Abstract:
Lego, the world's largest toy group, is increasing investment in new products such as software-enabled building blocks and sustainable development, striving to maintain a stage of rapid growth in revenue and profits. The Danish family-controlled company announced on Tuesday that revenue in the first half of the year increased by more than a fifth to a record 42 billion Danish crowns ($6.6 billion); net profit increased by a third to 8.6 billion Danish crowns.
Niels Christiansen, who took office as CEO in 2017, said that Lego is gaining market share in almost all countries and has achieved "pretty extensive" growth with themed sets such as the World Cup, Formula One, and Pokémon.
Lego expanded rapidly in the decade after it nearly went bankrupt in 2004. But at that time, the company grew too fast and its business structure became too complex, resulting in a decline in sales in 2017.
“We are significantly increasing investment,” Christiansen said. “This is the best guarantee against repeating the same mistakes. If the pace of investment cannot keep up, sooner or later the company will run out of momentum.”
The plastic brick manufacturer has tripled its number of software engineers and launched a new “smart brick” system, which is used for the first time in Star Wars and Pokémon-themed sets to make the play experience more digital and interactive.
This smart building block can play sound effects and generate interactive play effects, and the company is gradually incorporating it into more products. Christiansen revealed that more features will be unlocked in the future.
Lego has grown into one of the most successful private companies in Europe through massive expansion of its product matrix; in recent years, it has also been committed to attracting more girls and adults to buy building block sets.
The toy manufacturer increased its investment in production facilities by about 10% in the first half of the year to 4.6 billion Danish kroner; it also spent 1.9 billion Danish kroner to acquire the Lego Discovery Center from Merlin Entertainment Group, which also operates the Legoland theme park.
The group is building a new factory in the United States. In addition, a new factory in Vietnam has just been put into operation, and factories in Hungary and Denmark are also being expanded. Lego produces all of its plastic building blocks in-house; the company is investing heavily in the development of recycled materials to replace virgin raw materials derived from fossil fuels, and will not pass costs on to consumers, which means the company must closely control its own production capacity.
Christiansen mentioned that Lego sales have almost tripled in the past decade, but added: "We do not believe that we have hit the growth ceiling and there are still a lot of opportunities."
When asked whether Lego was "over-investing" to take advantage of the huge increase in profits, he responded: "What? What counts as overinvestment? But indeed, I would like to say that our investment in sustainable development and, to a certain extent, digitalization is higher than that of most companies." Christianson said that he does not believe that the group's current growth rate can be maintained forever, but he hopes that Lego's growth rate can continue to outperform the toy industry.
When asked whether the great success in 2016-2017 might turn into hidden dangers, he replied: "This issue is very critical, and we have spent a lot of time studying and judging this. We remain cautious and sober, and will not take it for granted that this type of growth will continue forever. So we do not blindly recruit people. Compared with the past, our goals are much more focused, and we also make forward-looking investments."
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