The LEGO Group Mid-Year Profits Drop

For the first time in a decade, The LEGO Group’s mid-year profits have taken a hit. TLG published a press release on their Newsroom site yesterday, and I’ve added a few thoughts of my own. The press release is available below, but here are the numbers that everyone wants:

Revenue down 5 percent to DKK 14.9 billion compared with DKK 15.7 billion
Operating profit down 6 percent to DKK 4.4 billion compared with DKK 4.7 billion
Net profit down 3 percent at DKK 3.4 billion compared with DKK 3.5 billion
Cash flow from operating activities was DKK 4.6 billion compared with DKK 3.9 billion
The LEGO Group today reported fiscal results for the first half ending June 30, 2017. Revenue for the period totalled DKK 14.9 billion, a decline of 5 percent compared with the first half of 2016.

Those numbers might seem big, especially in relation to the 1400 jobs being axed (see below), but I think there needs to be some perspective. This doesn’t mean that LEGO is anywhere near going under – far from it! They’re still making a lot of money (net profits are at around AUD $684 million). It just wasn’t as much money as the higher-ups in the company believed there would be. I’m no financial expert (far from it!), but I reckon it would be rare for a company to experience constant growth – a bit of a decline was inevitable.

It’s very sad that 1400 people will be losing their employment – I personally think that this is a little drastic, but that’s just the way it is, and it was the company’s way of dealing with the issue of less revenue. It’s not just a “pack your things and go” type situation – many people immediately think the worst. They’re providing redundancy packages, and support for finding new roles outside the company. Sure, it still sucks, but sometimes hard decisions have to be made.

For those like me that weren’t sure of the difference between revenue and profits, revenue is the total amount of money that LEGO gets from us paying for it’s products and services. The profit is what’s left over after LEGO has paid for it’s costs and expenses. Axing jobs does mean paying for less people, but as they are attempting to rebuild as a smaller and less complex organisation, it may work – time will tell.

The bottom line is profits are still happening, and happening in a big way  – they were just not as big as last year. It will be interesting to see what happens in the second half of the year, and whether this cut in jobs and the rebuild does the trick.

Read on for the full press release.

LEGO Logo

Image courtesy of LEGO Newsroom

The Group now prepares to reset the company to deliver on its long-term ambition to reach more children all over the world with LEGO® experiences.

2017 First Half Financial Highlights (compared to first half 2016)

Revenue down 5 percent to DKK 14.9 billion compared with DKK 15.7 billion
Operating profit down 6 percent to DKK 4.4 billion compared with DKK 4.7 billion
Net profit down 3 percent at DKK 3.4 billion compared with DKK 3.5 billion
Cash flow from operating activities was DKK 4.6 billion compared with DKK 3.9 billion
The LEGO Group today reported fiscal results for the first half ending June 30, 2017. Revenue for the period totalled DKK 14.9 billion, a decline of 5 percent compared with the first half of 2016. Performance across the market regions was mixed. In established markets such as the United States and in parts of Europe revenue declined, while in a growing market, such as China, revenue grew by double digit.

Operating profit was DKK 4.4 billion, down 6 percent compared with the same period in 2016. This was due to lower revenue and increased costs associated with investments in production capacity and organisational capabilities made to support higher expectations of revenue which failed to materialise.

LEGO Group Chairman, Jørgen Vig Knudstorp said, “We are disappointed by the decline in revenue in our established markets, and we have taken steps to address this.

“We are working closely with our partners and we are confident that we have the long-term potential of reaching more children in our well-established markets in Europe and the United States. We also see strong growth opportunities in growing markets such as China.”

During the first half of the year some of the best-performing themes were homegrown classics such as LEGO® City, LEGO Friends, LEGO DUPLO and LEGO Technic, while the LEGO Batman movie products also saw a great response from consumers.

Plan for smaller and simpler organisation
During the past five years, the LEGO Group has built an increasingly complex organisation to support global double-digit growth.

Knudstorp said: “In the process, we have added complexity into the organisation which now in turn makes it harder for us to grow further. As a result, we have now pressed the reset-button for the entire Group. This means we will build a smaller and less complex organisation than we have today, which will simplify our business model in order to reach more children. It will also impact our costs. Finally, in some markets the reset entails addressing a clean-up of inventories across the entire value chain. The work is well under way.”

The new organisation will increase the LEGO Group’s focus on its markets and customers across the world.

As a consequence of the plans, the LEGO Group believes it would need to reduce its total global workforce by around eight per cent. This would impact approximately 1,400 positions, the majority before the end of 2017. Currently the LEGO Group employs approximately 18,200 people.

“We are very sorry to make changes which may interfere with the lives of many of our colleagues. Our colleagues put so much passion into their work every day and we are deeply grateful for that. Unfortunately, it is essential for us to make these tough decisions,” said Knudstorp.

The LEGO Group would provide the affected colleagues with redundancy packages which reflect their service to the organisation, including support in transitioning to new positions or new opportunities outside of the Group. Any changes would be implemented in accordance with local market regulation and in consultation with relevant employee representative bodies.

Returning to growth by leveraging the potential of LEGO System in Play
Pressing the reset button is one of two elements of a plan launched by the Group. The second element is how to return to growth. The Group is doing this by exploring adjustments to its successful formula for product development and marketing in order to achieve its ambition to reach more children around the world with LEGO play experiences that stimulate playful learning.

Knudstorp said: “We believe our most important contribution to society is through creative LEGO play experiences, as play is critical for children’s learning and development. LEGO play encourages children to problem-solve, collaborate, discover and imagine. The brick is the heart of our business and children of all ages love it. It offers endless possibilities and benefits for children, and we believe the LEGO System in Play has immense potential.

“We will find more opportunities to engage with kids and parents including innovative ways to blend physical building and digital experiences, such as our successful LEGO Life social platform and LEGO Boost building and coding set. We have a powerful and loved global brand, a strong business and are confident we can reach more children around the world.”

 

What do you think of this news? I’d love to hear your thoughts…

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