategies. Lego also dismissed Francesco Ciccolella, who was responsible for corporate development.
Additionally, the company said it 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, chief executive and grandson of the company's founder, said Lego's 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 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.
Lego will also make "necessary organizational adjustments" among its employees in nearly 30 countries. It gave no details but said an announcement would be made in a couple of months.
Founded in 1932, Lego's name 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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