Lego suffers steepest fall in profit in almost two decades

Lego suffered its worst fall in profits in almost two decades as revenues stagnated after an extraordinary growth spurt from the Covid-19 pandemic came to an abrupt end.

The privately-owned Danish toymaker said on Wednesday that sales in the first of the year were up 1 per cent to DKr27.4 billion (€3.68 billion) but that operating profits had dropped 19 per cent to DKr6.4 billion, their biggest fall since at least 2004.

Chief executive Niels Christiansen said he remained “very satisfied” as the group was outperforming a “very challenged” toy industry and cementing its position as the world’s largest toymaker by sales and profits.

He blamed the fall in profits on the “extraordinary tail” to recent raw material cost inflation and an increase in investments in new factories, software engineers and sustainability.

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Mr Christiansen added that because the company was family-owned and in a strong financial position, “we don’t start or stop investments depending on if the market is going up or down. We’ve kept outperforming the market at the same rate as the past four or five years. This year, the market was down.”

He argued that the Danish group was a long way from its last crisis in 2017 when sales and profits contracted as the company lost market share.

Lego outgrew the toy industry by an average of 12 per cent a year in the past five years, he added, while its operating profit in the first half of this year was almost double the level in the same period in 2019.

The maker of bright plastic bricks enjoyed remarkable success during the pandemic as parents flocked to its sets of police stations, Star Wars spaceships and Harry Potter castles. In the first half of 2021, its operating profits more than doubled, a rate that Mr Christiansen said at the time was “unsustainable”.

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Lego is building two new factories in Vietnam and the US that will open in 2024 and 2025 respectively, as well as expanding four of its five existing plants. It also plans to triple its spending on sustainability to $3 billion (€2.76 billion) a year by 2025 as it seeks to eliminate plastics derived from fossil fuels.

Its figures remain far ahead of US-listed rivals Mattel, which recently enjoyed enormous success with the Barbie film, and Hasbro. The companies each recorded operating and net losses in the first half on sales declines in the double-digit percentages, with Mattel’s revenues sliding to $1.9 billion and Hasbro’s to $2.2 billion.

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Christiansen said he was happy for Mattel for the smash hit of the Barbie film after several Lego movie box office successes. But he added: “We still take significant market share. If you look at it, we are still the ones that grow.”

He also noted that the coronavirus pandemic had led not just to a surge in demand but also a collapse in investment in new factories, saying that when Lego talked in 2021 “about getting back to a sustainable level, this is probably the right level”. – Copyright The Financial Times Limited 2023